BE9-1 These expenditures were incurred by
Patnode Company in purchasing land: cash price $60,000; accord taxes $5,000;
attorney’s fees $2,100; real
estate broker’s commission $3,300;
and clearing and grading $3,500. What is the cost of the land?
BE9-4 Erin Company purchased land and a building
on January 1, 2012. Management’s best estimate of the value of the land was $100,000 and of the
building $250,000. However, management told the accounting department to record
the land at $230,000 and the building at $120,000. The building is being
depreciated on a straight-line basis over 20 years with no salvage value. Why
do you suppose management requested this accounting treatment? Is it ethical?
BE9-5 On January 1, 2012, the Eugene Company
ledger shows Equipment $36,000 and Accumulated Depreciation $13,600. The
depreciation results from using the straight-line method with a useful life of
10 years and a salvage value of $2,000. On this date, the company concludes
that the equipment has a remaining useful life of only 2 years with the same salvage value. Compute
the revised annual depreciation.
E9-4 Belinda Lorenz has prepared the following
list of statements about depreciation.
Depreciation is a process of
asset variation, not cost allocation.
Depreciation provides for the
proper matching of expenses with revenues.
The book value of a plant asset
should approximate its fair value.
Depreciation applies to three
classes of plant assets: land, buildings, and equipment.
Depreciation does not apply to
a building because of its usefulness and revenue-producing ability to generally
remain intact over time.
The revenue producing ability
of a depreciable asset will decline due to wear and tear and to obsolescence.
Recognizing depreciation on an
asset results in accumulation of cash for the replacement of the asset.
The balance in accumulated
depreciation represents the total cost that has been charged to expense.
Depreciation expense and
accumulated depreciation are reported on the income statement.
10. Four factors affect the computation of depreciation: cost, useful
life, salvage value, and residual value.
Instructions: Identify each statement as
TRUE or FALSE. If False please indicate how to correct the statement.
E9-6 Brett Richard the new controller of
Maldonado Company has reviewed the expected usual lives and salvage values of
selected depreciable assets at the beginning of 2012. Here are his findings:
Accumulated Useful Life
Type of Date Depreciation, (in years) Salvage Value
Acquired Cost Jan. 1, 2012 Old Proposed Old Proposed
Jan. 1, 2004 700,000 $130,000 40 48 $50,000 $35,000
Jan. 1, 2007 120,000 $23,000 25 20 5,000 3,600
All assets are depreciated by the straight-line
method. Maldonado Company uses a calendar year in preparing annual financial
statements. After discussion, management has agreed to accept Brett’s proposed changes. (The“proposed”useful life is total life, not remaining
Compute the revised
annual depreciation on each asset in 2012. (Show computations)
Prepare the entry (or
entries) to record depreciation on the building in 2012
E9-9 The following statements are independent
from one another.
An accounting student recently
employed by a small company doesn’t
understand why the company sonly depreciation its buildings and equipments, but
not its land. The student prepared journal entries to depreciate all the
company’s property, plant,
and equipment for the current year-end.
The same student also thinks
the company’s amortization policy
on its intangible asset is wrong. The company is currently amortizing its
patients but not its goodwill. The student fixed that for the current year-end
by adding goodwill to her adjusting entry for amortization. She told a fellow
employee that she felt she had improved the consistency of the company’s accounting policies by making these
The same company has a building
still in use that has a zero book value
but a substantial fair value. The student felt that this practice didn’t benefit the companies users—especially the bank—and wrote the building up to its fair value. After all, she
reasoned, you can write down assets if fair value is higher is yet another
example of the improved consistency that she has brought to the companies
Explain whether or not the accounting
treatment in each of the above situations is in accordance with with generally
accepted accounting principles. Explain what accounting principle or
assumption, if any, has been violated, and what the appropriate accounting
treatment should be.
BE10-1 Jasper company has these obligations at
Dec. 31: a) a note payable for $100,000 due in 2 years, b) a 10-year mortgage
payable of 200,000 payables in ten 20,000 annual payments, c) interest payable
of 15,000 on the mortgage, and d) accounts payable of 60,000. For each
obligation, indicate whether it should be classified as a current liability.
BE10-2 Canney Company borrows $90,000 on July 1
from the bank by signing a $90,000, 7%, 1-year note payable. Prepare the
journal entries to record a) the proceeds of the note and b) accrued interest
at December 31, assuming adjusting entries are made only at the end of the
BE10-3 Home Town Supply does not segregate sales
and sales taxes at the time of the sale. The register total for March 16 is
$10,388. All sales are subject to a 6% sales tax. Compute sales taxes payable
and make the entry to record sales taxes payable and sales.
E10-3 On June 1, Chetney Company Ltd. borrows
$60,000 from the First Bank on a 6-month, $60,000, 8% note. The note matures on
Prepare the entry on June 1.
Prepare the adjusting entry on
Prepare the entry at maturity
(December 1), assuming monthly adjusting entries have been made through
What was the total financing
cost (interest expense)?
E10-4 In providing accounting services to small
businesses, you encounter the following situations pertaining to cash sales.
Duvall Company rings up
sales and sales taxes separately on its
cash register. On April 10, the register totals are sales $22,000 and sales
Hubbard Company does not
segregate sales and sales taxes. Its register total for April 15 is $13,780,
which includes a 6% sales tax.
Prepare the entries to record the sales
transactions and related taxes for a) Duvall Company and b) Hubbard Company
E10-12 For each situation, prepare the
appropriate journal entry for the redemption of the bonds.
(a) Martha Corporation retired $140,000 face value, 9% bonds on April
30, 2012, at 101. The carrying value of the bonds at the redemption date was
$126,500. The bonds pay annual interest, and the interest payment due on April
30, 2012, has been made and recorded.
(b) Williams, Inc., retired $170,000 face value, 12.5% bonds on June 30,
2012, at 98. The carrying value of the bonds at the redemption date was
$184,000. The bonds pay annual interest, and the interest payment due on June
30, 2012, has been made and recorded.BE9-1 These expenditures were incurred by Patnode Company