Individual Assignment – Accounting For Plant Asset

1. Silverman Company purchased machinery for $162,000 on January 1, 2015. It is estimated that the machinery will
have a useful life of 20 years, residual value of $15,000, production of 84,000 units, and working hours of 42,000.
During 2015, the company uses the machinery for 14,300 hours, and the machinery produces 20,000 units.
Compute annual depreciation under:

A. Straight-line method

B. Units of activity method - units-of-output

C. Units of activity method - working hours, and

D. Double-declining-balance method

2. Workman Company purchased a machine on January 2, 2015, for €800,000. The machine has an estimated
useful life of 5 years and a residual value of €100,000. Depreciation was computed by the 150% declining-balance
method. What is the amount of accumulated depreciation at the end of December 31, 2016?

3. A building that was purchased December 31, 1991, for £2,500,000 was originally estimated to have a life of 50
years with no residual value at the end of that time. The company follows straight line method. Depreciation has
been recorded through 2015. During 2016, an examination of the building by an engineering firm discloses that its
estimated useful life is 15 years after 2015. What should be the amount of depreciation for 2016?

4. Lockard Company purchased machinery on January 1, 2015, for €80,000. The machinery is estimated to have a
residual value of €8,000 after a useful life of 8 years. (a) Compute 2015 depreciation expense using the straight-
line method. (b) Compute 2015 depreciation expense using the straight-line method, assuming the machinery was
purchased on September 1, 2015. (c) Compute 2015 depreciation expense using the double declining- balance
method, assuming the machinery was purchased on October 1, 2015.

5. Machinery purchased for $52,000 by Carver Co. in 2011 was originally estimated to have a life of 8 years with a
residual value of $4,000 at the end of that time. Depreciation has been entered for 5 years on this basis. In 2016,
it is determined that the total estimated life should be 10 years with a residual value of $4,500 at the end of that
time. Assume straight-line depreciation. Prepare the entry to record depreciation for 2016.

6. Plant assets often require expenditures subsequent to acquisition. It is important that they be accounted for
properly. Any errors will affect both the statements of financial position and income statements for a number of
years. For each of the following items, indicate whether the expenditure should be capitalized (C) or expensed (E)
in the period incurred.
A. Improvement.
B. Replacement of a minor broken part on a machine.
C. Expenditure that increases the useful life of an existing asset.
D. Expenditure that increases the efficiency and effectiveness of a productive asset but does not increase
its residual value.
E. Expenditure that increases the efficiency and effectiveness of a productive asset and increases the
asset’s residual value.
F. Ordinary repairs.
G. Improvement to a machine that increased its fair value and its production capacity by 30% without
extending the machine’s useful life.
H. Expenditure that increases the quality of the output of the productive asset.
 Individual Assignment – Accounting For Corporation
1. Explain each of the following terms: authorized ordinary shares, unissued ordinary shares,
issued ordinary shares, outstanding ordinary shares, and treasury shares.
2. During its first year of operations, Sitwell Corporation had the following transactions
pertaining to its ordinary shares.
Jan. 10 Issued 80,000 shares for cash at €6 per share.
Mar. 1 Issued 5,000 shares to attorneys in payment of a bill for €35,000 for services
rendered in helping the company to incorporate.
July 1 Issued 30,000 shares for cash at €8 per share.
Sept. 1 Issued 60,000 shares for cash at €10 per share.
Instructions
A) Prepare the journal entries for these transactions, assuming that the ordinary shares
have a par value of €3 per share.
B) Briefly discuss how the entries in part (a) will change if the shares are no-par with a
stated value of €2 per share.
3. Abernathy Corporation was organized on January 1, 2015. It is authorized to issue 10,000
shares of 8%, $50 par value preference shares, and 500,000 shares of no-par ordinary shares
with a stated value of $2 per share. The following share transactions were completed during
the first year.
Jan. 10 Issued 80,000 ordinary shares for cash at $5 per share.
Mar. 1 Issued 5,000 preference shares for cash at $108 per share.
Apr. 1 Issued 24,000 ordinary shares for land. The asking price of the land was $90,000;
the fair value of the land was $80,000.
May 1 Issued 80,000 ordinary shares for cash at $7 per share.
Aug. 1 Issued 10,000 ordinary shares to attorneys in payment of their bill of $50,000 for
services rendered in helping the company organize.
Sept. 1 Issued 10,000 ordinary shares for cash at $9 per share.
Nov. 1 Issued 1,000 preference shares for cash at $112 per share.
Instructions: Prepare the journal entries to record the above transactions.
EXERCISES