EXERCISE 10-1

(a) Under the cost principle, the acquisition cost for a plant asset
includes all expenditures necessary to acquire the asset and make
it ready for its intended use. For example, the cost of factory
machinery includes the purchase price, freight costs paid by the
purchaser, insurance costs during transit, and installation costs.
(b) 1.
2.
3.
4.
5.
6.
7.
8.

Land
Equipment
Equipment
Land Improvements
Equipment
Equipment
Prepaid Insurance
License Expense

EXERCISE 10-2
1.
2.
3.
4.
5.
6.
7.
8.
9.

Equipment
Equipment
Equipment
Land
Prepaid Insurance
Land Improvements
Land Improvements
Land
Buildings

EXERCISE 10-3
(a) Cost of land
Cash paid ..........................................................................
Net cost of removing warehouse
($8,600 $1,700) ...........................................................
Attorneys fee ....................................................................
Real estate brokers fee ...................................................
Total ...........................................................................

$80,000
6,900
1,100
5,000
$93,000

(b) The architects fee ($7,800) should be debited to the Buildings

account. The cost of the driveways and parking lot ($14,000)
should be debited to Land Improvements.
EXERCISE 10-5
(a) Depreciation cost per unit is $1.60 per mile
[($168,000 $8,000) 100,000].
(b)

Computation

Year
2012
2013
2014
2015

Annual
Units of Depreciation Depreciation
Activity X Cost /Unit = Expense
26,000
$1.60
$41,600
32,000
1.60
51,200
25,000
1.60
40,000
17,000
1.60
27,200

EXERCISE 10-6
(a) Straight-line method:
$120,000 $12,000

= $21,600 per year.

5

2012 depreciation = $21,600 X 3/12 = $5,400.

End of Year
Accumulated
Book
Depreciation
Value
$ 41,600
$126,400
92,800
75,200
132,800
35,200
160,000
8,000

(b) Units-of-activity method:

$120,000 $12,000

= $10.80 per hour.

10,000

2012 depreciation = 1,700 hours X $10.80 = $18,360.

(c) Declining-balance method:
2012 depreciation = $120,000 X 40% X 3/12 = $12,000.
Book value January 1, 2013 = $120,000 $12,000 = $108,000.
2013 depreciation = $108,000 X 40% = $43,200.
EXERCISE 10-7
(a) (1)

2012: ($30,000 $2,000)/8 = $3,500

2013: ($30,000 $2,000)/8 = $3,500

(2)

($30,000 $2,000)/100,000 = $0.28 per mile

2012: 15,000 X $0.28 = $4,200
2013: 12,000 X $0.28 = $3,360

(3)

2012: $30,000 X 25% = $7,500

2013: ($30,000 $7,500) X 25% = $5,625

(b) (1)
(2)

Depreciation Expense ............................................

Accumulated DepreciationEquipment..............
Equipment ...............................................................
Less: Accumulated DepreciationEquipment ....

3,500
3,500
$30,000
3,500
$26,500

EXERCISE 10-8
(a) Type of Asset
Book value, 1/1/12
Less: Salvage value
Depreciable cost
Remaining useful life in years
Revised annual depreciation
(b) Dec. 31

Building
$686,000
37,000
$649,000

Warehouse
$81,000
3,600
$77,400

44

15

$ 14,750

$ 5,160

Depreciation Expense .............................

Accumulated Depreciation
Buildings .......................................

14,750
14,750

EXERCISE 10-10
(a)

(b)

Cash.........................................................................
Accumulated DepreciationEquipment
[($50,000 $5,000) X 3/5] ....................................
Equipment .......................................................
Gain on Disposal of Plant Assets ..................

28,000
27,000

Depreciation Expense
[($50,000 $5,000) X 1/5 X 4/12] .........................
Accumulated DepreciationEquipment ......

3,000

50,000
5,000

3,000

Cash.........................................................................
Accumulated DepreciationEquipment
($27,000 + $3,000) ................................................
Equipment ......................................................
Gain on Disposal of Plant Assets .................

28,000

(c) Cash ...........................................................................

Accumulated DepreciationEquipment .................
Loss on Disposal of Plant Assets ............................
Equipment ..........................................................

11,000
27,000
12,000

30,000
50,000
8,000

50,000

(d) Depreciation Expense

[($50,000 $5,000) 5 X 9/12] ...............................
Accumulated DepreciationEquipment ..........
Cash ...........................................................................
Accumulated DepreciationEquipment
($27,000 + $6,750) ..................................................
Loss on Disposal of Plant Assets ............................
Equipment ..........................................................

6,750
6,750
11,000
33,750
5,250
50,000

EXERCISE 10-11
(a) Dec. 31

Depletion Expense ...................................

Accumulated Depletion
(100,000 X $.90) ............................

Cost
Units estimated
Depletion cost per unit [(a) (b)]

90,000
90,000

(a) $720,000
(b) 800,000 tons
$0.90

(b) The costs pertaining to the unsold units are reported in current
assets as part of inventory (20,000 X $.90 = $18,000).
EXERCISE 10-12
Dec. 31

Amortization Expense ..................................

Patents ($90,000 5 X 8/12) .................

12,000
12,000

Note: No entry is made to amortize goodwill because it has an

indefinite life.