Page 440 - Accounting Principles (A Business Perspective)

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Compute the depreciation charge for 2009 and the revised depreciation charge for 2009 using the straight-line
method.
Exercise K Assume that the truck described in the previous exercise was used 40 per cent of the time in 2010

to haul materials used in the construction of a building by Regal Company for its own use. (Remember that 2010 is
before the revision was made on estimated life.) During the remaining time, Regal used the truck to deliver
merchandise to its customers.
Prepare the journal entry to record straight-line depreciation on the truck for 2010.
Exercise L Vineland Company purchased a computer for USD 60,000 and placed it in operation on 2008
January 2. Depreciation was recorded for 2008 and 2009 using the straight-line method, a six-year life, and an
expected salvage value of USD 2,400. The introduction of a new model of this computer in 2010 caused the

company to revise its estimate of useful life to a total of four years and to reduce the estimated salvage value to zero.
Compute the depreciation expense on the computer for 2010.
Exercise M On 2009 January 2, a company purchased and placed in operation a new machine at a total cost of
USD 60,000. Depreciation was recorded on the machine for 2009 and 2010 under the straight-line method using
an estimated useful life of five years and no expected salvage value. Early in 2011, the machine was overhauled at a
cost of USD 20,000. The estimated useful life of the machine was revised upward to a total of seven years.
Compute the depreciation expense on the machine for 2011.
Exercise N Lasky Company purchased a machine on 2009 January 3, at a cost of USD 50,000. It debited
freight and installation charges of USD 10,000 to Repairs Expense. It recorded straight-line depreciation on the

machine in 2009 and 2010 using an estimated life of 10 years and no expected salvage value.
Compute the amount of the error in net income for 2009 and 2010, and state whether net income is understated
or overstated.
Exercise O Bragg Company owns a plant asset that originally cost USD 240,000 in 2006 The asset has been
depreciated for three years assuming an eight-year useful life and no salvage value. During 2009, Bragg incorrectly
capitalized USD 120,000 in repairs on the plant asset rather than expensing them. Describe the impact of this error
on the asset's cost and Bragg's net income over the next five years.

Problems
Problem A Bolt Company purchased a machine for use in its operations that had an invoice price of USD
80,000 excluding sales tax. A 4 per cent sales tax was levied on the sale. Terms were net 30. The company
estimated the total cost of hauling the machine from the dealer's warehouse to the company's plant at USD 5,600,
which did not include a fine of USD 1,600 for failure to secure the necessary permits to use city streets in
transporting the machine. In delivering the machine to its plant, a Bolt employee damaged the truck used; repairs

cost USD 3,600. The machine was also slightly damaged with repair costs amounting to USD 1,600.
Bolt incurred installation costs of USD 32,000 that included the USD 4,000 cost of shoring up the floor under
the machine. Testing costs amounted to USD 2,400. Safety guards were installed on the machine at a cost of USD
640, and the machine was placed in operation.
Prepare a schedule showing the amount at which the machine should be recorded in Bolt's accounts.
Problem B Pressler Company planned to erect a new factory building and a new office building in Atlanta,
Georgia, USA. A report on a suitable site showed an appraised value of USD 180,000 for land and orchard and USD

120,000 for a building.

Accounting Principles: A Business Perspective 441 A Global Text