CHAPTER 8
CHAPTER 8
BRIEF EXERCISE 8-3
Land
$
700,000
Building
300,000
Total
$1,000,000
Land:
$800,000 × ($700,000/$1,000,000) = $560,000
Building:
$800,000 × ($300,000/$1,000,000) = $240,000
BRIEF EXERCISE 8-5
1.
Straight-line rate of 1/10 × 2 = 20%*
2.
First-year depreciation:
$40,000 × 20%* = $8,000
Second-year depreciation:
($40,000 – $8,000) × 20%* = $6,400
3.
The maximum amount that can be treated as depreciation over ten years is
$36,000.** $40,000 – $4,000** residual value = $36,000.**
*This rate, 1/10 × 2= 20%, will be applied in all years to the asset’s book value at the
beginning of each year. As depreciation is recorded, the book value declines. Thus, a
constant rate is applied to a declining amount. This constant rate is applied to the full cost or
initial book value, not to cost minus residual value as in the other methods. However, the
machine cannot be depreciated below its residual value of $4,000.**
BRIEF EXERCISE 8-8
Loss = Book Value – Sales Price
$6,000 = $20,000 – X
Solving for X indicates sales price, and cash received was $14,000.
Hint:
This machine had to be sold for $20,000, which is the book value at the time of the
sale in order to have no loss or gain on the sale.
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