Question

9. Milan Company purchased land and an office building on March 1 for a combined cash price of $1,600,000. The land had a cost of $940,000 and the building had a book value of $200,000 on the seller's books. The land and building had fair market values of $1,040,000 and $560,000, respectively on March 1. Milan made the following entry at acquisition:

Land ........................................................................................... 940,000

Building ...................................................................................... 1,000,000

Gain on Purchase .............................................................. 140,000

Accumulated Depreciation ................................................. 200,000

Cash .................................................................................. 1,600,000

In the space below, prepare the correct entry for the acquisition.

10. Northern Company bought machinery on January 1, 2009 at a cost of $500,000. The machinery had an estimated life of ten years and salvage value of $50,000. On January 1, 2011, Northern estimates that the machinery will have a life of only five more years and a $60,000 salvage value. Northern uses straight-line depreciation. Compute the revised annual depreciation.

11. Bagley Company bought equipment on July 1, 2014 at a total cost of $500,000. The equipment has an estimated useful life of 5 years and salvage value of $100,000. Bagley uses the double-declining-balance method of depreciation. Compute depreciation for 2013 and 2014.

12. Westlake Construction gave up a used crane and $224,000 cash for a new crane. The old crane cost $336,000, had $126,000 of accumulated depreciation, and a fair market value of $238,000. The exchange had commercial substance. In recording this exchange, the new crane should be recorded at

Answer 1

1)

Particulars	Debit	Credit
Land	1,040,000
Building	560,000
Cash		1,600,000

2)

Solution: 70,000

Working:

BV, 1/1/10 ($500,000 - $90,000*)	410,000
Minus: New salvage value	60,000
Depreciable cost	350,000
Remaining useful life	5 years
Revised annual depreciation ($350,000 / 5)	70000
(500,000 - 50,000) = 450,000 / 10 * 2 = 90,000*

　

3) Depreciation:

Year 2014: $500,000 * 0.40 * 1/2 = 100,000

Year 2015: ($500,000 - $100,000) * 0.40 = 160,000