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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