Exercise 8-6B: Allocating Costs for a Basket Purchase

Accounting for Long-Term Operational Assets

Exercise 8-6B: Allocating Costs for a Basket Purchase

Scenario
Usrey Company purchased a restaurant building, land, and equipment for $600,000 cash. The appraised value of the assets was as follows:

Land: $200,000

Building: $480,000

Equipment: $120,000

Total: $800,000

Required
a. Compute the amount to be recorded on the books for each of the assets.
b. Show the purchase in a horizontal statements model.
c. Prepare the general journal entry to record the purchase.

Exercise 8-7B: Effect of Depreciation on the Accounting Equation and Financial Statements

Scenario
The following events apply to The Soda Shop for the Year 1 fiscal year:

1. The company started when it acquired $20,000 cash from the issue of common stock.
2. Purchased a new ice cream machine that cost $20,000 cash.
3. Earned $36,000 in cash revenue.
4. Paid $21,000 cash for salaries expense.
5. Paid $6,000 cash for operating expenses.
6. Adjusted the records to reflect the use of the machine to make ice cream sodas. The machine, purchased on January 1, Year 1, has an expected useful life of five years and an estimated salvage value of $5,000. 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. What amount of depreciation expense would The Soda Shop report on the Year 2 income statement?
c. What amount of accumulated depreciation would The Soda Shop report on the December 31, Year 2, balance sheet?
d. Would the cash flow from operating activities be affected by depreciation in Year 2?

Exercise 8-8B: Effect of Double-Declining-Balance Depreciation on Financial Statements

Scenario
Hinds Company started operations by acquiring $120,000 cash from the issue of common stock. On January 1, Year 1, the company purchased equipment that cost $110,000 cash. The equipment had an expected useful life of five years and an estimated salvage value of $10,000. Hinds Company earned $85,000 and $72,000 of cash revenue during Year 1 and Year 2, respectively. Hinds Company uses double-declining-balance depreciation.

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

Exercise 8-9B: Computing and Recording Straight-Line Versus Double-Declining-Balance Depreciation

Scenario
At the beginning of Year 1, Hill Manufacturing purchased a new computerized drill press for $75,000. It is expected to have a five-year life and a $15,000 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 drill press and the depreciation expense for the first year under the straight-line and double-declining-balance methods in a financial statements model.

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