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Manual
Chapter 6
Property, Plant, and Equipment, and

Intangible Assets
Short Exercises
(5 min.) S 6-1
1. Property and Equipment, at Cost
Millions
Aircraft………………………………………………… $ 2,392
Package handling and ground support
equipment………………………………………… 12,229
Computer and electronic equipment……………. 28,159
Vehicles………………………………………………. 581
Facilities and other…………………………………. 1,432
Total cost………………………………………….. 44,793
Less: Accumulated (14,900)
depreciation………………….
Net property and equipment…………………… $29,893
2. Cost = $44,793 million

Carrying amount = $29,893 million
Carrying amount is less than cost because accumulated
depreciation is subtracted from cost to compute carrying
amount.
376 Financial Accounting Sixth Canadian Edition Instructor’s Solutions Manual

Copyright © 2018 Pearson Canada Inc.
(5 min.) S 6-2
The related costs (real estate commission, back property tax,
removal of a building, legal fees, and survey fees) are
included 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.) S 6-3
Land ($140,000  0.50) ............................ 70,000

Building ($140,000  0.40) ...................... 56,000
Equipment ($140,000  0.10) .................. 14,000
Note Payable........................................ 140,000
Market
Value
Land .......................... $ 75,000 (75,000/150,000 = .50)
Building..................... 60,000 (60,000/150,000 = .40)
Equipment ................ 15,000 (15,000/150,000 = .10)
Total .......................... $150,000
Financial Accounting Sixth Canadian Edition Instructor’s Solutions Manual 377

(10-15 min.) S 6-4
Income Statement
Revenues CORRECT
Expenses UNDERSTATED
Net income OVERSTATED
Balance Sheet
Current assets CORRECT Total liabilities CORRECT
Property, Plant, OVERSTATED Shareholders’ equity OVERSTATED
and Equipment
Total liabilities
Total assets OVERSTATED and shareholders’
equity OVERSTATED

(10 min.) S 6-5
1. First-year depreciation:
(a) Straight-line ($25,000,000 – $5,000,000) /

5 years......................................................... $4,000,000
(b) Units-of-production [($25,000,000 – $5,000,000) /

5,000,000 kilometres]  750,000
kilometres..................................................... $3,000,000
(c) Double-Diminishing-balance
($25,000,000 / 5 years)  2........................... $10,000,000
2. Carrying amount:
Double-
Straight- Units-of- Diminishing
Line Production Balance
Cost .............................. $25,000,000 $25,000,000 $25,000,000
Less Accumulated
Depreciation ........... (4,000,000) (3,000,000) (10,000,000)
Carrying amount ......... $21,000,000 $22,000,000 $15,000,000

(10 min.) S 6-6
Fifth-year depreciation:
(a) Straight-line ($25,000,000 – $5,000,000) /
5 years…… $4,000,000
(b) Units-of-production [($25,000,000 –

$5,000,000) / 5,000,000 kilometres] 
500,000 kilometres………….. $2,000,000
(c) Double-diminishing-balance:
Year 1 ($25,000,000  2/5) = $10,000,000
Year 2 ($25,000,000 – $10,000,000)  2/5 = $6,000,000
Year 3 ($25,000,000 – $10,000,000 – $6,000,000)  2/5 =

$3,600,000
Year 4 ($25,000,000 – $10,000,000 – $6,000,000 –

3,600,000)  5,000,000 = $400,000
Year 5 No depreciation: asset is fully

depreciated

(5-10 min.) S 6-7
First-year depreciation (for a partial year):
a. Straight-line (€40,000,000 – €5,000,000)/7 years

 3/12 ................................................................ € 1,250,000
b. Units-of-production (€40,000,000 – €5,000,000)/

5,000,000 km  500,000 km ............................ € 3,500,000
c. Double-diminishing-balance (€40,000,000  2/7

 3/12) .............................................................. € 2,857,143
Straight-line depreciation produces the highest net income

(lowest depreciation). Units-of-production depreciation
produces the lowest net income (highest depreciation).

(10 min.) S 6-8
Depreciation Expense — Concession Stand ....... 12,000
Accumulated Depreciation — Concession
Stand ................................................................... 12,000
Depreciation for years 1–4:
$60,000 / 10 years = $6,000 per year
$6,000  4 years = $24,000 for years 1–4
Asset’s remaining
depreciable ÷ (New) Estimated = (New) Annual
carrying amount useful life remaining depreciation
$60,000 – $24,000 ÷ 3 years = $12,000 per

year
$36,000

(10 min.) S 6-9
Req. 1
Straight-line depreciation ($45,000 – $5,000)/5 = $8,000

annually
Carrying value of van at December 31, 2017 is

$45,000 – $8,000 – $8,000 – $8,000 – $8,000 = $13,000
Req. 2
Cash ................................................... 15,000

Asset account – van ......................... 45,000
Accumulated depreciation ............... 32,000
Gain on sale of van ........................... 2,000

(5-10 min.) S 6-10
Patents and goodwill are both long-lived assets. A patent
provides the exclusive right to make use of an invention or
process for a specific period of time, usually 20 years.
Goodwill is the excess of cost of purchasing another
company over the sum of the fair value of its net asset. A
patent has a finite life that may be measured; goodwill has an
indefinite life.
A patent is amortized over its useful life. Amortization is

usually computed on a straight-line basis. The amortization
is recorded as follows:
DR CR
Amortization expense.......................... XX
Accumulated amortization.............. XX
The cost of the patent, less the accumulated amortization is

the carrying amount of this intangible asset.
The value of goodwill does not change, unless it is impaired.

Impairment results when the recoverable amount for the
goodwill is less than the carrying amount. IFRS requires that
companies review the value of their goodwill annually and
write down the value of the goodwill if it is less than the
carrying amount. The write-down is recorded as follows:
DR CR
Impairment of goodwill......................... XX
Goodwill............................................. XX
The carrying amount of goodwill is the cost, less any

recorded impairment.

(10-15 min.) S 6-11
Req. 1 (Millions)
The purchase price was $ 200.0

The fair value of the net assets is $ 180.3
The goodwill would be $ 19.7
Req. 2
Canadian Tire would have reviewed the goodwill value

annually. If the goodwill value is still $19.7 million, there will
have been no amortization or expense recorded. The asset
value of goodwill will continue to be $19.7 million.
(10-15 min.) S 6-12

Req. 1
Jaguar Automobiles Ltd.

Income Statement
For the Year Ended December 31, 2017
Revenues:
Sales revenue ...................................... $6,500,000
Expenses:
Cost of goods sold ............................. $3,200,000
Research expense .............................. 500,000
Amortization of patent ($1,200,000 / 3) 400,000
Selling expenses ................................. 300,000
Total expenses .................................... 4,400,000
Net income ............................................... $2,100,000

(5 min.) S 6-13
Rising Yeast Co.
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash flows from investing activities: (Millions)
Purchase of other companies ................................ $(17)
Capital expenditures ............................................... (2)
Proceeds from sale of operations ......................... 25
Net cash provided by investing activities. $ 6
(5 min.) S 6-14
(Dollar amounts in millions)
Return on = Net + ÷ Average total

assets income Int.exp assets
15% = $17 + $1 ÷ $120
The return on assets deteriorated. Possible reasons include

a decrease in sales, increase in expenses or an increase in
total assets.

(5 min.) S 6-15
2016 Return on = Net income + ÷ Average total

assets Int.exp assets
17.7% = $42,000 +500 ÷ $240,000
2017 Return on = Net income ÷ Average total

assets assets
18.0% = $44,500 +500 ÷ $250,000
Return on assets improved in 2017. Net income increased

slightly higher than the increase in total assets. It may be a
result of higher sales or lower expenses or both.
(5 min.) S 6-16
1. E
2. C
3. E
4. C
5. N
6. C
7. C
8. C
9. C
10. E

(5-10 min.) S 6-17
Req. 1
Cost of goodwill purchased:

Millions
Purchase price paid for Healthy Snacks, Inc. $5.8
Market value of Healthy Snacks’ net assets:
Market value of Healthy Snacks’ assets $ 7.0
Less: Healthy Snacks’ liabilities (6.0)
Market value of Healthy Snacks’ net assets 1.0
Cost of goodwill $4.8
Req. 2
In future years Crunchies, Inc. will determine whether its

goodwill has been impaired. If the goodwill’s value has not
been impaired, there is nothing to record. But if goodwill’s
value has been impaired, Crunchies, Inc. will record a loss
and write down the book value of the goodwill.
(5-10 min.) S 6-18
Asset Carrying Value in Fair Impaired? Amount

Amount Use Value (Y or N) of Loss
a. Equipment $180,000 $140,000 $100,000 Y $40,000
b. Trademark $320,000 $460,000 $375,000 N –
c. Land $52,000 $24,000 $21,000 Y $28,000
d. Factory $9 million $9 million $7 million N –

building

Exercises
(5-10 min.) E 6-19

Land: $150,000 + $100,000 + $5,000 + $3,000 + $25,000 =
$283,000
Land improvements: $100,000 + $10,500 + $18,000 = $128,500
Building: $70,000 + $3,750,000 = $3,820,000
(10-15 min.) E 6-20

Allocation of cost to individual machines:
Cost of
Appraised Percentage of Total Total Each
Machine Value Appraised Value Cost Asset
1 $ 27,000 $27,000 / $108,000 = 0.250 $100,000  0.250 = $25,000
2 45,000 45,000 / 108,000 = 0.417 100,000  0.417 = 41,700
3 36,000 36,000 / 108,000 = 0.333 100,000  0.333 = 33,300
Totals $108,000 1.000 $100,000
Sale price of machine no. 2 ................... $45,000

Cost ......................................................... 41,700
Gain on sale of machine ........................ $ 3,300

(5-10 min.) E 6-21
Capital expenditures: All costs incurred to bring the asset to
its intended use are included in the cost of the asset.
(c) Purchase price, (a) sales tax, (b) transportation and

insurance, (d) installation, (e) training of personnel,
(f) reinforcement to platform, (h) major overhaul,
(j) lubrication before machine is placed in service
Note: (h) would also be a capital expenditure when
completed after a period of operation.
Immediate expenses:
(g) Income tax, (i) ordinary recurring repairs, (k) periodic
lubrication
A capital expenditure increases an asset’s capacity or
extends its useful life. An immediate expense maintains the
asset or restores it to working order.

(15 min.) E 6-22
Journal
ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
1. a. Land………………………… 200,000
Cash………………………………………... 200,000
b. Building [$2,250 + $20,000 + $700,000 +

($29,000  9/12)] 744,000
Note Payable……………………………… 700,000
Cash [$2,250 + $20,000 + ($29,000  9/12)] 44,000
c. Depreciation Expense……………………... 6,840

Accumulated Depreciation
($744,000 – $60,000) / 25  3/12……….. 6,840
2. BALANCE SHEET
Property, Plant, and Equipment:
Land ..................................................... $200,000
Building ............................................... $744,000
Less Accumulated depreciation ....... (6,840)
Building, net........................................ 737,160
3. INCOME STATEMENT
Expense:
Depreciation expense ........................ $ 6,840

(15-20 min.) E 6-23
Double-
Units-of- Diminishing
Year Straight-Line Production Balance
1 $ 9,000 $ 7,200 $ 19,980
2 9,000 10,800 6,673
3 9,000 9,000 347
$ 27,000 $27,000 $27,000
_____
Computations:
Straight-line: ($30,000 – $3,000) ÷ 3 = $9,000 per year.
Units-of-production: ($30,000 – $3,000) ÷ 150,000 kilometres =

$0.18 per kilometre;
YR1 40,000  $0.18 = $ 7,200
2 60,000  $0.18 = $10,800
3 50,000  $0.18 = $ 9,000
Double-diminishing-balance — Twice the straight-line rate:

1/3  2 = 2/3 = 66.6%
YR
1 $30,000  0.666 = $19,980
2 ($30,000 – $19,980)  0.667 = $6,673
3 ($30,000 – $19,980 – $6,673) = $3,347 – $3,000
(residual value) = $347
The units-of production method tracks the useful life cost of

the van most closely.

(continued) E 6-23
According to IFRS, management should choose a
depreciation method that reflects the pattern in which the
asset will be used. For example, if the asset generates
revenue evenly over time, the straight-line method should be
used. The units of production method is suited for those
assets that wear out of physical use while the diminishing
balance method is best for assets that generate greater
amounts of revenue earlier in their useful lives.

(15 min.) E 6-24
INCOME STATEMENT
Expenses:
Depreciation expense — building [($50,000 +
$100,000 + $50,000) – $50,000] / 25 ....................... $ 6,000
Depreciation expense — equipment and store

fixtures ($50,000  2/5) ........................................... 20,000
Supplies expense
($10,000 – $2,000) ................................................... 8,000
BALANCE SHEET
Current assets:
Supplies ...................................................................... $ 2,000

Building ($50,000 + $100,000 + $50,000). $200,000
Less accumulated depreciation ............... (6,000) $194,000
Equipment and store fixtures .................. $ 50,000

Less accumulated depreciation ............... (20,000) 30,000
STATEMENT OF CASH FLOWS

Cash flows from investing activities:
Purchase of building ($50,000 + $50,000) ......... $(100,000)
Purchase of equipment and store fixtures ....... (50,000)
Net Cash used for investing activities $ 150,000

(5-10 min.) E 6-25
1. Return on assets for the year ended January 31,
2017: 2016:
Net earnings $ 2,000 + $10 = 5.96% $1,773+$10 = 5.4%

Avg. total assets $33,699 $33,005
_____
2. The return on assets improved slightly. Net income

increased with only a slight increase in total assets.
(10-15 min.) E 6-26
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
Year 11 Depreciation Expense…………………… 55,833
Accumulated Depreciation — Building 55,833
Year 12 Depreciation Expense…………………… 55,833*

Accumulated Depreciation — Building 55,833
_____
*Computation:
Depreciable cost: $900,000 – $100,000 = $800,000

Depreciation through year 10:
$800,000 ÷ 30 = $26,667  10 = $266,670
Asset’s remaining depreciable carrying amount:
$900,000 – $266,670 – $75,000 = $558,330
New estimated useful life remaining: 10 years
New annual depreciation: $558,330 ÷ 10 = $55,833

(15-20 min.) E 6-27
Journal
2017 Depreciation for 6 months:
June 30 Depreciation Expense ........................ 1,800a
Accumulated Depreciation —
Fixtures ........................................... 1,800
Sale of fixtures:
30 Cash ..................................................... 5,000
Store Fixtures ($6,000 + $1,800) ........ 7,800
Loss on Sale of Fixtures .................... 2,200b
Fixtures ........................................... 15,000
_____
a
2016 depreciation: $15,000  2/5 = $6,000
2017 depreciation: ($15,000 – $6,000)  2/5  6/12 = $1,800
b
Loss is computed as follows:
Sale price of old fixtures ............................. $ 5,000
Carrying amount of old fixtures:
Cost ........................................................... $15,000
Less: Accumulated depreciation ............ (7,800) 7,200
Loss on sale.................................................. $ 2,200

(10-15 min.) E 6-28
Cost of old truck………………………………… $280,000
Less Accumulated depreciation:
($280,000 – $40,000)  130 + 180 + 180 + 90

(139,200)
1,000
_______
Carrying amount of old truck……………………… $140,800
Journal Entry:
Cost of tractor-trailer rig 280,000

Accumulated depreciation 139,200
Loss on derecognition 140,800

(10-15 min.) E 6-29
Goodwill has increased by 8.9 thousand. This indicates that
the company has purchased the assets of another entity
during the year. It would be important to know how much
was paid for the purchase and how the purchase was
financed. Will your investment benefit through increased
value and/or dividends from profits of the new acquisition?
This information will be found by analysis of the Goodwill
notes to the financial statements.
Further it will be important to ascertain that On the Edge

assesses the value of goodwill on a regular basis to
determine whether the carrying amount is more than the fair
value of the goodwill. The note re Intangible assets should
disclose that an assessment was made and that the
appropriate action was taken, i.e., that no write-down was
required or that a write-down was taken to reflect the value of
the impairment. As an investor, this will confirm that the
value of goodwill is not overstated.
The carrying value of intangible assets decreased by $6.0

thousand. It will be important to ascertain through the notes
the description of the intangible assets (i.e., patents,
trademarks or licences), how they relate to the business, and
what amortization was recorded. As an investor, you will
want to know if new intangible assets have been acquired.
This information will be disclosed through the Intangible
Assets notes to the financial statements.

(10-15 min.) E 6-30
Journal
Part 1(a) Purchase of patent:
Patents………………………………... 600,000
Cash………………………………… 600,000
(b) Amortization for one year: Use

straight-line method to allocate
cost over useful life.
Amortization Expense — Patents
($600,000 ÷ 6)………………………… 100,000
Accumulated 100,000
Amortization…………………………..
Part 2 Amortization for year 3:

Amortization Expense — Patents... 200,000*
Accumulated 200,000
Amortization…………………………..
_____
*Asset remaining carrying amount:
$600,000 – ($100,000  2) = $400,000
New estimated useful life remaining: 2 years
New annual depreciation: $400,000 ÷ 2 = $200,000

(15-20 min.) E 6-31
Req. 1
Goodwill is defined as “Purchase Price in Excess of Net

Assets of Businesses Acquired.”
Req. 2
a. $6.2 million is the amount of cash that Blackberry paid to

acquire (purchase) other companies.
b. $4.5 million must be the carrying amount of goodwill

arising from the purchase of these companies.
Req. 3
There must have been no impairment of goodwill during the

year.

(5-10 min.) E 6-32
Req. 1
Cost of goodwill purchased:
Purchase price paid for My Space......... $18,000,000

Fair value of My Space’s net assets:
Fair value of My Space’s assets ........ $ 25,000,000
Less: My Space’s liabilities ................ (24,000,000)
Fair value of My Space’s net assets 1,000,000
Cost of goodwill ...................................... $17,000,000
Req. 2
Journal
Assets (Cash, Receivables,
Inventories, Property, Plant, and 25,000,000
Equipment) .....................................
Goodwill.......................................... 17,000,000
Liabilities ................................... 24,000,000
Cash ........................................... 18,000,000
Purchased My Space Ltd.
Req. 3
Google will determine whether the My Space’s goodwill that

Google has purchased has increased or decreased in value.
If the goodwill’s value has increased, there is nothing to
record. But if the goodwill’s fair value has decreased, that is
if the value is impaired, Google will record a loss on goodwill
and write down the carrying amount of the goodwill.

(10-15 min.) E 6-33
1. Depreciation appears on the statement of cash flows as
“Noncash items.” Depreciation is an expense that
decreased net income, but it did not decrease cash. To
measure cash flow from operations, depreciation is added
back to net income.
2. During 2017, the retailer:
a. Paid $233.6 million to purchase property, plant, and

equipment. Record this cash payment as “[Investment
in] Property, plant, and equipment assets.”
b. Paid $0.6 million to acquire other investments.
c. Received cash of $17.0 million from the derecognition

(sale) of assets.
(10 min.) E 6-34

a. Sale of building
(or derecognition of assets) ...................... $600,000
b. Insurance proceeds from fire

(or derecognition of assets) ...................... 120,000
c. Renovation of stores
(or property) ................................................ (400,000)
d. Purchase of store fixtures

(or equipment) ............................................ (60,000)

(5-10 min.) E 6-35
1. Return on assets for the year ended January 31,

2017: 2016:
Net earnings $ 1,111+$5 = 4.75% $65+$5 = 0.3%

Average total assets $23,505 $23,126
_____
2. The return on assets improved greatly in 2017. Net income

increased significantly while total assets increased slightly.
(5-10 min.) E 6-36

(a) Major overhaul Capital Expenditure
(b) Periodic lubrication Immediate Expense
(c) Purchase price Capital Expenditure
(d) Training of personnel Capital Expenditure
(e) Reinforcement to platform Capital Expenditure
(f) Transportation and insurance Capital Expenditure
(g) Ordinary recurring repairs Immediate Expense
(h) Lubrication before machine is placed in Capital Expenditure
service
(i) Sales tax Capital Expenditure
(j) Installation Capital Expenditure
(k) Income tax Immediate Expense

(10-15 min.) E 6-37
Let ? = Number of hours of usage
Units-of-
Cost – Residual value Number of
production = 
Useful life, in hours hours of use
depreciation
$100,000 + $2,000 –
$10,304 = $10,000  ?
50,000
$10,304 = $1.84  ?
$10,304
? =
$1.84
= 5,600 hours
Alternate solution setup:
Depreciation Cost – Residual value

=
per hour Useful life, in hours
$10,000 + $2,000 – $10,000
= = $1.84
50,000
UOP Depreciation Number of
= 
Depreciation per hour hours of use
$10,304 = $1.84  ?
$10,304
? =
$1.84
= 5,600 hours

(15-20 min.) E 6-38
(Amounts in millions)
Land buildings and equipment

Beg. bal. 575.1 Cost of prop.
Purchases 74.2 and equip. sold X = 105.2
End. bal. 544.1
Accumulated Depreciation
Accum. dep. of prop. Beg. bal. 209.4
And
X = 52.4 equip. sold X Depreciation exp. 38.1
End. bal. 195.1
Carrying amount of property and equipment sold:

Cost ............................................................ $105.2
Accumulated depreciation ....................... (52.4)
Carrying amount sold ............................... 52.8
 Loss on sale ............................................ (32.6)
Sale price of property and equipment ..... $ 20.2
The loss would be reported on the income statement as

Other gain (losses)

(15-20 min.) E 6-39
Net income under straight-line depreciation……... $21,000
Difference in depreciation for fiscal 2017 (year 4 of 5):

Straight line depreciation, as reported ........ $1,000
DDB depreciation for year 4 (see below) ..... 432
Decrease in depreciation expense ............... 568
Income Tax rate .............................................. (0.25)
Increase in income tax ........................................ 142
Net income Rindy can expect for fiscal 2017

if the company uses DDB depreciation ...................
$21,426*
*$21,000 + $568 – $142 = $21,426
Cost of furniture, fixtures, equipment, and

automotive assets ($1,000  5 years) ................ $5,000
DDB depreciation by year:

Year DDB depreciation
1 $5,000  2/5 .............................................. $2,000
2 ($5,000 – $2,000)  2/5.............................. 1,200
3 ($5,000 – $2,000 – $1,200)  2/5 .............. 720
4 ($5,000 – $2,000 – $1,200 – $720)  2/5 .. 432
Management chooses the depreciation method that reflects

the pattern in which the asset will be used. For example, if
the asset generates revenue evenly over time, the straight-
line method should be used. The units of production method
is suited for those assets that wear out of physical use while
the diminishing balance method is best for assets that
generate greater amounts of revenue earlier in their useful
lives

(15-25 min.) E 6-40
Year
2017 2018 2019 2020
New Zealand $
1. Total current assets No effect
2. Equipment, net $150,000 u* $100,000 u** $50,000 u Correct
3. Net income $150,000 u* $50,000 o $50,000 o$50,000o
4. Owners’ equity $150,000 u $100,000 u $50,000 u Correct
_____
u = Understated
o = Overstated
* Cost ($200,000) – Depreciation expense ($50,000)

= $150,000
** Cost ($200,000) – Two years’ depreciation ($100,000)
= $100,000

Problems
Group A
(20-30 min.) P 6-41A
Req. 1
LAND WARE- OFFICE
ITEM LAND IMPROVEMENTS HOUSE BUILDING FURNITURE
(a) $280,000 $70,000
(b) 8,100
(c) $31,600
(d) 1,000
(e) 7,500
(f) 3,400
(g) $1,500
(h) 24,500
(i) 920,000
(j) 50,200
(k) 9,700
(l) 8,200*
(m) 57,600
(n) 234,300
(o) 3,000 51,000 6,000
(p) $115,700
(q) 2,300
Totals $296,600 $103,800 $1,241,000 $126,200 $118,000
Computations:
(a) Land: $320,000 / $400,000  $350,000 = $280,000
Office building: $80,000 / $400,000  $350,000 = $70,000
(n) Land improvements: $60,000  0.05 = $3,000
Warehouse: $60,000  0.85 = $51,000
Office building: $60,000  0.10 = $6,000
_____
*Some accountants would debit this cost to the Land account.

(continued) P 6-41A
Req. 2
Journal
2017
Dec. 31 Depreciation Expense — Land
Improvements ($103,800 / 20  4/12) ........ 1,730
Land Improvements ................................ 1,730
31 Depreciation Expense — Warehouse

($1,241,000 / 40  4/12) ............................... 10,342
Warehouse ............................................... 10,342
31 Depreciation Expense — Office

Building ($126,200 / 40  4/12) ................... 1,052
Office Building ......................................... 1,052
31 Depreciation Expense —
Furniture ($118,000 / 8  4/12).................... 4,917
Furniture ..................................................... 4,917
_____
*$1,593 ($95,600 / 20  4/12) if $8,200 (“l” in Req. 1) is debited
to Land.

(continued) P 6-41A
Req. 3
This problem shows how to determine the cost of property,

plant, and equipment. It also demonstrates the computation of
depreciation for property, plant, and equipment. Because
virtually all businesses use property, plant, and equipment, a
manager needs to understand how those assets’ costs and
depreciation amounts are determined. Depreciation affects
net income. Managers need to understand the meaning,
components, and computation of net income because often
their performance is measured by how much net income the
business earns. This problem covers all these concepts with
specific examples.

(15 min.) P6-42A
Req. 1
Journal
Equipment............................................................ 100,000
Cash.................................................................. 100,000
Depreciation Expense — Buildings……………. 17,500

Accumulated Depreciation — Buildings…… 17,500
($400,000 – $50,000) / 20 = $17,500
Depreciation Expense — Security Equipment 78,000

Accumulated Depreciation — Equipment..... 78,000
[($600,000 – $260,000)  2/10] + ($100,000 
2/10  6/12) = $78,000
Req. 2
BALANCE SHEET
Land................................................................................... $ 150,000
Buildings........................................................................... 400,000
Less: Accumulated Depreciation ($87,500 + $17,500).. (105,000)
Equipment ($600,000 + $100,000)……………………..…. 700,000
Less: Accumulated Depreciation ($260,000 + $78,000) (338,000)
Total Property, Plant, and Equipment, net $807,000

(25-35 min.) P 6-43A
Journal
2017
Jan. 2 Cash 70,000
Motor Carrier Equipment (old) ...... 67,000
Motor Carrier Equipment (old)........... 130,000
Gain on sale of Motor carrier
equipment ........................................ 7,000
Jan. 2 Motor Carrier Equipment (new) 176,000
Cash 176,000
July 3 Depreciation Expense — Building

[($650,000 – $250,000) / 40  6/12] 5,000
Building ........................................... 5,000
3 Cash ......................................................... 100,000

Note Receivable ...................................... 400,000
Building ($145,000 + 5,000)............ 150,000
Building................................................ 650,000
Oct. 29 Land [$150,000/($150,000 + $300,000) 

$420,000] .............................................. 140,000
Building [$300,000/($150,000 +
$300,000)  $420,000].......................... 280,000
Cash ..................................................... 420,000

(continued) P 6-43A
Journal
2017
Dec. 31 Depreciation Expense —
Motor Carrier Equipment
($176,000  1/6  2) .................................. 58,667
Motor Carrier Equipment................ 58,667

Building [$280,000 — (10% 
$280,000)]/40  2/12) ............................ 1,050
Buildings ...................................... 1,050
2. Management chooses the depreciation method that

reflects the pattern in which the asset will be used. For
example, if the asset generates revenue evenly over time, the
straight-line method should be used. The units of production
method is suited for those assets that wear out of physical
use while the diminishing balance method is best for assets
that generate greater amounts of revenue earlier in their
useful lives

(10-15 min.) P 6-44A
Depreciation is the process of allocating property, plant, and
equipment’s cost to expense over the period the asset is
used. Of less importance is the need to account for the
decline in the asset’s usefulness.
The decreasing annual amounts indicate that the company

is using an accelerated depreciation method, which allocates
more asset cost to expense during the early years of asset
use than during the later years. This pattern is not related to
changes in the value of the asset, because depreciation is
not a process of asset valuation. Even though the property
values may be increasing, it is still necessary to record
depreciation in order to allocate the cost of the building over
its useful life.

(30-40 min.) P 6-45A
Req. 1
B.W. Soffer Inc.

Straight-Line Depreciation Schedule
Depreciation for the Year
1 2 3 4
ASSET Depreciation Depreciable Depreciation ACCUMULATED ASSET CARRYING
DATE COST RATE  COST = EXPENSE DEPRECIATION AMOUNT
03-01-2016 $240,000 $240,000
31-12-2016 1/5 $220,000 $44,000 $ 44,000 196,000
31-12-2017 1/5 220,000 44,000 88,000 152,000
31-12-2018 1/5 220,000 44,000 132,000 108,000
31-12-2019 1/5 220,000 44,000 176,000 64,000
31-12-2020 1/5 220,000 44,000 220,000 20,000
Asset cost: $224,000 + $6,200 + $6,700 + $3,100 = $240,000
Depreciation for the year: ($240,000 – $20,000) / 5 years = $44,000

(continued) P 6-45A
Req. 1
B.W. Soffer Inc.

Units-of-Production Depreciation Schedule
1 2 3 4
ASSET DEPRECIATION NUMBER OF DEPRECIATION ACCUMULATED ASSET CARRYING
DATE COST PER DOCUMENT  DOCUMENTS = EXPENSE DEPRECIATION AMOUNT
03-01-2016 $240,000 $240,000
31-12-2016 $1.10 50,000 $55,000 $ 55,000 185,000
31-12-2017 1.10 45,000 49,500 104,500 135,500
31-12-2018 1.10 40,000 44,000 148,500 91,500
31-12-2019 1.10 35,000 38,500 187,000 53,000
31-12-2020 1.10 30,000 33,000 220,000 20,000
Total books 200,000
Depreciation per document: ($224,000 + $6,200 + $6,700 + $3,100 – $20,000) / 200,000

units = $1.10

(continued) P 6-45A
Req. 1
B.W. Soffer Inc.

Double-Diminishing-Balance Depreciation Schedule
1 2 3 4
ASSET DEPRECIABLE DEPRECIATION ACCUMULATED ASSET CARRYING
DATE COST DDB RATE  COST = EXPENSE DEPRECIATION AMOUNT
03-01-2016 $240,000 $240,000
31-12-2016 0.40 $240,000 $96,000 $ 96,000 144,000
31-12-2017 0.40 144,000 57,600 153,600 86,400
31-12-2018 0.40 86,400 34,560 188,160 51,840
31-12-2019 0.40 51,840 20,736 208,896 31,104
31-12-2020 31,104 11,104 220,000 20,000
DDB rate = (1/5 years  2) = 2/5 = 0.4

(continued) P 6-45A
Req. 2
The depreciation method that maximizes reported income in

the first year of the computer’s life is the straight-line
method, which produces the lowest depreciation for that
year ($44,000). The straight-line method allocates the cost
of the asset evenly over its estimated useful life.
The units-of-production method would allocate the cost

of the asset to each of the documents produced. This
method would match expense to the actual use of the asset.
The double-diminishing balance method would allocate

most of the cost of the asset to the beginning of its useful
life when the computer would be at its most useful and
competitive stage. If the estimated life is less than
anticipated due to a more efficient computer being
developed, this would be the most appropriate depreciation
method. This method would minimize income as it
produces the highest depreciation for the year ($96,000).

(20-25 min.) P 6-46A
Req. 1
(Thousands)
Cost of property, plant, and equipment $68,406
Less: Accumulated depreciation ......... (26,909)
Carrying amount .................................. $41,497
Req. 2
Evidences of Property, Plant, and Equipment purchases:

1. Property, Plant, and Equipment increased on the balance
sheet.
2. Long-term Investments decreased on the balance sheet.
3. Statement of Cash Flows reports “Additions to Property,
Plant, and Equipment.”
4. Statement of Cash Flows reports “Reduction of long-term
investments.”
Req. 3
Property, Plant, and Equipment Accumulated Depreciation

03/31/16 Bal. 61,225 03/31/16
Bal. 22,725
Purchased Sold during Depen.
During 2017 7,781 2017 600* during 2017 4,184
03/31/17 Bal. 68,406 03/31/17 Bal. 26,909

_____
*Determined by deduction, since
there was no gain or loss on the sale.

(continued) P 6-46A
Long-term Investments
03/31/16 Bal. 147,165 Deductions 38,863
during 2017
03/31/17 Bal. 108,302
Req. 4
Depreciation is added back to net income because it is a

non-cash expense. This expense decreased net income but
did not decrease cash. Therefore, adding depreciation back
to net income helps to compute cash flow from operating
activities.

(30-40 min.) P 6-47A
Part 1
Req. 1
The term used in Canadian financial reporting for Cost in

Excess of Net Assets of Purchased Businesses is Goodwill.
Req. 2
Journal
(Millions)
Assets................................................ 4.1
Goodwill………………………….…… 1.2
Cash………………………………… 5.3
Req. 3
There is nothing to record for an increase in the value of

goodwill. Goodwill value is not increased over its value at
the time of the acquisition.
The entry to record the decrease in the value of goodwill is

as follows:
Journal
Loss on Goodwill………………. 800,000
Goodwill……………………… 800,000
The value of goodwill is reviewed annually. If any

impairment of value is identified, the goodwill must be
decreased to the current value.

(continued) P 6-47A
Part 2
Req. 1
Patent 2,600,000
Cash 2,600,000
Cost of sales 8,350,000
Cash 8,350,000
Accounts receivable 15,000,000
Sales revenue 15,000,000
Amortization expense – patent 650,000
(2,600,000/4) from Req. 3
Accumulated amortization – patent 650,000
Income tax expense (from Req.2)
Req. 2
Ford
Income Statement – Integrated System
For Year 1
Sales revenue $ 15,000,000
Amortization expense 650,000
Cost of goods sold 8,350,000 9,000,000
Income before tax 6,000,000
Income tax expense (38%) 2,280,000
Net Income $ 3,720,000
The integrated system operations were profitable. Net
income of $3,720,000 is 24.8%.
Req. 3
The patent value of $2,600,000 should be recorded as an
intangible asset as Ford has the exclusive right to use it in
production for 4 years. Since the expected useful life of the
patent is 4 years, it should be amortized on a straight-line
basis over 4 years.

(30-40 min.) P 6-48A
Req. 1
To determine the gain or loss on the sale of equipment,

compare the cash received to the asset’s carrying amount,
as follows:
(All amounts in millions)
Cash received from sale of asset……………. $0.3
Carrying amount of asset sold:
Cost…………………………………………….. $0.8
Less: Accumulated depreciation…………. (0.4) 0.4
Loss on sale……………………………………... ($0.1)
Req. 2
Balance sheet at December 31, 2017:

Property, plant, and equipment ($4.8 + $1.4 – $0.8) ..... $ 5.4
Less: Accumulated depreciation ($3.4 + $1.7 – $0.4) .... (4.7)
Property, plant, and equipment net (carrying amount) . $ 0.7
Req. 3
Statement of cash flows for 2017:

Cash flows from operating activities:
Net income ($26.5 – $21.3) ........................................... $ 5.2
Reconciliation of net income to
net cash provided by operations:
Depreciation .......................................................... 1.7

Purchases of property, plant, and equipment................. (1.4)
Sales of property, plant, and equipment.......................... 0.3

(20-30 min.) P6-49A
Req. 1
Jan. 29, 2017 Jan. 30, 2016
Net income $ 2,920 $ 2,488

÷ Average total ÷ ÷
assets $44,119 $44,320
= Return on assets 6.62% 5.61%
Req. 2
All of the following contributed to the increase in ROA
during the most recent year:
 Sales increased, increasing net income

 Assets decreased, reducing the denominator
(20-30 min.) P 6-50A

Req. 1
(amounts in millions)
Property & Equipment Accumulated Depreciation

12/31/15 Bal. 24,220 X = Cost of Accum. depr. = X 12/31/15 Bal. 15,210
Purchased assets sold of assets sold Depr. during
during 2016 2,820 in 2016 in 2016 2016 1,145
12/31/16 Bal. 26,430 12/31/16 Bal. 16,045
X = $610, cost of P & Eq. sold X = $310, accumulated depreciation on

P & Eq. sold

(continued) P 6-50A
Req. 2
Cost $610
– Acc. Depr. –310
= Carrying amount of assets $300
sold
Sales price $ 43
Carrying amt –300
= Loss on sale $(257)
There is a loss because the sales price (proceeds) is less than the
carrying amount.
Req. 3
Cash ............................................................................................ 43
Accumulated Depreciation – Prop. & Equipment ................... 310
Loss on the Sale of Prop. & Equipment .................................. 257
Property & Equipment .......................................................... 610
Assets decrease, liabilities unaffected, and shareholders’ equity
decreases; revenues unaffected, expenses (losses) increase, and
net income decreases.
The total carrying amount of $300 ($610− $310) is $257 more than the
sales price of $43. This is the same calculation as in Req. 2.
Req. 4
Property & Equipment, net
12/31/15 Bal. 9,010 300 Carrying amt, assets sold
Purchases 2,820 1,145 Depreciation
12/31/16 Bal. 10,385

Problems
Group B
(20-25 min.) P 6-51B
Req. 1
LAND GARAGE/ WARE-
ITEM LAND IMPROVEMENTS SHOWROOMS HOUSE EQUIPMENT
(a) $135,000 $45,000
(b) $26,000
(c) 25,000
(d) 1,200
(e) $21,300
(f) 3,550
(g) $ 45,000
(h) 200
(i) 3,700
(j) 322,000
(k) 3,300 49,500 2,200
(l) 5,350*
(m) 234,000
(n) 8,900
(o) 17,450
(p) 3,300
(q) $ 8,000
(r) 80,000
Totals $143,450 $86,000 $654,000 $68,500 $88,000
Computations:
(a) Land: $150,000 / $200,000  $180,000 = $135,000
Warehouse: $50,000 / $200,000  $180,000 = $45,000
(k) Land improvements: $55,000  0.06 = $ 3,300
Garage/showroom: $55,000  0.90 = $49,500
Warehouse: $55,000  0.04 = $ 2,200
_____
*Some might decide to debit this cost to the Land account.

(continued) P 6-51B
Req. 2
Journal
Dec. 31 Depreciation Expense — Land
Improvements ($86,000 / 10  9/12) ... 6,450*
Land Improvements ........................ 6,450
31 Depreciation Expense — Garage/

Showroom ($654,000 / 40  9/12) 12,263
Garage Showroom .......................... 12,263
31 Depreciation Expense — Warehouse

($68,500 / 40  9/12) .............................. 1,284
Warehouse ....................................... 1,284
Equipment ($88,000 / 8  9/12) ......... 8,250
Equipment ........................................ 8,250
_____
*$6,049 ($80,650 / 10  9/12) if $5,350 (“l” in Req. 1) is
debited to Land.

(continued) P 6-51B
Req. 3
The issues in this problem were as follows:

 Allocating costs to the appropriate asset
 Determining the total cost of each asset
 Calculating the depreciation for each asset based on
corporate policy
 Ensuring that depreciation expensed reflects the
partial year the asset was in use.
It is important to value assets appropriately in order to

report the correct value of assets on the Balance Sheet. The
rate of depreciation will affect net income, which is the
measure of corporate performance. It is also important to
classify these costs as assets in order to ensure assets are
not understated and income understated. This decision
would affect assets and income over the 40 (buildings) 10
(land improvements) and 8 (equipment) years of
amortization.

(15 min.) P 6-52B
Req. 1
Journal
Security Equipment ............................................ 80,000
Cash ................................................................. 80,000
Depreciation Expense — Buildings................... 12,000

Accumulated Depreciation — Buildings ....... 12,000
($310,000 – $70,000) / 20 = $12,000
Depreciation Expense — Security Equipment 67,500

Accumulated Depreciation — Security 67,500
Equipment........................................................
[($620,000 – $370,000)  2/8] + ($80,000 
2/8  3/12) = $67,500
Req. 2
BALANCE SHEET
Property, plant, and equipment:
Land ................................................................................... $200,000
Buildings ........................................................................... 310,000
Less: Accumulated Depreciation ($40,000 + $12,000) .... (52,000)
Equipment ($620,000 + $80,000) ..................................... 700,000
Less: Accumulated Depreciation ($370,000 + $67,500) (437,500)
Total Property, plant, and equipment, net $720,500

(25 min.) P 6-53B
Journal
2017
Jan. 4 Communication Equipment (new) .... 118,000
Cash 118,000
Cash 18,000
Communication Equipment (old) 85,000
Communication Equipment (old) . 96,000
Gain on sale of Communication
equipment (old) .......................... 7,000
June 30 Depreciation Expense — Building

[($495,000 – $95,000) / 40  6/12] .. 5,000
Building .......................................... 5,000
June 30 Cash ..................................................... 50,000

Note Receivable .................................. 250,000
Building ($255,000 + $5,000) ..... 260,000
Building .......................................... 495,000
Gain on Sale of Building ............... 65,000
Nov. 4 Communication Equipment

($75,000 / $100,000  $80,000)... 60,000
Televideo Equipment
($25,000 / $100,000  $80,000) ... 20,000
Cash ................................................ 80,000

(continued) P 6-53B
Journal
Communication Equipment
($118,000  2/5) .................................. 47,200
Communication Equipment ..... 47,200
Communication Equipment
($60,000  2/5  2/12) 4,000
Depreciation Expense —
Televideo Equipment
($20,000  2/5  2/12) .................... 1,333
Communication Equipment ......... 4,000
Televideo Equipment.................... 1,333
2. Management chooses the depreciation method that

reflects the pattern in which the asset will be used. For
example, if the asset generates revenue evenly over time,
the straight-line method should be used. The units of
production method is suited for those assets that wear out
of physical use while the diminishing balance method is
best for assets that generate greater amounts of revenue
earlier in their useful lives

(10-15 min.) P 6-54B
Depreciation is the process of allocating property, plant,
and equipment costs to expense over the period the asset
is used. Depreciation accounts for the decline in the asset’s
usefulness.
Depreciation does not mean that the business sets aside

cash to replace assets as they wear out. Accounting for
depreciation has nothing to do with setting aside such a
fund. The period over which an asset’s cost is depreciating
depends on a number of factors, including physical
deterioration of the asset and obsolescence. For
computers, obsolescence may be the more important factor
as the association replaces used machines with new
models. In this case the association should depreciate
computers over a shorter life than the period of their
physical usefulness.

(30-40 min.) P6-55B
Req. 1
Yuki Sporting Goods Ltd.

Straight-Line Depreciation Schedule
1 2 3 4
ASSET DEPRECIATION DEPRECIABLE DEPRECIATION ACCUMULATED ASSET CARRYING
DATE COST RATE  COST = EXPENSE DEPRECIATION AMOUNT
02-01-2015 $70,000 $ 70,000
31-12-2015 1/6 $ 54,000 $ 9,000 $ 9,000 61,000
31-12-2016 1/6 54,000 9,000 18,000 52,000
31-12-2017 1/6 54,000 9,000 27,000 43,000
31-12-2018 1/6 54,000 9,000 36,000 34,000
31-12-2019 1/6 54,000 9,000 45,000 25,000
31-12-2020 1/6 54,000 9,000 54,000 16,000
Asset cost: $63,000 + $2,200 + $4,000 + $800 = $70,000

Depreciation for the year: ($70,000 – $16,000) / 6 years = $9,000

(continued) P6-55B
Req. 1

Units-of-Production Depreciation Schedule
1 2 3 4
ASSET DEPRECIATION NUMBER OF DEPRECIATION ACCUMULATED ASSET CARRYING
DATE COST PER PIECE  PIECES = EXPENSE DEPRECIATION VALUE
02-01-2015 $70,000 $ 70,000
31-12-2015 $0.54 18,000 $ 9,720 $ 9,720 60,280
31-12-2016 0.54 18,000 9,720 19,440 50,560
31-12-2017 0.54 18,000 9,720 29,160 40,840
31-12-2018 0.54 18,000 9,720 38,880 31,120
31-12-2019 0.54 14,000 7,560 46,440 23,560
31-12-2020 0.54 14,000 7,560 54,000 16,000
Total documents 100,000
Depreciation per document: ($70,000 – $16,000) / 100,000 pieces = $0.54

(continued) P6-55B
Req. 1

Double-Diminishing-Balance Depreciation Schedule
1 2 3 4
ASSET DEPRECIABLE DEPRECIATION ACCUMULATED ASSET CARRYING
DATE COST DDB RATE  COST = EXPENSE DEPRECIATION AMOUNT
02-01-2015 $70,000 $70,000
31-12-2015 2/6* $70,000 $23,333 $23,333 46,667
31-12-2016 2/6 46,667 15,556 38,889 31,111
31-12-2017 2/6 31,111 10,370 49,259 20,741
31-12-2018 2/6 4,741** 54,000 16,000
31-12-2019 – 54,000 16,000
31-12-2020 – 54,000 16,000
*DDB rate = (1/6 years  2) = 2/6
**Depreciation for 2017: $20,741 – $16,000 = $4,741

(continued) P6-55B
Req. 2
The depreciation method that maximizes reported income in

the first year of the computer’s life is the straight-line
method, which produces the lowest depreciation for that
year ($9,000). This method will meet the objective of
maximizing income for reporting to the banker.

(20-25 min.) P6-56B
Req. 1
(Thousands)
Cost of premises and equipment......... $5,941
Less: Accumulated depreciation ......... (3,810)
Carry amount of premises and equipment $2,131
Req. 2
Evidences of premises and equipment:
1. Premises and equipment increased on the balance sheet.
2. Statement of cash flows reports “Acquisitions of
premises and equipment.”
3. Statement of cash flows reports “cash used in
acquisitions,” which would suggest increase in goodwill.
Req. 3
Premises and Equipment Accumulated Depreciation
11/01/16 Bal. 5,246 Accum. dep’n. 11/01/16 Bal. 3,428
Purchased Sold of assets Dep’n. during
during during sold during 2017
2017 747 2017 52* 2017 52* 434
10/31/16 Bal. 5,941 10/31/17 Bal. 3,810
_____
* Determined by deduction.
Carrying amount of disposed assets was 0 (cost 52 thousand less
accumulated depreciation of 52 thousand)
Req. 4
CC’s accounting policies state that goodwill is evaluated
annually for impairment. If there is no reduction in the
goodwill value, no amortization is charged to income.

(30-40 min.) P6-57B
Part 1
Req. 1
Carrying amount of assets (intangibles) — the net amount

of the cost of assets and the amortization recorded since
the time of their purchase.
Fair value of assets — the current value of the assets or the

price an asset could be sold for.
Goodwill — the excess of the cost of purchasing another

company over the fair value of the net assets purchased
(assets minus liabilities).
The purchase price would be based on the fair value of

assets less the fair value of the liabilities acquired.
Req. 2
Journal
Long-term assets ............................. 49,000
Goodwill ............................................ 5,500
Liabilities ...................................... 4,500
Cash .............................................. 50,000

(continued) P6-57B
Part 2
1. If the useful life of the copyright is 500,000 sales of the

recording, that means that each sale would have a cost of
$4 just for the copyright. Since many iPod downloads sell
for $1.00, this cost would be too high. At an estimated
sale of 500,000 recordings, the purchase price should be
no higher than $500,000. Perhaps Joshua could negotiate
the rights to any sale over 500,000 should the recording
become a super hit.
2. The purchase of the copyright would be recorded as

follows:
DR CR
Copyright............................. 500,000
Cash.................................. 500,000
3. The amortization of the copyright after 300,000 copies

sold would be as follows:
DR CR
Amortization expense....................... 300,000
Accumulated amortization........... 300,000

(30-40 min.) P6-58B
Req. 1
To determine the gain or loss on the sale of property, plant,

and equipment compare the cash received to the asset’s
carrying amount, as follows:
(All amounts in billions)
Cash received from sale of asset ...................... $0.2
Carrying value of asset sold:
Cost .................................................................. $0.29
Less: Accumulated depreciation .................. (0.29) (0.0)
Gain on sale ........................................................ $0.2
Req. 2
Balance sheet at December 31, 2017:

Property, plant, and equipment assets
($16.4 + 1.8 – 0.29) $17.91
Less: Accumulated depreciation ($9.1 + 1.84 – 0.29) (10.65)
Property, plant, and equipment net (carrying amount) $7.26
Req. 3
Statement of cash flows for 2017:

Cash flows from operating activities:
Net income ($11.6 – 9.89) ............................................. $ 1.71
Reconciliation of net income to
net cash provided by operations:
Depreciation .......................................................... 1.84
3.55
Purchases of property, plant, and equipment ............. $ (1.8)
Sales of property, plant, and equipment ...................... 0.2

(30-40 min.) P6-59B
Req. 1
Jan. 31, 2017 Jan. 31, 2016
Net income $ 1,114 $ 991

÷ Average total ÷
assets $13,362 ÷ $12,262
= Return on assets = 8.34% = 8.08%
Req. 2
The following contributed to the increase in ROA during the
most recent year.
 Sales increased, increasing net income

 While assets increased, net income increased at a
higher rate

(20-30 min.) P 6-60B
Req. 1
(Amounts in millions)
Property & Equipment Accumulated Depreciation

12/31/15 Bal. 21,350 X = Cost of Accum. depr. = X 12/31/15 Bal. 17,530
Purchased assets sold of assets sold Depr. during
during 2016 2,820 in 2016 in 2016 2016 1,145
12/31/16 Bal. 23,530 12/31/16 Bal. 18,395
X = $640, cost of P & Eq. sold X = $280, accumulated depreciation on

P & Eq. sold
Req. 2
Cost $640
- Acc. Depr. –280
= Carrying amount of assets $360
sold
Sales price $ 56
Carrying amt –360
= Loss on sale $(304)
There is a loss because the sales price (proceeds) is less than the
carrying amount.

(continued) P 6-60B
Req. 3
Cash ............................................................................................ 56
Accumulated Depreciation – Prop. & Equipment ................... 280
Loss on the Sale of Prop. & Equipment .................................. 304
Property & Equipment .......................................................... 640
Assets decrease, liabilities unaffected, and shareholders’ equity

decreases; revenues unaffected, expenses (losses) increase, and
net income decreases.
The total carrying amount of $360 ($640 − $280) is $304 more than
the sales price of $56. This is the same calculation as in Req. 2.
Req. 4
Property & Equipment, net

12/31/15 Bal. 3,820 360 Carrying amt, assets sold
Purchases 2,820 1,145 Depreciation
12/31/16 Bal. 5,135

Decision Cases
(30-45 min.) Case 1

Req. 1
La Petite France Bakery and Burgers Ahoy Inc.

Income Statements
For the Year Ended December 31
La Petite France
Burgers Ahoy Inc.
Bakery Ltd. (DDB)
ACCOUNT TITLE (SL)
Sales revenue ....................... $350,000 $350,000
Cost of goods sold ............... 94,000 94,000

Gross profit ........................... 256,000 256,000
Operating expenses ............. $50,000 $50,000

Depreciation expense
La Petite France Bakery
(SL):
($175,000 – $10,000 / 10). 16,500
Burgers Ahoy Inc. (DDB):
($175,000  1/10  2) ...... 35,000*
Total expenses ...................... 66,500 85,000
Income before tax ................. 189,500 171,000
Income tax expense (25%) 47,375 42,750
Net income ............................ $142,125 $ 128,250
*($175,000 × .20) = $35,000

(continued) Case 1
Req. 2
INVESTMENT NEWSLETTER
TO: Our clients
FROM: Student Name
RE: Selecting the shares of La Petite France Bakery

or Burgers Ahoy for a long-term investment
In picking a stock we suggest you consider the following

factors:
La Petite France Bakery and Burgers Ahoy are basically

identical companies. The two companies started operations
at the same time and engaged in essentially the same
transactions. Their main difference lies in the accounting
methods that they use.
1. La Petite France Bakery’s income statement reports net

income of $142,125 compared to $128,250 for Burgers
Ahoy. On the surface La Petite France Bakery appears to
be more profitable. This difference is illusory, however,
because La Petite France Bakery uses the straight-line
method to account for depreciation of its equipment.

(continued) Case 1
This method results in the highest possible reported
income.
2. Burgers Ahoy reports lower net income than La Petite

France Bakery. Since Burgers Ahoy uses the double-
diminishing-balance method for depreciation it results in
lower net income. More importantly, it results in the
lowest amount of income tax and thereby provides cash
that Burgers Ahoy can invest in new projects.
Over the long run, we favour Burgers Ahoy because the

company will have more cash to invest. That should
result in higher real profits even if the profits do not show
up on the income statement.

(20-30 min.) Case 2
1. A manager might debit an expense account for the cost
of property, plant, and equipment for two reasons: (1) A
higher expense results in lower net income and less tax
to pay, and (2) to understate reported asset and income
amounts.
2. A manager might debit the cost of an expense to the

property, plant, and equipment account in order to
overstate reported asset and income amounts. This
would indicate a better performance than was actually
achieved.
3. We support the recording and reporting of intangible

assets at cost because the business paid a price for
intangibles like any other asset. The argument for
recording intangibles at $1 or $0 is consistent with the
perspective of a lender, who might reason that, in the
liquidation of a business, most of its intangibles are
worthless. However, accounting serves other users
besides lenders. Also, someone who evaluates a
company and believes its intangibles are worthless can
simply subtract the intangibles’ cost from total assets
and from total owners’ equity to compute revised totals
for analytical purposes. But the reverse is not true. If
intangibles were not reported on the balance sheet, a
user of the statements who believes the intangibles have
value could not add the unknown amount to compute
revised total assets and total owner equity.

Ethical Issue
Req. 1
Mary wants to allocate as little of the purchase price as

possible to the building because a lower expense results in
a higher net income which investors and creditors favour.
The cost of the land is not depreciated.
Req. 2
Vitner’s Ltd.’s allocation was unethical. Allocating 60% to

the building (versus the more realistic figure of 80%)
understates depreciation expense and overstates net
income.
Creditors and lenders will be basing their investment

decisions on inaccurate financial information.

Focus on Financials
(30-40 min.) Canadian Tire

Req. 1
Note 3 to the financial statements reports that Canadian

Tire uses the declining balance depreciation method for
their building, fixtures and equipment.
Req. 2
(Millions)
Proceeds on derecognition of property, plant, and
equipment $ 21.3
Note 16 indicates the cost of buildings, fixtures, and

equipment sold was $40 million.
Req. 3
(Millions)
2014 2013
Payment for land, building and
fixtures and equipment ………. $330.8 $211.4
Canadian Tire has invested in property, plant, and equipment

in both 2014 and 2013. This indicates that Canadian Tire has
the cash to invest and is building for the company’s future.
This is very positive for Canadian Tire.

(continued) Canadian Tire
Req. 4
At year-end
2014 2013
Accumulated
Proportion of
Property, = depreciation = $ 2001.8 $1,842.3
Property, $3,929.6 $3,689.6
Plant, and
Plant, and
Equipment
Equipment at
used up
cost
= 50.9% = 49.9%
used up used up
CONCLUSION: Property, Plant, and Equipment were older

in 2014. However, the company continues to invest in new
property, plant, and equipment. It appears that management
reviews its property, plant, and equipment on a regular
basis and disposes of older, obsolete, and unused
equipment.

Focus on Analysis
(30-40 min.) Canadian Tire
Req. 1
(Millions)
Depreciation expense (2014)…………………………$ 279.2
Accumulated depreciation (2013)………………… 2,326.5
Amortization expense (2014)………………………… 93.1
Accumulated amortization (2013)………………… 698.7
Accumulated depreciation and amortization exceeds

depreciation and amortization expense because the
expense is for only the current year. Accumulated
depreciation and amortization is the sum of the
depreciation and amortization amounts for all years the
company has used its property and equipment.
Req. 2
Canadian Tire adds depreciation and amortization back to

net income in the computation of net cash from operating
activities because this expense was subtracted in arriving
at net income. But depreciation and amortization expense
did not decrease cash. Adding depreciation and
amortization back to net income offsets its earlier
subtraction and helps to compute cash flow from
operations.

(continued) Canadian Tire
Req. 3
Canadian Tire’s balance sheet reports goodwill of $436.6
million.
Canadian Tire does not amortize goodwill but will test

goodwill for impairment of value and will write-down the
value of goodwill that has been impaired.
In 2014, Canadian Tire did record an impairment on

goodwill (0.3 million).
Canadian Tire reports intangible assets of $1,251.7 million

on the balance sheet.
Note 14 – Schedule of Intangible Assets and Goodwill
describes intangible assets subject to amortization as
software and other intangibles. Intangible assets with
indefinite lives include goodwill, banners and trademarks,
franchise agreements and other intangibles.
In 2014, Canadian Tire charged amortization of $93.1 million

related to intangible assets.
Group Project
Answers will vary with the situation chosen by students.

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Fig. 412
Sacral cyst, showing defect in sacrum. (Warren Museum.)
Every tumor of this general character and in this location should be removed
as early as possible unless it can be determined that it is not only cystic but
dangerously large. Of even these, however, it may be said that to leave them is
to expose the patient to more danger of infection than is incurred during a
legitimate surgical operation. There should be, then, about such a case serious
complications and perplexities, which would tend to make a competent surgeon
decline to operate (Fig. 412).
SPRAIN OF THE SPINAL COLUMN.
Concussion of the Spine; Railroad Spine; Litigation Spine.—In 1866

Erichsen
published a series of lectures dealing with “Certain obscure injuries of the
nervous system commonly met with as the result of shock received in collisions
on railways.” In 1875 he expanded these lectures into his celebrated
monograph on Concussion of the Spine, a work which served first to arouse
the greatest interest in a hitherto neglected subject, and which has
unfortunately served in later years as a basis for many a damage suit. The
injuries described by him may occur as the result of railway accidents, hence
the name often applied to the condition which they cause—railway spine.
Cynical observers have noted the frequency with which these cases appear in
court and have stigmatized the condition with the name litigation spine.
Erichsen’s original work is now superseded by much better monographs,
although his clinical descriptions were full and complete. Nevertheless he had
no knowledge of minute changes in the nervous system and many of his
explanations were based upon theories then prevalent but now abandoned.
These injuries involve the spine as a whole, and the spinal column is so
firmly held together by powerful ligaments, and so abundantly protected by
muscular and aponeurotic coverings, that its contents are exempt from injuries
which would easily involve those of more exposed joints. An injury which would
cause serious disintegration within the spinal cord must be so severe as to
inflict other and well-marked damage upon the surrounding structures.
Consequently a large part of the injury received consists in what may well be
called strain and wrenching of all of these component structures. These may be
accompanied by minute hemorrhages into the cord, with or without laceration,
while exudates may result therefrom which may press upon the spinal nerve
roots or cause adhesions within or without their sheaths, all of which may lead
to signs and symptoms which may persist for a long time. But the theory to
which too many have held in time past, that a mere concussion of these parts,
without other injuries, can be followed by such extensive and durable lesions is
not tenable.
Obviously these cases are of a character frequently to appear in court.
Unfortunately the signs and symptoms are so vague, so variable, and the latter
so subjective that opportunity is afforded for deception, opportunity of which
both dishonest patients and dishonest lawyers too frequently avail themselves;
this to an extent which has almost brought the condition into disrepute among
the better class of practitioners and caused it to be in some sense neglected.
That serious lesions do follow injuries to the back is undeniable; that many of
the resulting conditions can be simulated is unfortunately too true.
Nervous demoralization and more or less chronic invalidism frequently follow
these injuries, producing symptoms which are mainly functional and maybe
grouped among the traumatic neuroses. These symptoms are mostly ill-
defined, often contradictory, and accompanied by very few objective features.
If malingering can be excluded the best way to regard these clinical pictures
is to consider them as indicating a traumatic neurosis—that is, a nervous
disturbance, with perversion rather than abolition of function, comparable with
similar conditions from other causes. As Angell has said, its symptomatology is
largely built up of the emotional features, with such grotesque nervous
disturbances as to be quite inconsistent with any true organic malady. In the
latter there will always be definite indications with positive changes and normal
reactions, while each segment of the spinal cord will have its own definite
features. Quite the reverse is the case in a so-called railway spine, where
paralyses are incomplete, where loss of sensibility fails to correspond with
anatomical relations, where the reflexes are contradictory and the complaints
out of all proportion to the injury received. Such a condition is, therefore, a
psychosis or neurosis rather than a somatic disease. (Angell.) As a mental
perversion it is often dependent upon the dominating influence of an imperative
conception, which may or may not have an honest basis. Even if a patient be
not tempted to malinger or simulate, his troubles may be exaggerated by
expectant attention, which of itself has nothing to do with the injury, but rather
with his mental attitude. This is a predominant feature of those cases which go
to trial, and while it may persist after a settlement is reached, it should be
admitted that the morbid condition usually subsides when litigation is
terminated.
These imperative conceptions are intensified by emotion, fear, sympathy, or
anxiety, while attention becomes more and more self-centred, the condition
finally terminating in a more or less self-induced hypnotic state—a species of
autosuggestion. Similar cases of non-traumatic origin are frequently observed,
which are then called neurasthenia or hysteria. When in an individual already
neurasthenic injury occurs it almost invariably produces exaggerated
symptoms. To use Angell’s own expression: “Railway spine is a convenient and
picturesque term which hypnotizes juries, even as shock has hypnotized
patients. It is dramatic, but not accurate. The damage is not to the spine nor to
the spinal cord, but to the mind. It is a psychical disorder, not a physical one,
although it has a physical expression in its symptomatology.”
Treatment.—Viewed in this light it will be seen that there is the greatest
value attaching to physiological rest, beginning immediately after
the injury and continuing until the subsidence of the symptoms. This should be
combined with measures which improve elimination and nutrition. Confinement
to bed or the room will reduce elimination, which should never be allowed to
decrease in any way. Bodily and mental rest, combined with the above
features, followed later by massage, cold spinal douche, electricity (either for its
actual or suggestive value), and mental encouragement, constitute the principal
methods of treatment. A case of this kind tinctured by a hope of securement of
ultimate damages will be not only resistant but difficult of successful treatment.
INJURIES TO THE SPINE.

The principal injuries to the spine proper to be considered here consist of:
1. Fractures;
2. Dislocations, or their occurrence together;
3. Injuries to the cord and spinal column;
4. Rupture or injury of the muscles, ligaments, and aponeuroses.
FRACTURES OF THE SPINE.
Fig. 413
The spinal column is so Fig. 414
strongly put together and its
bones so protected that
fracture of any one of its
component parts is
inconceivable except as a
result of violence. This may
occur by objects falling upon it
or by the body falling a
distance, or from violent
twisting or wrenching. These
injuries constitute but a small
percentage—about 3 per cent.
—of all fractures. They occur
more easily and commonly in
the upper portion than in the
lower, where the vertebræ are
larger. As a result of their
occupations adult males suffer
much more frequently than
women or children.
Diagnosis.—The diagnosis
of fracture of the vertebral
column is rarely difficult. The
disability produced is Crush of cord and its
instantaneous if the cord itself membranes. The result of a
be compressed. If the cord fracture of the spine.
escape pressure there may be (Erichsen.)
serious symptoms, but without
paralysis. The most serious feature, then, of any fracture of
the vertebræ is the amount of damage done to the cord
proper. The so-called gunshot fractures of the spine have
Fracture of body of
already been partially treated of above and in the chapter
the vertebra. on Gunshot Wounds. They constitute a somewhat different
(Warren Museum.) class of lesions, but have, in common with those above
alluded to, the actual fracturing of the bone and the
question of damage to the cord. In most respects they may be considered with
the non-penetrating injuries. Fractures of the spine, therefore, may be divided
into (a) fractures with injury of the cord, and (b) fractures without such injury. In
many cases it is difficult to state whether the cord is crushed or simply more or
less compressed by bone, fluid, or exudate, until the spinal canal has been
opened and explored.
When the cord is totally destroyed there will be total loss of reflexes, with
motor and sensory paralysis complete. (See Fig. 413.)
In some instances there is visible or palpable deformity. This is by no means
necessarily the case. It is more likely to be noted in the upper portion of the
column, where the vertebral spines are more easily palpated. If sufficient time
have elapsed there will often be ecchymosis. The principal feature, however, of
spinal fractures is the paralysis, which results in most instances as above. Its
careful study is requisite both for minute diagnosis and localization of the injury.
Paralysis, then, whether of motion or of sensation, along with the condition of
the reflexes, deserves careful consideration in each instance. It is of the
greatest importance, because by it, rather than by other causes, death is
brought about in the majority of cases which outlive the first twenty-four hours
after injury. Even injury low down, which causes paraplegia with loss of control
of the bowels and bladder, may terminate fatally in time, through an ascending
infection of the urinary passages, which may finally lead to pyelonephritis and
death. This has often occurred as the result of inattention to precautions in the
use of the catheter, and to carelessness on the part of the patient. Death, then,
may be caused by roundabout methods of infection which have only accidental
connection with the original injury. Other cases die of septic infection in
consequence of lack of proper attention to bed-sores. Again, with cord
involvement high up in the dorsal region there is very likely to occur a rapid
ascending degeneration, by which, one after another, the roots of the phrenic
nerves are involved in their order from below upward, until finally the patient
dies of asphyxia from paralysis of all the respiratory apparatus (Fig. 414).
Aside from such evidences as actual displacement of the vertebral spines
may afford the localizing diagnosis is made mainly by a study of the paralysis.
In regard to this paralysis it should be remembered how it is produced from the
very nature of the injury itself. That occurring within from a few minutes to a few
hours after the injury is due to hemorrhage; that which occurs still more slowly
is due to exudate or the presence of pus; while a late paralysis may result from
poliomyelitis. The first form of paralysis may be produced by hemorrhage either
within the central canal (hematomyelia) or hemorrhage within the membranes
or structure of the cord itself (hematorrhachis).
There is another form of paralysis due to embolism which, however, has but
little to do with the ordinary injuries. The following table, inserted by the
courtesy of Dr. Dennis, will assist in localizing the lesion by a study of these
paralyses and reflexes due to spinal injury:
Paralyses and Reflexes due to Spinal Injury.
Spinal
Nerve. Motor Paralysis. Anesthesia. Reflexes.
1. Death from pressure
of odontoid.
2-3. Death from paralysis
of diaphragm.
4. Deltoid muscles of Upper shoulder, outer arm. Pupil.
upper arm.
5. Supinators of hand. Outside of arm and forearm. Pupil, scapular,
supinator,
triceps.
Cervical. -
6. Biceps, triceps, Outer half of hand. Pupil, scapular,
extensors of wrist. triceps, post.
wrist.
7. Pronators of wrist, Inner side of arm and forearm. Pupil, scapular,
latissimus dorsi. post. wrist, ant.
wrist, palmar.
8. Flexors of wrist, Inner side of hand. Scapular, post,
hand, muscles. wrist, ant. wrist,
palmar.
1. Thumb. Ulnar supply to hand. Scapular, palmar.

2-12. Muscles to back and Skin over the back and abdomen in Epigastric, 4-7;
Dorsal. -
abdomen. areas corresponding to abdominal, 7-
distribution of spinal nerves. 11.
1. Psoas and sartorius. Groin. Cremasteric.

2. Quadriceps extensor Outside of thigh. Cremasteric,
femoris. patellar.
3. Abductors and inner Front and inside of thigh. Cremasteric.
rotators of thigh.
Lumbar. -
4. Adductors of thigh, Inside of leg, ankle, and foot. Gluteal.
tibialis anticus.
5. Outward rotators of Back of thigh and leg; outside of Gluteal.
thigh, flexors of foot.
knee and ankle.
1-2. Muscles of foot, Outside of leg. Plantar.

Sacral. - peronei.
3-5. Perineal muscles. Perineum, anus, sacrum, genitals. Ankle clonus.
Injuries low in the lumbar segments cause incontinence of urine and feces
because of the location of the centres for the rectum and bladder at this level.
Injuries higher up cause retention by paralyzing the expulsive muscles of the
abdomen. The reflexes which most interest the surgeon and which are of
importance to him in diagnosticating these and other traumatic conditions are
the following, with their method of detection (Bradford):
Pupillary: Dilatation produced by pinching side of neck.
Scapular: Scratching skin over scapula causes muscles to contract.
Supinator: Tapping tendon at wrist causes flexion of arm.
Triceps: Tapping tendon at elbow causes extension of arm.
Posterior wrist: Tapping tendons causes extension of hand.
Anterior wrist: Tapping tendons causes flexion of wrist.
Palmar: Scratching palm causes flexion of fingers.
Epigastric: Stroking mammæ causes retraction of epigastrium.
Abdominal: Stroking abdomen causes retraction.
Cremasteric: Stroking inner side of thigh causes retraction of scrotum.
Patellar: Striking patellar tendon causes extension of leg.
Gluteal: Stroking buttock causes dimpling in gluteal fold.
Plantar: Stroking sole of foot causes flexion and retraction of leg.
Ankle clonus: Forcible extension causes rhythmical flexion.
Much will depend upon the minute character of the injury, its location, and the
amount of displacement of fragments. Fracture of a spinous process causes
irregularity of the tips of the spines, with frequently the displacement of a
fragment which may be moved beneath the skin, with or without crepitus.
Fracture of one or both laminæ will permit mobility of the spinous process, with
perhaps displacement. It is difficult to elicit crepitus. The neural arch may thus
be broken without serious involvement of the body of a vertebra. On the other
hand, the body itself may be fragmented, compressed out of shape, or so
loosened as to permit of easy displacement.
DISLOCATION OF THE SPINE.

A limited proportion of serious and paralyzing injuries to the spine consists of
dislocation of some of its component parts without fractures. These may be
considered as pure types of dislocation, but they constitute less than one-fourth
of such cases. In a large proportion of these spinal injuries the actual lesion
consists of the combination of fracture with the displacement which it permits.
Such conditions are referred to as fracture dislocations. Unilateral dislocation in
the cervical region produces a distortion of the neck simulating wryneck, the
face being turned to the opposite side. Except in very fat individuals irregularity
will be perceived in the line of the cervical spines. When high up dyspnea is a
constant feature. Traumatic dislocations are sharply differentiated, so far as the
treatment is concerned, from those of slow production as the result of cervical
spondylitis. In the acute cases the muscles are spasmodically contracted on
the dislocated side. Irregularity of contour may be detected with the finger in
the pharynx.
Fig. 415
Fracture dislocation with great displacement—patient almost completely recovered. (Buffalo

Museum.)
In the lower portions of the spine, which are both larger and more protracted,
are more frequent combinations of both injuries and fewer instances of the
single type of either. Except in the cervical region it is exceedingly difficult to
distinguish between these lesions, for the question of operation or no operation
is decided by other and more conspicuous features (Figs. 416 and 417).
Fig. 416 Fig. 417
Dislocation between the fifth and sixth cervical Dislocation of the spine forward (Bryant.)
vertebræ. (Erichsen.)
Treatment.—The injury having been localized, so far as deformity and

careful study of its paralytic features will permit, the questions of prognosis and
treatment become insistent. In the pure type of dislocation the prognosis will
depend, first, upon whether reduction can be accomplished, and, secondly,
upon the amount of damage suffered by the cord previous to such reduction.
Every injury of the cervical spine is of most serious import because of the
possible damage to the phrenic nerves. Rapidly ascending changes may
terminate life in two or three days even though reduction be accomplished. The
injuries to the lower part of the spinal column which produce paraplegia
threaten life much less directly, but too frequently terminate fatally after the
lapse of weeks or months, as the result of infections from spreading bed-sores,
or infections through the urinary tract permitted by the constant necessity for
and carelessness in the use of the catheter. The prognosis, then, in almost
every case of these severe spinal injuries is unfavorable, at least if it be let
alone (Fig. 415).
It becomes, then, a question of what can be done to improve the local
conditions. Certain cases of cervical spinal dislocation have been reduced by
forcible traction upon the head, assisted by rotation and manipulation with the
hands in the direction indicated by the displacement of the patient’s head, as
well as by such indications as may be secured in the pharynx. A considerable
degree of traction may be necessary in this effort, and there is the possibility
not only of failure but even of serious harm, and perhaps immediate death,
since a fragment loosened may be made to produce promptly fatal pressure
upon the cord. Such a measure, then, should be undertaken with the greatest
care, and not without a complete understanding with those interested regarding
its dangers (Fig. 418).
Fig. 418
Method of reducing dislocations of the cervical vertebræ by manipulation. (Lejars.)
In most cases it is impossible from the exterior to estimate either the damage
to the cord or the amount of fluid outpour until the spinal canal be opened. If
there be complete loss of reflexes, with absolute insensibility and motor
paralysis, then complete transverse destruction of the cord may be inferred. In
these instances it may be decided not to operate. On the other hand it may be
felt that unless the damage appear irremediable an open operation for
inspection and relief should be performed at the earliest possible moment,
since pressure on the cord allowed to persist even for a few hours causes
damage for which there is no compensation. These cases may then be viewed
in this light—if left to themselves they are almost hopeless. It therefore is a
question simply of what can be accomplished by operation. On one hand the
patient’s condition may be materially improved; on the other it is scarcely
possible to make him worse. The dangers of such operations inhere especially
in the anesthetic and in the possible introduction of sepsis; not that the
operation itself cannot be properly conducted, but that it is often difficult to keep
these cases free from contamination during the subsequent course of events.
To operate through bruised or infected skin would probably be fatal. These
operations, then, are begun as explorations intended to reveal deep conditions.
When one has freed the spinal cord from pressure and has removed the
products of hemorrhage he has done nearly all that can be accomplished in
such a case.
Until recently it has been supposed that complete transverse division or
crushing of the cord was necessarily hopeless and fatal. As previously
mentioned, Estes, Harte, and Fowler have reported instances of complete
division of the cord, with subsequent approximation by suture and with at least
partial restoration of function, that have lent an element of hope to cases
previously regarded as hopeless.
For my own part, although I regard these cases as discouraging, I do not feel
like withholding from patients the only possibility of improvement which can be
offered them, but I am more and more impressed with the necessity for prompt
intervention if this benefit is to be obtained. To wait a few days, then, until it has
been made evident that nothing can be done, save by operation, or until a tardy
consent is obtained, is to rob the patient of the hope which it may afford. The
operative treatment should be begun immediately after the diagnosis is made,
providing that this be promptly done. Delay is more than inexpedient—it is
absolutely dangerous. As Burrell has pointed out it is scarcely fair to decide
upon a course of treatment from a study of statistics alone, as lesions vary
within widest limits, as do also results of individual operators. Let each case,
then, be decided upon its merits, but let whatever is done be done promptly. If
there be excuse for delay it is in those cases where paralysis is incomplete and
where the cord apparently has not been seriously compromised. But these
would afford the most promising results after operation.
The operation itself will be described at the conclusion of this section, and in
connection with other operations practised for exposure of the cord when
involved in other lesions.
HEMATORRHACHIS AND HEMATOMYELIA (INTRASPINAL
HEMORRHAGES).
These occur, as do hemorrhages within the cranial cavity, with or without
serious other lesions of the investing structures. They are expressions, of
course, of transmitted violence, depending so far as known essentially upon
injury, whether the hemorrhage occurs within the central canal of the cord,
within its structure, or within the subdural or even extradural spaces.
Everywhere within these regions bloodvessels abound, from which may occur
sufficient outpour of blood to make pressure upon the cord to a degree
producing complete paralysis. The duration of time between reception of injury
and the occurrence of diagnostic paralysis will be to some degree a measure of
the rapidity of such outpour, while a study of the paralyses themselves will
permit of localizing the injury. The symptoms consist mainly of pain in the spine
radiating to some distance, often referred to the distribution of the nerves most
involved. This pain is often associated with muscular spasm, while paralysis
may be a very early or somewhat tardy symptom.
Treatment.—Once the fact of pressure upon the cord is established these
cases come under practically the same rule as above. While there is a
possibility that a moderate amount of bloody outpour might be absorbed there
is nearly as much danger of its organization and of permanent involvement of
the cord. In fact there is more reason for operating in cases of spinal
hemorrhage than in cases of fracture, since it may be possible to thereby
accomplish more.
The non-operative treatment of fractures or dislocations consists mainly in
external support, preferably by a plaster-of-Paris corset properly applied, and
by maintaining elimination and nutrition, while affording physiological rest for a
sufficient length of time. These cases will need massage and electricity, i. e.,
stimulation of the compromised muscles, and extreme care should be given to
the prevention of bed-sores, to which they are peculiarly liable. Every
precaution should be taken also against any possible retention of urine or
feces. The incontinence of an overdistended bladder should not be mistaken
for that of paralysis of its sphincter apparatus. The specimen of dislocation from
which Fig. 415 was taken was removed from a patient who almost completely
recovered from the effects of the injury, but who became careless about the
condition of his bladder and who suffered an ascending urinary infection that
terminated his life.
Of these cases it may also be said, then, that a much better prospect of
exact diagnosis and atonement for harm done is afforded by exploration, since
as between compression of the cord by clot or by bone there is little essential
difference.
The subjoined table may afford assistance in the diagnosis of the injuries
above considered:
Differential Diagnosis of Diseases and Injuries of the Spine and Spinal Cord.
Acute
Fracture. Dislocation. Hematomyelia. Hematorrhachis. Poliomyelitis.
Onset. Immediate. Immediate. Immediate. Progressive. Slow.
Anesthesia. Immediate. Immediate. Immediate. Incomplete. Absent.
Paralysis. (Is Hemiplegia Hemiplegia. Paraplegia. Hemiplegia or Paraplegia.
of or In partial paraplegia.
hemiplegic paraplegia. dislocation
type when may be
compression absent.
is unilateral,
paraplegic
when
bilateral,
and local
when single
nerve roots
are
involved.)
Deformity. Usually Present. Absent. Absent. Absent.
present.
Temperature. Rises after Same. Same. Same. Precedes the
second or paralysis of
third day. degeneration.
Bowels and Paralyzed. Paralysis Same. Affected late if No paralysis.
Bladder. usual. at all.
COCCYGEAL OR PILONIDAL SINUS.

In the neighborhood of the coccyx, usually below its tip, between it and the
anus, sometimes above the tip, a small depression or sinus mouth is
occasionally seen. This is usually known as the pilonidal sinus. It is the
persistent remnant of the original fetal termination of the spinal canal. It varies
in size from a mere dimple to a cul-de-sac, in which sebaceous matter, with any
other epithelial products, hair, etc., as well as foreign material and dirt from the
skin, may collect and excite suppuration. In this way an abscess of
considerable size may form. Sometimes its contents will be found to be
principally hair; hence the name pilonidal. Frequently this sinus can be traced
down to the periosteum and into the remains of the original neurenteric canal.
When it is distended so as to give trouble it needs only to be freely incised and
thoroughly cleaned.
CONGENITAL COCCYGEAL TUMORS.

In the region of the coccyx and lower part of the sacrum there appear tumors
of congenital origin which are often present at birth or may not develop until
later. These assume various sizes and aspects, varying from mere
protuberances to large pendulous tumors. While covered with integument their
internal structure varies within wide limits, and they are usually made of such a
mixture of embryonal elements as to entitle them to be considered true
teratoma. Even organized tissues or rudimentary organs may be found therein.
They are rare and constitute practically surgical curiosities. Such a tumor, if
troublesome, calls for removal, which should be accomplished with the strictest
precautions, as the spinal canal may perhaps be opened during the procedure
and most inflammable tissue thus exposed to infection from the perineum.
The sacrum, like the coccyx, is also the site of numerous congenital cysts
and tumors which may appear posteriorly or anteriorly. Occasionally they form
within the bone itself. Cysts that connect with the spinal canal will be found
filled with cerebrospinal fluid, and some of them are essentially spina bifida
occulta. The sacral region is also the site of predilection for those teratomas
which consist in whole or in part of vestiges of an attached fetus. The
advisability of operation must be determined for itself in each of these cases.
(See Fig. 412, p. 627.)
COCCODYNIA; COCCYGODYNIA.
Under this name are included severe and chronic neuralgias of the
coccygeal region, including its joint, which occur most often in women, and
usually as the result of contusion or direct injury. Occasionally it results from an
injury inflicted during parturition. It gives rise to a degree of pain and
tenderness which sometimes is almost disabling. Because of the insertion of
the levator ani into the tip of the coccyx defecation may become distressing, to
an extent which leads to fecal impaction in the rectum from postponement of
evacuation as long as possible. The symptoms are subjective, but the
tenderness is frequently exquisite.
In regard to treatment subcutaneous division of the tissues around the bone
may afford relief, but in most instances, particularly those of traumatic origin, an
excision of the coccyx will afford the only cure. (See below.)
OPERATIONS ON THE SPINE.

These are included under the general heading laminectomy, which is used in
a comprehensive sense, as is also the term trephining.
In a general way the measure is about as follows: Through a long median
incision over the spines of the region where the lesion is localized their tips are
exposed, while the muscle groups on either side and posterior to the laminæ
are separated by the knife and by retractors. Dense fibrous bands may be
nicked. In this way the posterior aspect of the neural arches is exposed to the
desired length. The exposed spines should be removed by cutting them off at
their bases with bone forceps, although they may be left and later removed with
the posterior bony arches. To clear them away, however, affords a better view
of the field of operation. The ligamenta subflava are then divided transversely
at their upper and lower margins, after which, either with cutting forceps, saw,
or chisel, the laminæ are divided on either side, and the section which is
loosened pried out from the bed in which it rests. More or less fatty tissue will
be found outside of the dura and in this tissue veins, sometimes of
considerable size, freely ramify. These may be seized and divided, those of
considerable size being tied. Great care should be given during the procedure
to avoid perforation of the spinal membranes by the points of the instruments
used. The cutting forceps are preferable to the saw or chisel, except for work in
the lower lumbar region, where the parts are stout and strong. Especially in
case of fracture, and at the upper end of the spine particularly, care should be
given, with the force used, that no loose fragment be so handled as to increase
the damage already done to the cord.
The dura being thus exposed and the blood cleared away, inspection may or
may not reveal the nature of the lesion. A probe, gently handled, passed
upward and downward into the canal, will reveal whether the cause of the
pressure has been cleared away or not. According to the nature of the lesion it
can then be decided whether to open the dura. To open it is to pave the way for
fatal infection, unless the strictest aseptic technique has prevailed. On the other
hand, to leave it unopened is to fail to appreciate the actual condition of the
cord and to leave an important matter still undetermined. The dura if opened
should be closed by suture.
Reference has already been made, in three cases now on record, to suture
of the cord as a whole. Such sutures may be applied, if necessary, in a manner
to do the least possible damage to the structures of the cord. If cerebrospinal
fluid escape too freely the patient may be operated in a position with the head
lower than the trunk, avoiding leakage.
Osteoplastic methods of temporary resection of the posterior arches of the
vertebræ have been devised and practised, but they offer no particular
advantages, and are attended by disadvantages which have caused them to be
almost abandoned, save in rare instances and by individuals of large
experience. (See Plate XLVII.)
In regard to wiring fragments of a fracture or displaced spine, Hadra, of
Texas, was perhaps the first to carry out the measure. It comprises simply the
fixation of fragments by wire sutures or ligatures which bind them together after
they have been replaced through a more or less open wound, such as is
included in the term laminectomy. But resort to wire is to be left to the judgment
of the operator and the needs of the case. There is no reason, however, why it
may not be used here, as in other fractures which are thus made compound, if
there would seem to be prospect of benefit attaching to its use.
PLATE XLVII
Osteoplastic Resection of Posterior Vertebral Arches.
(Urban.)
Laminectomy is practised also in Pott’s disease, with the hope of relieving

pressure upon the cord, due to the deformity or to the presence of tuberculous
foci. It is possible that in some of these cases an incomplete operation will
serve the purpose. Sufficient should be done, however, to relieve pressure if
such a measure be indicated.
When laminectomy is practised for the purpose of attacking a tumor of the
spinal cord the exposure of the cord should be followed by the removal of the
tumor. Some of these are so placed as to make the procedure simple, while at
other times it will be exceedingly difficult, if not impracticable. If the growth has
so extended as to involve the bones themselves, then the measure will be futile
and should be abandoned; but an isolated tumor, either within or without the
dural space, in or on the substance of the cord, can usually be removed by a
process of blunt dissection. Sometimes the small wounds thus made will ooze
considerably and hemorrhage may prove troublesome; it should be checked
before the parts above it are closed. Pressure forceps and ligatures and the
occasional use of adrenalin solution will afford the necessary means for
combating bleeding.
For nearly all of these operations upon the spine the chisel and the cutting
forceps will suffice. Some operators, however, prefer a small saw, like that
suggested by Doyen, which has a guard that can be so set as to determine the
depth to which the instrument may pass. No matter what instrument be used,
great care should be taken lest it pass through and beyond the bone in such a
way as to lacerate the dura or the plexus of veins outside of it.
The sacrum is rarely attacked except in connection with some of those
tumors already described.
The coccyx is easily removed through a median incision, the parts around it
being entirely separated and the bone thus freed removed at the joint with stout
scissors or cutting forceps. The instruments used should be kept in contact with
the bone and not allowed to injure the veins between it and the rectum. Such a
wound should not be closed completely, as a cavity always remains, which it is
better to pack and permit to heal by granulation. (See Coccodynia.)
CHAPTER XXXIX.
THE FACE AND EXTERIOR OF THE NOSE AND
MOUTH.
Monsters are born with almost complete absence of the face,
which is called aprosopia. They have also been observed with
double faces. Again a condition of congenital hypertrophy is known
involving one or both sides. On the other hand congenital atrophy is
also occasionally noted, affecting one or both sides. The former is
likely to be of syphilitic origin (hereditary), in which case it will be
accompanied by other indications such as corneal opacity,
irregularity of teeth, or other evidences of its luetic origin.
Among the most interesting congenital defects are those
connected with imperfectly closed branchial fistulas and the various
outgrowths therefrom. These may lead to fissures extending from the
ear to the mouth. Fibrocartilaginous growths occur along the regions
of the original branchial clefts, either as tags of skin upon the face or
so-called supernumerary auricles or auricular appendages. While
these are covered with skin they usually contain a cartilaginous
nucleus. They are most common in front of or on the tragus. They
may be single, multiple, or symmetrical. They sometimes increase in
size and at others remain stationary.
Fissures are seen more often upon the central portions of the face,
especially in the nose or between it and the cheek. About the root of
the nose and the orbit dermoids are somewhat common. They may
be connected with fissures or fistulas, and extend upward and
involve the dura.
Absence of the mouth is known as astomia, and of the lips as
acheilia. These malformations are exceedingly rare. Atresia, or
narrowing of the mouth, is more common. While the lips and mouth
may be apparently well formed there may be imperfections. These
conditions of narrowing call for division on each side and union of
skin to mucous membrane. Fistulas of the lip are extremely rare, but
are found occasionally, especially opening upon the lower lip.
Branchial fistulas opening upon the lips have also been observed.
A condition of arrest of development of one or both jaws leads to
unnatural smallness of the mouth known as microstoma. The
opposite condition, macrostoma, is produced usually by fissure of
the cheek on one or both sides, extending upward and backward
from the labial junction and due to incomplete closure of a branchial
cleft. The most common congenital defect of the lip known as hare-
lip is a median fissure involving the upper lip. This occurs in all
degrees, from a trifling notch at the vermilion border to a hideous
defect, in which, through a wide cleft, projects a relatively
overdeveloped intermaxillary bone, with a small downward projection
of skin, known surgically as the philtrum. This defect may involve
much more than the lip alone, for there may be failure to unite, along
the median line between the lip and the uvula, of those portions of
the superior maxillary which should develop symmetrically, and
coalesce as they are formed from the rudimentary maxillary
processes. Any portion, then, of the hard or soft tissues may show
failure to unite in the middle line.
Hypertrophy of a lip is known as macrocheilia. It is not uncommon
in strumous subjects. Another form is known as mucous ectropion.
(See p. 373.)
The chin may be malformed in the direction either of atrophy or the
reverse, as in the so-called double chin. A deviation forward, known
as galoche chin, is also recognized. A peculiar malformation,
consisting of the implantation of a supernumerary inferior maxilla by
its own symphysis upon that of the subject, is known as hypognathy.
Such a tumor will occasionally develop to considerable size, with
cystic degeneration or other irregular changes.
Aside from the common forms of hare-lip most of the congenital
defects that occur about the face are to be explained through
incomplete closure of the branchial clefts or the development of
dermoid cysts and tumors therefrom. Deviations rather than defects
appear more commonly about the nose than anywhere else. They
produce disfigurements known as pug-nose, saddle-nose, parrot-
nose, etc. Again, double noses exist, each being more or less well
formed. In such a case the surgeon should endeavor to remove a

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Property, Plant, and Equipment, and

2. Cost = $44,793 million

376 Financial Accounting Sixth Canadian Edition Instructor’s Solutions Manual

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Land ($140,000  0.50) ............................ 70,000

Financial Accounting Sixth Canadian Edition Instructor’s Solutions Manual 377

378 Financial Accounting Sixth Canadian Edition Instructor’s Solutions Manual

(a) Straight-line ($25,000,000 – $5,000,000) /

(b) Units-of-production [($25,000,000 – $5,000,000) /

Cost .............................. $25,000,000 $25,000,000 $25,000,000

Carrying amount ......... $21,000,000 $22,000,000 $15,000,000

Financial Accounting Sixth Canadian Edition Instructor’s Solutions Manual 379

(b) Units-of-production [($25,000,000 –

Year 1 ($25,000,000  2/5) = $10,000,000

Year 2 ($25,000,000 – $10,000,000)  2/5 = $6,000,000

Year 3 ($25,000,000 – $10,000,000 – $6,000,000)  2/5 =

Year 4 ($25,000,000 – $10,000,000 – $6,000,000 –

Year 5 No depreciation: asset is fully

380 Financial Accounting Sixth Canadian Edition Instructor’s Solutions Manual

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b. Units-of-production (€40,000,000 – €5,000,000)/

c. Double-diminishing-balance (€40,000,000  2/7

Straight-line depreciation produces the highest net income

Financial Accounting Sixth Canadian Edition Instructor’s Solutions Manual 381

Depreciation for years 1–4:

$60,000 / 10 years = $6,000 per year

$6,000  4 years = $24,000 for years 1–4

$60,000 – $24,000 ÷ 3 years = $12,000 per

382 Financial Accounting Sixth Canadian Edition Instructor’s Solutions Manual

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Cash ................................................... 15,000

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A patent is amortized over its useful life. Amortization is

The cost of the patent, less the accumulated amortization is

The value of goodwill does not change, unless it is impaired.

The carrying amount of goodwill is the cost, less any

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Jaguar Automobiles Ltd.

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386 Financial Accounting Sixth Canadian Edition Instructor’s Solutions Manual

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2017 Return on = Net income ÷ Average total