1、 Financial Accounting 6/e Solutions Manual0Chapter 7Plant Assets, Natural Resources, and IntangiblesCheck Points(5 min.) CP 7-11. Property, Plant and EquipmentMillions2. Property, plant and equipment, at cost $26,915Less: Accumulated depreciation (13,007)Property, Plant and equipment, book value $13
2、,908Book value is less than cost because accumulated depreciation is subtracted from cost to compute book value.Chapter 7 Plant Assets, Natural Resources, and Intangibles 1(5 min) CP 7-2The related costs (real estate commission, back property tax, removal of a building, and survey fee) are included
3、as part of the cost of the land because the buyer of the land must incur these costs to get the land ready for its intended use.After the land is ready for use, the related costs (listed above) would be expensed.(10 min.) CP 7-3Land ($150,000 .50). 75,000Building ($150,000 .375). 56,250Equipment ($1
4、50,000 .125) 18,750Note Payable 150,000EstimatedMarketValue Percent of TotalLand. $ 80,000 $80,000 / $160,000 = 50.0%Building 60,000 $60,000 / $160,000 = 37.5Equipment 20,000 $20,000 / $160,000 = 12.5Total. $160,000 100.0%Financial Accounting 6/e Solutions Manual2(10-15 min.) CP 7-4Income StatementR
5、evenues CORRECTExpenses UNDERSTATEDNet income OVERSTATEDBalance SheetCurrent assets CORRECT Total liabilities CORRECTPlant assets OVERSTATED Owners equity OVERSTATEDTotal liabilities Total assets OVERSTATED and owners equity OVERSTATEDChapter 7 Plant Assets, Natural Resources, and Intangibles 3(10 m
6、in.) CP 7-51. First-year depreciation:Straight-line ($20,000,000 $6,000,000) / 5 years. $2,800,000Units-of-production ($20,000,000 $6,000,000) /5,000,000 miles 750,000 miles. $2,100,000Double-declining-balance ($20,000,000 / 5 years 2). $8,000,0002. Book value:Straight-LineUnits-of-ProductionDouble-
7、Declining-BalanceCost. $20,000,000 $20,000,000 $20,000,000Less AccumulatedDepreciation (2,800,000) (2,100,000) (8,000,000)Book value. $17,200,000 $17,900,000 $12,000,000Financial Accounting 6/e Solutions Manual4(10 min.) CP 7-6Third-year depreciation:a. Straight-line ($20,000,000 $6,000,000) / 5 yea
8、rs $2,800,000b. Units-of-production ($20,000,000 $6,000,000) /5,000,000 miles 1,250,000 miles $3,500,000c. Double-declining-balance:Year 1 ($20,000,000 2/5) = $8,000,000Year 2 ($20,000,000 $8,000,000) 2/5 = $4,800,000Year 3 ($20,000,000 $8,000,000 $4,800,000 = $7,200,000;$7,200,000 $6,000,000 residu
9、al value) $1,200,000Chapter 7 Plant Assets, Natural Resources, and Intangibles 5(10 min.) CP 7-71. The double-declining-balance (DDB) method offers the tax advantage for the first year of an assets use. The advantage results from the greater amount of DDB depreciation (versus the amount of depreciat
10、ion under the other methods) during the first year. This saves cash that the taxpayer can invest to earn a return.2.DDB depreciation $8,000,000Straight-line depreciation. (2,800,000)Excess depreciation tax deduction. $5,200,000Income tax rate .40Income tax savings for first year $2,080,000Financial
11、Accounting 6/e Solutions Manual6(5-10 min.) CP 7-8First-year depreciation (for a partial year):a. Straight-line (40,000,000 5,000,000) / 5 years 9/12 5,250,000b. Units-of-production (40,000,000 5,000,000)/ 5,000,000 miles 500,000 miles. 3,500,000c. Double-declining-balance (40,000,000 2/5 9/12). 12,
12、000,000UOP depreciation produces the highest net income (lowest depreciation). DDB depreciation produces the lowest net income (highest depreciation).Chapter 7 Plant Assets, Natural Resources, and Intangibles 7(10 min.) CP 7-9Depreciation Expense Hot Dog Stand. 15,000Accumulated Depreciation Hot Dog
13、 Stand 15,000Depreciation for years 1-4:$50,000 / 10 years = $ 5,000 per year$ 5,000 4 years = $20,000 for years 1-4Assets remainingdepreciable (New) Estimated = (New) Annualbook value useful life remaining depreciation$50,000 $20,000 2 years = $15,000 per year$30,000Financial Accounting 6/e Solutio
14、ns Manual8(10 min.) CP 7-10Req. 1(a) Straight-line depreciation method:20X5Jan. 1 Cash 10,000Acumulated Depreciation. 16,000Loss on Sale of Delivery Truck. 15,000Delivery Truck. 41,000(b) Double-declining-balance depreciation method:20X5Jan. 1 Cash 10,000Acumulated Depreciation. 26,240Loss on Sale o
15、f Delivery Truck. 4,760Delivery Trucks. 41,000Req. 2The difference between the amounts of the loss on disposal under the straight-line depreciation method and the double-declining-balance method results from the difference in depreciation amounts under the two depreciation methods.Depreciation is hi
16、gher under DDB, so the assets book value is lower under DDB. As a result, there will be a smaller loss under DDB.Chapter 7 Plant Assets, Natural Resources, and Intangibles 9(5-10 min.) CP 7-111. Units-of-production depreciation method is used to compute depletion expense.Billions2. Depletion Expense
17、 ($120 / 12) 0.6. 6.0Accumulated Depletion 6.03. At December 31, 20X5: BillionsCost of mineral assets $120.0Less Accumulated depletion ($85.0 + $6.0). (91.0)Book value of mineral assets $ 29.0Based on the book value ($29 billion) of oil and gas reserves, ExxonMobils minerals appear to be significant
18、ly depleted. To replenish oil and gas reserves, ExxonMobil must explore to locate new minerals.Financial Accounting 6/e Solutions Manual10(5-10 min.) CP 7-12Req. 1Cost of goodwill purchased:Purchase price paid for Hot Chips, Inc. $8,500,000Market value of Hot Chips net assets:Market value of Hot Chi
19、ps assets. $14,000,000Less: Hot Chips liabilities. (11,000,000)Market value of Hot Chips net assets 3,000,000Cost of goodwill $5,500,000Req. 2PepsiCo will determine whether its goodwill has increased or decreased in value. If the goodwills value has increased, there is nothing to record. But if good
20、wills value has decreased, PepsiCo will record a loss and write down the book value of the goodwill.Chapter 7 Plant Assets, Natural Resources, and Intangibles 11(10-15 min.) CP 7-13Req. 1Ling SoftwareIncome StatementYear Ended December 31, 20X4 Revenues:Sales revenue. $1,500,000Expenses:Cost of good
21、s sold. $200,000Research and development expense 500,000Amortization of patent ($300,000 / 3). 100,000Selling expenses 400,000Total expenses. 1,200,000Net income. $ 300,000Req. 2Lings outlook for future profits is favorable. The company earned a profit in its first year. Hopefully, future years prof
22、its will be even higher.Financial Accounting 6/e Solutions Manual12(5 min.) CP 7-14Troy Satellite SystemsStatement of Cash FlowsYear Ended December 31, 20X5Cash flows from investing activities: MillionsPurchase of other companies $(160.0)Capital expenditures. (45.0)Proceeds from sale of cable operat
23、ions. 123.0Net cash provided (used) by investing activities. $ (82.0)Chapter 7 Plant Assets, Natural Resources, and Intangibles 13Exercises(5-10 min.) E 7-1Land: $200,000 + $150,000 + $2,000 + $2,500 + $5,500 =$360,000Land improvements: $93,000 + $10,400 + $6,000 = $109,400Building: $80,000 + $1,200
24、,000 = $1,280,000Financial Accounting 6/e Solutions Manual14(10-15 min.) E 7-2Allocation of cost to individual machines:MachineAppraisedValuePercentage of TotalMarket ValueTotalCostCost ofEach Asset1 $ 27,000 $27,000 / $108,000 = .250 $90,000 .25 = $22,5002 45,000 45,000 / 108,000 = .417 90,000 .417
25、 = 37,5303 36,000 36,000 / 108,000 = .333 90,000 .333 = 29,970Totals $108,000 1.000 $90,000Sale price of machine no. 2 $45,000Cost. 37,530Gain on sale of machine $ 7,470(5-10 min.) E 7-3Capital expenditures:(a) Purchase price, (b) sales tax, (c) transportation and insurance, (d) installation, (e) tr
26、aining of personnel, (f) reinforcement to platform, (h) major overhaul, (j) lubrication before machine is placed in serviceImmediate expenses:(g) Income tax, (i) ordinary recurring repairs, (k) periodic lubricationChapter 7 Plant Assets, Natural Resources, and Intangibles 15(15 min.) E 7-4JournalACC
27、OUNT TITLES AND EXPLANATION DEBIT CREDIT1. a. Land 500,000Cash. 500,000b. Building($1,000 + $20,000 + $830,000 + $39,000). 890,000Note Payable 830,000Cash ($1,000 + $20,000 + $39,000). 60,000c. Depreciation Expense 5,000Accumulated Depreciation($890,000 $190,000) / 35 3/12 5,0002. BALANCE SHEETPlant
28、 assets:Land. $500,000Building. $890,000Less Accumulated depreciation. (5,000)Building, net. 885,0003. INCOME STATEMENTExpense:Depreciation expense. $ 5,000Financial Accounting 6/e Solutions Manual16(10-15 min.) E 7-5Depreciation is the process of allocating a plant assets cost to expense over the p
29、eriod the asset is used. This process is designed to match depreciation expense against revenue over the assets life in order to measure income. Of less importance is the need to account for the assets decline in usefulness.Khuwaja is correct that depreciation can relate to the wear and tear of an a
30、sset. However, the depreciation of some assets is more affected by obsolescence than by physical wear and tear.Kasiak is wrong. Depreciation has nothing to do with a cash fund to replace an asset.Chapter 7 Plant Assets, Natural Resources, and Intangibles 17(15-20 min.) E 7-6Year Straight-LineUnits-o
31、f-ProductionDouble-Declining-Balance20X4 $ 3,000 $ 4,080 $ 7,50020X5 3,000 3,360 3,75020X6 3,000 2,160 75020X7 3,000 2,400 -0- $12,000 $12,000 $12,000_Computations:Straight-line: ($15,000 $3,000) 4 = $3,000 per year.Units-of-production: ($15,000 $3,000) 100,000 miles = $.12 per mile;20X4 34,000 $.12
32、 = $4,08020X5 28,000 .12 = 3,36020X6 18,000 .12 = 2,16020X7 20,000 .12 = 2,400Double-declining-balance Twice the straight-line rate: 1/4 2 = 2/4 = 50%20X4 $15,000 .50 = $7,50020X5 ($15,000 $7,500) .50 = 3,75020X6 $7,500 $3,750 = $3,750 residual value of $3,000 = $750The units-of production method tr
33、acks the wear and tear on the van most closely.For income tax purposes, the double-declining-balance method is best because it provides the most depreciation and, thus, the largest tax deductions in the early life of the asset. The company can invest the tax savings to earn a return on the investmen
34、t.Financial Accounting 6/e Solutions Manual18(15 min.) E 7-7INCOME STATEMENTExpenses:Depreciation expense building($70,000 + $130,000 + $60,000) $50,000 / 20. $ 10,500Depreciation expense furniture and fixtures($40,000 2/5) 16,000Supplies expense($9,000 $2,000) 7,000BALANCE SHEETCurrent assets:Suppl
35、ies $ 2,000Plant assets:Building ($70,000 + $130,000 + $60,000) $260,000Less Accumulated depreciation (10,500) $249,500Furniture and fixtures. $ 40,000Less Accumulated depreciation (16,000) 24,000STATEMENT OF CASH FLOWSCash flows from investing activities:Purchase of buildings ($70,000 + $60,000). $
36、(130,000)Purchase of furniture and fixtures (40,000)Chapter 7 Plant Assets, Natural Resources, and Intangibles 19(10-15 min.) E 7-8Let N = Number of hours of usageUnits-of-production Cost Residual value Number ofdepreciation = Useful life, in hours hours of use$102,000 $10,000$3,680 =50,000 N$3,680
37、= $1.84 N$3,680N =$1.84N = 2,000 hoursAlternate solution setup:Depreciation Cost Residual valueper hour = Useful life, in hours$102,000 $10,000=50,000 = $1.84UOP Depreciation Number ofDepreciation = per hour hours of use$3,680 = $1.84 N$3,680N =$1.84N = 2,000 hoursFinancial Accounting 6/e Solutions
38、Manual20(10-15 min.) E 7-9SHORT-CUT SOLUTION: SL DDBDepreciation by the two methods. $13,500*$30,000*Extra depreciation provided by DDB($30,000 $13,500). $16,500Multiply by the income tax rate .40Tax saved by using DDB = Extra cash to invest. $ 6,600Depreciation method for income tax: Double-declini
39、ng-balanceCash saved by using MACRS depreciation:SL DDBCash revenues $100,000 $100,000Cash expenses. 60,000 60,000Cash provided by operations before income tax. 40,000 40,000Depreciation expense (a noncash expense):*SL: ($210,000 $21,000) / 7 6/12 13,500*DDB: ($210,000 2/7 6/12) _ 30,000Income befor
40、e income tax. 26,500 10,000Income tax expense (40%) $ 10,600 $ 4,000Cash-flow analysis:Cash provided by operations before income tax $ 40,000 $ 40,000Income tax expense. (10,600) (4,000)Cash provided by operations. $ 29,400 $ 36,000Extra cash available for investment ifDDB is used ($36,000 $29,400)
41、$ 6,600Chapter 7 Plant Assets, Natural Resources, and Intangibles 21(10-15 min.) E 7-10JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDITYear 20 Depreciation Expense($900,000 $100,000) 40. 20,000Accumulated Depreciation Building. 20,000Year 21 Depreciation Expense 45,000*Accumulated Depreciatio
42、n Building. 45,000_*Computation:Depreciable cost: $900,000 $100,000 = $800,000Depreciation through year 20: $800,000 40 = $20,000 20 = $400,000Assets remaining depreciable book value:$900,000 $400,000 $50,000 = $450,000New estimated useful life remaining: 10 yearsNew annual depreciation: $450,000 10
43、 = $45,000Financial Accounting 6/e Solutions Manual22(15-20 min.) E 7-11JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT20X5 Depreciation for 9 months:Sept. 30 Depreciation Expense 1,566aAccumulated Depreciation Fixtures 1,566Sale of fixtures:30 Cash 800Accumulated Depreciation Store Fixtures
44、 ($3,480 + $1,566) 5,046Loss on Sale of Fixtures 2,854bFixtures 8,700_a20X4 depreciation: $8,700 2/5 = $3,48020X5 depreciation: ($8,700 $3,480) 2/5 9/12 = $1,566bLoss is computed as follows:Sale price of old fixtures. $ 800Book value of old fixtures:Cost $8,700Less: Accumulated depreciation. (5,046)
45、 3,654Loss on sale. $2,854Chapter 7 Plant Assets, Natural Resources, and Intangibles 23(10-15 min.) E 7-12Cost of new truck = Book value of old truck + Cash paid$295,000 = $175,000a + $120,000_aCost of old truck $285,000Less Accumulated depreciation:75 + 120 + 210 + 35 ($285,000 $35,000) 1,000 (110,000)b_Book value of old truck $175,000_bAlternate solution setup:($285,000 $35,000) = $.25 per mile1,000,000 miles75,000 + 120,000 + 210,000 + 35,000 = 440,000 miles drivenAccumulated depreciation = 440,000 mi
