Textbook Notes (280,000)
CA (170,000)
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ACC 110 (60)
Chapter 8

ACC 110 Chapter Notes - Chapter 8: Historical Cost, Book Value, Capital Asset


Department
Accounting
Course Code
ACC 110
Professor
Brad Mac Master
Chapter
8

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CHAPTER 8
Capital Assets
EXERCISES
E8-1.
a. $60,900 would be capitalized ($58,000 + $2,900) as this was the cost of acquiring
the asset. (Note: in some provinces the GST has been replaced by the HST. Also,
GST paid for assets used for commercial activities are recoverable by an input tax
credit. However, it isn’t expected that students would know this.)
b. The $9,200 would be capitalized as the repairs were required to get the asset
ready for use or make it useable.
c. The $2,000 in damage should be expensed as these costs weren’t necessary to get
the equipment ready for use.
d. The $2,500 should be capitalized as the cost of rearranging the kitchen was
required to properly install the asset.
E8-3.
Declining balance depreciation method
a.
Stamping machine $225,000
Taxes 28,000
Delivery 12,000
Installation 5,000
Testing 22,000
Total cost $292,000
Dr. Machine (asset +) 292,000
Cr. Cash (asset -) 292,000
*It’s assumed everything was paid in cash; other assumptions are reasonable.
b.
Declining balance
Accumulated Carrying Depreciation
Cost Depreciation Amount Expense
Purchase date $292,000 $0 $292,000 $0
End year 1 292,000 58,400 233,600 58,400
End year 2 292,000 151,840 140,160 93,440
End year 3 292,000 207,904 84,096 56,064
End year 4 292,000 241,542 50,458 33,638
End year 5 292,000 261,725 30,275 20,183
End year 6 292,000 267,000 25,000 5,275
Total $267,000
Cost $292,000
Copyright © 2010 McGraw-Hill Ryerson Ltd. 1

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Rate 40%
Residual value 25,000
The depreciation expense in Year 6 brings the carrying amount to the residual value at the
end of the year.
c. The machine is sold at the end of year 3 for $75,000. The entry for the year 3
depreciation expense would be made before the gain or loss is calculated.
Dr. Depreciation expense 56,064
Cr. Accumulated depreciation 56,064
To record the depreciation expense for year 3.
Proceeds $75,000
Carrying Amount 84,096
Loss ($9,096)
There is a loss of $9,096.
Dr. Cash 75,000
Accumulated depreciation 207,904
Loss on disposal of machine 9,096
Cr. Machine 292,000
To record the sale of the machine in year 3 for $75,000
E8-5.
a.
Cost $320,000
Taxes 38,400
Installation 25,000
Training 20,000
Preparation 50,000
$453,400
Dr. Computer equipment 453,400
Cr. Cash 453,400
To record the purchase of computer equipment. [Note that all costs except for the service
contract, which is an operating cost, are capitalized.]
b.
Accumulated Carrying Depreciation
Year End Depreciation Amount Expense
Cost
Copyright © 2010 McGraw-Hill Ryerson Ltd. 2

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Purchase date $453,400 $0 $453,400 $0
Dec. 31, 2014 453,400 84,680 368,720 84,680
Dec. 31, 2015 453,400 169,360 284,040 84,680
Dec. 31, 2016 453,400 254,040 199,360 84,680
Dec. 31, 2017 453,400 338,720 114,680 84,680
Dec. 31, 2018 453,400 423,400 30,000 84,680
Total $423,400
Cost $453,400
Residual value 30,000
Useful life 5 years
Depreciation expense = Cost – residual value
Useful life
= $453,400 – $30,000
5 years
Depreciation expense = $84,680
c. The new computer equipment is sold at the end of 2016 for $75,000. The entry for the
2016 depreciation expense would be made before the gain or loss is calculated.
At the time of sale, it would be first necessary to record depreciation for the third year:
Dr. Depreciation expense 84,680
Cr. Accumulated depreciation 84,680
To record the depreciation expense for 2016.
Proceeds $75,000
Carrying amount 199,360
Loss ($124,360)
There is a loss of $124,360
Dr. Cash 75,000
Dr. Accumulated depreciation 254,040
Dr Loss on disposal of computer equipment 124,360
Cr. Computer equipment 453,400
To record the sale of the computer equipment in 2016.
E8-7.
a.
Stamping machine $100,000
Copyright © 2010 McGraw-Hill Ryerson Ltd. 3
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