Page 443 - Accounting Principles (A Business Perspective)

10. Property, plant, and equipment

a. Straight-line.
b. Double-declining-balance.

Alternate problems
Alternate problem A Brite Company purchased a machine that had an invoice price of USD 400,000
excluding sales tax. Terms were net 30. A 4 per cent sales tax was levied on the sale. The company incurred and
paid freight costs of USD 10,000. Special electrical connections were run to the machine at a cost of USD 14,000
and a special reinforced base for the machine was built at a cost of USD 18,000. The machine was dropped and

damaged while being mounted on this base. Repairs cost USD 4,000. Raw materials with a cost of USD 1,000 were
consumed in testing the machine. Safety guards were installed on the machine at a cost of USD 1,400, and the
machine was placed in operation. In addition, USD 500 of costs were incurred in removing an old machine.
Prepare a schedule showing the amount at which the machine should be recorded in Brite Company's account.
Alternate problem B Maxwell Company purchased 2 square miles of farmland under the following terms:
USD 968,000 cash; and liability assumed on mortgage note of USD 320,000 and interest accrued on mortgage note
assumed, USD 12,800. The company paid USD 67,200 of legal and brokerage fees and also paid USD 3,200 for a
title search on the property.
The company planned to use the land as a site for a new office building and a new factory. Maxwell paid clearing

and leveling costs of USD 28,800. It sold crops on the land for USD 7,360 and sold one of the houses on the
property for USD 19,200. The other buildings were torn down at a cost of USD 14,400; sale of salvaged materials
yielded cash proceeds of USD 13,600. Approximately 1 per cent of the land acquired was deeded to the county for
roads. The cost of excavating a basement for the office building amounted to USD 9,120.
Prepare a schedule showing the amount at which the land should be carried on Maxwell Company's books.
Alternate problem C Dawson Towing Company purchased a used panel truck for USD 28,800 cash. The next
day the company's name and business were painted on the truck at a total cost of USD 1,488. The truck was then

given a minor overhaul at a cost of USD 192, and new "super" tires were mounted on the truck at a cost of USD
1,920, less a trade-in allowance of USD 240 for the old tires. The truck was placed in service on 2009 April 1, at
which time it had an estimated useful life of five years and a salvage value of USD 3,360.
a. Prepare a schedule showing the cost to be recorded for the truck.
b. Prepare the journal entry to record depreciation at the end of the calendar-year accounting period, 2009
December 31. Use the double-declining-balance method.
c. Assume that the straight-line depreciation method has been used. At the beginning of 2009 it is estimated the
truck will last another four years. The estimated salvage value changed to USD 1,920. Prepare the entry to record
depreciation for 2012.

Alternate problem D You are the new controller for Jayson Company, which began operations on 2009
October 1, after a start-up period that ran from the middle of 2008. While reviewing the accounts, you find an
account entitled "Fixed Assets", which contains the following items:
Cash paid to previous owner of land and old buildings $ 192,000
Cash given to construction company as partial payment for the new building 72,000
Legal and title search fees 2,400
Real estate commission 14,400
Cost of demolishing old building 16,800
Cost of leveling and grading 9,600
Architect's fee (90% of building and 10% improvements) 6,000
Cost of excavating (digging) basement for new building 21,600

444