LO 3
(Learning Objective 3: Change a plant asset’s useful life) Chester Consultants purchased a building for $430,000 and depreciated it on a straight-line basis over 40 years. The estimated residual value was $70,000. After using the building for 20 years. Chester realized that the building would remain useful only 14 more years. Starting with the 21st year, Chester began depreciating the building over the newly revised total life of 34 years and decreased the estimated residual value to $12,980. Record depreciation expense on the building for years 20 and 21.
LO 3,4
E7-44B, (Learning Objectives 3, 4: Compute depreciation; record a gain or loss on disposal) On January 1, 2017. Lincoln Manufacturing purchased a machine for $930,000. The company expected the machine to remain useful for eight years and to have a residual value of $110,000. Lincoln Manufacturing uses the straight-line method to
1. Compute
2. Record the sale of the machine on January 1, 2021.
Want to see the full answer?
Check out a sample textbook solutionChapter 7 Solutions
Financial Accounting (12th Edition) (What's New in Accounting)
- E7-33A. (Learning Objectives 5, 6: Record intangibles, amortization, and impairment)Sweitzer Printers incurred external costs of $400,000 for a patent for a new laser printer.Although the patent gives legal protection for 20 years, it was expected to provide Sweitzerwith a competitive advantage for only ten years due to expected technological advances in theindustry. Sweitzer uses the straight-line method of amortization.After using the patent for five years, Sweitzer learned at an industry trade show that KaytownPrinters has patented a more efficient printer and will be selling this printer next quarter. Becauseof this new information, Sweitzer determined that the expected future cash flows from its patentwere now only $130,000. The fair value of Sweitzer’s patent on the open market was now zero.Requirements1. Write the journal entries to record (a) the purchase of the patent and (b) amortization for year 1.2. Once Sweitzer learned of the competing printer and adjusted the expected…arrow_forward(Learning Objectives 5, 6: Record intangibles, amortization, and impairment)1. Milton Printers incurred external costs of $700,000 for a patent for a new laser printer.Although the patent gives legal protection for 20 years, it was expected to provide Miltonwith a competitive advantage for only eight years due to expected technological advancesin the industry. Milton uses the straight-line method of amortization.2. After using the patent for four years, Milton learned at an industry trade show thatAnderson Printers has patented a more efficient printer and will begin selling the newprinter next quarter. Because of this new information, Milton determined that the expectedfuture cash flows from its patent were now only $270,000. The fair value of Milton’spatent on the open market was now zero.Requirements1. Write the journal entries to record (a) the purchase of the patent and (b) amortization for year 1.2. Once Milton learned of the competing printer and adjusted the expected future…arrow_forward(Learning Objectives 3, 4: Compute depreciation; record a gain or loss on disposal)On January 1, 2017, Stockton Manufacturing purchased a machine for $910,000. The companyexpected the machine to remain useful for eight years and to have a residual value of $80,000.Stockton Manufacturing uses the straight-line method to depreciate its machinery. StocktonManufacturing used the machine for four years and sold it on January 1, 2021, for $350,000.1. Compute accumulated depreciation on the machine at January 1, 2021 (same as December 31,2020).2. Record the sale of the machine on January 1, 2021arrow_forward
- E7-22A. (Learning Objective 1: Measure the cost of plant assets) Murphy Self Storagepurchased land, paying $160,000 cash as a down payment and signing a $185,000 note payablefor the balance. Murphy also had to pay delinquent property tax of $2,000, title insurance costing$6,000, and $11,000 to level the land and remove an unwanted building. The company paid$58,000 to add soil for the foundation and then constructed an office building at a cost of $700,000.It also paid $52,000 for a fence around the property, $11,000 for the company sign near theproperty entrance, and $3,000 for lighting of the grounds. What is the capitalized cost of eachof Murphy’s land, land improvements, and building?arrow_forward(Learning Objectives 3, 4: Compute depreciation; record a gain or loss on disposal)On January 1, 2017, Lincoln Manufacturing purchased a machine for $930,000. The companyexpected the machine to remain useful for eight years and to have a residual value of $110,000.Lincoln Manufacturing uses the straight-line method to depreciate its machinery. LincolnManufacturing used the machine for four years and sold it on January 1, 2021, for $250,000.1. Compute accumulated depreciation on the machine at January 1, 2021 (same as December 31,2020).2. Record the sale of the machine on January 1, 2021.arrow_forward(Learning Objectives 1, 3: Measure, depreciate, and report plant assets) During2018, Ming’s Book Store paid $486,000 for land and built a store in Naperville, Illinois.Prior to construction, the city of Naperville charged Ming’s $1,000 for a building permit,which Ming’s paid. Ming’s also paid $15,000 for architect’s fees. The construction cost of$670,000 was financed by a long-term note payable, with interest costs of $28,020 paid atthe completion of the project. The building was completed June 30, 2018. Ming’s depreciatesthe building using the straight-line method over 35 years, with estimated residual value of$330,000.1. Journalize transactions for the following (explanations are not required):a. Purchase of the landb. All the costs chargeable to the building in a single entryc. Depreciation on the building for 20182. Report Ming’s plant assets on the company’s balance sheet at December 31, 2018.3. What will Ming’s income statement for the year ended December 31, 2018, report for…arrow_forward
- Learning Objective 3: Compute partial year depreciation, and select the bestdepreciation method) Assume that on September 30, 2017, EuroAir, an international airlinebased in Germany, purchased a Jumbo aircraft at a cost of €45,000,000 (€ is the symbol for theeuro). EuroAir expects the plane to remain useful for four years (4,000,000 miles) and to havea residual value of €6,000,000. EuroAir will fly the plane 350,000 miles during the remainderof 2017. Compute EuroAir’s depreciation on the plane for the year ended December 31, 2017,using the following methods:a. Straight-lineb. Units-of-productionc. Double-declining-balanceWhich method would produce the highest net income for 2017? Which method produces thelowest net income?arrow_forward(Learning Objectives 3, 4: Compute depreciation; record a gain or loss on disposal)On January 1, 2017, Worldwide Manufacturing purchased a machine for $810,000 that itexpected to have a useful life of four years. The company estimated that the residual value ofthe machine was $50,000. Worldwide Manufacturing used the machine for two years and soldit on January 1, 2019, for $350,000. As of December 31, 2018, the accumulated depreciation onthe machine was $380,000.1. Calculate the gain or loss on the sale of the machinery.2. Record the sale of the machine on January 1, 2019.arrow_forward9. Gingerbread Corp purchased $100,000 in display tables on January 1, 2020. The display tables had a built in cooling feature to preserve the gingerbread villages on display. The company uses the straight line method of depreciation, estimates a salvage value of $20,000, and a useful life of 5 years. What will the company record for depreciation expense on December 31, 2020? a.$10,000 b.$20,000 c.$6,000 d.$16,000arrow_forward
- 1. Pronghorn Company acquires a delivery truck at a cost of $57,000. The truck is expected to have a salvage value of $6,000 at the end of its 10-year useful life. Compute annual depreciation expense for the first and second years using the straight-line method. 2. On January 1, 2020, Whispering Winds Country Club purchased a new riding mower for $24,000. The mower is expected to have an 8-year life with a $8,000 salvage value. What journal entry would Whispering Winds make at December 31, 2020, if it uses straight-line depreciation?arrow_forwardA lumber company purchases and installs a wood chipper for $200,000. The chipper is classified as MACRS 7-year property. The chipper’s useful life is 10 years. The estimated salvage value at the end of 10 years is $25,000. Using MACRS depreciation, compute the first-year depreciation. a. $17,500.00 b. $20,000.00 c. $25,007.50 d. $28,580.00.arrow_forward1) University Car Wash built a deluxe car wash across the street from campus. The new machines cost $240,000 including installation. The company estimates that the equipment will have a residual value of $30,000. University Car Wash also estimates it will use the machine for six years or about 12,000 total hours. Actual use per year was as follows: Year Hours Used 1 2,600 2 2,100 3 2,200 4 1,800 5 1,600 6 1,700 Picture 1) Prepare a depreciation schedule for six years using the double-declining-balance method. (Do not round your intermediate calculations.) 2)University Car Wash built a deluxe car wash across the street from campus. The new machines cost $240,000 including installation. The company estimates that the equipment will have a residual value of $30,000. University Car Wash also estimates it will use the machine for six years or about 12,000 total hours. Actual use per year was as follows: Year Hours Used 1 2,600 2 2,100 3 2,200 4 1,800 5…arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education