44K6.1

Financial Accounting 1 –
ACC2001
CHAPTER ASSIGNMENT
(Chapter 4)

Questions
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that you are not
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_11__/11

Brief Exercises
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Exercises
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E 9-8

Problems & Critical Thinking
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1


problems that
you did answer?
List the problems
that you are not
able to answer.

Student Information
Full Name Ngơ Thị Lan Dung
Class
44k06.1
Phone
0372532471
Email

Self-evaluation
(Out of ten)

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9,5 /10

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44K6.1

Financial Accounting 1 –
ACC2001
CHAPTER ASSIGNMENT
(Chapter 4)

FINANCIAL ACCOUNTING: TOOLS FOR DECISION-MAKING, 7th Canadian Edition
(Kimmel P.D. et al., 2017)
QUESTION
Q1: Capital expenditures comprise major purchases that will be used in the future.
Operating expenditures (expenses) represent day-to-day costs that are necessary to keep a
business running
Asset retirement cost is the offsetting asset that is created when an asset retirement
obligation (ARO) is recognized. The asset retirement cost increases the carrying amount of
the fixed asset for which the ARO was created.
Q3:
Title: In a finance lease agreement, ownership of the property is transferred to the lessee at the
end of the lease term. But, in operating lease agreement, the ownership of the property is retained
during and after the lease term by the lessor.
Balloon/residual amount: In finance lease agreement, there is a balloon/residual option for the
lessee to purchase the property or equipment at a specific price. But, under an operating lease,
the lessee does not have this option. The balloon/residual on a finance lease is set using ATO

asset guidelines.
Running costs & administration: Under an operating lease all running costs (servicing,
registration, tyres, insurance etc) are included in the lease within the designated term and usage
km with one set monthly repayment amount. Under a finance lease these are generally not
included meaning there can be greater administration and price fluctuation for the lessee.
Account treatment: Operating lease are treated as expenses (ie off balance sheet items) where
as a finance lease is included as an asset for the lessee.
Edit: the tax treatment for leases will change in 2019, with operating leases appearing on the
balance sheets as liabilities.
Accounting for an operating lease is relatively straightforward. Lease payments are considered
operating expenses and are expensed on the income statement. The firm does not own the asset
and, therefore, it does not show up on the balance sheet and the firm does not assess any
depreciation for the asset.
In contrast, a capital lease involves the transfer of ownership rights of the asset to the lessee. The
lease is considered a loan (debt financing), and interest payments are expensed on the income
statement. The present market value of the asset is included in the balance sheet under the assets
side and depreciation is charged on the income statement. On the other side, the loan amount,
which is the net present value of all future payments, is included under liabilities.
Q4:

© 2020 by Dr. Nguyen Huu Cuong

“Liberal Arts - Self-initiative - Pragmatism”

3


Straight – line method: straight-line depreciation results in the same amount of expense each year
on the income statement
Diminishing-balance results in higher expenses, and therefore lower net income, in the early

years of the asset’s useful life. It also results in lower expenses and higher net income in later
years
The units-of-production method vary each year depending on the actual usage of the asset
Over the entire useful life, total depreciation is the same regardless of the method of
depreciation. While each depreciation method may allocate the cost of the asset differently each
year, over the life of the asset, all methods allocate the same total amount of asset cost (the
depreciable amount) to depreciation expense.
Just as depreciation expense has an inverse relationship with net income, it also has an
inverse relationship with the change in the carrying amount
Q5: Because To use Diminishing-Balance Method, we do the following:
Determine the straight-line depreciation rate by taking 100% and dividing it by the useful life in
years.
But depreciable amount (the asset’s cost less residual )value  Determine the straight-line
depreciation can’t rate by taking 100%
Q6: Beacause The units-of-production method involves calculations that are quite similar to the
straight-line method, but it allocates the depreciable base over the units of output rather than
years of use. It is logical to use this approach in those situations where the life is best measured
by identifiable units of machine “consumption.”
Q10: Accounting for the disposal of property and equipment is relatively straightforward.
First, to establish account balances that are appropriate at the date of sale, depreciation is
recorded for the period of use during the current year. In this way, the expense is matched with
any revenues earned in the current period.
Second, the amount received from the sale is recorded while the book value of the asset (both its
cost and accumulated depreciation) is removed. If the owner receives less for the asset than this
book value, a loss is recognized for the difference, which decreases reported net income. If more
is received than book value, the excess is recorded as a gain so that net income increases.
Q11: The gain or loss on the sale of an asset used in a business is the difference between the
amount of cash that a company receives, and the asset's book value (carrying value) at the time
of the sale.
In order to know the asset's book value at the time of the sale, the depreciation expense for the

asset must be recorded right up to the date that the asset is sold.
If the cash received is greater than the asset's book value, the difference is recorded as a gain. If
the cash received is less than the asset's book value, the difference is recorded as a loss
Q12: The plant asset and related accumulated depreciation should continue to be reported on the
balance sheet without further depreciation or adjustment until the asset is retired.
Q13: Tangible and intangible assets have similar characteristics, in that they arepurchased for
use in the operations and not for resale, have usefulnessbeyond one fiscal year and are
© 2020 by Dr. Nguyen Huu Cuong

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4


44K6.1

Financial Accounting 1 –
ACC2001
CHAPTER ASSIGNMENT
(Chapter 4)

depreciated or amortized, with theexception of land and indefinite life intangible assets. Tangible
andintangible assets are also similar in that their cost includes all of thenecessary outlays that are
made to get the asset ready for its intendeduse.
They differ in their physical substance in that intangible assets haveno physical substance
Q14: If an intangible asset has a finite useful life, then amortize it over that useful life. The
amount to be amortized is its recorded cost, less any residual value. However, intangible assets
are usually not considered to have any residual value, so the full amount of the asset is typically
amortized. If there is any pattern of economic benefits to be gained from the intangible asset,
then adopt an amortization method that approximates that pattern. If not, the customary approach

is to amortize it using the straight-line method.
Q17: Pesowski use Intangible Assets with Finite Lives inclue copyright. A copyright is granted
by the Canadian Intellectual Property Offi ce, giving the owner the exclusive right to reproduce
and sell an artistic or published work. Generally, a copyright’s useful life is signifi cantly shorter
than its legal life, and the copyright is therefore amortized over its useful life. The cost of the
copyright consists of the cost of acquiring and defending it. The cost may be quite low and be
composed of only the cost to acquire and register the copyright, or it may amount to a great deal
more if a copyright infringement suit is involved.

© 2020 by Dr. Nguyen Huu Cuong

“Liberal Arts - Self-initiative - Pragmatism”

5


BRIEF EXERCISES
BE9-1:
the cost of the land = $450,000 + $8,500 + $25,000+ $6,500 = $490,000
BE9-2:
The cost of the truck = $42,000 + $1,000 + $750 = $43,750
BE9-3:
(a) O
(b) C
(c) C
(d) O
(e) C
(f) O
(g) O
(h) C

(i) C
(j) O
BE9-4:
The depreciable amount = $80,000 – $8,000 = $72,000
Annual depreciation = $72,000 ÷ 4 = $18,000
Total depreciation over the truck’s life = $18,000 × 4 = $72,000
BE9-5:
Depreciation for 2018
$18,000 x 8/12 = $12,000
Depreciation for 2019
$18,000
BE9-6:
Useful life = 4 years  Straight line depreciation rate = 1/4 = 25% per year
Depreciation rate for double declining balance method : 25% x 2= 50% per year
Year
2018
2019

Carrying
value
$80,000
$40,000

© 2020 by Dr. Nguyen Huu Cuong

Rate
50%
50%

Depreciation

Accum
Expense
Depreciation
$40,000
$40,000
$20,000
$60,000

Carrying value
(Dec 31)
$40,000
$30,000

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44K6.1

2020
2021
Total

Financial Accounting 1 –
ACC2001
CHAPTER ASSIGNMENT
(Chapter 4)

$30,000

$15,000

50%

Carrying
value
$80,000
$66,667
$50,000
$37,500
$28,125

Rate
(1 / 4)
25%
25%
25%
25%
25%

$15,000
$7,000
$82,000

$75,000
$82,000

$15,000
$8,000


BE9-7:
Year
2018
2019
2020
2021
2022
Total

Depreciation
Accum
Expense
Depreciation
$13,333
$13,333
$16,667
$30,000
$12,500
$42,500
$9,375
$51,875
$1,758
$53,633
$53,633

Carrying value
(Dec 31)
$66,667
$50,000
$37,500

$28,125
$26,367

BE9-8:
The depreciable amount per unit = (cost – residual value) : total km = ($33,000 - $500) : 325,000
= $0.1
Depreciation expense :
2018: 125,000 x $0.1 = $12,500
2019: 105,000 x $0.1 = $10,500
BE9-9:
(a)
The depreciable amount = $200,000 – $20,000= $180,000
Annual depreciation = $180,000 ÷ 5 = $36,000
Equipment’s carrying amount at December 31, 2018 = $200,000 – 2 x $36,000 = $128,000
(b)
Recoverable amount = $100,000
Impairment loss amount = $128,000 - $100,000 = $28,000
BE9-10:
(a)

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“Liberal Arts - Self-initiative - Pragmatism”

7


The depreciable amount = ($144,000 - $4,000) : 5 = $28,000
Depreciation expense = $28,000 x 9 /12 = $21,000
Debit depreciation expense 21,000

Credit accumulated depreciation 21,000
(b)
Depreciation :
January 1, 2016 - December 31, 2017 : $28,000 x 2 = $56,000
January 1, 2018 - September 30, 2018 : $21,000
 accumulated depreciation = $77,000
Carrying value = $144,000 - $77,000 = $67,000
Loss on disposal = $67,000 - $42,000 = $25,000
Debit cash
42,000
Debit accumulated depreciation
77,000
Debit loss on disposal
25,000
Credit equipment
144,000
BE9-11:
(a)
Debit accumulated depreciation 42,000
Credit equipment
42,000
(b)
Debit accumulated Depreciation
40,000
Debit loss on Disposal of Plant Assets 2,000
Credit equipment
42,000
BE9-12:
(a)
(1)

Debit patent 180,000
Credit cash
180,000
(2)
Debit Amortization Expense 180,000 : 5 x (9/12) = 27,000
Credit Accumulated Amortization
27,000
(b)
Assets
Intangible assets
Patents
180,000
Less
Accumulated amortization
27,000

© 2020 by Dr. Nguyen Huu Cuong

“Khai phóng - Tự thân - Hữu ích”

8


44K6.1

Financial Accounting 1 –
ACC2001
CHAPTER ASSIGNMENT
(Chapter 4)


Carrying amount

152,000

BE9-13:
(a)
Debit trademark 1,000
Credit cash
1,000
Debit patent 10,000
Credit cash
10,000
(b)
Trademarks are amortized into an expense account. To amortize the trademark, debit
the amortization expense account and credit the trademark
BE9-14:
(a) I

(j) PP&E

(b) PP&E

(k) PP&E

(c) N

(l) I

(d) PP&E


(m) N

(e) N

(n) I

(f) PP&E

(o) N

(g) N

(p) PP&E

(h) PP&E

(q) I

(i) PP&E

© 2020 by Dr. Nguyen Huu Cuong

“Liberal Arts - Self-initiative - Pragmatism”

9


BE9-15:
Property, plant, and equipment
Land

Buildings
Less: Accumulated depreciation
Furniture, machinery, and equipment
Less: Accumulated depreciation
Total property, plant, and equipment
Intangible assets
Finite-life intangible assets
Less: Accumulated amortization
Indefinite-life intangible assets
Total intangible assets
Goodwill
Total long-lived assets

66
759
218
2,339
887

541
1,452
2,059

246
57

189
318
507
2,125

4,691

EXERCISES
E9-1:
a) Under the cost principke, the acquisition cost for property, plant, equipment includes all
expenditures necessary to acquire the asset make it ready for its intended use.
b) 1. Land
2. Land
3. Land
4. Land Improvements
5. Buildings
6. Buildings
7. Vehicles
8. Vehicles
9. Vehicles Expense
10. Prepaid Insurance
E9-2:
a)
b)
c)
d)

Cost of equipment = $75,000 + $500 + $200 + $1,800 + $2,800 = $78,500
April 1
Straight line method
Depreciation 2012 = $7371

E9-3:
a)
(1) Straight- line method



Depreciation = ($172,000 - $16,000)/4 = $39,000
2014 expense = $39,000 x 9/12 = $29,250
2015,2016, 2017 expense = 39,000 each year
2018 expense = $39,000 x 3/12 = $9,750
(2) Double- diminishing- balance rate = 100%/4 x 2 = 50%

2014

Carrying amount Rate
(Jan 1)
$172,000
50%

2015
2016
2017
2018$

$107,500
$53,750
$26,875
$16,000

50%
50%

Depreciation
$64,500 =

$86,000 x 9/12
$53,750
$26,875
$10, 875
0

Carrying amount
(Dec 31)
$107,500
$53,750
$26,875
$16,000
$16,000

(3) Units of production
Depreciation expense per unit = ($172,000 - $ 16,000)/ 10,000 hours = $15,60

2014
2015
2016
2017
2018

Units Used

Expense Per Unit

Depreciation Expense

1,500

2,200
2,300
2,100
1,900
10,000

$15,60
$15,60
$15,60
$15,60
$15,60

$23,400
$34,320
$35,880
$32,760
$29,640
$156,000

b)All three methods result in the same amount depreciation expense and net income
The choice of depreciation method will have no impact on cash flow.
E9-4:
a) Machine 1:
Depreciation = = 38,000
Machine 2:
Depreciation = = 23,000
b) Machine 1:
Accumulated depreciation = 10 * 38,000 = 380,000
Carrying amount = 420,000
Machine 2:

Accumulated depreciation = 23,000
Carrying amount = 97,000
c) Machine 1:
Depreciation = = 29,520
Machine 2:


Depreciation = = 29,100
E9-6:
(a) Calculate the depreciation expense for each of the first three years under (1) the straight-line
method, and (2) the double-diminishing-balance method assuming the table was purchased
early in the first month of the first year.
 Straight line method:
Depreciable amount = 17.000 – 1.000 = 16.000
Depreciation expense= 16.000/ 4 = 4.000
- Year 1: depreciation expense = 4.000
- Year 2: depreciation expense = 4.000
- Year 3: depreciation expense = 4.000
 Double diminishing balance method:
Depreciation rate = 100% / 4 = 25%
- Year 1: depreciation expense = 17.000 x (25%x2) = 8.500
Carrying ammount at first year = 17.000 – 8.500 = 8.500
- Year 2: depreciation expense = 8.500 x (25%x2) = 4.250
Carrying amount at second year = 8.500 – 4.25 = 4.250
- Year 3: depreciation expense = 4.25 x (25%x2) = 2.125
(b) Assuming Rahim sold the table for $5,800 at the end of the third year, calculate the gain or
loss on disposal under each depreciation method.
 Straight line method:
Gain(loss) = 5.800 – (17.000 – (4.000x3)) = 800  Gain
 Double dimishing balance method:

Gain(loss) = 5.800 – (17.000 – 8.500 – 4.250 – 2.125) = 3.675  Gain
(c) Determine the impact on net income (total depreciation of the table plus any loss on disposal
or less any gain on disposal) of each method over the entire three-year period.
 Impact on net income:
- Straight line method = (4.000x3) – 800 = 11.200
- Double dimishing balance method = (8.500 + 4.250 + 2.125) – 3.675 = 11.200

E9-7:
Debit cash
Debit accumulated Depreciation – Vehicles
Debit loss on Diposal
Credit vehicles

18,000
[($62,000 - $6,000) : 4 ] x 3= 42,000
$18,000 – ($62,000 - $42,000) = 2,000
62,000

Debit depreciation Expense ($10,980 : 3 x 8/12) = 2,440
Credit accumulated Depreciation – Equipment
2,440
Debit cash

500


Debit accumulated Depreciation – Equipment [($10,980 : 3) x 2] : $2,440 = 9,760
Debit loss on Diposal [$500 – ($10,980 - $9,760)]
720
Credit equipment

10,980
Debit depreciation Expense ($150,000 : 10)
15,000
Credit accumulated Depreciatio – Equipment
15,000
Debit accumulated Depreciation – Equipment [($150,000 : 10) x 10] = 150,000
Credit equipment
150,000
E9-8:
1. Land is not depreciated because land is assumed to have an unlimited useful life
2.
E9-9:
a)
Debit copyrights
Credit cash

120,000
120,000

Debit franchises
Credit cash
Credit payable

540,000
40,000
500,000

Debit trademarks
Credit Cash


75,000
75,000

Debit trademarks
35,000
Credit cash
35,000
b)
Debit amortization Expense
120,000 : 6 =20,000
Credit accumulated Amortization – Copyrights
20,000
Debit amortization Expense
($540,000 : 9) x 10/12 = 50,000
Credit accumulated Amortization – Fanchises
50,000
E9-10:
a)
Debit Patent
Credit Cash

40,000
40,000

Debit Goodwill
Credit Cash

300,000
300,000


Debit Franchise
Credit Cash

250,000
250,000


Debit research expense 150000
Credit cash
150000
Debit development cost 50000
Credit cash
50000
Debit amortization expense 8000
Credit accumulated amortzation – patents 8000
Debit impairment Loss
30000
Credit goodwill
30000
b)
The Statement of Financial Position
ASSET
Non-current assets
Intangible assets
- Patents
39050
Accumulated amortization – patents (2143)
- Franchise 250000
Goodwill
300000

- Impairment Loss (7360)
E9-11:
Account
Accumulated amortization—
sofware
Accumulated depreciationbuildings
Accumulated depreciation—
fxtures and equipment
Accumulated depreciation—
leasehold improvements
Amortization expense
Buildings
Depreciation expense
Fixtures and equipment
Goodwill
Impairment loss
Land
Leasehold improvements
Operating leases

Financial statement
Statement of financial
position
Statement of financial
position
Statement of financial
position
Statement of financial
position
Income statement

Statement of financial
position
Income statement
Statement of financial
position
Statement of financial
position
Income statement
Statement of financial
position
Statement of financial
position
Income statement

Section
Itangible assets.
Property, plant and
equipment.
Property, plant and
equipment.
Property, plant and
equipment.
Operating expense.
Property, plant and
equipment.
Operating expense.
Property, plant and
equipment.
Goodwill.
Operating expense.

Property, plant and
equipment.
Property, plant and
equipment.
Operating expense.


Reversal of impairment loss
Sofware (intangible assets)
Trademarks

Income statement
Statement of financial
position
Statement of financial
position

Itangible assets.
Itangible assets.


PROBLEMS
P9-3A:
(a) cost of the machine = $360,000 + $2,000 + $8,000 = $370,000
(b)
(1) the straight-line method
The depreciable amount = $370,000 – $80,000 = $290,000
Annual depreciation = $290,000 ÷ 5 = $58,000
Total depreciation = $290,000
(2) the double-diminishing-balance method

Useful life = 5 years  Straight line depreciation rate = 1/5= 20% per year
Depreciation rate for double declining balance method : 20% x 2= 40% per year
Year
2018
2019
2020
2021
2022
Total

Carrying
value
$370,000
$271,333
$162,800
$97,680

Rate
40% x 8/12
40%
40%

Depreciation
Expense
$98,667
$108,533
$65,120
$17,680
0
$290,000


Accum
Depreciation
$98,667
$207,200
$272,320
$290,000
$290,000

Carrying value
(Dec 31)
$271,333
$162,800
$97,680
$80,000
$80,000

(3) the units-of-production method
The depreciable amount = $290,000
The depreciation = $290,000/ 6,200 = $46.77 per unit
in 2018: $46.77 x 940 = $43,964
in 2019: $46.77 x 1,460 = $68,284
in 2020: $46.77 x 1,400 = $65,478
in 2021: $46.77 x 1,300 = $60,801
in 2022: $46.77 x 1,100 = $51,447
Double-declining balance method of depreciation causes net income to be lower in the early
years of the asset’s life
P9-4A:
(1) the straight-line method
The depreciable amount = $244,000 – $4,000= $240,000

Annual depreciation = $240,000 ÷ 4 = $60,000
Total depreciation = $240,000
(2) the double-diminishing-balance method


Useful life = 4 years  Straight line depreciation rate = 1/4= 25% per year
Depreciation rate for double declining balance method : 25% x 2= 50% per year
Year
2018
2019
2020
2021
Total

Carrying
value
$244,000
$152,500
$76,250
$38,125

Rate
50% x 9/12
50%
50%

Depreciation
Expense
$91,500
$76,250

$38,125
$34,125
$240,000

Accum
Carrying value (Dec 31)
Depreciation
$91,500
$152,500
$167,750
$76,250
$205,875
$38,125
$240,000
$4,000

(3) the units-of-production method
The depreciable amount = $240,000
The depreciation = $240,000 / 80,000= $3 per unit
in 2018: $3 x 14,800 = $53,400
in 2019: $3 x 20,400= $61,200
in 2020: $3 x 19,800= $59,400
in 2021: $3 x 20,000= $60,000
in 2022: $3 x 5,000= $15,000
(b)
1.the straight-line method: total depreciation expense = accumulated depreciation
2.the double-diminishing-balance method: total depreciation expense < accumulated
depreciation
3.the units-of-production method: total depreciation expense < accumulated depreciation
(c) The estimates were used in determining the depreciation amounts in part a are: Salvage value

and useful life.
P9-5A:
(a) The depreciable amount = 80,000
Annual depreciation = $80,000÷ 8 = $10,000
Carrying amount at the beginning of 2018 = 80,000 – 2 x $10,000 = $60,000
(b) ¼ x $60,000 = $15,000
the amount of the gain = $18,000 -$15,000 = $3,000
(c) Depreciation expense = $10,000 x 10/12 = $8,333
(d) The depreciable amount = $10,000
Annual depreciation = $10,000 ÷ 8 = $1,250
Depreciation expense = $1,250 x 2/12 = $208.3
P9-6A:
(a)
Debit equipment $130,000
Credit cash
$130,000
(b)


Useful life = 5 years  Straight line depreciation rate = 1/5= 20% per year
Year

Carrying
value
$130,000
$108,333
$103,999
$39,865
$31,892


Rate

Depreciation
Expense
2016
20% x 10/12
$21,667
2017
20%
$21,667
2018
20%
$20,800
2019
20%
$7,973
2020
$21,891
Total
$93,998
Debit Amortization Expense $130,000 x 20% x 5/12 = $10,833
Credit Accumulated Amortization
$10,833

Accum
Depreciation
$21,667
$43,334
$64,134
$72,107

$93,998

Debit Amortization Expense $108,333 x 20% x 8/12 = $14,444
Credit Accumulated Amortization
$14,444
Debit Amortization Expense $103,999 x 20% x 8/12 = $13,867
Credit Accumulated Amortization
$13,867
(c) Accum depreciation = $43,334 + ( $103,999 x 20% 11/12 ) = $62,400
1.
Carrying value = $130,000 - $62,400= $67,600
Loss on disposal = $67,600 - $60,000 = $7,600
Debit cash
60,000
Debit accumulated depreciation 62,400
Debit loss on disposal
7,600
Credit equipment
130,000
2.
Carrying value = $130,000 - $62,400= $67,600
Gain on disposal = $80,000 - $67,600 = $12,400
Debit cash
80,000
Debit accumulated depreciation 62,400
Credit Gain on disposal
12,400
Credit equipment
130,000
3.

Debit accumulated depreciation 62,400
Credit equipment
62,400
P9-7A:
a)
Debit Equipment $130,000
Credit Cash
:

$130,000

Carrying value
(Dec 31)
$108,333
$103,999
$39,865
$31,892
10,000


b)
Years

Depreciable cost

Depreciation rate

August 31, 2016
August 31, 2017
August 31, 2018


120,000
96,000
57,600

20%
40%
40%

Depreciation
expense
24,000
38,400
23,040

The depreciable amount = 130,000 – 10,000 = 120,000
The depreciation rate (straight-line method) per year = 120,000 / 5 = 24,000
2016:
Debit depreciation expense 24,000
Credit accumulated depreciation 24,000
2017:
Debit depreciation expense 38,400
Credit accumulated depreciation

38,400

2018:
Debit depreciation expense 23,040
Credit accumulated depreciation


23,040

c) Depreciation expense to 30,November,2018: $2880
Accumulated Depreciation = 24,000 + 38,400 + 23,040 + 2880 = 88,320
1.(Equipment book’s value - Accumulated Depreciation) = 41,680
Debit Cash
$60,000
Debit Accumulated Depreciation $88,320
Credit equipment
$130,000
Credit Gain of asset disposal
$18320
2.(Equipment book’s value - Accumulated Depreciation) = 41,680
Debit Cash
$80,000
Debit Accumulated Depreciation $88,320
Credit equipment
$130,000
Credit Gain of asset disposal
$38320
3.(Equipment book’s value - Accumulated Depreciation) = 41,680
Debit Accumulated Depreciation $88,320
Dedit Loss of asset disposal
$41,680
Credit equipment
$130,000


CRITICAL THINKING
CT9-4:

1). The stakeholders include: Suppliers, customers, employees, general public, shareholders and
employees among others. In this situation, the stakeholders are the employees (Interest: Job
security and an opportunity to meet their needs), shareholders (Interest: Their investment plus
returns) and government (Interest: Compliance with the law and tax)
2). Benny Benson's proposed change will not affect the net income in 2017 but it will increase
the net income in 2018.
The annual depreciation expense in 2017 = ($3,000,000-$200,000) : 5 = $560,000
The annual depreciation expense in 2018
Netbook value = $3,000,000 - Accumulated Depreciation
Accumulated Depreciation = $560,000 x 2 =$1,120,000
Netbook value = $3,000,000 - $1,120,000 = $1,880,000
The annual depreciation expense in 2018= ($1,880,000 - $500,000) : 7 =$197,143
The lower annual depreciation expense in 2018 will result in a higher net income reported
3). The proposed change in useful life and the residual value will increase the company's profit
margin and decrease its asset turnover ratios
Profit margin= Net Income/ sales; the proposed change in useful life and the residual value will
result in a higher net income, the higher the net income the higher the profit margin.
Asset turnover ratio= Sales / Average Total assets; The proposed change in useful life and the
residual value will result in a lower depreciation charge hence a higher Average Total asset, the
higher the Average Total assets, the lower the asset turnover ratio
4). It is unethical for management to intentionally give misleading information just to show
favorable financial results. Therefore, the proposed change in useful life and the residual value is
unethical since the president intentionally wants to reduce the annual depreciation expense to
report high net income.The management is expected to be transparent, accountable and
responsible to all its stakeholders. They should not give false statements or certify what they
knows as untrue to be true.


INTRODUCTION TO FINANCIAL ACCOUNTING (VERSION 2019B) by Dauderis, H.
& Annand, D –

DISCUSSION QUESTIONS
DQ 5
The effort required to capitalize and amortize an inexpensive item is so much greater than the
benefit, large companies set a dollar limit to determine the amount at which an expenditure is
considered capital in nature.
DQ 6
1. Is the amount material?
2. Does it enhance/extend the life/service potential of the equipment?
3. Would it benefit more than the current accounting period?
DQ 7
The cost of the newly-acquired asset is determined of the fair value of the asset that was given
up. If the fair value of the asset that was given up is unknown, then the cost is the fair value of
the newly acquired asset.
DQ 11
Calculating depreciation using the double declining balance method is made without adjusting
for the residual value. Straight-line depreciation adjusts for residual value.
DQ 12

x
DQ 24
Intangible assets unlike property, plant, and equipment, cannot be touched or otherwise sensed.
They are the same as PPE in that they represent future economic benefits to an entity over more
than one accounting period


EXERCISES
E8-2
Cost of land = 100,000 x = 75,000
Cost of buildings = 300,000 x = 225,000
Debit account 211 75,000 + 225,000 = 300,000

Credit account 111
300,000
E8-3
a. Cost of the laser printer = 3,575 + 100 + 350 = 4,025
b. The depreciable amount = 4,025 – 250 = 3,775
Annual depreciation = 3,775÷ 5 = 755
Useful life = 5 years  Straight line depreciation rate = 1/5= 20% per year
Depreciation rate for double declining balance method = 40%
Year
1
2
3
4
5
Total

Carrying
value
4,025
2,415
1,449
869
521

Rate
40%
40%
40%
40%


Depreciation
Expense
1,610
966
580
348
271
3,775

E8-8
a. The depreciable amount = 140,000
Annual depreciation = 140,000 ÷ 5 = 28,000
December 31, 2019
Debit account 627 28,000
Credit account 214
28,000
b. The depreciable amount = 50,000
Annual depreciation = 50,000÷ 4 = 12,500
December 31, 2020
Debit account 627 28,000 + 12,500 = 40,500
Credit 214
40,500
E8-11
Carrying value = 60,000- 40,000= 20,000
a.
Debit account 111 20,000
Debit account 214 40,000
Credit account 211
60,000
b. Gain on disposal = 30,000 – 20,000 = 10,000

Debit account 111 30,000
Debit account 214 40,000

Accum
Depreciation
1,610
2,576
3,156
3,504
3,775

Carrying value
(Dec 31)
2,415
1,449
869
521
250


Credit account 711
10,000
Credit account 211
60,000
c. Loss on disposal = 20,000 – 5 = 15,000
Debit account 111 5,000
Debit account 214 40,000
Debit account 811
15,000
Credit account 211

60,000
E8-12
a.
Debit account 213 50,000
Credit account 111
50,000
b. The depreciable amount = 50,000
Annual depreciation = 50,000 ÷ 5 = 10,000
Depreciation expense = 10,000 x 10/12 = 8,333
Debit account 623 8,333
Credit account 214
8,333
c. Accum depreciation = 8,333 + 10,000 + 10,000 x 9/12 = 25,833
Carrying value = 50,000 - 25,833 = 24,167
Gain on disposal = 100,000 - 24,167 = 75,833
Debit account 111 100,000
Debit account 214 25,833
Credit account 711
75,833
Credit account 211
50,000


PROBLEMS
P8-2
The depreciable amount = 30,000 - 8,000 = 22,000
1.
a. Units of Production = 22,000 / 80,000 x 15,000 = 4,125
b. Annual depreciation = 22,000/6 = 3,667
Depreciation expense= 50% x 3,667 = 1,833

c. Useful life = 6 years  Straight line depreciation rate = 1/6 per year
Depreciation rate for double declining balance method = 1/3
Depreciation expense = 30,000 x 1/3 x 50% = 4,950
2. Carrying amount = cost – accumulated depreciation
Units of Production: 25,075
Straight-line: 28,167
Double-declining balance: 25,050
3.
Units of Production: 22,000 / 80,000 x 25,000 = 6,875
Straight-line: 3,667
Double-declining balance: (30,000 - 4,950) x 1/3 = 8,267
P8-3
1. Depreciation = = 10
2019: 2,000 x 10 =20,000
2020: 3,000 x 10 =30,000
2021: 2,800 x 10 =28,000
2022: 1,200 x 10 = 12,000
2. accumulated depreciation at the end of 2022 = 20,000 + 30,000 + 28,000 + 12,000 = 90,000
3. carrying amount = 95,000 - 90,000 = 5,000
4. Gain on disposal = 12,000 – 5,000 = 7,000
Debit account 111 12,000
Debit account 214 90,000
Credit account 711
7,000
Credit account 211
95,000
P8-4
1. total cost of the equipment = 35,000 + 1.200 + 5,700 = 41,900
2. straight-line method
Depreciation = = 5,975

Debit account 623 5,975
Credit account 214
5,975
double-declining balance method
Useful life = 4 years  Straight line depreciation rate = 25% per year
Depreciation rate for double declining balance method = 50%
Year
Carrying
Rate
Depreciation
Carrying value
value
Expense
(Dec 31)
2017
41,900
50%
20,950
20,950


2018
20,950
50%
2019
10,475
50%
2020
5,237.5
50%

Total
Debit account 623 20,950
Credit account 214
20,950

10,475
5,237.5
2,618.75

10,475
5,237.5
2,618.75

Debit account 623 10,475
Credit account 214
10,475
Debit account 623 5,237.5
Credit account 214
5,237.5
Debit account 623 2,618.75
Credit account 214
2,618.75
3.
Depreciation = 5,975 x 3 = 17,925
Carrying amount = 41,900 - 17,925 = 23,975
Annual depreciation = = 5,988
P8-5
1. Depreciation 2011 = x 50% = 1,629.2
Depreciation 2012-2017 = x 6 = 19,550
Total depreciation = 21,179.2

Carrying amount = 115,000 – 21,179.2 = 93,820.8
2. Revised depreciation 2018: = 5,054.72
Debit account 623 5,054.72
Credit account 214
5,054.72
3.
Debit account 623 5,054.72 x 50% =2,527.36
Credit account 214
2,527.36
accumulated depreciation = 21,179.2 + 5,054.72 + 2,527.36 = 28,761.28
carrying amount = 115,000 - 28,761.28 = 86,238.72
Loss on diposal = 80,000 - 86,238.72 = 6,238.72
Debit account 111 80,000
Debit account 214 28,761.28
Debit account 811
6,238.72
Credit account 211
115,000
P8-8
1.
Debit account 211 3,000
Credit account 111
3,000
Debit account 211 1,000
Credit account 111
1,000