(This Problem Set is from the 6th Edition of Keiso, the other editions may have different figure

value, but
the way of solution is same, anyone having different figure just can replace the value, try it, it’s easy.)

P10-1A

Mendoza Company was organized on January 1. During the first year of operations, the following
plant asset expenditures and receipts were recorded in random order.

Debits
1. $ 4,000
2. Real estate taxes on land paid for the 5,000
3. Full to building 700,000
4. costs for new 20,000
5. Cost of real estate as a plant site (land $100,000 and
145,000
6. Cost of parking lots and 14,000
7. fees on building 10,000
8. 2,000
9. Cost of demolishing building to make land suitable for of
15,000
$915,000
Credit
10. Proceeds from salvage of demolished building $ 3,500
Instructions
Analyze th e foregoing tran s a ctio n s using the following column headings. Insert the number of
each transaction in the Item space, and insert the amounts in the appropriate columns. For
amounts entered in the Other Accounts column, also indicate the account title.
Item Land Building Other Accounts

P10-2A
In recent years, Pablo Company purchased three machines. Because o f heavy turnover in the
accounting department, a different accountant was in charge of selecting the de- preciation method
for each machine, and each selected a different method. Information con- cerning the machines is
summarized below.

Salvage Useful Life Depreciation

Machine Acquired Cost Value in Years Method
1 1/1/00 $86,000 $ 6,000 4 Straight-line
2 1/1/00 140,000 10,000 5 Declining-balance
3 1/1/01 80,000 8,000 5 Units-of-activity

For the declining-balance method, the company uses the double-declining rate. For the units-of-
activity method, total machine hours are expected to be 120,000. Actual hours of use in the first 3
years were: 2001, 24,000; 2002, 34,000; and 2003, 30,000.
Instructions
(a) Compute the amount of accumulated depreciation on each machine at December 31, 2002.
(b) If machine 2 had been purchased on May 1 instead of January 1, what would be the depreciation
expense for this machine in (1) 2000 and (2) 2001?
P10-3A
On January 1, 2002, Khan Company purchased the following two machines for use in its production
process.
Machine A: The cash price of this machine w a s $30,000. Related expenditures
included: sales tax $1,500, shipping costs $150, insurance during shipping $80,
installation and testing costs $70, and $100 of oil and lubricants to be used with the
machinery during its first year of operation. Khan estimates that the useful life of the
ma- chine is 4 years with a $5,000 salvage value remaining at the end of that time
period.
Machine B: The recorded cost of this machine was $60,000. Khan estimates that the
useful life of the machine is 4 years with a $10,000 salvage value remaining at the end of
that time period.

Instructions
(a) Prepare the following for Machine A.
(1) The journal entry to record its purchase on January 1, 2002.
(2) The journal entry to record annual depreciation at December 31, 2002, assuming the
straight-line method of depreciation is used.
(b) Calculate the amount of depreciation expense that Khan should record for machine B each
year of its useful life under the following assumption.
(1) Khan uses the straight-line method of depreciation.
(2) Khan uses the declining-balance method. The rate used is twice the straight-line rate.
(3) Khan uses the units-of-activity method and estimates the useful life of the machine is
1 25,000 units. Actual usage is as follows: 2002, 45,000 units; 2003, 35,000 units; 2004, 25,000
units; 2005,20,000 units.
(c) Which method used to calculate depreciation on machine B reports the lowest amount of
depreciation expense in year 1 (2002)? The lowest amount in year 4 (2005)? The lowest total
amount over the 4-year period?
P10-4A
At the beginning of 2006, Duncan Company acquired equipment costing $60,000. It was estimated
that this equipment would have a useful life of 6 years and a residual value of $6,000 at that time.
The straight-line method of depreciation was considered the most appropriate to use with this type of
equipment. Depreciation is to be recorded at the end of each year.
During 2002 (the third year of the equipment’s life), the company’s engineers reconsidered their
expectations, and estimated that the equipment’s useful life would probably be 7 years (in total)
instead of 6 years. The estimated residual value was not changed at that time. However, during
2005 the estimated residual value was reduced to $4,400.
Instructions
Indicate how much depreciation expense should be recorded for this equipment each year by
completing the following table.
Year Depreciation Expense Accumulated Depreciation
2000
 2001
2002
2003
2004
2005
2006
P10-5A
At December 31, 2002, Santa Fe Company reported the following as plant assets.

Land $
Buildings $28,500,000 4,000,000
Less: Accumulated depreciation— 12,100,000 16,400,0
b ildi 00
Equipment 48,000,000
Less: Accumulated depreciation— 5,000,000 43,000,0
i t 00
Total plant assets $63,400,0
During 2003, the following selected cash transactions occurred.
April 1 Purchased land for $2,630,000.
May 1 Sold Equipment that cost $570,000 when purchased on January 1, 1999. The equipment was
sold for $240,000.
June 1 Sold land purchased on June 1, 1999, for $1,000,000. The land cost $340,000. July 1
Purchased equipment for $3,500,000.
Dec. 31 Retired equipment that cost $500,000 when purchased on December 31, 1993. No salvage
value was received.

Instructions
(a) Journalize the above transactions. Starkey uses straight-line depreciation for buildings and
equipment. The buildings are estimated to have a 50-year useful life and no salvage value. The
equipment is estimated to have a 10-year useful life and no salvage value. Update depreciation on assets
disposed of at the time of sale or retirement.
(b) Record adjusting entries for depreciation for 2003.
(c) Prepare the plant assets section of Santa Fe’s balance sheet at December 31, 2003.
 Problem Set 10 - 1A

Item Land Building Other Accounts

1 ($ 4,000)
2 $700,000
3 $ 5,000 Property Taxes Expense
4 ( 145,000)
5 20,000
6 10,000
7 ( 2,000)
8 14,000 Land Improvements
9 ( 15,000)
10 (3,500)
($162,500) $730,000
 Problem Set 10 - 2A

(a) Cumulative
Year Computation 12/31
BUS 1
2000 $ 0,000 X 2% = $,000
2001 $ ,000
$ 0,000 X 2% = $,000 ,000
2002 $ 0,000 X 2% = $,000 ,000

BUS 2
2000 $10,000 X 0% = $,000
2001 $ ,000
$ ,000 X 0% = $3,00 ,00
2002 $ ,00 X 0% = $1,0 10,0

BUS 3
2001 24,000 miles X $.60* = $14,400 $ 14,400
2002 34,000 miles X $.60* = $20,400 34,800

*$72,000 ÷ 120,000 miles = $.60 per mile.

(b)<ear Computation Expense

BUS 2
(1) 2006 $10,000 X 0% X 9/12 = $,000 $,000
(2) 2007 $,000 X 0% = $3,00 $3,00
 Problem Set 10-3A
(a) (1)

P. Debit Credit
Date Particulars
R. (Amount) (Amount)
2002 Purchase Price A/c Dr. 30000 -
Jan 1 Sales Tax A/c Dr. 1500 -
Shipping Costs A/c Dr. 150 -
Insurance During Shipping A/c Dr. 80 -
Installation and Testing A/c Dr. 70 -
Total Cost of Machinery A/c Cr. - 31800
2002 Machinery A/c Dr. 31800 -
Jan 1 Cash A/c Cr. - 31800

(a) (2)

P. Debit Credit
Date Particulars
R. (Amount) (Amount)
2002 Depreciation Expense A/c Dr. 5360 -
Dec 31 Accumulate Depreciation A/c Cr. - 5360

Working: Calculation of Annual Depreciation:

Recorded Cost 31800

Less: Salvage Value 5000
Depreciable Cost 26800
(÷) Years of Useful Life ÷ 5
Annual Depreciation 5360

(b) (1)

P. Debit Credit
Date Particulars
R. (Amount) (Amount)
2002 Depreciation Expense A/c Dr. 13750 -
Dec 31 Accumulate Depreciation A/c Cr. - 13750

Working: Calculation of Annual Depreciation:

Recorded Cost 60000

Less: Salvage Value 5000
Depreciable Cost 55000
(÷) Years of Useful Life ÷ 4
Annual Depreciation 13750
(b) (2)

Book Value at Beginning Double Declining Annual Depreciation Accumulated

of Year Balance Rate Expense Depreciation
55000 50%* 27500 27500
27500 50% 13750 41250
13750 50% 6875 48125
6875 50% 3438 51563
*100% ÷ 4-year useful life = 25% X 2 = 50%.

(b) (3)

2002: $1.20 X 45,000 = $54,000

2003: 1.20 X 35,000 = 42,000

2004: 1.20 X 25,000 = 30,000

2005: 1.20 X 20,000 = 24,000

(c)

The declining-balance method reports the highest amount of depreciation expense the first year
while the straight-line method reports the lowest.

In the fourth year, the straight-line method reports the highest amount of depreciation expense
while the declining-balance method reports the lowest.

These facts occur because the declining-balance method is an accelerated depreciation method in
which the largest amount of depreciation is recognized in the early years of the asset’s life. If the
straight-line method is used, the same amount of depreciation expense is recognized each year.
Therefore, in the early years less depreciation expense will be recognized under this method than
under the declining-balance method while more will be recognized in the later years.

The amount of depreciation expense recognized using the units-of-activity method is dependent
on production, so this method could recognize more or less depreciation expense than the other
two methods in any year depending on output.

No matter which of the three methods is used, the same total amount of depreciation expense will
be recognized over the four-year period.
 Problem Set 10-4A
Depreciation Accumulated
Year
Expenses Depreciation
2000 9000* 9000
2001 9000 18000
2002 7200** 25200
2003 7200 32400
2004 7200 39600
2005 8000*** 47600
2006 8000 55600

Book Value - Salvage Value

Annual Depreciation =
Remaining Useful Life

*
60000 - 6000
= 9000
6 years

**
42000 - 6000
= 7200
5 years

***
20400 - 4400
= 8000
2 years
 Problem Set 10-5A
(a)

P. Debit Credit
Date Particulars
R. (Amount) (Amount)
2003 Land A/c Dr. 2630000 -
April 1 Cash A/c Dr. - 2630000
2003 Depreciation Expense A/c Dr. 19000 -
May 1 Accumulated Depreciation- Equipment A/c Cr. - 19000
2003 Cash A/c Dr. 350000 -
May 1 Accumulated Depreciation- Equipment A/c Dr. 247000 -
Equipment Cr. - 570000
Gain on Disposal* Cr. - 27000
2003 Cash A/c Dr. 1800000 -
June 1 Land A/c Cr. - 200000
Gain on Disposal Cr. - 1600000
2003 Equipment A/c Dr. 2000000 -
July 1 Cash A/c Cr. - 2000000
2003 Accumulated Depreciation- Equipment A/c Dr. 500000 -
May 1 Equipment A/c Cr. - 500000

*Calculation of Gain on Disposal of Equipment sold at May 1, 2003

Cost $570,000

Accum. depreciation—equipment $247,000

[($780,000 X 1/10 X 4) +$27,000]

Book value $323,000

Cash proceeds $ 350,000
Gain on disposal $ 27,000
(b)

P. Debit Credit
Date Particulars
R. (Amount) (Amount)
2002 Depreciation Expense A/c Dr. 570000 -
Dec 31 Accumulated Depreciation- Building A/c Dr. - 570000
($28,500,000 X 1/50)
2002 Depreciation Expense A/c* Dr. 4793000 -
Dec 31 Accumulated Depreciation- Equipment A/c Cr. - 4793000

*Calculation of depreciation expense of Equipment:

($46,930,000* X 1/10) $4,693,000

[($2,000,000 X 1/10) X 6/12] 100,000

$4,693,000

*($48,000,000 – $570,000 – $500,000)

(c)

Santa Fe Company
Partial Balance Sheet
December 31, 2003

Amounts Amounts
Particulars
$ $
Land $6,430,000
Buildings $28,500,000
Less: Accumulated depreciation- Buildings 12,670,000 15,830,000
Equipment 48,930,000
Less: Accumulated depreciation-Equipment 9,115,000 39,815,000
Total plant assets $62,075,000