Chapter 16 to 20 - Solution Manual for Financial Accounting 1 by Valix PDF

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210 CHAPTER 16 Problem 1. 2. 3. 4. 5. C D D D B Problem Land Building Cash paid for land and old building Removal of old building Payment to tenants of old building to vacate premises Architect fee Building permit Fee for title search Survey before construction Excavation Cost of new building constr...

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210 CHAPTER 16 Problem 16-1 1. 2. 3. 4. 5.

C D D D B

Problem 16-2 Land Building Cash paid for land and old building 1,000,000 Removal of old building 50,000 Payment to tenants of old building to vacate premises 15,000 Architect fee 200,000 Building permit 30,000 Fee for title search 10,000 Survey before construction 20,000 Excavation 100,000 Cost of new building constructed 6,000,000 Assessment fee 5,000 Cost of grading, leveling and landfill 45,000 Driveways and walks 40,000 Temporary quarters for construction crew 80,000 Temporary building to house tools and materials 60,000 Cost of construction changes _________ 50,000 1,145,000 6,560,000 Note: The cost of replacing windows is treated as expense. Problem 16-3 Cost of land Legal fees Payment of mortgage Payment of taxes Cost of razing building Proceeds from sale of materials Grading and drainage Architect fee Payment to contractor Interest cost Driveway and parking lot Cost of trees, shrubs and other landscaping Cost of installing lights in parking lot Premium for insurance

Land 2,000,000 10,000 50,000 20,000 30,000 ( 5,000) 15,000

Building

Land improvement

200,000 8,000,000 300,000

_______ 2,120,000

25,000 8,525,000

40,000 55,000 5,000 _______ 100,000

The payment for medical bills and the cost of open house party are outright expenses because they are not a necessary cost of acquiring the land and building.

211 Problem 16-4

Purchase price Materials Excavation Labor Remodeling Cash discounts Supervision Compensation insurance Clerical and other expenses Paving of streets Plans and specifications Legal cost - land

Land 1,300,000

10,000 1,310,000

Office Factory Land building building improvements 700,000 3,200,000 100,000 2,500,000 200,000 ( 60,000) 30,000 50,000 30,000 40,000 150,000 ________ ________ ______ 900,000 6,000,000

40,000

1. The imputed interest on corporation’s own money is not capitalizable. 2. The payment of claim for injuries not covered by insurance and the legal cost of injury claim are treated as expense. 3. Saving on construction is not recognized.

Problem 16-5 Taxes in arrears Payment for land Demolition of old building Total cost of land

50,000 1,000,000 100,000 1,150,000

Architect fee Payment to city hall Contract price Safety fence around construction site Safety inspection on building Removal of safety fence Total cost of factory building

230,000 120,000 5,000,000 35,000 30,000 20,000 5,435,000

Problem 16-6 Purchase price Title clearance fee Cost of razing old building Scrap value of old building Total cost of land Construction cost of new building

3,000,000 50,000 100,000 ( 10,000) 3,140,000 8,000,000

212 Problem 16-7

Purchase price Remodeling Salvage materials Grading, leveling and other permanent improvement Repairs

Land 1,000,000

Building 4,000,000 150,000 ( 5,000)

50,000 ________ 1,050,000

10,000 4,155,000

The repairs are capitalized because they are necessary prior to the occupancy and intended use of the building.

Problem 16-8 Fair value Repairs Remodeling Invoice price Discount Base

Land 1,500,000

Building 5,000,000 200,000 300,000

Machinery

1,000,000 20,000) _________ _________ 50,000 1,500,000 5,500,000 1,030,000 (

The driveway and parking lot are charged to land improvements.

Problem 16-9 Fair value Repairs Special tax assessment Platform Remodeling Purchase price Discount Freight Installation

Land Building Machinery 4,000,000 1,500,000 200,000 30,000 70,000 400,000 800,000 ( 40,000) 20,000 _________ _________ 30,000 1,530,000 4,600,000 2,380,000

1,500,000

Problem 16-10 Purchase price Commission Legal fees Title guarantee Cost of razing old building Salvage value of materials Cost of land

2,000,000 100,000 50,000 10,000 75,000 ( 5,000) 2,230,000

Contract price 6,000,000 Plans, specification and blueprint 100,000 Architectural fee 250,000 Cost of new building 6,350,000

213 Problem 16-11 Land Balances, Jan. 1 Acquisition of land - #621: Purchase price Commission Clearing cost Sale of timber and gravel Acquisition of land - #622: Purchase price Cost of demolition New building: Construction cost Excavation fee Architectural design Building permit Improvements: Electrical work Construction extension (800,000 x 1/2) Improvements on office space Purchase of new machine: Invoice price Freight Unloading charge Balances, December 31

1,500,000

Building

Leasehold improvements

Machinery

4,000,000

500,000

1,000,000

3,000,000 60,000 15,000 ( 5,000) 4,000,000 300,000 5,000,000 50,000 150,000 40,000 350,000 400,000 650,000 1,750,000 _________ 8,870,000

_________ 9,240,000

20,000 __ 30,000 2,800,000

_________ 1,900,000

The third tract of land should be presented as current asset because it was “classified as held for sale”.

Problem 16-12 Land

Land improvements

Building

Balances, Jan. 1 3,500,000 900,000 7,000,000 Land acquired 1,250,000 Issuance of share capital: 12/36 x 4,500,000 1,500,000 24/36 x 4,500,000 3,000,000 New machinery New parking lot, street and sidewalk 750,000 Machinery sold ________ ________ _________ Balances, Dec. 31 6,250,000 1,650,000 10,000,000

Machinery 1,500,000

3,400,000

(

500,000) 4,400,000

The “assessed values” do not represent the fair values of the land and building but are used in allocating the market value of the share capital.

214 Problem 16-13 Invoice price Cash discount Freight Installation cost Testing cost

Problem 16-14 3,000,000 Invoice cost 4,000,000 ( 150,000) Discount (5% x 4,000,000) ( 200,000) 50,000 Transportation 40,000 30,000 Installation 100,000 20,000 Trial run-salary of engineer 50,000 2,950,000 Cash allowance ( 60,000) 3,930,000

Problem 16-15 Cost paid (896,000 – 96,000) Cost of transporting machine Installation cost Testing cost Safety rails and platform Water device Cost of adjustment Estimated dismantling cost Total cost of machine

800,000 30,000 50,000 40,000 60,000 80,000 75,000 65,000 1,200,000

Note that the estimated dismantling cost is capitalized because the company has a present obligation as required by contract. In the absence of a present obligation, the estimated dismantling cost is not capitalized.

Problem 16-16 Second hand market value Overhaul and repairs Installation Testing Hauling Safety device

2,400,000 150,000 80,000 110,000 10,000 250,000 3,000,000

Problem 16-17 1. Materials Labor Installation Trial run Discount Overhead

600,000 400,000 60,000 30,000 ( 40,000) 150,000 1,200,000

2. Adjusting entries: 1. Loss on retirement of old machinery

6,000

Machinery (20,000 – 14,000)

6,000

215 2. Purchase discount Machinery

40,000 40,000

3. Machinery Factory overhead

150,000

4. Profit on construction Machinery

100,000

150,000

100,000

5. Tools Machinery

90,000

6. Depreciation – tools Tools (90,000 / 3 x 4/12)

10,000

7. Machinery Accumulated depreciation Depreciation – machinery

90,000

10,000 128,600 40,000 88,600

Depreciation recorded Correct depreciation (1,200,000 / 10 x 4/12) Overdepreciation

128,600 40,000 88,600

Problem 16-18 Initial design fee Executive chairs and desks Storm windows and installation Installation of automatic door opening system Overhead crane Total capital expenditures

150,000 200,000 500,000 200,000 350,000 1,400,000

Problem 16-19 1. Accumulated depreciation Loss on retirement of building Building Building Cash Depreciation (8,100,000 / 20) Accumulated depreciation Building (9,000,000 + 2,500,000 – 2,000,000) Accumulated depreciation (1,800,000 – 400,000) Book value

400,000 1,600,000 2,000,000 2,500,000 2,500,000 405,000 405,000 9,500,000 1,400,000 8,100,000

2. Accumulated depreciation (1,960,000 x 20%) Loss on retirement of building Building (2,500,000 x .784)

392,000 1,568,000 1,960,000

216 Building Cash Depreciation (8,132,000 / 20) Accumulated depreciation

2,500,000 2,500,000 406,600 406,600

Building (9,000,000 – 1,960,000 + 2,500,000) Accumulated depreciation (1,800,000 – 392,000) Book value

9,540,000 1,408,000 8,132,000

Problem 16-20 a. Annual depreciation (8,400,000 / 30)

280,000

Age of building (7,000,000 / 280,000)

25 years

b. Building Cash

2,500,000 2,500,000

c. Building (8,400,000 + 2,500,000) Less: Accumulated depreciation Book value d. Depreciation (3,900,000 / 15) Accumulated depreciation

10,900,000 7,000,000 3,900,000 260,000 260,000

Original life Less: Expired life Remaining useful life, beginning of current year Add: Extension in life Revised useful life

30 25 5 10 15

Problem 16-21 1. Building Cash 2. Depreciation Accumulated depreciation 3. Building Cash Accumulated depreciation (2,500,000 / 50 x 2) Loss on retirement of building Cash

10,500,000 10,500,000 200,000 200,000 3,000,000 3,000,000 100,000 2,400,000 2,500,000

4. Depreciation (10,700,000 – 500,000 / 48) Accumulated depreciation

212,500 212,500

217 Building (10,500,000 + 3,000,000 – 2,500,000) Accumulated depreciation (400,000 – 100,000) Book value – 1/1/2008

11,000,000 300,000 10,700,000

Problem 16-22 1. Machinery Cash

5,000,000 5,000,000

2. Depreciation Accumulated depreciation 3. Depreciation (3,600,000 / 6) Accumulated depreciation

450,000 450,000 600,000 600,000

Cost Accumulated depreciation: 2005 2006 Book value Residual value Remaining depreciable cost – 1/1/2007

5,000,000 450,000 450,000

4. Machinery Cash 5. Depreciation (3,300,000 / 5) Accumulated depreciation

900,000 4,100,000 500,000 3,600,000

300,000 300,000 660,000 660,000

Cost Accumulated depreciation (900,000 + 600,000) Book value – 1/1/2008 Residual value Remaining depreciable cost – 1/1/2008

5,300,000 1,500,000 3,800,000 500,000 3,300,000

Problem 16-23 1. Depreciation (60,000 x 3/12) Accumulated depreciation Accumulated depreciation (480,000 + 15,000) Loss on retirement of store equipment Store equipment 2. Depreciation (150,000 x 4/12)

15,000 15,000 495,000 105,000 600,000 50,000

Accumulated depreciation

50,000

218 Cash Accumulated depreciation (1,050,000 + 50,000) Loss on sale of office equipment Office equipment 3. Depreciation (600,000 x 5/12) Accumulated depreciation Delivery equipment – new Accumulated depreciation Cash (5,000,000 – 750,000) Delivery equipment – old Gain on exchange (750,000 – 350,000)

100,000 1,100,000 300,000 1,500,000 250,000 250,000 5,000,000 2,650,000 4,250,000 3,000,000 400,000

Original cost Less: Accumulated depreciation to date (2,400,000 + 250,000) Book value 4. Accumulated depreciation Office equipment 5. Depreciation (900,000 x 9/12) Accumulated depreciation Accumulated depreciation (2,700,000 + 675,000) Fire loss Machinery

3,000,000 2,650,000 350,000

1,200,000 1,200,000 675,000 675,000 3,375,000 1,125,000 4,500,000

Problem 16-24 1. Discount on bonds payable Machinery

500,000 500,000

Interest expense (500,000 / 10 x 9/12) Discount on bonds payable

37,500

Accumulated depreciation Depreciation

75,000

37,500

75,000

Depreciation for 9 months Depreciation for 12 months (600,000 / 9/12) Depreciable cost (800,000 x 5 years)

Cost

600,000 800,000 4,000,000 Per book 5,000,000

Adjusted 4,500,000

Less: Residual value Depreciable cost

1,000,000 4,000,000

1,000,000 3,500,000

219 Correct depreciation for 9 months (3,500,000 / 5 x 9/12) Less: Depreciation recorded Overstatement

525,000 600,000 75,000

2. Interest expense Machinery (3,500,000 – 3,200,000) Machinery Freight in

300,000 300,000 150,000 150,000

Accumulated depreciation Depreciation

30,000 30,000

Depreciation per book Correct depreciation (3,350,000 / 5) Overstatement 3. Loss on exchange Machinery Cost per book Correct cost Trade in value Add: Cash paid Overstatement

700,000 670,000 30,000 390,000 390,000 3,000,000 150,000 2,460,000

Trade in value Less: Book value Loss on exchange 4. Allowance for doubtful accounts Loss on exchange – accounts receivable Treasury share Per book Machinery Accounts receivable Treasury shares Machinery Should be Machinery Allowance for doubtful accounts (20% x 4,200,000)

2,610,000 390,000 150,000 540,000 (390,000)

840,000 60,000 900,000

4,200,000 4,200,000 4,200,000 4,200,000

3,300,000 840,000

Loss on accounts receivable Accounts receivable

60,000 4,200,000

220 Treasury shares Machinery

3,300,000 3,300,000

The cost of treasury shares acquired for noncash consideration is usually measured by the recorded amount of the noncash asset surrendered (SFAS No. 18).

Problem 16-25 Answer A Allocated cost of land (2,400,000 / 6,000,000 x 5,500,000) Property taxes (2,400 / 6,000 x 250,000) Cost of survey Total cost of land

2,200,000 100,000 5,000 2,305,000

Incidentally, the cost of the building is: Allocated cost (3,600 / 6,000 x 5,500,000) Property taxes (3,600 / 6,000 x 250,000) Renovation Total cost of building

3,300,000 150,000 500,000 3,950,000

Problem 16-26 Answer A Purchase price Payments to tenants Demolition of old building Legal fees Title insurance Proceeds from sale of materials Total cost of land

4,000,000 200,000 100,000 50,000 30,000 ( 10,000) 4,370,000

Problem 16-27 Answer D Purchase price of land Legal fees for contract Architect fee Demolition of old building Construction cost Total cost

Land 600,000 20,000

Building

80,000 50,000 _______ 670,000

3,500,000 3,580,000

Problem 16-28 Answer D Acquisition price

7,000,000

Option of building acquired Repairs Total cost

200,000 500,000 7,700,000

221 Problem 16-29 Answer D Purchase price Shipping Installation Testing Total cost

250,000 5,000 10,000 35,000 300,000

Problem 16-30 Answer A Problem 16-31 Answer A All expenditures are capitalized.

Problem 16-32 Answer A All costs are capitalized.

Problem 16-33 Answer C Continuing and frequent repairs Repainting of the plant building Partial replacement of roof tiles Repair and maintenance expense Problem 16-34 Answer B Problem 16-35 Answer B

400,000 100,000 150,000 650,000

222 CHAPTER 17 Problem 17-1

Problem 17-2

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

A D B D D D D C C B

C A D D D B C B A A

Problem 17-3 Depreciation Table – Straight Line

Year 2008 2009 2010 2011 2012

Particular Acquisition cost

Depreciation 120,000 120,000 120,000 120,000 120,000 600,000

Accumulated depreciation 120,000 240,000 360,000 480,000 600,000

Book value 635,000 515,000 395,000 275,000 155,000 35,000

Depreciation Table – Service Hours Method

Year 2008 2009 2010 2011 2012

Particular Acquisition cost 14,000 x 10 13,000 x 10 10,000 x 10 11,000 x 10 12,000 x 10

Depreciation 140,000 130,000 100,000 110,000 120,000 600,000

Accumulated depreciation

Book value 635,000 495,000 365,000 265,000 155,000 35,000

140,000 270,000 370,000 480,000 600,000

Depreciation rate per hour = 600,000 / 60,000 = 10

223 Depreciation Table – Production Method

Year 2008 2009 2010 2011 2012

Particular Acquisition cost 34,000 x 4 32,000 x 4 25,000 x 4 29,000 x 4 30,000 x 4

Depreciation 136,000 128,000 100,000 116,000 120,000 600,000

Accumulated Depreciation 136,000 264,000 364,000 480,000 600,000

Book value 635,000 499,000 371,000 271,000 155,000 35,000

Depreciation rate per unit of output = 600,000 / 150,000 = 4 Depreciation Table – Sum of Years’ Digits

Year 2008 2009 2010 2011 2012

Particular Acquisition cost 5/15 x 600,000 4/15 x 600,000 3/15 x 600,000 2/15 x 600,000 1/15 x 600,000

Depreciation 200,000 160,000 120,000 80,000 40,000 600,000

Accumulated depreciation 200,000 360,000 480,000 560,000 600,000

SYD = 1 + 2 + 3 + 4 + 5 = 15

Book value 635,000 435,000 275,000 155,000 75,000 35,000

Depreciation Table – Double Declining Balance

Year 2008 2009 2010 2011 2012

Particular Acquisition cost 40% x 635,000 40% x 381,000 40% x 228,600 40% x 137,160 82,296 – 35,000

Depreciation 254,000 152,400 91,440 54,864 47,296 600,000

Accumulated depreciation 254,000 406,400 497,840 552,704 600,000

Book value 635,000 381,000 228,600 137,160 82,296 35,000

Fixed rate = 100% / 5 = 20% x 2 = 40% Problem 17-4 a. Straight line method: 2008 2009

27,500 55,000

224 b. Working hours method: 550,000 Rate per hour = ------------------- = 11 50,000 hours 2008 (3,000 hours x 11) 2009 (5,000 hours x 11)

33,000 55,000

c. Output method: 550,000 Rate per unit = -------------------- = 2.75 200,000 units 2008 (18,000 units x 2.75) 2009 (22,000 units x 2.75)

49,500 60,500

d. Sum of years’ digits: 10 + 1 SYD = 10 (------------) = 55 2 2008 (10/55 x 550,000 x 6/12)

50,000

2009 Jan. 1-June 30

50,000

July 1-Dec. 31 (9/55 x 550,000 x 6/12)

45,000 95,000

e. Double declining balance: 2008 (570,000 x 20% x 6/12) 2009 (570,000 – 57,000 x 20%)

57,000 102,600

Problem 17-5 Fixed rate = 1.00 - .5623 or .4377 2008 2009 2010 2011

(500,000 x .4377) (500,000 – 218,850 x .4377) (500,000 - 341,909 x .4377) (500,000 – 411,105 – 50,000)

218,850 123,059 69,196 38,895 450,000

Problem 17-6 a. Sum of years’ digit April 1, 2008 – March 31, 2009 (1,080,000 x 8/36) April 1, 2009 – March 31, 2010 (1,080,000 x 7/36)

240,000 210,000

225 Depreciation from April 1 to December 31, 2008 (240,000 x 9/12)

180,000

Depreciation for 2009: January 1 – March 31 (240,000 x 3/12) April 1 – December 31 (210,000 x 9/12)

60,000 157,500 217,500

b. Double declining balance Fixed rate = 100 / 8 = 12.5 x 2 = 25% 2008 (1,200,000 x 25% x 9/12) 2009 (1,200,000 – 225,000 x 25%)

225,000 243,750

Problem 17-7 a. Service hours method: 960,000 – 60,000 Depreciation rate per hour = ---------------------------- = 112.50 8,000 hours 2008 (1,000 hours x 112.50) 2009 (2,000 hours x 112.50)

112,500 22...