Homework - Section 2 - 4 (1)

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Northeastern Technical College, Cheraw *

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Apr 3, 2024

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MASTERING DEPRECIATION HOMEWORK EXERCISES Unless otherwise indicated in the problem, all companies use a calendar year. Section 2  DEPRECIATION UNDER GAAP (FOR BOOK PURPOSES) 1. What is the purpose of depreciation? To match a fixed asset's cost against the revenue it produces over its life. 2. What is the adjusting entry to record $10,000 of depreciation expense? JOURNAL DATE DESCRIPTION POST. REF. DEBIT CREDIT 1 Dec 31 Depreciation Expense 10 0 0 0 00 1 2 Accumulated Depreciation 10 0 0 0 00 2 3 3 4 4 5 5 3. If a company used tax depreciation for its books and were audited, what factor would require the company to recalculate depreciation under one of the GAAP methods? Only if the difference between the tax and GAAP depreciation were material. 4. What four factors are required to calculate an asset’s depreciation expense? Cost, estimated useful life, salvage/residual value, and method of depreciation used. 5. APEX Incorporated purchases a machine with a note payable. Expenditures include the machine ($100,000), freight ($2,500), sales tax ($4,500) and installation ($3,300). Record the journal entry to book the acquisition. JOURNAL 6. DATE DESCRIPTION POST. REF. DEBIT CREDIT 1 Dec 31 Equipment 110 3 3 0 00 1 2 Notes Payable 110 3 3 0 00 2 3 3 4 4 5 5 6. A company purchases a building and land for $500,000. The appraisal attributes a fair market value (FMV) of 250,000 to the land and $350,000 to the building. a. What is the acquisition cost of the land?

250,000/600,000=0.42x500,000= 210,000 b. What is the acquisition cost of the building? 350,000/600,000=.58 x500,000= 290,000 7. A firm purchases for $5,000 a computer and printer. The appraisal attributes a fair market value (FMV) of $4,000 to the computer and $2,000 to the printer. a. What is the acquisition cost of the computer? 4,000/6,000=.67X5,000= 3350 b. What is the acquisition cost of the printer? 2,000/6,000=.33x5,000= 1650 Section 3  THE STRAIGHT-LINE (SL) METHOD OF DEPRECIATION 1. On January 1, 20X1, Apogee Corp. purchases for $101,700 a machine with an estimated useful life of 3 years and a residual value of $4,500. Apogee uses straight-line depreciation. Complete the table below. Year-beginning Depreciation Accumulated Year-end Year book value expense depreciation book value 20X1 101,700 32,400 32,400 69,300 20X2 69,300 32,400 64,800 36,900 20X3 36,900 32,400 97,200 4,500 101,700-4,500=97,200/3=32,400 Section 4  THE UNITS OF PRODUCTION (UOP) METHOD OF DEPRECIATION 1. On January 1, 20X1, Apogee Corp. purchases for $101,700 a machine with an estimated useful life at 12,000 machine hours and a scrap value of $4,500. In Year 1, Apogee uses the machine for 5,100 hours; in Year 2, 4,200 hours; and in Year 3, 4,400 hours. Apogee uses UOP depreciation. Complete the table below. Year- beginning Depreciation Accumulated Year-end Year book value expense depreciation book value 20X1 101,700 41,310 41,310 60,390 20X2 60,390 34,020 75,330 26,370 20X3 26,370 21,870 97,200 4,500 101,7000-4,500=97,200/12,000=8.1 per hour 5,100x8.1=41,310 4,200x8.1=34,020 4,400x8.1=35,640 5,100+4,200=9,300-12,000=2,700*8.1=21,870

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