Question

Problem One:

On March 1, 2019, Mark Company acquired real estate on which it planned to construct a small office building. The company paid $75,000 in cash. An old warehouse on the property was razed at a cost of $6,400; the salvaged materials were sold for $1,200. Additional expenditures before construction began included $800 attorney’s fee for work concerning the land purchase, $3,800 real estate broker’s fee, $5,800 architect’s fee, and $11,000 to put in driveways and a parking lot.

Instructions

1. Determine the amount to be reported as the cost of the land.

2. For each cost not used in part (a), indicate the account to be debited.

Problem Two:

Younger Bus Lines uses the units-of-activity method in depreciating its buses. One bus was purchased on January 1, 2018, at a cost of $188,000. Over its 4-year useful life, the bus is expected to be driven 100,000 miles. Salvage value is expected to be $8,000.

Instructions

1. Compute the depreciation cost per unit.

   

2. Calculate the depreciation expense, accumulated depreciation, and book value for 2018, 2019, 2020, and 2021 assuming actual mileage was: 2018, 27,000; 2019, 34,000; 2020, 24,000; and 2021, 18,000.

Year           Depreciation Expense               Accumulated Depreciation                    Book Value

2018

2019

2020

2021

Problem Three:

Kinder Company purchased a new machine on October 1, 2018, at a cost of $145,000.  The company estimated that the machine will have a salvage value of $25,000.The machine is expected to be used for 20,000 working hours during its 5-year life.

Instructions

Compute the depreciation expense under the following methods for the year indicated.

1. Straight-line for 2018 and 2019.

2. Units-of-activity for 2018 and 2019, assuming machine usage was 3,400 hours for 2018 and 12,200 for 2019.

3. Declining-balance using double the straight-line rate for 2018 and 2019.

4. Assuming the straight-line method.
   1. Prepare the journal entry to record 2018 depreciation.

Date	Account	DR	CR

2. Show how the truck would be reported in the December 31, 2018, balance sheet.

Problem Four:

On January 1, 2019, Jaime Inc. invested $900,000 in a mine estimated to have 1,200,000 tons of ore of uniform grade. During the 2019, 100,000 tons of ore were mined and sold.

Instructions

1. Prepare the journal entry to record depletion expense.

Date	Account	DR	CR

2. Assume that the 100,000 tons of ore were mined, but only 80,000 units were sold. How are the costs applicable to the 20,000 unsold units reported?

Problem Five:

The following are selected 2019 transactions of Penaflok Corporation.  

Jan. 1    Purchased a small company and recorded goodwill of $200,000. Its useful life is indefinite.

May 1   Purchased for $120,000 a patent with an estimated useful life of 5 years and a legal life of 20 years.

Instructions

Prepare necessary adjusting entries at December 31 to record amortization required by the events above.

Date	Account	DR	CR

Answer 1

1
a.	Cost of Land:
				$
	Cash paid			75000
	Old warehouse razed			6400
	Sale value of salvage materials			-1200
	Attorney's fees			800
	Real estate broker's fee			3800
	Total			84800
b.	Architectures' fees-Building account
	Driveways and a parking lot-Land improvements
2
a.	Depreciation cost per unit=(Cost-salvage value)/Expected miles to be driven=(188000-8000)/100000=180000/100000=$ 1.8 per mile
b.	Year	Depreciation cost per unit	Actual mileage	Depreciation expense	Accumulated depreciation	Book value
		a	b	c=a*b	d	(Cost-d)
	2018	1.8	27000	48600	48600	139400
	2019	1.8	34000	61200	109800	78200
	2020	1.8	24000	43200	153000	35000
	2021	1.8	18000	32400	185400	2600
3
a.	Straight line depreciation=(Cost-Salvage value)/Useful life=(145000-25000)/5=$ 24000
	2018
	Purchased on Oct 1.
	Compute depreciation for 3 months
	Depreciation expense=24000*(3/12)=$ 6000
	2019
	Depreciation expense=$ 24000
b.	Depreciation cost per unit=(Cost-salvage value)/Expected working hours=(145000-25000)/20000=120000/20000=$ 6 per hour
	2018
	Depreciation expense=Machine usage*Depreciation cost per unit=3400*6=$ 20400
	2019
	Depreciation expense=Machine usage*Depreciation cost per unit=12200*6=$ 73200
c.	Depreciation rate under double decling balance method=2*(1/useful life)=2*(1/5)=2*0.2=0.4=40%
	2018
	Purchased on Oct 1.
	Compute depreciation for 3 months
	Depreciation expense=Book value*Depreciation rate*(3/12)=145000*40%*(3/12)=$ 14500
	2019
	Depreciation expense=Book value*Depreciation rate=(145000-14500)*40%=$ 52200
d.	Date	Account			DR	CR
	Dec 31.	Depreciation expense			6000
		Accumulated depreciation				6000
		(Depreciation for 3 months recorded)
e.		Balance sheet (Partial)
				$	$
	Property,plant and equipment:
	Machinery			145000
	Less: Accumulated depreciation			6000	139000
4
a.	Depletion expense per ton=Cost/Estimated tons of ore=900000/1200000=$ 0.75 per ton
	Depletion expense for 2019=Actual tons of Ore*Depletion expense per ton=100000*0.75=$ 75000
	Jpurnal entry:
	Date	Account			DR	CR
	Dec 31.	Depletion expense
		Accumulated depletion
		(Depletion recorded)
b.	20000 units are completed units and hence, they are finished goods.
	If they can be sold within 12 months,it has to classify as current asst.Otherwise non-current asset.