Exercise 8-10A Double-declining-balance and units-of-production depreciation

Accounting for Long-Term Operational Assets

Exercise 8-10A Double-declining-balance and units-of-production depreciation: gain or loss on disposal

Exact Photo Service purchased a new color printer at the beginning of Year 1 for $38,000. The printer is expected to have a four-year useful life and a $3,500 salvage value. The expected print production is estimated at 1,500,000 pages. Actual print production for the four years was as follows:

• Year 1: 390,000
• Year 2: 410,000
• Year 3: 420,000
• Year 4: 300,000
• Total: 1,520,000

The printer was sold at the end of Year 4 for $1,650.

Required
a. Compute the depreciation expense for each of the four years, using double-declining-balance depreciation.
b. Compute the depreciation expense for each of the four years, using units-of-production depreciation.
c. Calculate the amount of gain or loss from the sale of the asset under each of the depreciation methods.

Exercise 8-11A Events related to the acquisition, use, and disposal of a tangible plant asset: straight-line depreciation

City Taxi Service purchased a new auto to use as a taxi on January 1, Year 1, for $36,000. In addition, City paid sales tax and title fees of $1,200 for the vehicle. The taxi is expected to have a five-year life and a salvage value of $4,000.

Required
a. Using the straight-line method, compute the depreciation expense for Year 1 and Year 2.
b. Prepare the general journal entry to record the Year 1 depreciation.
c. Assume that the taxi was sold on January 1, Year 3, for $22,000. Prepare the journal entry for the sale of the taxi in Year 3.

Exercise 8-12A Effect of the disposal of plant assets on the financial statements

Un Company sold office equipment with a cost of $23,000 and accumulated depreciation of $12,000 for $14,000.

Required
a. What is the book value of the asset at the time of sale?
b. What is the amount of gain or loss on the disposal?
c. How would the sale affect net income (increase, decrease, no effect) and by how much?
d. How would the sale affect the amount of total assets shown on the balance sheet (increase, decrease, no effect) and by how much?
e. How would the event affect the statement of cash flows (inflow, outflow, no effect) and in what section?

Exercise 8-13A Effect of gains and losses on the accounting equation and financial statements

On January 1, Year 1, Prairie Enterprises purchased a parcel of land for $28,000 cash. At the time of purchase, the company planned to use the land for a warehouse site. In Year 3, Prairie Enterprises changed its plans and sold the land.

Required
a. Assume that the land was sold for $29,500 in Year 3.
(1) Show the effect of the sale on the accounting equation.
(2) What amount would Prairie report on the Year 3 income statement related to the sale of the land?
(3) What amount would Prairie report on the Year 3 statement of cash flows related to the sale of the land?

b. Assume that the land was sold for $24,000 in Year 3.
(1) Show the effect of the sale on the accounting equation.
(2) What amount would Prairie report on the Year 3 income statement related to the sale of the land?
(3) What amount would Prairie report on the Year 3 statement of cash flows related to the sale of the land?

Exercise 8-14A Computing depreciation for tax purposes

Crossroads Eye Care Company purchased $60,000 of equipment on March 1, Year 1.

Required
a. Compute the amount of depreciation expense that is deductible under MACRS for Year 1 and Year 2, assuming that the equipment is classified as a seven-year property.
b. Compute the amount of depreciation expense that is deductible under MACRS for Year 1 and Year 2, assuming that the equipment is classified as a five-year property.