Explanation Depreciation expense: Depreciation expense is a non-cash expense, which is recorded on the income statement reflecting the consumption of economic benefits of long-term asset on account of its wear and tear or obsolesces. Straight-line depreciation method: The depreciation method which assumes that the consumption of economic benefits of long-term asset could be distributed equally throughout the useful life of the asset is referred to as straight-line method. Sum-of- the-years’ digits method: Sum-of-the years’ digits method determines the depreciation by multiplying the depreciable base and declining fraction. Double-declining-balance method: The depreciation method which assumes that the consumption of economic benefits of long-term asset is high in the early years but gradually declines towards the end of its useful life is referred to as double-declining-balance method. Calculate the missing amount of Company L as follows: Figure (1) Working note (1): Step 1: Calculate the proportion of the Land A and Building A. Particulars Appraisal value (A) Total appraisal value (B) Proportion ( A B × 100 ) Land A $72,000 $900,000 8.00% Building A $828,000 9,00,000 92.00% Total $900,000 100.00% Step 2: Calculate the cost of land A. Cost of the land A = ( Lum-sum price × Proportion of the land A ) = $ 812 , 500 × 8 100 = $ 65 , 000 Working note (2): Calculate the cost of Building A. Cost of the Building A = ( Lum-sum price × Proportion of the Building A ) = $ 812 , 500 × 92 100 = $ 747 , 500 Working note (3): Calculate the estimated useful life of building A. Estimated useful life of Building A } = Cost of acquisation − Residual value Annual depreciation expense = $ 747 , 500 ( 2 ) − $ 47 , 500 $14,000 = 50 years Working note (4): Calculate the depreciation expense of Building A for 2017. In this case, company L uses straight line method for building A, and hence it would have same depreciation expense for its all useful life. So, the depreciation expense for 2017 is $14,000 (given) as same as the prior year (2016). Working note (5): Calculate the cost of Land B. Cost of land B = [ Number of share issued × ( Par value per share + Fair value per share ) ] + Cost of demolishing = [ 3,000 shares × ( $ 5 per share + $25 per share ) ] + $ 10 , 400 = $ 75 , 000 + $ 10 , 400 = $ 85 , 400 Working note (6): In this case, there is no depreciation expense of Building B for 2017, because building is not yet constructed fully (under construction). Working note (7): The fair value donated equipment is considered as the cost of equipment. Hence, the cost of donated equipment is $16,000 (given). Working note (8): Step 1: Compute the deprecation rate. Useful life = 10 years Depreciation rate = 100% 10 years × 1.5 = 15 % Step 2: Calculate the depreciation expense of donated equipment for 2016. Depreciation expense = Aquisition cost of equipment × Depreciation Rate = $16,000 (7) × 15 100 = $ 2 , 400 Working note (9): Calculate the depreciation expense of donated equipment for 2017

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Chapter 11, Problem 15P

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Chapter 11 Solutions

EBK INTERMEDIATE ACCOUNTING: REPORTING

Ch. 11 - Briefly explain the meaning of the four factors...Ch. 11 - Prob. 2GI Ch. 11 - Would it be desirable to require all companies to...Ch. 11 - What is the depredation base?Ch. 11 - Prob. 5GI Ch. 11 - A company should use an accelerated depreciation...Ch. 11 - Prob. 7GI Ch. 11 - Prob. 8GI Ch. 11 - Prob. 9GI Ch. 11 - Prob. 10GI

Ch. 11 - Under U.S. GAAP, in a year in which the fair value...Ch. 11 - Prob. 12GI Ch. 11 - Prob. 13GI Ch. 11 - Compare the group and composite methods of...Ch. 11 - Prob. 15GI Ch. 11 - Describe the accounting for changes and...Ch. 11 - Prob. 17GI Ch. 11 - Prob. 18GI Ch. 11 - Explain the meaning of an impaired asset and...Ch. 11 - Prob. 20GI Ch. 11 - Prob. 21GI Ch. 11 - Prob. 22GI Ch. 11 - (Appendix 11.1) Why might depreciation on a...Ch. 11 - A method that excludes residual value from the...Ch. 11 - Prob. 2MC Ch. 11 - Prob. 3MC Ch. 11 - Prob. 4MC Ch. 11 - A machine with a 4-year estimated useful life and...Ch. 11 - At the end of the expected useful life of a...Ch. 11 - The composite depreciation method: a. is applied...Ch. 11 - Prob. 8MC Ch. 11 - A fixed asset with a 5-year estimated useful life...Ch. 11 - Crowder Company acquired a tract of land...Ch. 11 - Susquehanna Company purchased an asset at the...Ch. 11 - Akron Incorporated purchased an asset at the...Ch. 11 - Albany Corporation purchased equipment at the...Ch. 11 - Utica Machinery Company purchases an asset for...Ch. 11 - In Year 1, Utica Machinery Company uses the asset...Ch. 11 - At the beginning of Year 1, Herkimer Co....Ch. 11 - At the end of Year 1, Herkimer Co. sells two...Ch. 11 - Buffalo, Inc., uses composite depreciation for its...Ch. 11 - Prob. 9RE Ch. 11 - Assume the same information as in RE11-3, except...Ch. 11 - Oneonta Co. owns equipment with a cost of 300,000...Ch. 11 - At the beginning of the current year, Andy Company...Ch. 11 - Prob. 13RE Ch. 11 - (Appendix 11.1) Auburn Company purchased an asset...Ch. 11 - Gruman Company purchased a machine for 220,000 on...Ch. 11 - Prob. 2E Ch. 11 - Prob. 3E Ch. 11 - Prob. 4E Ch. 11 - Prob. 5E Ch. 11 - Prob. 6E Ch. 11 - Loban Company purchased four cars for 9,000 each...Ch. 11 - Wilcox Company acquires four machines that have...Ch. 11 - Lightning Delivery Company purchased a new...Ch. 11 - Prob. 10E Ch. 11 - Prob. 11E Ch. 11 - Prob. 12E Ch. 11 - Bailand Company purchased a building for 210,000...Ch. 11 - Prob. 14E Ch. 11 - On January 1, 2012, Vallahara Company purchased...Ch. 11 - Prob. 16E Ch. 11 - Prob. 17E Ch. 11 - Prob. 18E Ch. 11 - Prob. 19E Ch. 11 - Prob. 20E Ch. 11 - Prob. 1P Ch. 11 - Prob. 2P Ch. 11 - Prob. 3P Ch. 11 - Prob. 4P Ch. 11 - Prob. 5P Ch. 11 - Prob. 6P Ch. 11 - Prob. 7P Ch. 11 - Prob. 8P Ch. 11 - During 2016, Ryel Companys controller asked you to...Ch. 11 - Prob. 10P Ch. 11 - On January 1, 2011, Borstad Company purchased...Ch. 11 - Prob. 12P Ch. 11 - Prob. 13P Ch. 11 - Prob. 14P Ch. 11 - Prob. 15P Ch. 11 - Prob. 16P Ch. 11 - Prob. 17P Ch. 11 - Prob. 18P Ch. 11 - Prob. 19P Ch. 11 - Prob. 20P Ch. 11 - Prob. 21P Ch. 11 - Prob. 1C Ch. 11 - Prob. 2C Ch. 11 - Straight-Line and Composite Depreciation Portland...Ch. 11 - Depreciation continues to be one of the most...Ch. 11 - The following two statements concern depreciation:...Ch. 11 - Prob. 6C

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Solution Summary: The author calculates the missing amount of Company L. Depreciation expense is a non-cash expense, which is recorded on the income statement reflecting the consumption of economic benefits of long-term asset.

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Chapter 11 Solutions