Chapter_10_Solutions

Chapter_10_Solutions - Chapter 10 Plant Assets and...

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Chapter 10 Plant Assets and Intangibles Quick Check Answers: 1. a 3. a 5. a 7. d 9. b 2. c 4. b 6. c 8. d 10. c Explanations: 2. c. \$30,000 = \$60,000 × (\$35,000 / \$70,000) 5. a. \$2 million = Cost of \$50 million × (20 million miles / 500 million miles) 7. d. Loss = \$5,000 = Book value (\$40,000 \$35,000) 8. d. No gain or loss = Cash received \$5,000 Book value \$5,000 (\$40,000 \$35,000) Chapter 10 Plant Assets and Intangibles 141

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Short Exercises (5 min.) S 10-1 The other costs (back property tax, transfer taxes, removal of a building, and survey fee) are included as part of the cost of the land because they are necessary to get the land ready for its intended use. After the land is ready for use, the related costs (listed above) would be expenses. Accounting 7/e Solutions Manual 142
(10 min.) S 10-2 Journal DATE ACCOUNTS AND EXPLANATIONS POST. REF. DEBIT CREDIT Land (\$150,000 × .50) 75,000 Building (\$150,000 × .375) 56,250 Equipment (\$150,000 × .125) 18,750 Note Payable 150,000 Estimated Market Value Percent of Total Land. .................... \$ 80,000 \$80,000 / \$160,000 = 50.0% Building. .............. 60,000 \$60,000 / \$160,000 = 37.5 Equipment. .......... 20,000 \$20,000 / \$160,000 = 12.5 Total. .................... \$160,000 100.0 % (5 min.) S 10-3 Net income would be overstated by \$250,000. Chapter 10 Plant Assets and Intangibles 143

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(10 min.) S 10-4 Req. 1 First-year depreciation: a. Straight-line (\$35,000,000 \$5,000,000) / 5 years……. \$ 6,000,000 b. Units-of-production [(\$35,000,000 \$5,000,000) / 6,000,000 miles] × 1,000,000 miles…… \$ 5,000,000 c. Double-declining-balance (\$35,000,000 / 5 years × 2). . \$14,000,000 Req. 2 Book value: Straight-Line Cost. .............................. …………………. \$35,000,000 Less: Accumulated depreciation.…. .. (6,000,000 ) Book value. ................... …………………. \$29,000,000 Accounting 7/e Solutions Manual 144
(10 min.) S 10-5 Second-year depreciation: a. Straight-line (\$35,000,000 \$5,000,000) / 5 years. .. \$6,000,000 b. Units-of-production [(\$35,000,000 \$5,000,000) / 6,000,000 miles] × 1,500,000 miles……… \$7,500,000 c. Double-declining-balance: Year 1 (\$35,000,000 / 5 years × 2) = \$14,000,000 Year 2 [(\$35,000,000 \$14,000,000) / 5 × 2] = \$8,400,000 Chapter 10 Plant Assets and Intangibles 145

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(10 min.) S 10-6 Req. 1 The double-declining-balance (DDB) method offers the tax advantage for the first year of an asset’s use. The advantage results from the greater amount of DDB depreciation (versus the other methods). DDB produces the fastest tax deductions and conserves cash that the taxpayer can invest to earn more income. Req. 2 DDB depreciation. .................... ……………………… \$14,000,000 Straight-line depreciation. ...................... …………. .. (6,000,000 ) Extra depreciation tax deduction with DDB……… \$ 8,000,000 (5-10 min.) S 10-7 Partial-year depreciation: Straight-line (\$80,000 \$8,000) / 5 years × 9/12……………… \$10,800 Accounting 7/e Solutions Manual 146
(10 min.) S 10-8

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Chapter_10_Solutions - Chapter 10 Plant Assets and...

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