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Chapter7 - (5-10 min Land $175,000 $190,000 $3,500 $3,000...

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(5-10 min.) E 7-15A Land: $175,000 + $190,000 + $3,500 + $3,000 + $9,000 = $380,500 Land improvements: $55,000 + $14,000 + $8,000 = $77,000 Building: $59,000 + $650,000 = $709,000
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(10-15 min.) E 7-16A Allocation of cost to individual machines: Machine Appraised Value Percentage of Total Market Value Total Cost Cost of Each Machine 1 $ 38,250 $38,250 / $170,000 = .225 $167,000 × .225 = $ 37,575 2 73,100 73,100 / 170,000 = .430 167,000 × .430 = 71,810 3 58,650 58,650 / 170,000 = .345 167,000 × .345 = 57,615 Totals $170,000 1.000 $167,000 Sale price of machine No. 2……………. $73,100 Cost…………………………………………. 71,810 Gain on sale of machine………………… $ 1,290 (15 min.) E 7-18A Journal ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT 1. a. Land…………………………………………… 487,000 487,000
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Cash………………………………………... b. Building ($1,400 + $15,320 + $690,000 + $28,300)... 735,020 Note Payable……………………………… 690,000 Cash ($1,400 + $15,320 + $28,300) ……. 45,020 c. Depreciation Expense……………………… 2,843 Accumulated Depreciation ($735,020 $337,000) / 35 × 3/12……… 2,843 2. BALANCE SHEET Plant assets: Land………………………………………... $487,000 Building……………………………………. $735,020 Less Accumulated depreciation………. (2,843 ) Building, net………………………………. 732,177
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3. INCOME STATEMENT Expense: Depreciation expense…………………... $ 2,843
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(15-20 min.) E 7-19A Year Straight-Line Units-of- Production Double-Declining- Balance 2010 $ 4,050 $ 4,950 $ 9,500 2011 4,050 5,850 4,750 2012 4,050 2,250 1,950 2013 4,050 3,150 -0- $16,200 $16,200 $16,200 _____ Computations: Straight-line: ($19,000 $2,800) ÷ 4 = $4,050 per year. Units-of-production: ($19,000 $2,800) ÷ 36,000 miles = $.45 per mile; 2010 11,000 × $.45 = $4,950 2011 13,000 × .45 = 5,850 2012 5,000 × .45 = 2,250 2013 7,000 × .45 = 3,150 Double-declining-balance — Twice the straight-line rate: 1/4 × 2 = 2/4 = 50% 2010 $19,000 × .50 = $9,500
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2011 ($19,000 $9,500) × .50 = $4,750 2012 $4,750 $2,800 = $4,750 residual value of $2,800 = $1,950 The units-of production method tracks the wear and tear on the van most closely. For income tax purposes, the double-declining-balance method is best because it provides the most depreciation and, thus, the largest tax deductions in the early life of the asset. The company can invest the tax savings to earn a return on the investment.
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