Intermediate Accounting Solutions to Exercises 11

8/9/2019 Intermediate Accounting Solutions to Exercises 11

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SOLUTIONS TO EXERCISES

EXERCISE 11-1 (1520 minutes)

(a) Straight-ine meth!" "e#re$iati!n %!r ea$h !% &ears 1 thr!ugh '

*+,000 *0000 '5.50

12

(/) Sum-!%-the-&ears-igits 12 X 1'

.2

123. X (*+,000 *0000) ++000 "e#re$iati!n &ear 1

113. X (*+,000 *0000) +0500 "e#re$iati!n &ear 2

103. X (*+,000 *0000) 55000 "e#re$iati!n &ear '

($) !u/e-e$ining 4aan$e meth!"

"e#re$iati!n rate

1006X 2 1++.6

12

*+,000 X 1++.6 .12 "e#re$iati!n &ear 1

(*+,000 .12) X 1++.6 +51*, "e#re$iati!n &ear 2

(*+,000 .12 +51*,) X 1++.6 5*2, "e#re$iati!n &ear '



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(a) I% there is an7 sa8age 8aue an" the am!unt is un9n!:n (as is the $ase here) the

$!st :!u" ha8e t! /e "etermine" /7 !!9ing at the "ata %!r the "!u/e-"e$ining /aan$e

meth!"

1006 206; 206 X 2 *06

5

C!st X *06 20000

20000 < *0 50000 C!st !% asset


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EXERCISE 11-2 (C!ntinue")

(/) 50000 $!st =%r!m (a)> *5000 t!ta "e#re$iati!n 5000 sa8age 8aue

($) The highest $harge t! in$!me %!r &ear 1 :i /e 7ie"e" /7 the "!u/e-"e$ining

/aan$e meth!"

(") The highest $harge t! in$!me %!r &ear * :i /e 7ie"e" /7 the straight-ine meth!"

(e) The meth!" that #r!"u$es the highest /!!9 8aue at the en" !% &ear ' :!u" /e themeth!" that 7ie"s the !:est a$$umuate" "e#re$iati!n at the en" !% &ear ' :hi$h is the

straight-ine meth!"

C!m#utati!ns?

St-ine 50000 (,000 @ ,000 @ ,000) 2'000 /!!9 8aue en" !% &ear '

S& 50000 (15000 @ 12000 @ ,000) 1*000 /!!9 8aue en" !% &ear '

4 50000 (20000 @ 12000 @ .200) 1000 /!!9 8aue en" !% &ear '

(%) The meth!" that :i 7ie" the highest gain (!r !:est !ss) i% the asset is s!" at the

en" !% &ear ' is the meth!" :hi$h :i 7ie" the !:est /!!9 8aue at the en" !% &ear '

:hi$h is the "!u/e-"e$ining /aan$e meth!" in this $ase

EXERCISE 11-' (1520 minutes)

(a)20 (20 @ 1)

2102


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'3* X 203210 X (.11000 +0000) *+500 %!r 201*

13* X 203210 X (.11000 +0000) 15500

@ '3* X 1,3210 X (.11000 +0000) **1.5

5,+.5 %!r 2015


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EXERCISE 11-' (C!ntinue")

(/)1006

56; 56 X 2 106

20

'3* X 106 X .11000 5''25 %!r 201*

106 X (.11000 5''25) +5.+ %!r 2015

EXERCISE 11-* (1525 minutes)

(a) '15000 15000 '00000; '00000 < 10 7rs '0000

(/) '00000 < 2*0000 units 125; 25500 units X 125 '1.5

($) '00000 < 25000 h!urs 1200 #er hr; 2+50 hrs X 1200 '100

(") 10 @ , @ @ . @ + @ 5 @ * @ ' @ 2 @ 1 55 ORn(n @ 1)

10(11) 55

2 2

10X '00000 X 13' 112

55

, X '00000 X 23' '2.2.


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55

T!ta %!r 2015 50,0,

(e) '15000 X 206 X 13' 21000

='15000 ('15000 X 206)> X 206 X 23' ''+00

T!ta %!r 2015 5*+00

=Aa7 as! /e $!m#ute" as 206 !% ('15000 23' !% 206 !% '15000)>


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(a)(11.,00 12,00)

2100037r 21000 X 5312 .50

5

201* e#re$iati!nBStraight ine .50

(/)(11.,00 12,00)

5003hr21000

201* e#re$iati!nBAa$hine Usage 00 X 500 *000

($) Aa$hine !$ate" t!

&ear T!ta 201* 2015

1 5315 X 105000 '5000 1*5'D 20*1.DD

2 *315 X 105000 2000 11++.DDD

1*5' '20*

D '5000 X 5312 1*5'

DD '5000 X .312 20*1.

DD

D

2000 X 5312 11++.

2015 e#re$iati!nBSum-!%-the-&ears-igits '20*

(") 201* *06 X (11.,00) X 5312 1,+50


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2015 *06 X (11.,00 1,+50) ','00

OR

1st%u 7ear (*06 X 11.,00) *.1+0

2n"%u 7ear =*06 X (11.,00 *.1+0)> 22,+

201* e#re$iati!n 5312 X *.1+0 1,+50

2015 e#re$iati!n .312 X *.1+0 2.510

5312 X 22,+ 11.,0

','00


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EXERCISE 11-+ (20'0 minutes)

(a) 201* Straight-ine212000 12000

2500037ear

' m!nthsBe#re$iati!n +250 (25000 X '312)

(/) 201* Out#ut212000 12000

5003!ut#ut unit*0000

1000 units X 500 5000

($) 201* F!r9ing h!urs212000 12000

10003h!ur20000

525 h!urs X 1000 5250

(") @ . @ + @ 5 @ * @ ' @ 2 @ 1 '+ ORn (n @ 1)

(,)

'+2 2

!$ate" t!

Sum-!%-the-7ears-"igits T!ta 201* 2015 201+

&ear 1 3'+ X 200000 ***** 11111 '''''

2 .3'+ X 200000 ', ,.22 2,1+.

' +3'+ X 200000 ''''' '''


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11111 *'055 '.500

201+? '.500 (,312 !% 2n"7ear !% ma$hines i%e #us '312 !% 'r"7ear !% ma$hines

i%e)

(e) !u/e-"e$ining /aan$e 2015? 13 X 2 256

201*? 256 X 212000 X '312 1'250

2015? 256 X (212000 1'250) *,+

OR

1st%u 7ear (256 X 212000) 5'000


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T!ta Straight Line 1,.5

!u/e-e$ining 4aan$e %!r 201* 1*250 (1*2500 X 2 X 5)

!u/e-e$ining 4aan$e %!r 2015 25+50 =(1*2500 1*250) X 2>

T!ta !u/e e$ining 4aan$e ',,00

Sum-!%-the-7ears-"igits %!r 201* 11500 =(1*2500 1+000) X

10355 X 5>

Sum-!%-the-7ears-"igits %!r 2015 2150 (12+500 X 10355 X 132) @

(12+500 X ,355 X 5)

T!ta Sum-!%-the-7ears-"igits '''50

Aeth!" use" must /e S&

Using S& 201+ e#re$iati!n is 1,550 (12+500 X ,355 X 132)

@ (12+500 X 355 X 5)


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EXERCISE 11- (2025 minutes)

O" Aa$hine

Kune 1 2012 Gur$hase '1000

reight 200

Instaati!n 500

T!ta $!st '1.00

nnua "e#re$iati!n $harge? ('1.00 2500) < 10 2,20

On Kune 1 201' "e/it the !" ma$hine %!r 1,0; the re8ise" t!ta $!st is ''+0

('1.00 @ 1,0); thus the re8ise" annua "e#re$iati!n $harge is? (''+0 2500

2,20) < , '1*0

4!!9 8aue !" ma$hine Kune 1 201+?

=''+0 2,20 ('1*0 X ')> 21'*0

Less? air 8aue 20000

L!ss !n e$hange 1'*0

C!st !% rem!8a .5

T!ta !ss 1*15

(N!te t! instru$t!r? The a/!8e $!m#utati!n is "!ne t! "etermine :hether there is a gain !r!ss %r!m the e$hange !% the !" ma$hine :ith the ne: ma$hine an" t! sh!: h!: the $!st

!% rem!8a might /e re#!rte" s! i% a gain !$$urs the gain is n!t "e%erre" (1) /e$ause the

e$hange has $!mmer$ia su/stan$e an" (2) the $!st #ai" e$ee"s 256 !% the t!ta 8aue !%

the #r!#ert7 re$ei8e")


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EXERCISE 11-, (1520 minutes)

(a) sset C!st

Estimate"

Sa8age

e#re$ia/e C!st Estimate"

Li%e

e#re$iati!n #er

&ear

*0500 5500 '5000 10 '500

4 ''+00 *00 200 , '200

C '+000 '+00 '2*00 , '+00

1,000 1500 1.500 . 2500

E 2'500 2500 21000 + '500

152+00 1.,00 1'*.00 1+'00

C!m#!site i%e 1'*.00 < 1+'00 !r 2+ 7ears

C!m#!site rate 1+'00 < 152+00 !r a##r!imate7 10.6

(/) e#re$iati!n E#ense 1+'00

$$umuate" e#re$iati!nBGant

ssets 1+'00

($) Cash *00

$$umuate" e#re$iati!nBGant ssets 1*200

Gant ssets 1,000


Sum-!%-the-7ears-"igits X , '+


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2

Using & t! stan" %!r the 7ears !% remaining i%e?

&3'+ X (*'0000 .0000) +0000

Auti#7ing /!th si"es /7 '+?

'+0000 X & 21+0000

& 21+0000 < '+0000

& +

The 7ear in :hi$h there are si remaining 7ears !% i%e at the /eginning !% that gi8en 7ear is

201'


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(a) N! $!rre$ting entr7 is ne$essar7 /e$ause $hanges in estimate are han"e" in the

$urrent an" #r!s#e$ti8e #eri!"s

(/) Re8ise" annua $harge

4!!9 8aue as !% 13132015 =+0000 (.000 X 5)> 25000

Remaining use%u i%e 5 7ears (10 7ears 5 7ears)

Re8ise" sa8age 8aue *500

(25000 *500) < 5 *100

e#re$iati!n E#ense *100

$$umuate" e#re$iati!nBAa$hiner7 *100


(a) 1,1,,.B(2000000 +0000) < *0 *50037r

(/) 1,,2015B4ui"ing (2000000 +0000) < *0 *50037r

""iti!n (500000 20000) < '0 1+00037r

+*50037r

($) N! entr7 reHuire"

(") Re8ise" annua "e#re$iati!n


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4ui"ing

4!!9 8aue? (2000000 1'5000D) +*2000

Sa8age 8aue +0000

52000

Remaining use%u i%e '2 7ears

nnua "e#re$iati!n 11

D*500 X 2 7ears 1'5000


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EXERCISE 11-12 (C!ntinue")

""iti!n

4!!9 8aue? (500000 2000DD) 212000

Less? Sa8age 8aue 20000

1,2000

Remaining use%u i%e < '2 7ears

nnua "e#re$iati!n +000

DD1+000 X 1 7ears 2000

nnua "e#re$iati!n e#enseB/ui"ing (11 @ +000) 2*1

EXERCISE 11-1' (1520 minutes)

(a) 2200000 < *0 55000

(/) L!ss !n is#!sa !% Gant ssets 0000

$$umuate" e#re$iati!nB4ui"ings

(1+0000 X 203*0) 0000

4ui"ings 1+0000

4ui"ings '00000

Cash '00000


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N!te? The m!st a##r!#riate entr7 :!u" /e t! rem!8e the !" r!!% an" re$!r" a !ss

!n "is#!sa /e$ause the $!st !% the !" r!!% is gi8en n!ther aternati8e :!u" /e t! "e/it

$$umuate" e#re$iati!nB4ui"ings !n the the!r7 that the re#a$ement eten"s the

use%u i%e !% the /ui"ing The entr7 in this $ase :!u" /e as %!!:s?

$$umuate" e#re$iati!nB4ui"ings '00000

Cash '00000

s in"i$ate" this a##r!a$h "!es n!t seem as a##r!#riate as the %irst a##r!a$h


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EXERCISE 11-1' (C!ntinue")

($) N! entr7 ne$essar7

(") (ssume the $!st !% the !" r!!% is rem!8e")

4ui"ings (2200000 1+0000 @ '00000) 2'*0000

Less? $$umuate" e#re$iati!n

(55000 X 20 0000) 1020000

1'20000

Remaining use%u i%e < 25 7ears

e#re$iati!nB2015 (1'20000 < 25) 5200

OR

(ssume the $!st !% the ne: r!!% is "e/ite" t!

$$umuate" e#re$iati!nBEHui#ment)

4!!9 8aue !% the /ui"ing #ri!r t! the re#a$ement !%

r!!% 2200000 (55000 X 20) 1100000

C!st !% ne: r!!% '00000

1*00000

Remaining use%u i%e < 25 7ears

e#re$iati!nB2015 (1*00000 < 25) 5+000

EXERCISE 11-1* (2025 minutes)

(a) Aaintenan$e an" Re#airs E#ense 500

EHui#ment 500


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(/) The #r!#er en"ing /aan$e in the asset a$$!unt is?

Kanuar7 1 /aan$e 1'*.50

""? Ne: eHui#ment?

Gur$hases '2000

reight .00

Instaati!n 2.00 '5*00

Less? C!st !% eHui#ment s!" 2'000

e$em/er '1 /aan$e 1*.150

(1) Straight-ine? 1*.150 < 10 1*.15


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EXERCISE 11-1* (C!ntinue")

(2) Sum-!%-the-7ears-"igits? 10 @ , @ @ . @ + @ 5 @ * @ ' @ 2 @ 1 55

ORn(n @ 1)

10(11)

552 2

!r eHui#ment #ur$hase" in 201'? 111.50 (1'*.50 2'000) !% the $!st !%

eHui#ment #ur$hase" in 201' is sti !n han"

355 X 111.50 1+255

!r eHui#ment #ur$hase" in 2015? 10355 X '5*00 +*'+

T!ta 22+,1

EXERCISE 11-15 (25'5 minutes)

(a)

200,

20102015

In$ 201+ T!ta

(1) 1,2000 1+00 1.5200

1.5200 < 12 1*+00

#er 7r (*0 #er "a7)

1''D3'+5 !% 1*+00 5'20

20102015 In$u"e (+ X 1*+00) .+00

+3'+5 !% 1*+00 2.20 ,5+*0

(2) 0 .+00 1*+00 102200

(') 1*+00 .+00 0 102200


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(*) .'00 .+00 .'00 102200

(5) *312 !% 1*+00 *+.

20102015 In$ .+00

'312 !% 1*+00 '+50 ,+11.

(+) 0 .+00 0 .+00

D(11 @ '0 @ '1 @ '0 @ '1)

(/) The m!st a$$urate "istri/uti!n !% $!st is gi8en /7 meth!"s 1 an" 5 i% it is assume"

that straight-ine is satis%a$t!r7 Reas!na/e a$$ura$7

is n!rma7 gi8en /7 2 ' !r * The sim#est !% the a##i$ati!ns are + 2 ' * 5 an" 1 in

a/!ut that !r"er Aeth!"s 2 ' an" * $!m/ine reas!na/e a$$ura$7 :ith sim#i$it7 !%

a##i$ati!n


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EXERCISE 11-1+ (1015 minutes)

(a) e$em/er '1 201*

L!ss !n Im#airment '200000

$$umuate" e#re$iati!nBEHui#ment '200000

C!st ,000000

Less? $$umuate" "e#re$iati!n 1000000

Carr7ing am!unt 000000

Less? air 8aue *00000

L!ss !n im#airment '200000

(/) e$em/er '1 2015

e#re$iati!n E#ense 1200000

$$umuate" e#re$iati!nBEHui#ment 1200000

Ne: $arr7ing am!unt *00000

Use%u i%e < * 7ears

e#re$iati!n #er 7ear 1200000

($) N! entr7 ne$essar7 Rest!rati!n !% an7 im#airment !ss is n!t #ermitte"

EXERCISE 11-1. (1520 minutes)

(a) L!ss !n Im#airment '220000


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$$umuate" e#re$iati!nBEHui#ment '220000

C!st ,000000

$$umuate" "e#re$iati!n 1000000


Less? air 8aue *00000

Gus? C!st !% "is#!sa 20000

L!ss !n im#airment '220000


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EXERCISE 11-1. (C!ntinue")

(/) N! entr7 ne$essar7 e#re$iati!n is n!t ta9en !n assets inten"e" t! /e s!"

($) $$umuate" e#re$iati!nBEHui#ment 500000

Re$!8er7 !% L!ss %r!m Im#airment 500000

air 8aue 5'00000

Less? C!st !% "is#!sa 20000 520000

Less? Carr7ing am!unt *.0000

Re$!8er7 !% !ss !n im#airment 500000


(a) e$em/er '1 201*

L!ss !n Im#airment 2.0000

$$umuate" e#re$iati!nBEHui#ment 2.0000

C!st ,00000

Less? $$umuate" "e#re$iati!n *00000


Less? air 8aue 2'0000

L!ss !n im#airment 2.0000

(/) It ma7 /e re#!rte" in the !ther e#enses an" !sses se$ti!n !r it ma7 /e highighte"

as an unusua item in a se#arate se$ti!n It is n!t re#!rte" as an etra!r"inar7 item


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($) N! entr7 ne$essar7 Rest!rati!n !% an7 im#airment !ss is n!t #ermitte"

(") Aanagement %irst ha" t! "etermine :hether there :as an im#airment T! e8auate

this ste# management "!es a re$!8era/iit7 test The re$!8era/iit7 test estimates the

%uture $ash %!:s e#e$te" %r!m use !% that asset an" its e8entua "is#!siti!n I% the sum !%

the e#e$te" %uture net $ash %!:s (un"is$!unte") is ess than the $arr7ing am!unt !% the

asset an im#airment resuts I% the re$!8era/iit7 test in"i$ates that an im#airment has

!$$urre" a !ss is $!m#ute" The im#airment !ss is the am!unt /7 :hi$h the $arr7ing

am!unt !% the asset e$ee"s its %air 8aue


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EXERCISE 11-1, (1520 minutes)

(a) e#re$iati!n E#ense?*000

200 #er 7ear

'0 7ears

C!st !% Tim/er S!"? 1*00 *00 1000

1000 X ,000 a$res ,000000 !% 8aue !% tim/er

(,000000 < '500000 /" %t) X .00000 /" %t 100000

(/) C!st !% Tim/er S!"? ,000000 100000 .200000

.200000 @ 100000 .'00000

(.'00000 < 5000000 /" %t) X ,00000 /" %t 1'1*000

N!te? The s#ra7ing $!sts as :e as the $!sts t! maintain the %ire anes an" r!a"s are

e#ense" ea$h #eri!" an" are n!t #art !% the "e#eti!n /ase


C!st #er /arre !% !i?

Initia #a7ment 500000 200250000

Renta '1500 1.5


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1000

Gremium 56 !% 55 2.5

Re$!n"iti!ning !% an" '0000

12250000

T!ta $!st #er /arre ++2


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(a) 1'00 '00 1000 #er a$re %!r tim/er

1000 X .000 a$resX 50000 /" %t

000 /" %t X .000 a$res

.000000X 50000 /" %t 10+250

5+000000 /" %t

(/).*00

X 50000 /" %t 11,05+000000 /" %t

($) !r"a sh!u" $a#itaiMe the $!st !% .0000 (20 X '500 trees) an" a"ust the

"e#eti!n the net time the tim/er is har8este"


e#eti!n /ase? 11,0000 @ ,0000 100000 @ 200000 1'0000

e#eti!n rate? 1'0000 < +0000 2'3t!n

(a) Ger unit materia $!st? 2'3t!n

(/) 123'131* in8ent!r7? 2' X 000 t!ns 1*000

($) C!st !% g!!"s s!" 201*? 2' X 22000 t!ns 50+000


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EXERCISE 11-2' (1520 minutes)

(a),.0000 @ 1.0000 @ *0000D 100000

0, "e#eti!n #er unit12000000

DN!te t! instru$t!r? The *0000 sh!u" /e "e#ete" /e$ause it is a asset retirement

!/igati!n

2500000 units etra$te" X 0, 225000 "e#eti!n %!r 201*

(/) 2100000 units s!" X 0, 1,000 $harge" t! $!st !% g!!"s s!" %!r 201*


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EXERCISE 11-2* (1525 minutes)

(a) sset turn!8er?

52* +15, times

5 @ 5.,

2

(a) Return !n assets?

*', 5126

5 @ 5.,

2

(/) Gr!%it margin !n saes?

*', '16

52*

($) The asset turn!8er times the #r!%it margin !n saes #r!8i"es the rate !% return !n

assets $!m#ute" %!r T!!tsie R! as %!!:s?

Gr!%it margin !n saes X sset Turn!8er Return !n ssets

'16 X +15, 5126

N!te the ans:er 5126 is the same as the rate !% return !n assets $!m#ute" in (/) a/!8e


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DEXERCISE 11-25 (2025 minutes)

201* 2015

(a) Re8enues 200000 200000

O#erating e#enses (e$u"ing "e#re$iati!n) 1'0000 1'0000

e#re$iati!n =(2.000 +000) < .> '000 '000

In$!me /e%!re in$!me taes +.000 +.000

201* 2015

(/) Re8enues 200000 200000

O#erating e#enses (e$u"ing "e#re$iati!n) 1'0000 1'0000

e#re$iati!nD 5*00 +*0

Taa/e in$!me +*+00 +1'+0

D201* 2.000 X 20 5*00

2015 2.000 X '2 +*0

($) 4!!9 #ur#!ses (2.000 +000) 21000

Ta #ur#!ses (entire $!st !% asset) 2.000

(") i%%eren$es :i !$$ur %!r the %!!:ing reas!ns?

1 "i%%erent "e#re$iati!n meth!"s

2 ha%-7ear $!n8enti!n use" %!r ta #ur#!ses

' estimate" use%u i%e an" ta i%e "i%%erent

* ta s7stem ign!res sa8age 8aue


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DEXERCISE 11-2+ (1520 minutes)

(a) (1) ('1000 1000) X 1310 X 10312 2500 "e#re$iati!n e#ense %!r /!!9

#ur#!ses

(2) '1000 X 135 X 132 '100 "e#re$iati!n %!r ta #ur#!ses


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DEXERCISE 11-2+ (C!ntinue")

(/) (1) '1000 X 206 X 10312 51+. "e#re$iati!n e#ense %!r /!!9 #ur#!ses

(2) '1000 X *06 X 132 +200 "e#re$iati!n e#ense %!r ta #ur#!ses

($) i%%eren$es :i !$$ur %!r the %!!:ing reas!ns?

1 ha%-7ear $!n8enti!n use" %!r ta #ur#!ses

2 estimate" use%u i%e an" ta i%e "i%%erent

' ta s7stem ign!res sa8age 8aue

Documents

Intermediate Accounting Solutions to Exercises 11