Exercise 8-6A Allocating costs for a basket purchase

Accounting for Long-Term Operational Assets

Exercise 8-6A Allocating costs for a basket purchase

Pitney Co. purchased an office building, land, and furniture for $500,000 cash. The appraised value of the assets was as follows:

Land $180,000
Building 300,000
Furniture 120,000
Total $600,000

Required
a. Compute the amount to be recorded on the books for each asset.
b. Show the purchase in a horizontal statements model like the following one:
c. Prepare the general journal entry to record the purchase.

Exercise 8-7A Effect of depreciation on the accounting equation and financial statements

The following events apply to Gulf Seafood for the Year 1 fiscal year:

1. The company started when it acquired $60,000 cash by issuing common stock.
2. Purchased a new cooktop that cost $40,000 cash.
3. Earned $72,000 in cash revenue.
4. Paid $25,000 cash for salaries expense.
5. Adjusted the records to reflect the use of the cooktop. Purchased on January 1, Year 1, the cooktop has an expected useful life of four years and an estimated salvage value of $4,000. Use straight-line depreciation. The adjusting entry was made as of December 31, Year 1.

Required
a. Record the events in general journal format and post to T-accounts.
b. Prepare a balance sheet and a statement of cash flows for the Year 1 accounting period.
c. What is the net income for Year 1?
d. What amount of depreciation expense would Gulf Seafood report on the Year 2 income statement?
e. What amount of accumulated depreciation would Gulf Seafood report on the December 31, Year 2, balance sheet?
f. Would the cash flow from operating activities be affected by depreciation in Year 2?

Exercise 8-8A Effect of double-declining-balance depreciation on financial statements

Golden Manufacturing Company started operations by acquiring $150,000 cash from the issue of common stock. On January 1, Year 1, the company purchased equipment that cost $120,000 cash, had an expected useful life of six years, and had an estimated salvage value of $4,000. Golden Manufacturing earned $72,000 and $83,000 of cash revenue during Year 1 and Year 2, respectively. Golden Manufacturing uses double-declining-balance depreciation.

Required
Prepare income statements, balance sheets, and statements of cash flows for Year 1 and Year 2. Use a vertical statements format. (Hint: Record the events in T-accounts prior to preparing the statements.)

Exercise 8-9A Computing and recording straight-line versus double-declining balance depreciation

At the beginning of Year 1, Copeland Drugstore purchased a new computer system for $52,000. It is expected to have a five-year life and a $7,000 salvage value.

Required
a. Compute the depreciation for each of the five years, assuming that the company uses
(1) Straight-line depreciation.
(2) Double-declining-balance depreciation.
b. Record the purchase of the computer system and the depreciation expense for the first year under straight-line and double-declining-balance methods in a financial statements model like the following one:
c. Prepare the journal entries to recognize depreciation for each of the five years, assuming that the company uses
(1) Straight-line depreciation.
(2) Double-declining-balance depreciation.