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

Accounting for Long-Term Operational Assets

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

Design Service Co. purchased a new color copier at the beginning of Year 1 for $47,000. The copier is expected to have a five-year useful life and a $7,000 salvage value. The expected copy production was estimated at 2,000,000 copies. Actual copy production for the five years was as follows:

Year 1 560,000
Year 2 490,000
Year 3 430,000
Year 4 350,000
Year 5 210,000
Total 2,040,000

The copier was sold at the end of Year 5 for $7,600.

Required
a. Compute the depreciation expense for each of the five years, using double-declining-balance depreciation.
b. Compute the depreciation expense for each of the five years, using units-of-production depreciation. (Round cost per unit to three decimal places.)
c. Calculate the amount of gain or loss from the sale of the asset under each of the depreciation methods.

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

Pete’s Pizza purchased a delivery van on January 1, Year 1, for $35,000. In addition, Pete’s paid sales tax and title fees of $1,500 for the van. The van is expected to have a four-year life and a salvage value of $6,500.

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 the van was sold on January 1, Year 4, for $21,000. Prepare the journal entry for the sale of the van in Year 4.

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

A plant asset with a cost of $50,000 and accumulated depreciation of $41,000 is sold for $10,000.

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

On January 1, Year 1, Heflin Enterprises purchased a parcel of land for $20,000 cash. At the time of purchase, the company planned to use the land for future expansion. In Year 2, Heflin Enterprises changed its plans and sold the land.

Required
a. Assume that the land was sold for $22,500 in Year 2.
(1) Show the effect of the sale on the accounting equation.
(2) What amount would Heflin report on the income statement related to the sale of the land?
(3) What amount would Heflin report on the statement of cash flows related to the sale of the land?

b. Assume that the land was sold for $18,500 in Year 2.
(1) Show the effect of the sale on the accounting equation.
(2) What amount would Heflin report on the income statement related to the sale of the land?
(3) What amount would Heflin report on the statement of cash flows related to the sale of the land?