FINANCIAL & MANAGERIAL ACCOUNTING
FINANCIAL & MANAGERIAL ACCOUNTING
7th Edition
ISBN: 9781260368192
Author: Wild
Publisher: MCG CUSTOM
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Chapter 8, Problem 1PSB

1.

To determine

To prepare: A table to compute the lump sum purchase and to prepare journal entry.

1.

Expert Solution
Check Mark

Explanation of Solution

Computation of lump sum purchase:

Particulars Appraised Value ($) Percentage of total Apportioned Cost ($)
Building 890,000 50% 900,000
Land improvements 249,200 14% 252,000
Land 427,200 24% 432,000
Trucks 213,600 12% 216,000
Total 1,780,000 1,800,000

Table (1)

Record purchase of the assets on January 1st 2017.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Jan1 Building 900,000
Land 432,000
Trucks 216,000
Land improvements 252,000
Cash 900,000
(To record the purchase of assets)

Table (2)

  • Building is an asset account. Building account increases as new building has been purchased. Hence, all the assets are debited as they increases in value.
  • Land is an asset account. Land account increases as a new land is purchased and all the assets are debited as a new asset is purchased or if its value increases.
  • Vehicle account is an asset account. Vehicles account increases as a new vehicle is purchased and all the assets are debited as a new asset is purchased or if its value increases.
  • Land improvements are an asset account. Land improvement account increases as some improvements have been done on land to increase its useful life and all the assets are debited as their value increases.
  • Cash account is an asset account. Cash account decreases as the amount paid for the purchase of all assets are made in cash and all the assets are credited as their values decreases.

Working Notes:

Computation of total appraised value:

    Totalappraisedvalue=( Appraisedvalueofbuilding+Appraisedvalueofland +Appraisedvalueoftrucks +Appraisedvalueoflandimprovements ) =$890,000+$427,200+$213,600+$249,200 =$1,780,000

Total appraised value is $1,780,000.

Building

Computation of percentage of total of building:

    Percentageofbuilding=( Appraisedvalueofbuilding TotalAppraisedvalue )×100 =( 890,000 $1,780,000 )×100 =50%

Percentage of building is 50%.

Computation of apportioned cost of the building:

    Apportionedcost=Totalcashprice×Percentageofbuilding =$1,800,000×50% =$900,000

Apportioned cost of the building is $900,000.

Land improvements

Computation of percentage of total of Land improvements:

    Percentageoflandimprovements=( AppraisedvalueofLandimprovements Totalappraisedvalue ) ×100 =( $249,200 $1,780,000 )×100 =14%

Percentage of Land improvements is 14%.

Computation of Apportioned Cost of the Land improvements:

    Apportionedcost=Totalcashprice×Percentageoflandimprovements =$1,800,000×14% =$252,000

Apportioned cost of land improvements is $252,000.

Land

Computation of percentage of total of Land:

    Percentageofland=( AppraisedvalueofLand Totalappraisedvalue )×100 =( $427,200 $1,780,000 )×100 =24%

Percentage of Land is 24%.

Computation of apportioned Cost of the Land:

    Apportionedcost=Totalcashprice×Percentageofland =$1,800,000×24% =$432,000

Apportioned cost of land is $432,000.

Vehicles

Computation of percentage of total of vehicles:

    Percentageofvehicles=( Appraisedvalueofvehicles Totalappraisedvalue )×100 =( $213,600 $1,780,000 )×100 =12%

Percentage of vehicles is 12%.

Computation of Apportioned Cost of the vehicles:

    Apportionedcost=Totalcashprice×Percentageofvehicles =$1,800,000×12% =$216,000

Apportioned cost of vehicles is $216,000.

2.

To determine

To Compute: The depreciation amount on building using straight line depreciation method.

2.

Expert Solution
Check Mark

Explanation of Solution

Given,
Cost of building is $900,000.
Salvage value is $120,000.
Useful life is 12 years.

Formula to calculate depreciation:

    Depreciation= ( CostResidualvalue ) Usefullife

Substitute $477,000 as the cost of the asset, $27,000 as residual value and 15 years as useful life,

    Depreciation= $900,000$120,000 12 =$65,000

Depreciation on building is $65,000.

Hence, the depreciation that will be charged on building for the year 2017 is $65,000.

3.

To determine

To Compute: The depreciation amount on the land improvements using double declining method.

3.

Expert Solution
Check Mark

Explanation of Solution

Given,
Appraised value of land improvements is 252,000.
Useful life is 10 years.

Formula to calculate the depreciation rate:

    Doubledecliningdepreciationrate= 100% Usefulyears ×2

Substitute 5 years as useful life in the above formula,

    Doubledecliningdepreciationrate= 100 10 ×2 =20%

The double depreciation rate is 20%.

Formula to calculate depreciation in first year:

    Depreciation=Costofthelandimprovements×Depreciationrate

Substitute $252,000 as cost of the land improvements and 20% as depreciation rate,

    Depreciation=$252,000×20% =$50,400

Hence, the depreciation that will be charged is $50,400.

4.

To determine

To identify: Accelerated depreciation results in payment of fewer taxes.

4.

Expert Solution
Check Mark

Explanation of Solution

  • This statement is not correct that accelerated depreciation reduces that amount of tax rate paid to the government, it doesn’t reduce the taxes as it just provides higher amount of depreciation in the first few years and provides lower depreciation in the later years.
  • The Acceleration depreciation just delays the taxes to the forthcoming years.

Hence, the accelerated depreciation does not result in payment of less tax.

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Chapter 8 Solutions

FINANCIAL & MANAGERIAL ACCOUNTING

Ch. 8 - Prob. 6DQCh. 8 - Prob. 7DQCh. 8 - Prob. 8DQCh. 8 - Prob. 9DQCh. 8 - Prob. 10DQCh. 8 - Prob. 11DQCh. 8 - Prob. 12DQCh. 8 - Prob. 13DQCh. 8 - Prob. 14DQCh. 8 - Prob. 15DQCh. 8 - Prob. 16DQCh. 8 - Prob. 17DQCh. 8 - Prob. 18DQCh. 8 - Prob. 19DQCh. 8 - Prob. 20DQCh. 8 - Prob. 21DQCh. 8 - Prob. 1QSCh. 8 - Prob. 2QSCh. 8 - Prob. 3QSCh. 8 - Prob. 4QSCh. 8 - Prob. 5QSCh. 8 - Prob. 6QSCh. 8 - Prob. 7QSCh. 8 - Prob. 8QSCh. 8 - Prob. 9QSCh. 8 - Prob. 10QSCh. 8 - Prob. 11QSCh. 8 - Prob. 12QSCh. 8 - Prob. 13QSCh. 8 - Prob. 14QSCh. 8 - Prob. 15QSCh. 8 - Prob. 1ECh. 8 - Prob. 2ECh. 8 - Prob. 3ECh. 8 - Prob. 4ECh. 8 - Prob. 5ECh. 8 - Prob. 6ECh. 8 - Prob. 7ECh. 8 - Prob. 8ECh. 8 - Prob. 9ECh. 8 - Prob. 10ECh. 8 - Prob. 11ECh. 8 - Prob. 12ECh. 8 - Prob. 13ECh. 8 - Prob. 14ECh. 8 - Prob. 15ECh. 8 - Prob. 16ECh. 8 - Prob. 17ECh. 8 - Prob. 18ECh. 8 - Prob. 19ECh. 8 - Prob. 20ECh. 8 - Prob. 21ECh. 8 - Prob. 22ECh. 8 - Prob. 23ECh. 8 - Exercise 8-24ᴬ Recording plant asset disposals P2...Ch. 8 - Exercise 8-25 Accounting for plant assets under...Ch. 8 - Prob. 1PSACh. 8 - Prob. 2PSACh. 8 - Prob. 3PSACh. 8 - Prob. 4PSACh. 8 - Prob. 5PSACh. 8 - Prob. 6PSACh. 8 - Prob. 7PSACh. 8 - Prob. 8PSACh. 8 - Prob. 1PSBCh. 8 - Prob. 2PSBCh. 8 - Prob. 3PSBCh. 8 - Prob. 4PSBCh. 8 - Prob. 5PSBCh. 8 - Prob. 6PSBCh. 8 - Prob. 7PSBCh. 8 - Prob. 8PSBCh. 8 - Prob. 8SPCh. 8 - Prob. 1BTNCh. 8 - Prob. 2BTNCh. 8 - Prob. 3BTNCh. 8 - Prob. 4BTNCh. 8 - Prob. 5BTNCh. 8 - Prob. 6BTNCh. 8 - Prob. 7BTNCh. 8 - GOOGLE Google Inc. CONSOLIDATED BALANCE SHEETS (In...Ch. 8 - Prob. 9BTN
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