E 10-1
Land: $77,000 + $120,000 + $2,000 + $2,500 + $5,400 = $206,900
Land improvements: $51,000 + $10,400 + $6,000 = $67,400
Building: $799,000
Delmar will depreciate the land improvements and the building.
(15-20 min.)
E 10-2Req. 1
|
Cost of factory building in 20X3: |
|
|
Construction cost………………………... |
$600,000 |
|
Capitalized interest ($600,000 ´ .09)…… |
54,000 |
|
Total……………………………………... |
$654,000 |
(continued)
E 10-2Req. 2
|
Journal |
||||
|
DATE |
ACCOUNTS AND EXPLANATIONS |
POST. REF. |
DEBIT |
CREDIT |
|
Cash |
600,000 |
|||
|
Note Payable |
600,000 |
|||
|
Borrowed money for construction of building. |
||||
|
Factory Building |
600,000 |
|||
|
Cash |
600,000 |
|||
|
Incurred construction cost. |
||||
|
Factory Building |
54,000 |
|||
|
Cash ($600,000 ´ .09) |
54,000 |
|||
|
Recorded interest on note payable. |
||||
(10-15 min.)
E 10-3Allocation of cost to individual saddles:
|
Saddle |
Appraised Value |
Proportion |
Allocated Cost |
||||
|
1 |
$ 3,350 |
$3,350 / $13,000 |
= |
.258 |
´ $10,000 |
= |
$2,580 |
|
2 |
5,400 |
5,400 / 13,000 |
= |
.415 |
10,000 |
= |
4,150 |
|
3 |
4,250 |
4,250 / 13,000 |
= |
.327 |
10,000 |
= |
3,270 |
|
Totals |
$13,000 |
|
|
1.000 |
|
|
$10,000 |
|
Journal |
|||||
|
DATE |
ACCOUNTS AND EXPLANATIONS |
POST. REF. |
DEBIT |
CREDIT |
|
|
Saddle 1 |
2,580 |
||||
|
Saddle 2 |
4,150 |
||||
|
Saddle 3 |
3,270 |
||||
|
Cash |
5,000 |
||||
|
Note Payable |
5,000 |
||||
(5-10 min.)
E 10-4Capital expenditures:
(a) major overhaul, (c) lubrication before machine is placed in service,
(e) purchase price, (f) sales tax, (g) transportation and insurance,
(h) installation, (i) training of personnel, (j) reinforcement to platform
Expenses:
(b) ordinary recurring repairs, (d) periodic lubrication, (k) income tax
(10-15 min.)
E 10-5Depreciation is the process of allocating a plant asset’s cost to expense over the period the asset is used. It is designed to match depreciation expense against revenue over the asset’s life. The primary purpose of depreciation accounting is to match the period’s expenses against its revenues in order to measure income. Of less importance is the need to account for the asset’s decline in usefulness.
Lake is correct that depreciation can relate to the wear and tear of an asset. However, the depreciation of some assets is more affected by obsolescence than by physical wear and tear.
McPherson is wrong. Depreciation has nothing to do with a cash fund to replace an asset.