Financial Accounting Information For Decisions 9th Edition Wild Solutions Manual

Financial Accounting Information for
Decisions 9th Edition Wild Solutions

Manual
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Chapter 8
Reporting and Analyzing
Long-Term Assets
QUESTIONS
1. A plant asset is tangible; it is used in the production or sale of other assets or services;
and it has a useful life longer than one accounting period.
2. The cost of a plant asset includes all normal and reasonable expenditures necessary to
get the asset in place and ready for its intended use.
3. Land is an asset with an unlimited life and, therefore, is not subject to depreciation.
Land improvements have limited lives and are subject to depreciation.
4. Often the lump-sum or basket purchase includes assets with different lives that must be
depreciated separately. Sometimes the purchase may include land, which is never
depreciated.
5. The Accumulated Depreciation—Machinery account is a contra asset account with a
credit balance that cannot be used to buy anything. The balance of the Accumulated
Depreciation—Machinery account reflects that portion of the machinery's original cost
that has been charged to depreciation expense. It also gives some indication of the
asset’s age and how soon it will need to be replaced. Any funds available for buying
machinery are shown on the balance sheet as liquid assets with debit balances.
6. The Modified Accelerated Cost Recovery System is not generally acceptable for financial
accounting purposes because it allocates depreciation over an arbitrary period that is
usually much shorter than the predicted useful life of the asset.
7. Ordinary repairs are made to keep a plant asset in normal, good operating condition, and
should be charged to expense of the current period. Extraordinary repairs are made to
extend the life of a plant asset beyond the original estimated life; they are recorded as
capital expenditures (and added to the asset account).
8. A company might sell or exchange an asset when it reaches the end of its useful life, or
if it becomes inadequate or obsolete, or if the company has changed its business plans.
An asset also can be damaged or destroyed by fire or some other accident that would
require its disposal.
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Solutions Manual, Chapter 8 479
9. The process of allocating the cost of natural resources to expense over the periods
when they are consumed is called depletion. The method to compute depletion is similar
to units-of-production depreciation.
10. No, depletion expense should be calculated on the units that are extracted (similar to the
units-of-production basis) and sold.
11. An intangible asset: (1) has no physical existence; (2) derives value from the unique
legal and contractual rights held by its owner; and (3) is used in the company’s
operations.
12. Intangible assets are generally recorded at their cost and amortized over their predicted
useful life. (However, some costs are not included, such as the research and
development costs leading up to a patent.) The costs of intangible assets are generally
allocated to amortization expense using the straight-line method over their useful lives.
If the useful life of an intangible asset is indefinite, then it is not amortized—instead, it is
annually tested for impairment.
13. A company has goodwill when its value exceeds the value of its individual assets and
liabilities. Goodwill appears in the balance sheet when one company acquires another
company or separate segment and pays a price that exceeds the combined values of all
its net assets (assets less liabilities) excluding goodwill.
14. No; this type of goodwill would not be amortized. Instead, the FASB (SFAS 142) requires
that goodwill be annually tested for impairment. If the book value of goodwill does not
exceed its fair (market) value, goodwill is not impaired. However, if the book value of
goodwill exceeds its fair value, an impairment loss is recorded equal to that excess.
(Details of this two-step test are in advanced courses.)
15. Total asset turnover is calculated by dividing net sales by average total assets.
Financial statement users can use total asset turnover to evaluate the efficiency of a
company in using its assets to generate sales.
16. The word “net” means that Apple is reporting its property and equipment after deducting
accumulated depreciation to date.
17. Google lists “Property and equipment, net” on the balance sheet. The net book value of
these assets is $34,234 million.
18. Samsung titles its plant assets “Property, plant and equipment.” The book value of its
plant assets is ₩91,473,041 (KRW millions).
19. Samsung reports the following long-term assets that are discussed in this chapter:
Property, plant and equipment; Intangible assets.
20. (a) The main difference between plant assets and current assets is that current assets
are consumed or converted into cash within a short period of time, while plant assets
have a useful life of more than one accounting period.
(b) The main difference between plant assets and inventory is that inventory is held for
resale and plant assets are not.
(c) The main difference between plant assets and long-term investments is that plant
assets are used in the primary operation of the business and investments are not.
480 Financial Accounting, 9th Edition
QUICK STUDIES
Quick Study 8-1 (10 minutes)
Recorded cost = $190,000 + $20,000 + $4,000 + $13,700 = $227,700
Note: The $1,850 repair charge is an expense because it is not a normal and reasonable
expenditure necessary to get the asset in place and ready for its intended use.
Expensed or Capitalized Asset Category (if any) .

1. Expensed —
2. Capitalized Equipment
3. Capitalized Equipment (reduce the cost of)
4. Capitalized Land
5. Expensed —
6. Expensed —
7. Capitalized Building
8. Capitalized Building
Straight-line:
($65,800 - $2,000) / 4 years = $15,950 depreciation per year
($65,800 - $2,000) / 200 concerts = $ 319 depreciation per concert

x 45 concerts in 2018
$14,355 depreciation in 2018
$65,800 Cost
- 15,950 Accumulated depreciation (first year)
49,850 Book value at point of revision
- 2,000 Salvage value
47,850 Remaining depreciable cost
÷ 2 Years of life remaining
$23,925 Depreciation per year for years 2 and 3

Note: Double-declining-balance rate = (100% / 8 years) x 2 = 25%
First year:
$830,000 x 25% = $207,500
Second year:
($830,000 - $207,500) x 25% = $155,625
Third year:
($830,000 - $207,500 - $155,625) x 25% = $116,719* (rounded)
* Total accumulated depreciation of $479,844 ($207,500 + $155,625 + $116,719)

does not exceed the depreciable cost of $755,000 ($830,000 - $75,000).

Impairment Loss ............................................................. 1,250
Accumulated Depreciation—Equipment .............. 1,250
Record impairment of equipment.
1. (a) CE Capital expenditure
(b) RE Revenue expenditure
(c) RE Revenue expenditure
(d) CE Capital expenditure
2. (a) Equipment................................................................ 40,000

Cash .................................................................. 40,000
Record an extraordinary repair.
(b)* Maintenance Expense ............................................ 200

Cash .................................................................. 200
Record ordinary maintenance of a truck.
(c)* Maintenance Expense ............................................ 175

Cash .................................................................. 175
Record ordinary maintenance for air conditioner.
(d) Building .................................................................... 225,000

Cash .................................................................. 225,000
Record addition of a new wing.
*Although NOT required, entries are shown for transactions b and c for completeness

Book value of old equipment = $76,800 - $40,800 = $36,000
1. Cash ................................................................................ 47,000
Accumulated depreciation ............................................ 40,800
Equipment................................................................ 76,800
Gain on sale of equipment* .................................... 11,000
Record the sale of equipment.
*(Gain = $47,000 - $36,000)
2. Cash ................................................................................ 36,000
Equipment................................................................ 76,800
3. Cash ................................................................................ 31,000
Loss on sale of equipment*.............................................. 5,000
Equipment................................................................ 76,800
*(Loss = $31,000 - $36,000)
1. Ore Mine..........................................................................1,800,000
Cash ......................................................................... 1,800,000
Record cost of ore mine.
2. $1,800,000 - $200,000
Depletion per unit = 1,000,000 tons = $1.60 per ton
Depletion Expense—Ore Mine ...................................... 288,000

Accumulated Depletion—Ore Mine ....................... 288,000
Record depletion of ore mine (180,000 x $1.60).

a. Oil well NR
b. Trademark IA
c. Leasehold IA
d. Gold mine NR
e. Building Other (plant asset)
f. Copyright IA
g. Franchise IA
h. Timberland NR
i. Salt mine NR

1.
Jan. 4 Leasehold Improvements ............................................... 105,000
Cash.......................................................................... 105,000
Record leasehold improvements.
2.
Dec. 31 Amortization Expense–Leasehold Improvements ............ 13,125
Accumulated Amortization—Leasehold
Improvements ......................................................... 13,125
Record amortization of leasehold over
the remaining life of the lease.*
*
Amortization = $105,000 / 8-year-lease-term = $13,125 per year.
$14,800
Total asset turnover = ($19,100 + $17,900) / 2 = 0.80 times
($ thousands)
Interpretation: The company’s turnover of 0.80 times is markedly lower than

its competitors’ turnover of 2.0. This company must perform better if it is to
be successful in the long run.
Quick Study 8-14A (10 minutes)

Book value of old machine = $42,400 - $18,400 = $24,000
1. Machinery (new) ........................................................ 52,000
Accumulated Depreciation–Machinery (old) .......... 18,400
Loss on Exchange of Assets* .................................. 2,000
Machinery (old) ................................................. 42,400
Cash ................................................................... 30,000
Record asset exchange assuming commercial
substance. *$52,000 – ($24,000 + $30,000) = $(2,000)
2. Machinery (new) ........................................................ 52,000

Accumulated Depreciation–Machinery (old) .......... 18,400
Gain on Exchange of Assets* ......................... 6,000
Machinery (old) ................................................. 42,400
Cash ................................................................... 22,000
Record asset exchange assuming commercial
substance. *$52,000 – ($24,000 + $22,000) = $6,000
a. Accounting for plant assets involving cost determination, depreciation,
additional expenditures, and disposals of plant assets is subject to
broadly similar guidance for both U.S. GAAP and IFRS. There is one
area where notable differences exist, and that is in accounting for
changes in the value of plant assets (between the time they are acquired
and disposed of).
b. U.S. GAAP prohibits companies to record increases in the value of plant
assets subsequent to acquisition. However, IFRS permits upward asset
revaluations. If an impairment was previously recorded, a company
would reverse that impairment to the extent necessary and record that
increase in income. If the increase is beyond the original cost, that
increase is recorded in comprehensive income.
Straight-line depreciation for 2017

[($140,000 - $20,000) / 6 years] x 3/12 = $5,000

($140,000 - $20,000) / 6 years = $20,000
EXERCISES
Exercise 8-1 (15 minutes)
Invoice price of machine .........................................................

$ 12,500
Less discount (.02 x $12,500) .................................................(250)
Net purchase price................................................................... 12,250
Freight charges (transportation-in) ........................................ 360
Mounting and power connections ......................................... 895
Assembly .................................................................................. 475
Materials used in adjusting ..................................................... 40
Total cost to be recorded ........................................................
$ 14,020
Note: The $180 repair charge is an expense because it is not a normal and reasonable
expenditure necessary to get the asset in place and ready for its intended use.
Cost of land
Purchase price for land ...........................................................
$ 280,000
Purchase price for old building .............................................. 110,000
Demolition costs for old building ........................................... 33,500
Costs to fill and level lot .........................................................
47,000
Total cost of land .....................................................................
$ 470,500
Cost of new building and land improvements

Cost of new building................................................................
$1,452,200
Cost of land improvements .................................................... 87,800
Total construction costs .........................................................
$1,540,000
Journal entry
Land ................................................................................ 470,500
Land Improvements ....................................................... 87,800
Building........................................................................... 1,452,200
Cash .......................................................................... 2,010,500
Record costs of plant assets.
Purchase price ........................................................... $375,280
Closing costs ............................................................. 20,100
Total cost of acquisition ........................................... $395,380
Allocation of total cost

Appraised Percent Applying % Apportioned
Value of Total to Cost Cost
Land .............................. $157,040 40% $395,380 x .40 $158,152
Land improvements ...... 58,890 15 $395,380 x .15 59,307
Building......................... 176,670 45 $395,380 x .45 177,921
Totals ............................ $392,600 100% $395,380
Journal entry
Land .......................................................................... 158,152
Land Improvements ................................................ 59,307
Building .................................................................... 177,921
Cash .................................................................. 395,380
Record costs of lump-sum purchase.

Straight-line
($43,500 - $5,000) / 10 years = $3,850

Units-of-production
Depreciation per unit = ($43,500 - $5,000) / 385,000 units = $0.10 per unit
For 32,500 units in second year: Depreciation = 32,500 x $0.10 = $3,250
Double-declining-balance
Double-declining-balance rate = (100% / 10 years) x 2 = 20% per year
First year’s depreciation = $43,500 x 20% = $8,700
Book value at beginning of second year = $43,500 - $8,700 = $34,800
Second year’s depreciation = $34,800 x 20% = $6,960
Straight-line depreciation: ($154,000 - $25,000) / 4 years = $32,250 per year
Year Annual Depreciation Year-End Book Value

2018 ........ $ 32,250 $121,750
2019 ........ 32,250 89,500
2020 ........ 32,250 57,250
2021 ........ 32,250 25,000
Total ....... $129,000

Double-declining-balance depreciation
Depreciation rate: 100% / 4 years = 25% x 2 = 50%
Beginning-Year Depreciation Annual Year-End
Year Book Value Rate Depreciation Book Value
2018....... $154,000 50% $ 77,000 $77,000
2019....... 77,000 50 38,500 38,500
2020....... 38,500 50 13,500* 25,000
2021....... 25,000 -- -- 25,000
Total ...... $129,000
* Do not depreciate more than $13,500 in the third year since the
salvage value is not subject to depreciation.
Straight-line depreciation
Income
before Depreciation Net
Depreciation Expense* Income
Year 1 ........ $ 88,500 $ 38,960 $ 49,540
Year 2 ........ 88,500 38,960 49,540
Year 3 ........ 88,500 38,960 49,540
Year 4 ........ 88,500 38,960 49,540
Year 5 ........ 88,500 38,960 49,540
Totals ........ $442,500 $194,800 $247,700
*($238,400 - $43,600) / 5 years = $38,960

Double-declining-balance depreciation
Income
before Depreciation Net
Depreciation Expense* Income
Year 1 ........ $ 88,500 $ 95,360 $ (6,860)
Year 2 ........ 88,500 57,216 31,284
Year 3 ........ 88,500 34,330 54,170
Year 4 ........ 88,500 7,894 80,606
Year 5 ........ 88,500 0 88,500
Totals ........ $442,500 $194,800 $247,700
Supporting calculations for depreciation expense

*Note: (100% / 5 years) x 2 = 40% depreciation rate
Annual Accumulated Ending Book Value
Beginning Depreciation Depreciation at ($238,400 Cost Less
Book (40% of the End of the Accumulated
Value Book Value) Year Depreciation)
Year 1 ............... $238,400 $ 95,360 $ 95,360 $143,040
Year 2 ............... 143,040 57,216 152,576 85,824
Year 3 ............... 85,824 34,330** 186,906 51,494
Year 4 ............... 51,494 7,894*** 194,800 43,600
Year 5 ............... 43,600 0 194,800 43,600
Total .................. $194,800
** rounded
*** Must not use $20,598; instead take only enough depreciation in Year 4 to
reduce book value to the $43,600 salvage value.

[($280,000 - $40,000) / 5 years] x 9/12 = $36,000

($280,000 - $40,000) / 5 years = $48,000
Double-declining-balance depreciation for 2017 and 2018:

Rate = (100% / 5 years) x 2 = 40%
Depreciation for 2017 ($280,000 x 40% x 9/12) ............... $ 84,000
Book value at January 1, 2018 ($280,000 - $84,000) ...... $196,000

Depreciation for 2018 ($196,000 x 40%) .......................... $ 78,400
Alternate calculation
2017 depreciation ($280,000 x 40% x 9/12) ................................. $ 84,000
2018 depreciation
$280,000 x 40% x 3/12 ............................................................. $ 28,000
($280,000 - $84,000 - $28,000) x 40% x 9/12 ........................... 50,400
Total 2018 depreciation ............................................................... $ 78,400

1. Original cost of machine .............................................................$ 23,860
Less two years' accumulated depreciation
[($23,860 - $2,400) / 4 years] x 2 years .................................... (10,730)
Book value at end of second year ..............................................$ 13,130
2. Book value at end of second year ..............................................$ 13,130

Less revised salvage value ......................................................... (2,000)
Remaining depreciable cost .......................................................$ 11,130
Revised annual depreciation = $11,130 / 3 years = $3,710
1. Equipment ..................................................................... 22,000

Cash ........................................................................ 22,000
Record betterment.
2. Repairs Expense ........................................................... 6,250

Cash ........................................................................ 6,250
Record ordinary repairs.
3. Equipment ..................................................................... 14,870

Cash ........................................................................ 14,870
Record extraordinary repairs.
1. Annual depreciation = $572,000 / 20 years = $28,600 per year
Age of the building = Accumulated depreciation / Annual depreciation

= $429,000 / $28,600 = 15 years
2. Entry to record the extraordinary repairs

Building ........................................................................... 68,350
Cash ........................................................................ 68,350
Record extraordinary repairs.
3. Cost of building
Before repairs..................................................................
$572,000
Add cost of repairs ......................................................... 68,350 $640,350
Less accumulated depreciation ....................................... 429,000
Revised book value of building ........................................ $211,350
4. Revised book value of building (part 3) ........................... $211,350

New estimate of useful life (20 - 15 + 5) ........................... 10 years
Revised annual depreciation ............................................ $ 21,135
Journal entry
Depreciation Expense.................................................... 21,135
Accumulated Depreciation–Building ................... 21,135
Record depreciation.
Note: Book value of milling machine = $250,000 - $182,000 = $68,000
1. Disposed at no value
Jan. 3 Loss on Disposal of Milling Machine ......................... 68,000
Accumulated Depreciation—Milling Machine ........... 182,000
Milling Machine ........................................................ 250,000
Record disposal of milling machine.
2. Sold for $35,000 cash

Jan. 3 Cash ..............................................................................
35,000
Loss on Sale of Milling Machine ................................. 33,000
Milling Machine ........................................................ 250,000
Record cash sale of milling machine.

Jan. 3 Cash ..............................................................................
68,000
Milling Machine ........................................................ 250,000

Jan. 3 Cash ..............................................................................
80,000
Gain on Sale of Milling Machine ............................. 12,000
Milling Machine ........................................................ 250,000
2022
July 1 Depreciation Expense ............................................. 7,500
Accumulated Depreciation--Machinery ............ 7,500
Record one-half year depreciation.*
*Annual depreciation = $105,000 / 7 years = $15,000

Depreciation for 6 months in 2022 = $15,000 x 6/12 = $7,500

July 1 Cash ..............................................................................45,500
Accumulated Depreciation—Machinery ....................67,500
Gain on Sale of Machinery ...................................... 8,000
Machinery .................................................................. 105,000
Record sale of machinery.*
*Total accumulated depreciation at date of disposal:

Four years 2018-2021 (4 x $15,000) ........ $60,000
Partial year 2022 (6/12 x $15,000)............ 7,500
Total accumulated depreciation ............. $67,500
Book value of machinery = $105,000 - $67,500 = $37,500
2. Destroyed by fire with $25,000 cash insurance settlement

July 1 Cash ..............................................................................25,000
Loss from Fire ..............................................................12,500
Accumulated Depreciation—Machinery ....................67,500
Machinery .................................................................. 105,000
Record disposal of machinery from fire.

Dec. 31 Depletion Expense—Mineral Deposit ........................
405,528
Accumulated Depletion—Mineral Deposit ............ 405,528
Record depletion [$3,721,000/1,525,000 tons =
$2.44 per ton; 166,200 tons x $2.44 = $405,528].
Dec. 31 Depreciation Expense—Machinery ...........................23,268

Accumulated Depreciation—Machinery ............... 23,268
Record depreciation [$213,500/1,525,000 tons=
$0.14 per ton; 166,200 tons x $0.14 = $23,268].
Jan. 1 Copyright ......................................................................
418,000
Cash.......................................................................... 418,000
Record purchase of copyright. 00
Dec. 31 Amortization Expense—Copyright ............................41,800
Accumulated Amortization—Copyright ................ 41,800
Record amortization of copyright
[$418,000 / 10 years].
1. Goodwill = $2,500,000 - $1,800,000 = $700,000

2. Goodwill is not amortized. Instead, Robinson must test the value of the
Goodwill each year, and if the value is impaired, it must be written down.
3. Goodwill is only recorded when it is purchased. Goodwill is not
recorded by the company that has created it.

1. $9,972 million cash for property and equipment
2. $5,267 million for depreciation and impairment
3. $31,165 million cash used in investing activities

$5,856,480
Total asset turnover for 2017 = ($1,800,000 + $1,686,000)/2 = 3.36
$8,679,690
Total asset turnover for 2018 = ($1,982,000 + $1,800,000)/2 = 4.59
Analysis comments. Based on these calculations, Lok turned its assets over 1.23
(4.59 – 3.36) more times in 2018 than in 2017. This increase indicates that the
company became more efficient in using its assets. Moreover, it has improved its
efficiency in using assets relative to its competitors who average 3.0. Together,
these results based on total asset turnover indicate that Lok has markedly
improved its performance and is currently superior to its competitors.
Exercise 8-23A (15 minutes)
1. Book value of the old tractor ($96,000 - $52,500) .......................... $ 43,500
2. Loss on the exchange
Book value - Trade-in allowance ($43,500 - $29,000).............. $ 14,500
3. Debit to new Tractor account
Cash paid + Trade-in allowance ($83,000 + $29,000) .............. $112,000
Alternatively, answers can be taken from the following journal entry:

Tractor (new)* .............................................................................. 112,000
Loss on Exchange of Assets ...................................................... 14,500
Accumulated Depreciation–Tractor ........................................... 52,500
Tractor (old) ......................................................................... 96,000
Cash ..................................................................................... 83,000
Record asset exchange. *($29,000 + $83,000)
Exercise 8-24A (25 minutes)

Note: Book value of Machine equals $44,000 - $24,625 = $19,375
Jan. 2 Cash ..............................................................................
18,250
Loss on Sale of Machinery .......................................... 1,125
Accumulated Depreciation—Machinery (old) ............ 24,625
Machinery (old) ........................................................ 44,000
Record cash sale of machine.
2. $25,000 trade-in allowance exceeds book value (yielding a gain)

Jan. 2 Machinery (new) ........................................................... 60,200
Gain on Exchange of Machinery ............................ 5,625
Machinery (old) ........................................................ 44,000
Cash* ........................................................................ 35,200
Record asset exchange. *($60,200 - $25,000)
3. $15,000 trade-in allowance is less than book value (yielding a loss)

Jan. 2 Machinery (new) ...........................................................
60,200
Loss on Exchange of Machinery ................................ 4,375
Machinery (old) ........................................................ 44,000
Cash* ........................................................................ 45,200
Record asset exchange. *($60,200 - $15,000)
(Amounts for this exercise are in euros millions)
1. Depreciation expense .................................................... 7,509

Accumulated depreciation—Property, plant
and equipment..................................................... 7,509
Record depreciation on property, plant and
equipment.
2. Property, plant and equipment ..................................... 11,560

Cash ......................................................................... 11,560
Record betterments (improvements) on property,
plant and equipment.
3. Cash ................................................................................ 720

Loss on disposal of property, plant and equipment .. 515
Accumulated Depreciation—Property, plant and
equipment .................................................................... 1,195
Property, plant and equipment .............................. 2,430
Record asset disposals.
4. Volkswagen’s impairments would decrease its property, plant and

equipment account by €143.

1. Original cost of solar panel ............................................ $ 45,000
Less salvage value.......................................................... (5,000)
Amount to be depreciated ...........................................................$ 40,000
Depreciation for each of first two years
($45,000 - $5,000) / 5 years .......................................................$ 8,000
2. Original cost of solar panel .........................................................$ 45,000

Less two years' accumulated depreciation
[($45,000 - $5,000) / 5 years] x 2 years .................................... (16,000)
Book value at end of second year ..............................................$ 29,000
3. Book value at end of second year ..............................................$ 29,000

Less revised salvage value ......................................................... (1,000)
Remaining depreciable cost .......................................................$ 28,000
Revised annual depreciation ($28,000 / 4 years) ......................$ 7,000
PROBLEM SET A
Problem 8-1A (50 minutes)
Part 1
Estimated Percent Apportioned
Market Value of Total Cost
Building ......................... $508,800 53% $477,000
Land ............................... 297,600 31 279,000
Land improvements ..... 28,800 3 27,000
Vehicles ......................... 124,800 13 117,000
Total ............................... $960,000 100% $900,000
2018
Jan. 1 Building...........................................................................
477,000
Land ................................................................................
279,000
Land Improvements ....................................................... 27,000
Vehicles ..........................................................................
117,000
Cash .......................................................................... 900,000
Record asset purchases.
Part 2
Year 2018 straight-line depreciation on building

[($477,000 - $27,000) / 15 years] = $30,000
Part 3
Year 2018 double-declining-balance depreciation on land improvements

(100% / 5 years) x 2 = 40% rate
$27,000 x 40% = $10,800
Part 4
Accelerated depreciation does not lower the total amount of taxes paid over
the asset's life. Instead, it defers or postpones taxes to the later years of an
asset’s useful life. This is because accelerated methods charge a higher
portion of asset costs against revenue in earlier years and a lower portion in
later years. The result is to reduce taxable income more in earlier years but
less in later years. [Note: From a present value perspective, there is a tax
savings from use of accelerated depreciation. The company gets to use the
tax deferred amounts for investment purposes until they are due.]
Cost of machine ..............................................................

$257,500
Less estimated salvage value ........................................
20,000
Total depreciable cost ....................................................
$237,500
Double-Declining-
a b
Year Straight-Line Units-of-Production Balancec
1 ...................... $ 59,375 $110,000 $128,750
2 ...................... 59,375 62,300 64,375
3 ...................... 59,375 60,900 32,188
4 ...................... 59,375 4,300 12,187
Totals.............. $237,500 $237,500 $237,500
a
Straight- line:
Cost per year = $237,500/4 years = $59,375 per year
b
Units-of-production:
Cost per unit = $237,500/475,000 units = $0.50 per unit
Year Units Unit Cost Depreciation
1 ................ 220,000 $0.50 $110,000
2 ................ 124,600 0.50 62,300
3 ................ 121,800 0.50 60,900
4 ................ 15,200 0.50 4,300*
Total ......... $237,500
*
Take only enough depreciation in Year 4 to reduce book
value to the asset’s $20,000 salvage value.
c
Double-declining-balance:
(100%/4) x 2 = 50% depreciation rate

Beginning Depreciation Depreciation ($257,500 Cost less
Book (50% of at the End of Accumulated
Year Value Book Value) the Year Depreciation)
1 ......... $257,500 $128,750 $128,750 $128,750
2 ......... 128,750 64,375 193,125 64,375
3 ......... 64,375 32,188* 225,313 32,187
4 ......... 32,187 12,187** 237,500 20,000
Total .. $237,500
* rounded
**Take only enough depreciation in Year 4 to reduce book value to
the asset’s $20,000 salvage value.
Part 1
Land Land
Building Building Improve- Improvements
Land 2 3 ments 1 2
Purchase price* ...................
$1,612,000 $598,000 $390,000
Demolition ...........................
328,400
Land grading .......................175,400
New building........................ $2,202,000
New improvements ............. _________ _______ _________ _______ $164,000
Totals .................................
$2,115,800 $598,000 $2,202,000 $390,000 $164,000
Appraised Percent Apportioned

*Allocation of purchase price Value of Total Cost**
Land ......................................... $1,736,000 62% $1,612,000
Building 2 ................................ 644,000 23 598,000
Land Improvements 1 ............. 420,000 15 390,000
Totals ....................................... $2,800,000 100% $2,600,000
**Multiply the percentages in column 3 by the $2,600,000 purchase price.
Part 2
2018
Jan. 1 Land ...................................................................... 2,115,800
Building 2 ............................................................. 598,000
Building 3 ............................................................. 2,202,000
Land Improvements 1 ......................................... 390,000
Land Improvements 2 ......................................... 164,000
Cash ................................................................ 5,469,800
Record costs of plant assets.
Part 3
2018
Dec. 31 Depreciation Expense—Building 2 ..............................
26,900
Accumulated Depreciation—Building 2 ................ 26,900
Record depreciation [($598,000 - $60,000)/20].
31 Depreciation Expense—Building 3 ..............................
72,400
Accumulated Depreciation—Building 3 ................ 72,400
Record depreciation [($2,202,000 - $392,000)/25].
31 Depreciation Expense—Land Improv. 1 ......................

32,500
Accum. Depreciation—Land Improv. 1.................. 32,500
Record depreciation [$390,000/12].
31 Depreciation Expense—Land Improv. 2 ......................8,200
Accum. Depreciation—Land Improv. 2.................. 8,200
2017
Jan. 1 Equipment ................................................................300,600
Cash ..................................................................... 300,600
Record loader costs ($287,600 +$11,500 +$1,500).
Jan. 3 Equipment .................................................................... 4,800

Cash ........................................................................ 4,800
Record betterment of loader.
70,850*
Dec. 31 Depreciation Expense—Equipment ...........................
Accumulated Depreciation—Equipment ............. 70,850
*
2017 depreciation after January 3rd betterment
Total original cost ................................................................... $300,600
Plus cost of betterment .......................................................... 4,800
Revised cost of equipment ..................................................... 305,400
Less revised salvage ($20,600 + $1,400) ............................... 22,000
Cost to be depreciated............................................................ 283,400
Annual depreciation ($283,400 / 4 years)............................... $ 70,850
2018
Jan. 1 Equipment .................................................................... 5,400
Cash ........................................................................ 5,400
Record extraordinary repair on loader.
Feb. 17 Repairs Expense—Equipment ................................... 820

Cash ........................................................................ 820
Record ordinary repair on loader.
Dec. 31 Depreciation Expense—Equipment ...........................43,590*

*2018 depreciation after January 1st extraordinary repair

Total cost ($305,400 + $5,400) .........................................................................
$310,800
Less accumulated depreciation .....................................................................
70,850
Book value ........................................................................................................
239,950
Less salvage.....................................................................................................
22,000
Remaining cost to be depreciated ..................................................................
$217,950
Revised remaining useful life (Original 4 years - 1yr. + 2yrs.) .............................. 5 yrs.
Revised annual depreciation ($217,950 / 5 yrs)..............................................$ 43,590
2017
Jan. 1 Trucks ...........................................................................22,000
Cash ........................................................................ 22,000
Record cost of truck ($20,515 + $1,485).
Dec. 31 Depreciation Expense—Trucks .................................. 4,000

Accumulated Depreciation—Trucks .................... 4,000
2018
Dec. 31 Depreciation Expense—Trucks .................................. 5,200*
*
2018 depreciation
Total cost ..........................................................................................................
$ 22,000
Less accumulated depreciation (from 2017)...................................................
4,000
Book value ........................................................................................................
18,000
Less revised salvage value ..............................................................................
2,400
Remaining cost to be depreciated ...................................................................
$ 15,600
Revised useful life ............................................................................................
4 yrs.
Less one year used in 2017 .............................................................................
1 yrs.
Revised remaining useful life ..........................................................................
3 yrs.
Total depreciation for 2018 ($15,600/3) ...........................................................
$ 5,200
2019
Dec. 31 Depreciation Expense—Trucks .................................. 5,200
Record annual depreciation.
Dec. 31 Cash .............................................................................. 5,300

Accumulated Depreciation—Trucks ..........................14,400**
Loss on Disposal of Trucks ........................................ 2,300***
Trucks ..................................................................... 22,000
Record sale of truck.
**
Accumulated depreciation on truck at 12/31/2019
2017................................................................................. $ 4,000
2018................................................................................. 5,200
2019................................................................................. 5,200
Total ................................................................................ $14,400
***
Book value of truck at 12/31/2019
Total cost ........................................................................ $22,000
Less accumulated depreciation .................................... (14,400)
Book value ..................................................................... $ 7,600
Loss ($5,300 cash received - $7,600 book value) ........ $ 2,300
1.
Jan. 2 Machinery ................................................................. 178,000
Cash .................................................................... 178,000
Record machinery purchase.
Jan. 3 Machinery ................................................................. 2,840
Cash .................................................................... 2,840
Record machinery costs.
Jan. 3 Machinery ................................................................. 1,160
Cash .................................................................... 1,160
2. a. First year
Dec. 31 Depreciation Expense—Machinery ............................28,000
Accumulated Depreciation—Machinery .............. 28,000
b. Fifth year
3. Accumulated depreciation at the date of disposal

Five years' depreciation (5 x $28,000) ......................... $140,000
Book value at the date of disposal
Original total cost ......................................................... $182,000
Accumulated depreciation ........................................... (140,000)
Book value .................................................................... $ 42,000
a. Sold for $15,000 cash
Dec. 31 Cash ..............................................................................
15,000
Loss on Sale of Machinery ......................................... 27,000
Accumulated Depreciation—Machinery .................... 140,000
Machinery ................................................................ 182,000
b. Sold for $50,000 cash
Dec. 31 Cash ..............................................................................
50,000
Machinery ................................................................ 182,000
Gain on Sale of Machinery ..................................... 8,000
c. Destroyed in fire and collected $30,000 cash from insurance co.
Dec. 31 Cash ..............................................................................
30,000
Loss from Fire .............................................................. 12,000
Machinery ................................................................ 182,000
a.
July 23 Mineral Deposit ............................................................
4,715,000
Cash ........................................................................ 4,715,000
Record purchase of mineral deposit.
b.
July 25 Machinery .....................................................................
410,000
Cash ........................................................................ 410,000
Record costs of machinery.
c.
441,600
Accum. Depletion—Mineral Deposit .................... 441,600
Record depletion [$4,715,000/
5,125,000 tons = $0.92 per ton.
480,000 tons x $0.92 = $441,600].
d.
Dec. 31 Depreciation Expense—Machinery ............................
38,400
Accum. Depreciation—Machinery ....................... 38,400
Record depreciation [$410,000/
5,125,000 tons = $0.08 per ton.
480,000 tons x $0.08 = $38,400].
Analysis Component
Similarities—Amortization, depletion, and depreciation are similar in that

they are all methods of allocating costs of long-term assets to the periods
that benefit from their use.
Differences—They are different in that they apply to different types of long-

term assets: amortization applies to intangible assets with (definite) useful
lives; depletion applies to natural resources; and depreciation applies to
plant assets. Also, amortization is typically computed using the straight-
line method, whereas the units-of-production method is routinely used in
depletion.
1.
Year 1 (a)
Jan. 1 Right-of-Use Asset ......................................................
270,000
Lease Payable ........................................................ 270,000
Record lease asset and obligation.
Years 1,2,3 (b)

Dec. 31 Amortization Expense .................................................
90,000
Accum Amortization—Right-of-Use Asset.......... 90,000
Record annual amortization of RoU asset.
Instructor note: See that by year-end of Year 3, the full $270,000 is amortized ($90,000 + $90,000 + $90,000).
2.
Year 1 (a)
270,000
Lease Payable ........................................................ 270,000
Year 1 (b)
80,358
Year 2
Dec. 31 Amortization Expense 89,642
Accum Amortization—Right-of-Use Asset 89,642
Year 3
PROBLEM SET B
Problem 8-1B (50 minutes)
Part 1
Estimated Percent Apportioned
Market Value of Total Cost
Building .......................... $ 890,000 50% $ 900,000
Land ................................ 427,200 24 432,000
Land improvements ...... 249,200 14 252,000
Trucks............................. 213,600 12 216,000
Total ................................ $1,780,000 100% $1,800,000
2018
Jan. 1 Buildings ........................................................................
900,000
Land ................................................................................
432,000
Land Improvements ...................................................... 252,000
Trucks .............................................................................
216,000
Cash .......................................................................... 1,800,000
Record asset purchases.
Part 2
Year 2018 straight-line depreciation on building
[($900,000 - $120,000) / 12 years] = $65,000
Part 3
Year 2018 double-declining-balance depreciation on land improvements
(100% / 10 years) x 2 = 20% rate
$252,000 x 20% = $50,400
Part 4
Accelerated depreciation does not increase the total amount of taxes paid
over the asset’s life. Instead, it defers or postpones taxes to the later years of
an asset’s useful life. This is because accelerated methods charge a higher
portion of asset costs against revenue in earlier years and a lower portion in
later years. The result is to reduce taxable income more in earlier years and
less in later years. [Note: From a present value perspective, there is a tax
savings from use of accelerated depreciation. The company gets to use the
deferred tax amounts for investment purposes until they are due.]
Cost of machine ...........................................................

$324,000
Less estimated salvage value .....................................
30,000
Total depreciable cost .................................................
$294,000
Double-Declining-
Year Straight-Linea Units-of-Productionb Balancec
1 ................... $ 58,800 $ 71,120 $129,600
2 ................... 58,800 64,080 77,760
3 ................... 58,800 63,400 46,656
4 ................... 58,800 68,720 27,994
5 ................... 58,800 26,680 11,990
Totals .......... $294,000 $294,000 $294,000
a
Straight- line:
Cost per year = $294,000/5 years = $58,800 per year
b
Units-of-production:
Cost per unit = $294,000/1,470,000 units = $0.20 per unit
Year Units Unit Cost Depreciation
1 .............. 355,600 $0.20 $ 71,120
2 .............. 320,400 0.20 64,080
3 .............. 317,000 0.20 63,400
4 .............. 343,600 0.20 68,720
5 .............. 138,500 0.20 26,680*
Total ........ $294,000
* Take only enough depreciation in Year 5 to reduce book
value to the asset’s $30,000 salvage value.
c
Double-declining-balance (amounts rounded to the nearest dollar):
(100%/5) x 2 = 40% depreciation rate
Depreciation Depreciation ($324,000 Cost less
Beginning (40% of at the End of Accumulated
Year Book Value Book Value) the Year Depreciation)
1 ............ $324,000 $129,600 $129,600 $194,400
2 ............ 194,400 77,760 207,360 116,640
3 ............ 116,640 46,656 254,016 69,984
4 ............ 69,984 27,994* 282,010 41,990
5 ............ 41,990 11,990** 294,000 30,000
Total ..... $294,000
* rounded
** Take only enough depreciation in Year 5 to reduce book value to the
asset’s $30,000 salvage value.
Part 1
Land Land
Building Building Improve- Improve-
Land B C ments B ments C
Purchase price* .......... $ 868,000 $527,000 $155,000
Demolition .................. 122,000
Land grading .............. 174,500
New building............... $1,458,000
New improvements .... _________ _______ _________ _______ $103,500
Totals .......................... $1,164,500 $527,000 $1,458,000 $155,000 $103,500
*Allocation of Appraised Percent Apportioned

purchase price Value of Total Cost
Land ......................................... $ 795,200 56% $ 868,000
Building B ................................ 482,800 34 527,000
Land Improvements B............. 142,000 10 155,000
Totals ....................................... $1,420,000 100% $1,550,000
Part 2
2018
Jan. 1 Land ......................................................................... 1,164,500
Building B................................................................ 527,000
Building C................................................................ 1,458,000
Land Improvements B ............................................ 155,000
Land Improvements C ............................................ 103,500
Cash ................................................................... 3,408,000
Record cost of plant assets.
Part 3
2018
Dec. 31 Depreciation Expense—Building B .......................................
28,500
Accumulated Depreciation—Building B.......................... 28,500
31 Depreciation Expense—Building C ...........................60,000
Accumulated Depreciation—Building C.............. 60,000
Record depreciation [($1,458,000 - $258,000)/20].
31 Depreciation Expense--Land Improvements B .........31,000

Accum. Depreciation--Land Improvements B ........ 31,000
31 Depreciation Expense--Land Improvements C. ........10,350

Accum. Depreciation--Land Improvements C ........ 10,350
2017
Jan. 1 Equipment ....................................................................27,670
Cash ........................................................................ 27,670
Record costs of van ($25,860 + $1,810).
Jan. 3 Equipment .................................................................... 1,850

Cash ........................................................................ 1,850
Record betterment of van.
Dec. 31 Depreciation Expense—Equipment ........................... 5,124*

*
2017 depreciation after January 3rd betterment
Total original cost ....................................................................
$27,670
Plus cost of betterment ...........................................................
1,850
Revised cost of equipment...................................................... 29,520
Less revised salvage ($3,670 + $230) ..................................... 3,900
Cost to be depreciated ............................................................
$25,620
Annual depreciation ($25,620 / 5 years) ................................. $ 5,124
2018
Jan. 1 Equipment .................................................................... 2,064
Cash ........................................................................ 2,064
Record extraordinary repair on van.
May 10 Repairs Expense—Equipment ................................... 800

Cash ........................................................................ 800
Record ordinary repair on van.
Dec. 31 Depreciation Expense—Equipment ........................... 3,760*

*2018 depreciation after 1/1 extraordinary repair

Total cost ($29,520 + $2,064) ...........................................................................
$31,584
Less accumulated depreciation ......................................................................
5,124
Book value ........................................................................................................
26,460
Less salvage .....................................................................................................
3,900
Remaining cost to be depreciated ..................................................................
$22,560
Revised remaining useful life (Original 5 years - 1yr. + 2yrs.) .....................................
6 yrs.
Revised annual depreciation ($22,560 / 6 yrs) ................................................
$ 3,760
2017
Jan. 1 Machinery .....................................................................
114,270
Cash ........................................................................ 114,270
Record costs of machinery ($107,800 +$6,470).
Record depreciation [($114,270-$9,720)/6].
2018
27,500*
*
2018 depreciation:
Total cost ..................................................................................
$114,270
Less accumulated depreciation (from 2017) .......................... 17,425
Book value ................................................................................96,845
Less revised salvage value ...................................................... 14,345
Remaining cost to be depreciated .......................................... $ 82,500
Revised useful life ....................................................................4 yrs.
Less 1 year in 2017 ...................................................................1 yrs.
Revised remaining useful life ..................................................3 yrs.
Total depreciation for 2018 ($82,500/ 3 yrs) .............................
$ 27,500
2019
Dec. 31 Cash ..............................................................................25,240

Accumulated Depreciation—Machinery ....................72,425**
Loss on Disposal of Machinery ..................................16,605***
Machinery ............................................................... 114,270
Record sale of machine.
**
Accumulated depreciation on machine at 12/31/2019:
2017 ................................................................................. $ 17,425
2018 ................................................................................. 27,500
2019 ................................................................................. 27,500
Total ................................................................................ $ 72,425
***
Book value of machine at 12/31/2019:
Total cost ........................................................................ $114,270
Less accumulated depreciation .................................... (72,425)
Book value ..................................................................... $ 41,845
Loss ($25,240 cash received - $41,845 book value)..... $ 16,605
1.
Jan. 1 Machinery .................................................................. 150,000
Cash ..................................................................... 150,000
Jan. 2 Machinery .................................................................. 3,510
Cash ..................................................................... 3,510
Jan. 4 Machinery .................................................................. 4,600
Cash ..................................................................... 4,600
2. a. First year
Record depreciation [($158,110-$18,110)/7 = $20,000].
b. Sixth year
Record the sixth year’s depreciation.
3. Accumulated depreciation at the date of disposal

First six years' depreciation (6 x $20,000) .....................$120,000
Book value at the date of disposal
Original total cost ............................................................$158,110
Accumulated depreciation ..............................................(120,000)
Total ..................................................................................$ 38,110
a. Sold for $28,000 cash
Dec. 31 Cash ..............................................................................28,000
Loss on Sale of Machinery .........................................10,110
Machinery ............................................................... 158,110
b. Sold for $52,000 cash
Dec. 31 Cash ..............................................................................52,000
Machinery ............................................................... 158,110
Gain on Sale of Machinery .................................... 13,890
c. Destroyed in fire and collected $25,000 cash from insurance
Dec. 31 Cash ..............................................................................25,000
Loss from Fire ..............................................................13,110
Machinery ............................................................... 158,110
a.
Feb. 19 Mineral Deposit ............................................................
5,400,000
Cash ........................................................................ 5,400,000
Record purchase of mineral deposit.
b.
Mar. 21 Machinery .....................................................................
400,000
Cash ........................................................................ 400,000
Record costs of machinery.
c.
342,900
Accum. Depletion—Mineral Deposit .................... 342,900
Record depletion [$5,400,000/
4,000,000 tons = $1.35 per ton.
254,000 tons x $1.35 = $342,900].
d.
25,400
Record depreciation [$400,000/
4,000,000 tons = $0.10 per ton.
254,000 tons x $0.10 = $25,400].
Analysis Component
Similarities—Amortization, depletion, and depreciation are similar in that

they are all methods of allocating costs of long-term assets to the periods
that benefit from their use.
Differences—They are different in that they apply to different types of long-

term assets: amortization applies to intangible assets (with definite useful
lives); depletion applies to natural resources; and depreciation applies to
plant assets. Also, amortization is typically computed using the straight-
line method, whereas the units-of-production method is routinely used in
depletion.
1.
Year 1 (a)
60,000
Lease Payable ........................................................ 60,000
Years 1,2,3 (b)

20,000
2.
Year 1 (a)
60,000
Lease Payable ........................................................ 60,000
Year 1 (b)
19,016
Year 2
Year 3
Serial Problem — SP 8
Serial Problem — SP 8, Business Solutions (45 minutes)
1. For the three months ended March 31, 2019, depreciation expense was
$400 for office equipment and $1,250 for the computer equipment.
Annualizing (multiplying quarterly results by four) these three-month
totals yield the following annual amounts for depreciation expense:
Depreciation Expense—Office Equipment ($400 x 4) ..................... $1,600

Depreciation Expense—Computer Equipment ($1,250 x 4)............ $5,000
2.
December 31, December 31,
2018 2019
Office Equipment ........................................ $ 8,000 $ 8,000
Less: Accumulated Depreciation–
Office Equipment ................................... 400 2,000
Office Equipment (book value) ................. $ 7,600 $ 6,000
December 31, December 31,

2018 2019
Computer Equipment ................................. $20,000 $20,000
Less: Accumulated Depreciation–
Computer Equipment ............................ 1,250 6,250
Computer Equipment (book value)........... $18,750 $13,750
3.
Total asset turnover = Net sales / Average total assets
The 3-month total asset turnover at March 31, 2019:
$44,000 / [($83,460 + $120,268)/2] = 0.43 times (rounded)
An estimate of its annual total asset turnover is 1.73 (0.432 x 4

quarters). This value for the total asset turnover is lower than usual for
companies competing in this industry (2.5). However, the company is
in its first year of operations, and its turnover will improve if it can
generate increased sales throughout the year while maintaining a
similar asset level.
Financial Analysis — FSA 8-1
1. The percent of original cost remaining to be depreciated is computed

by taking the ratio of the book value of property and equipment to the
original cost ($ millions):
a. $27,010 / $61,245 = 44.1%
b. $22,471 / $49,257 = 45.6%
2. Research and development costs are expensed as incurred.
3. Total asset turnover ($ millions):
a. $215,639 = 0.70 times

($321,686 + $290,345)/2
b. $233,715 = 0.90 times

($290,345 + $231,839)/2
4. Unfavorable
Explanation: Apple’s turnover decreased in the current year versus the

prior year. A lower turnover suggests Apple has become less efficient
in generating net sales given total assets.
Comparative Analysis — FSA 8-2
Note: Total asset turnover = Net sales / Average total assets
1. Total asset turnover for Apple ($ millions)
Current Year: $215,639 = 0.70 times

($321,686 + $290,345)/2
Prior Year: $233,715 = 0.90 times

($290,345 + $231,839)/2
Total asset turnover for Google ($ millions)
Current Year: $ 90,272 = 0.57 times

($167,497 + $147,461)/2
Prior Year: $74,989 = 0.54 times

($147,461 + $129,187)/2
2. Apple
Explanation: Apple employs its assets more efficiently than Google for
the current year.
3. a. Outperform; Apple outperforms the industry.
b. Outperform; Google outperforms the industry.
Global Decision — FSA 8-3
Note: Total asset turnover = Net sales / Average total assets
1. Total asset turnover for Samsung (KRW in millions):
₩201,866,745 = 0.80 times

Current Year: (₩262,174,324 + ₩242,179,521)/2
₩200,653,482 = 0.85 times

Prior Year: (₩242,179,521 + ₩230,422,958)/2
2. Unfavorable
Explanation: Samsung’s asset turnover decreased in the current year

versus the prior year.
3. a. Better
Explanation: Samsung’s asset turnover exceeds Apple’s asset turnover

of 0.70 in the current year. (Computations in FSA 8-2.)
b. Better
Explanation: Samsung’s asset turnover exceeds Google’s asset

turnover of 0.57 in the current year. (Computations in FSA 8-2.)
Ethics Challenge — BTN 8-1
1. When managers acquire new assets a number of decisions relative to

depreciation must be made. Specifically, the asset must be assigned a
useful life, a salvage value, and a method of depreciation.
2. When assets are placed in use on a day other than the first day of the
month an assumption is often made that the assets are placed in use on
the first day of the month nearest to the date of the purchase. For
example, for assets purchased on the 1st through 15th days of the month,
the first day of the month is assumed to be the purchase date. For
assets purchased on the 16th through month-end, the first day of the
next month is assumed to be the purchase date.
By selecting the first day of the following month, Choi is getting a one-
time deferral of some partial months of depreciation. She is still
employing a systematic and rational method of allocating costs if she
consistently chooses the first day of the following month. However,
since she appears to be using this method only with respect to current-
year additions, it appears that she is using accounting rules to reduce
depreciation expense this year. Also, her practice is not in keeping with
general business practices as described above. The facts of the
situation seem to suggest an ethical violation rather than a legitimate
depreciation decision rule.
3. By always assuming the first day of the following month as the date of
purchase, less depreciation is (initially) accrued for the assets
employed. This means depreciation expense will be less than if assets
were considered employed on the first of the month closest to the date
of purchase. With reduced depreciation charges, net income will be
higher for this current year. Therefore, this practice will result in a
higher profit margin for her company for this year.
Communicating in Practice — BTN 8-2
The solution to this activity will vary based on the industry and the
companies chosen for analysis. Many instructors find it useful to report
the results from the teams to the class for purposes of classroom
discussion and analysis.
Taking It to the Net — BTN 8-3
1. Yahoo! reports Goodwill in the amount of ($ thousands) $415,809 at

December 31, 2016.
Goodwill represents 0.9% ($415,809 / $48,083,079) of Yahoo!’s total
assets. Goodwill is not a substantial asset for Yahoo!.
2.
$ Change
Total from Prior %
Goodwill (in $ thousands) Amount Year Change
Balance, December 31, 2015 .................... $ 808,114
Balance, December 31, 2016 .................... $ 415,809 $392,305 -48.5%
3. Yahoo!’s intangible assets are categorized into the three categories

below at December 31, 2016. These intangibles represent 0.3%
($161,644 / $48,083,079) of total assets.
December 31, 2016 (in thousands)

Customer, affiliate, and advertiser related relationships ................
$102,765
Developed technology and patents...................................................47,243
Tradenames, trademarks, and domain names .................................11,636
Total intangible assets, net ................................................................
$161,644
4. Note 6 indicates that tradenames, trademarks, and domain names have

estimated useful lives of “three to seven years.”
Teamwork in Action — BTN 8-4
1. Annual depreciation for each year of the asset’s useful life:

Year Straight-line Double-Declining-Balance Units-of-Production
2016 ($44,000-$2,000)/4 (100%/4) x 2 = 50% is ($44,000-$2,000)/60,000 miles

= $10,500 declining-balance rate. = $.70 per mile.
BV x rate = $44,000 x 50% 12,000 miles x $.70 = $ 8,400
= $22,000
2017 $10,500 $22,000 x 50%= $11,000 18,000 miles x $.70 = $12,600
2018 $10,500 $11,000 x 50% = $5,500 21,000 miles x $.70 = $14,700
2019 $10,500 $5,500 (depreciate to 9,000* miles x $.70 = $ 6,300

salvage) = $3,500
* Depreciation is based on the estimated capacity of 60,000 miles. Even though the van is
driven 10,000 miles in the last year, depreciation can only be taken for the remaining 9,000
miles of estimated capacity. This will record depreciation to the estimated salvage value.
2. Depreciation is recorded in an adjusting entry at the end of each

period. The entry is:
Depreciation Expense ................................... xxxx*

Accumulated Depreciation .............. xxxx*
*Amount varies by method and year (see part 1).
3. Each expert’s presentation of the comparison of methods will be

slightly different. The experts should make the following points: The
straight-line method reduces net income by the same amount each
year. The declining-balance method reduces net income the largest in
the first year of use and by a lesser amount in each subsequent year.
The impact of the units-of-production method varies year to year
according to the amount of estimated capacity consumed (miles
driven).
Teamwork in Action — BTN 8-4 - continued
4. Book value at the end of each year

= Cost - Accumulated depreciation
= $44,000 – (amount varies by method—see part 1 for annual amounts)
Double-Declining-
Year Straight-line Balance Units of Production
2016 ........ $33,500 $22,000 $35,600
2017 ........ 23,000 11,000 23,000
2018 ........ 12,500 5,500 8,300
2019 ........ 2,000 2,000 2,000
For reporting purposes, each expert will have different results. But
each should show:
Plant Assets:
Transport Van ............................................................. $44,000
Less: Accumulated Depreciation .............................. XXXX*
XXXX*
* Amounts vary by the method and the year selected for illustration. Experts should explain
the amounts shown.
Entrepreneurial Decision — BTN 8-5
Part 1
(a) Under current conditions, the total asset turnover is 3.2. This is
computed as net sales of $8,000,000 divided by its average total assets
of $2,500,000.* This means the company turns its assets over 3.2 times
per year or, stated differently, each $1 of assets produces $3.20 of net
sales per year.
Net sales
* Total asset turnover =
Average total assets
(b) Under this proposal, its asset turnover would increase to 4. This is
computed by taking its net sales of $12,000,000 ($8,000,000 +
$4,000,000) and dividing by its average total assets of $3,000,000. This
means the company would now turn its assets over 4 times per year or,
stated differently, each $1 of assets would now produce $4.00 of net
sales per year.
Part 2
The proposal would yield an improved total asset turnover of 4 vis-à-vis the
current total asset turnover of 3.2. However, we need to recognize that this
proposal depends on our confidence in both maintaining current sales,
meeting future sales expectations, and not losing or alienating current
and/or future customers due to the expanded operations. Assuming all of
our estimates are reasonable, we need to focus on any potential customer
concern and the impact on other dimensions of analysis that such a
proposal can bring about.*
*We must remember that total asset turnover is only one dimension of a complete analysis of this
proposal. For example, we would want to explore the impact of this proposal on net income and
other activities.
Hitting the Road — BTN 8-6
No formal solution exists for this activity. It is usually interesting for the
class to exchange their discoveries via class discussion. This is
particularly the case with respect to patents, copyrights, and trademarks.

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Decisions 9th Edition Wild Solutions

Recorded cost = $190,000 + $20,000 + $4,000 + $13,700 = $227,700

Quick Study 8-2 (10 minutes)

Expensed or Capitalized Asset Category (if any) .

Quick Study 8-3 (10 minutes)

Quick Study 8-4 (10 minutes)

($65,800 - $2,000) / 200 concerts = $ 319 depreciation per concert

Quick Study 8-6 (10 minutes)

* Total accumulated depreciation of $479,844 ($207,500 + $155,625 + $116,719)

Quick Study 8-7 (10 minutes)

2. (a) Equipment................................................................ 40,000

(b)* Maintenance Expense ............................................ 200

(c)* Maintenance Expense ............................................ 175

(d) Building .................................................................... 225,000

Quick Study 8-9 (15 minutes)

Depletion Expense—Ore Mine ...................................... 288,000

Quick Study 8-11 (10 minutes)

Quick Study 8-12 (10 minutes)

Interpretation: The company’s turnover of 0.80 times is markedly lower than

Quick Study 8-14A (10 minutes)

2. Machinery (new) ........................................................ 52,000

Quick Study 8-16 (10 minutes)

Straight-line depreciation for 2017

Straight-line depreciation for 2018

Invoice price of machine .........................................................

Exercise 8-2 (15 minutes)

Cost of new building and land improvements

Allocation of total cost

Exercise 8-4 (10 minutes)

Exercise 8-5 (10 minutes)

Second year’s depreciation = $34,800 x 20% = $6,960

Exercise 8-7 (15 minutes)

Straight-line depreciation: ($154,000 - $25,000) / 4 years = $32,250 per year

Year Annual Depreciation Year-End Book Value

2019 ........ 32,250 89,500

2020 ........ 32,250 57,250

2021 ........ 32,250 25,000

Total ....... $129,000

Exercise 8-8 (20 minutes)

Exercise 8-10 (30 minutes)

Supporting calculations for depreciation expense

Straight-line depreciation for 2017

Straight-line depreciation for 2018

Exercise 8-12 (15 minutes)

Double-declining-balance depreciation for 2017 and 2018:

Book value at January 1, 2018 ($280,000 - $84,000) ...... $196,000

Exercise 8-13 (15 minutes)

2. Book value at end of second year ..............................................$ 13,130

Revised annual depreciation = $11,130 / 3 years = $3,710

1. Equipment ..................................................................... 22,000

2. Repairs Expense ........................................................... 6,250

3. Equipment ..................................................................... 14,870

Exercise 8-15 (25 minutes)

1. Annual depreciation = $572,000 / 20 years = $28,600 per year

Age of the building = Accumulated depreciation / Annual depreciation

2. Entry to record the extraordinary repairs