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ACCT303 Chapter 10 Homework Solutions[1]

# ACCT303 Chapter 10 Homework Solutions[1] - E10-3...

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1 E10-3. Capitalizing costs subsequent to acquisition Requirement 1: The following costs are capitalized to the building: Major improvement to the plumbing \$109,000 Added a 7,000 square foot lobby 234,600 Total \$343,600 GAAP requires a company to capitalize expenditures that extend an asset’s useful life, increase its capacity or efficiency, or cause any other increase in its economic benefits. A major plumbing improvement and a building addition meet these criteria and are capitalized costs. The painting, carpet, and repair costs are expensed since they do not improve efficiency or extend the productive life of the building. Requirement 2: New carrying value of the building: Historical cost \$970,000 Add: Improvements 343,600 Less: Accumulated depreciation (440,000) New carrying value \$873,600 Requirement 4: Denominator = 6 x (6 + 1) ÷ 2 = 21 2011 : (\$125,000 \$5,000) x 6/21 x 3/4 year = \$25,714 2012 : (\$125,000 \$5,000) x 6/21 x 1/4 year = \$8,571 (\$125,000 \$5,000) x 5/21 x 3/4 year = \$21,429 \$30,000 E10-5. Determining depreciation base – straight-line depreciation (AICPA adapted) First determine the book value of the machine at the beginning of 2011. Given that the machine has been used for 10 years and has a 20 year life, Accumulated depreciation

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2 would be \$15,000 (10/20 x \$30,000). The book value at January 1, 2011 also is \$15,000 (\$30,000 cost less \$15,000 accumulated depreciation). The \$5,000 overhaul increases the value of the machine by \$5,000, so the new book value is \$20,000 (\$15,000 + \$5,000). The overhaul added 5 years onto the life of the machine, so the remaining useful life of the machine at January 1, 2011 is 15 years (10 years + 5 years). To find the depreciation expense for 2011, take the new book value (\$20,000) divided by the remaining useful life of the machine (15 years). \$20,000/15 years = \$1,333
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ACCT303 Chapter 10 Homework Solutions[1] - E10-3...

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