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Plant Assets, Natural Resources, and Intangibles

Plant Assets, Natural Resources, and Intangibles. Chapter 9 Exercises. Lump-Sum Purchases. In-Class Exercise : Exercise No. Page E9-18 590 Lump-Sum Purchases. Lump-Sum Purchases. Exercise E9-17

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Plant Assets, Natural Resources, and Intangibles

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  1. Plant Assets, Natural Resources, and Intangibles Chapter 9 Exercises

  2. Lump-Sum Purchases • In-Class Exercise: Exercise No.Page E9-18 590 Lump-Sum Purchases

  3. Lump-Sum Purchases Exercise E9-17 Deadwood Properties bought three lots in a subdivision for a lump-sum price. An independent appraiser valued the lots as follows: LotAppraised Value 1 $ 70,500 2 235,000 3 164,500 Requirements: (1) Deadwood paid $210,000 in cash. (2) Record the purchase in the general journal. (3) Identify each lot’s cost in a separate Land account. (4) Round decimals to two places, and use the computed percentages throughout.

  4. Lump-Sum Purchases

  5. Lump-Sum Purchases

  6. Lump-Sum Purchases End of Exercise

  7. Depreciation Methods • In-Class Exercise (Form groups and work exercises): Exercise No.Page E9-20 591 Straight-Line, Units-of-Production, & Double-Declining Balance

  8. Depreciation Methods • Papa’s Fried Chicken bought equipment on January 2, 2013, for $39,000. • The equipment was expected to remain in service for four years and to perform 11,000 fry jobs. • At the end of the equipment’s useful life, Papa’s estimates that its residual value will be $6,000. • The equipment performed 1,100 jobs the first year, 3,300 the second year, 4,400 the third, and 2,200 the fourth year. Requirements: (1) Prepare a schedule of depreciation expense, accumulated depreciation, and book value per year for the equipment under the three depreciation methods. (2) Show your computations. Note: Three depreciation schedules must be prepared.

  9. Depreciation Methods Straight-Line Method

  10. Straight-Line Depreciation $33,000 / 4 yrs = $8,250

  11. Straight-Line Depreciation Residual Value

  12. Depreciation Methods Units-of-Production Method

  13. Units-of-Production

  14. Units-of-Production Residual Value

  15. Depreciation Methods Double-Declining Method

  16. Double-Declining Balance 100% / Useful Lifex 2 = Rate of Depreciation 100% / 4 years = 25% x 2 = 50% The DDB rate cannot be used for the third year because it would decrease the book value below the residual value. (Depreciation = $9,750 - $6,000 = $3,750)

  17. Depreciation Methods End of Exercise

  18. Disposal of Plant Assets • In-Class Exercise: Exercise No.Page E9-23 592 Sale of Asset (Use the format, as reflected on the next chart, to complete this exercise)

  19. Disposal of Plant Assets General Journal Date Description Debit Credit • ExercisePage • E9-23 592 Disposal of Assets

  20. Disposal of Assets • On January 2, 2012, Pet Oasis purchased fixtures for $20,000 cash, expecting the fixtures to remain in service for six years. • Pet Oasis has depreciated the fixtures on a straight-line basis, with a $2,000 residual value. • On April 30, 2014, Pet Oasis sold the fixtures for $8,000 cash. • Requirements: • (1) Record depreciation expense for 2014. • (2) Record the sale of the fixtures on April 30, 2014.

  21. Disposal of Assets

  22. Disposal of Assets Partial year depreciation Depreciation RecapDepreciation for year 2012 ……….…. $3,000Depreciation for year 2013 ………….. 3,000Partial year depreciation for 2014 …. 1,000 Accumulated depreciation………… $7,000

  23. Disposal of Assets Loss CalculationFixture acquisition cost ……….……. $20,000Less: Accumulated depreciation …. (7,000)Book value…………………..………… $13,000Less: Cash received…………………. (8,000)Loss on sale of fixtures……………… $ 5,000

  24. Disposal of Assets End of Exercise

  25. Natural Resources • In-Class Exercise: Exercise No.Page E9-24 592 Depletion Entries

  26. Natural Resources • Sierra Mountain Mining paid $448,500 for the right to extract mineral assets from a 500,000-ton deposit. • In addition, to the purchase price, Sierra also paid a $500 filing fee, a $1,000 license fee to the state of Nevada, and $60,000 for a geological survey of the property. • Because Sierra purchased the rights to the minerals only, it expects the asset to have zero residual value. • During the first year, Sierra removed and sold 50,000 tons of the minerals. Requirements: Make journal entries to record: (a) purchase of the minerals (debit Minerals), (b) payment of fees and other costs, and (c) depletion of the first year.

  27. Natural Resources Cost of Mineral Deposit Acquisition

  28. Natural Resources Depletion Computations

  29. Natural Resources Depletion Computations

  30. Natural Resources Journal Entries

  31. Natural Resources End of Exercise

  32. Intangibles • In-Class Exercise (Form groups and work exercise): Exercise No.Page E9-25 592 Amortization Entries (Use the format, as reflected on the next chart, to complete this exercise)

  33. Intangibles General Journal Date Description Debit Credit • ExercisePage E9-25 592 Amortization Entries

  34. Amortization of Intangibles • Miracle Printers (MP) manufactures printers. Assume that MP recently paid $600,000 for a patent on a new laser printer. • Although it gives legal protection for 20 years, the patent is expected to provide a competitive advantage for only 8 years. Requirements: (1) Assuming the straight-line method of amortization, make the journal entries to record: (a) the purchase of the patent, and (b) amortization for year 1. (2) After using the patent for 4 years, MP learns that another company is designing a more efficient printer. (a) On the basis of this news, MP decides, starting with year 5, to amortize the remaining cost of the printer over 2 remaining years. (b) This gives the patent a useful life of 6 years. (c) Compute amortization for year 5.

  35. Amortization of Intangibles $600,000 ÷ 8 years = $75,000

  36. Amortization of Intangibles

  37. Amortization of Intangibles End of Exercise

  38. Exchange of Assets • In-Class Exercise: Exercise No.Page E9-28 593 Exchange of Assets (Use the format, as reflected on the next chart, to complete this exercise)

  39. Exchange of Assets General Journal Date Description Debit Credit • ExercisePage • E9-28 593 Exchange of Assets

  40. Exchange of Assets Community Bank disposes of old office fixtures costing $96,000, with accumulated depreciation of $65,000. Prepare the entries to record the disposal under each of the following separate assumptions. (1) The office fixtures are traded in for new office fixtures having a $134,000 cash price. A $31,000 trade-in allowance is received, and the balance is paid in cash ($103,000). Assume the asset exchange has commercial substance. (2) The office fixtures are traded in for new office fixtures having a $127,000 cash price. A $24,000 trade-in allowance is received, and the balance is paid in cash ($103,000). Assume the asset exchange has commercial substance.

  41. Exchange of Assets Book Value

  42. Exchange of Assets Book Value + Cash Paid = Cost of New Fixtures $ 31,000 + $103,000 = $134,000

  43. Exchange of Assets

  44. Exchange of Assets Book Value

  45. Exchange of Assets

  46. Exchange of Assets End of Exercise

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