1.
Calculate the
1.
Explanation of Solution
Straight-line depreciation method: The depreciation method which assumes that the consumption of economic benefits of long-term asset could be distributed equally throughout the useful life of the asset is referred to as straight-line method.
Sum-of- the-years’ digits method: Sum-of-the years’ digits method determines the depreciation by multiplying the depreciable base and declining fraction.
Double-declining-balance method: The depreciation method which assumes that the consumption of economic benefits of long-term asset is high in the early years but gradually declines towards the end of its useful life is referred to as double-declining-balance method.
Calculate the accumulated depreciation balance at December 31, 2016 for the given assets, and cross check its’ accuracy as follows:
Building:
Office machinery:
Year | Beginning book value (A) |
Depreciation rate (2) (B) | Depreciation expense |
Ending book value |
2014 | 20,000 | 20% | 4,000 | 16,000 |
2015 | 16,000 | 20% | 3,200 | 12,800 |
2016 | 12,800 | 20% | 2,560 | 10,240 |
Total | 9,760 |
Table (1)
Note: Ending book value of the prior year is considered as the beginning book value of current year.
Office fixtures:
Year | Depreciation base (3) (A) |
Faction (4) (B) | Depreciation expense |
Ending book value |
2014 | 25,000 | 8,333 | 21,667 | |
2015 | 25,000 | 6,667 | 15,000 | |
2016 | 25,000 | 5,000 | 10,000 | |
Total | 20,000 |
Table (2)
Working note (1):
Calculate the annual depreciation expense of building.
Working note (2):
Compute the depreciation rate:
Useful life = 10 years
Working note (3):
Calculate the depreciable base of office fixtures.
Working note (4):
Calculate the denominator of the fraction for sum-of-the-year’s digit.
2.
Prepare necessary
2.
Explanation of Solution
Prepare necessary journal entries for the given transaction for 2017 as follows:
Date | Account Title & Explanation | Debit ($) |
Credit ($) |
January 3, 2017 | Building | 30,000 | |
Cash | 30,000 | ||
(To record the purchase of building for cash) | |||
March 8, 2017 | Cash | 3,000 | |
Accumulate depreciation-Office machinery | 1,952 | ||
Office machinery | 4,000 | ||
Gain on disposal of office machinery (5) | 952 | ||
(To record a piece of office machinery sold during the year) | |||
May 17, 2017 | Office fixtures (6) | 5,640 | |
Office machinery (6) | 3,760 | ||
Repair expense | 230 | ||
Cash | 9,630 | ||
(To record office fixtures and machinery purchased during the year) | |||
August 10, 2017 | Depreciation expense (7) | 67 | |
Accumulated depreciation-Office fixtures | 67 | ||
(To record the depreciation expense incurred for office fixtures) | |||
August 10, 2017 | Office fixtures | 900 | |
Accumulated depreciation-Office fixtures (7) | 467 | ||
Cash | 700 | ||
Office fixtures | 600 | ||
Gain on disposal of office fixtures (8) | 67 | ||
(To record the office fixtures exchanged during the year ) | |||
October 20, 2017 | Repair expense | 125 | |
Cash | 125 | ||
(To record the repair expense incurred during the year) | |||
December 31, 2017 | Depreciation expense – Building (9) | 2,061 | |
Depreciation expense - Office machinery (14) | 2,390 | ||
Depreciation expense - Office fixtures (17) | 5,064 | ||
Accumulated depreciation-Building | 2,061 | ||
Accumulated depreciation-Office machinery | 2,390 | ||
Accumulated depreciation-Office fixtures | 5,064 | ||
(To record the depreciation expense of assets incurred at the end of the accounting year) |
Table (3)
Working note (5):
Calculate the gain on disposal of office machinery.
Working note (6):
Calculate the cost of office fixtures and office machinery.
Particulars | Appraisal value (A) | Total appraisal value (B) |
Proportion | Total purchase cost (D) |
Cost ($) |
Office fixtures | $6,000 | $10,000 | 60% |
$9,400 | $5,640 |
Office machinery | $4,000 | 10,000 | 40% | $9,400 | $3,760 |
Total | $10,000 | 100% | $9,400 |
Table (4)
Working note (7):
Calculate the depreciation expense of desk.
Year | Depreciation base |
Faction (4) (B) | Depreciation expense |
2014 | 500 | 167 | |
2015 | 500 | 133 | |
2016 | 500 | 100 | |
2017 | 500 | 67 | |
Total | 467 |
Table (5)
Working note (8):
Calculate the gain on disposal of desk.
Working note (9):
Calculate the depreciation expense of building at the end of the year 2017.
Working note (10):
Calculate the remaining office machinery at 2017.
Working note (11):
Calculate the depreciation expense of office machinery at the end of the year 2017.
Working note (12):
Calculate the depreciation expense for remaining office machinery under double declining balance method.
Working note (13):
Calculate depreciation expense of office machinery purchased during 2017 under double declining balance method.
Working note (14):
Calculate total depreciation expense of office machinery at 2017.
Working note (15):
Calculate the depreciation expense of remaining office fixtures under the sum of the year’s digit method.
Working note (16):
Calculate the depreciation expense of new office fixtures under the sum of the year’s digit method.
Working note (17):
Calculate the total depreciation expense for office fixtures.
3.
Prepare T-account for the accumulated depreciation, and calculate the ending balance of accumulated depreciation for the given assets.
3.
Explanation of Solution
Prepare T-account for the accumulated depreciation, and calculate the ending balance of accumulated depreciation as follows:
Accumulated depreciation - Building | |||
December 31, 2016 | 3,750 | ||
December 31, 2016 | $2,061 | ||
Clos. Bal. | $5,811 |
Accumulated depreciation – Office machinery | |||
July 3, 2017 | $1,952 | December 31, 2016 | 9,760 |
December 31, 2016 | $2,390 | ||
Clos. Bal. | $10,198 | ||
Accumulated depreciation – Office mixtures | |||
October 8, 2017 | 467 | December 31, 2016 | $20,000 |
October 8, 2017 | $67 | ||
December 31, 2016 | $5,064 | ||
Clos. Bal. | $24,664 |
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Chapter 11 Solutions
EBK INTERMEDIATE ACCOUNTING: REPORTING
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