Soln6-07 - Problem Solutions – Chapter 6 171 PROBLEM...

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Unformatted text preview: Problem Solutions – Chapter 6 171 PROBLEM SOLUTIONS 6-1 Acquisition Costs 1. Journal entries: a. Machinery 13,400 Cash 13,400 b. Insurance expense 6,300 Cash 6,300 c. Machinery 700 Cash 700 d. Maintenance expense 3,500 Cash 3,500 e. Machinery 3,900 Cash 3,900 f. Materials/Operating expense 42,000 Cash 42,000 g. Machinery 423,500 Cash 423,500 h. Machinery 25,400 Cash 25,400 2. Acquisition cost = \$466,900 (\$13,400 + \$700 + \$3,900 + \$423,500 + \$25,400), all costs necessary to acquire the machinery and place it into operation. INTRODUCTION TO FINANCIAL REPORTING AND ANALYSIS – 4 TH EDITION 172 6-2 Depreciation (Full Year) 1. Straight-line depreciation: (\$474,000 cost – \$18,000 salvage value) ÷ 5 years = \$91,200 per year Depreciation expense for 2006: \$91,200 Depreciation expense for 2007: \$91,200 Book value at December 31, 2007 = \$474,000 – (\$91,200 + \$91,200) = \$291,600 . 2. Units-of-production: Cost per unit = (\$474,000 – \$18,000) ÷ 600,000 minutes = \$.76 per minute Depreciation expense for 2006: 130,000 minutes x \$.76 = \$98,800 2006: 140,000 minutes x \$.76 = \$106,400 Book value at December 31, 2007 = \$474,000 – (\$98,800 + \$106,400) = \$268,800 . 3. Sum-of-years’-digits: (the sum of the years’ digits for 5 years = 15) Depreciation expense for 2006: (\$474,000 – \$18,000) x 5/15 = \$152,000 Depreciation expense for 2007: (\$474,000 – \$18,000) x 4/15 = \$121,600 Book value at December 31, 2007 = \$474,000 – (\$152,000 + \$121,600) = \$200,400 . 4. Double-declining balance: Depreciation expense for 2006: \$474,000 x 2 x 1/5 = \$189,600 Depreciation expense for 2007: (\$474,000 – \$189,600) x 2 x 1/5 = \$113,760 Book value at December 31, 2007 = \$474,000 – (\$189,600 + \$113,760) = \$170,640 . Problem Solutions – Chapter 6 173 6-3 Depreciation (Partial Year) 1. Straight-line depreciation: (\$874,800 cost – \$87,480 salvage value [10%]) ÷ 9 years = \$87,480 per year Depreciation expense for 2006: June 1 to Dec. 31 is 7/12 x \$87,480 = \$51,030 Depreciation expense for 2007: \$87,480 Accumulated depreciation at Dec. 31, 2007 = \$51,030 + \$87,480 = \$138,510 2. Sum-of-years’-digits: (the sum of the years’ digits for 9 years = 45) Depreciation expense for 2006: (\$874,800 – \$87,480) x 9/45 = \$157,464 x 7/12 = \$91,854 Depreciation expense for 2007: (\$874,800 – \$87,480) x 9/45 = \$157,464 x 5/12 = \$65,610 + (\$874,800 – \$87,480) x 8/45 = \$139,968 x 7/12 = \$81,648 = \$147,258 Accumulated depreciation at December 31, 2007 = \$91,854 + \$147,258 = \$239,112 3. Double-declining balance: Depreciation expense for 2006: \$874,800 x 2 x 1/9 x 7/12 = \$113,400 Depreciation expense for 2007: (\$874,800 – \$113,400) x 2 x 1/9 = \$169,200 Accumulated depreciation at December 31, 2007 = \$113,400 + \$169,200 = \$282,600 ....
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Soln6-07 - Problem Solutions – Chapter 6 171 PROBLEM...

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