Answers to Chapter 8 In-Class Exercises.pdf - Answers to Chapter 8 In-Class Exercises 1 Total cost to be allocated between building and land = price

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1 Answers to Chapter 8 In-Class Exercises 1. Total cost to be allocated between building and land = price paid (\$356,000) + transfer costs (\$4,000) = \$360,000. Please note that renovation cost (\$46,000) should be added to building only because renovation was not applied to land. Appraised Value Allocation of Lump-Sum Cost Item Amount Ratio Total Cost Allocated Cost Building \$300,000 75% × \$360,000 = \$270,000 Land 100,000 25% × 360,000 = 90,000 \$400,000 100% \$360,000 Cost of building = allocated cost per above (\$270,000) + renovation cost (\$46,000) = \$316,000 Cost of land = allocated cost per above \$90,000 2. D 3. B 4. C 5. D 6. Straight line Year Computation Depreciation Expense Accumulated Depreciation Carrying Amount At acquisition \$380,000 1 (380,000-20,000)/3=120,000 120,000 120,000 260,000 2 (380,000-20,000)/3=120,000 120,000 240,000 140,000 3 (380,000-20,000)/3=120,000 120,000 360,000 20,000 Units of production: Depreciation rate per unit = (380,000-20,000)/180,000=\$2 per unit Year Computation Depreciation Expense Accumulated Depreciation Carrying Amount At acquisition \$380,000 Subscribe to view the full document. Unformatted text preview: 1 83,000×2=166,000 166,000 166,000 214,000 2 60,000×2=120,000 120,000 286,000 94,000 3 37,000×2=74,000 74,000 360,000 20,000 Double declining balance Year Computation Depreciation Expense Accumulated Depreciation Carrying Amount At acquisition \$380,000 1 380,000×2/3=253,333 253,333 253,333 126,667 2 126,667×2/3=84,445 84,445 337,778 42,222 3 42,222×2/3=28,148 28,148 365,926 14,074 22,222 360,000 20,000 7. B 8. D 9. B If we apply the formula in the final year, the carrying amount will be less than the residual value, which is not allowed! We must adjust the depreciation expense to make sure the carrying amount will not be depreciated below \$20,000. 2 10. At 2017-12-31: Acquisition cost at 2016-01-01 \$31,000 Less: Accumulated depreciation (from 2016-01-01 to 2017-12-31) (31,000 – 7,000)/6×2 = 8,000 Carrying amount 23,000 Add: Reconditioning (extraordinary betterment → capitalize) 5,200 New cost 28,200 Residual value (unchanged) 7,000 Remaining useful life 6 – 2+1 = 5 years Thus, depreciation expense for the year of 2018 = (28,200 – 7,000)/5 = 4,240...
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