Concept explainers
Determining asset cost, preparing
Learning Objectives 1, 2
1. Units-of-production, 12/31/18, Dep. Exp. $24,000
On January 3, 2018, Rapid Delivery Service purchased a truck at a cost of $100,000. Before placing the truck in service, Rapid spent $3,000 painting it, $600 replacing tires, and $10,400 overhauling the engine. The truck should remain in service for five years and have a residual value of $12,000. The truck’s annual mileage is expected to be 32,000 miles in each of the first four years and 8,000 miles in the fifth year−136,000 miles in total, In deciding which depreciation method to use, Andy Sargeant, the general manager, requests a depreciation schedule for each of the depreciation methods (straight-line, units-of-production, and double-declining-balance).
Requirements
- Prepare a depreciation schedule for each depreciation method, showing asset cost, depreciation expense, accumulated depreciation, and asset book value.
- Rapid prepared financial statements using the depreciation method that reports the highest net income in the early years of asset use. Consider the first year that Rapid uses the truck. Identify the depreciation method that meets the company’s objectives.
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EBK HORNGREN'S ACCOUNTING
- . (Learning Objectives 1, 3, 4: Measure and account for the cost of plant assets anddepreciation; analyze and record a plant asset disposal) Blair, Inc., has the following plantasset accounts: Land, Buildings, and Equipment, with a separate accumulated depreciationaccount for each of these except Land. Blair completed the following transactions:Jan 3 Traded in equipment with accumulated depreciation of $63,000 (cost of$130,000) for similar new equipment with a cash cost of $171,000. Receiveda trade-in allowance of $71,000 on the old equipment and paid $100,000in cash.Jun 30 Sold a building that had a cost of $635,000 and had accumulated depreciationof $170,000 through December 31 of the preceding year. Depreciationis computed on a straight-line basis. The building has a 40-year useful lifeand a residual value of $295,000. Blair received $135,000 cash and a$325,750 note receivable.Oct 31 Purchased land and a building for a single price of $340,000 cash. An independent appraisal valued…arrow_forwardLearning Objectives 1, 3, 8: Report plant assets, depreciation, and investing cashflows) On January 1, 2018, Black Iron Bar & Grill purchased a building, paying $56,000cash and signing a $101,000 note payable. The company paid another $60,000 to remodel thebuilding. Furniture and fixtures cost $51,000, and dishes and supplies—a current asset—wereobtained for $9,600. All expenditures were for cash. Assume that all of these expendituresoccurred on January 1, 2018.Black Iron is depreciating the building over 25 years using the straight-line method, with anestimated residual value of $52,000. The furniture and fixtures will be replaced at the end of fiveyears and are being depreciated using the double-declining-balance method, with a residual valueof zero. At the end of the first year, the company still had dishes and supplies worth $1,600.Show what the company reported for supplies, plant assets, and cash flows at the end of thefirst year on its■ income statement,■ balance sheet, and■…arrow_forward(Learning Objectives 1, 3, 8: Report plant assets, depreciation, and investing cashflows) On January 1, 2018, Little City Bar & Grill purchased a building, paying $58,000 cashand signing a $110,000 note payable. The company paid another $62,000 to remodel thebuilding. Furniture and fixtures cost $55,000, and dishes and supplies—a current asset—wereobtained for $9,400. All expenditures were for cash. Assume that all of these expendituresoccurred on January 1, 2018.Little City is depreciating the building over 25 years using the straight-line method, with anestimated residual value of $51,000. The furniture and fixtures will be replaced at the end of fiveyears and are being depreciated using the double-declining-balance method, with a residual valueof zero. At the end of the first year, the company still had dishes and supplies worth $1,300.Show what the company reported for supplies, plant assets, and cash flows at the end of thefirst year on its■ income statement,■ balance sheet,…arrow_forward
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