Please solve it all!!! Blueprint Problem: Fixed assets and declining method Natu
ID: 2577201 • Letter: P
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Please solve it all!!!
Blueprint Problem: Fixed assets and declining method
Nature and Measurement of Fixed Assets
A noncurrent asset that is used in the normal operations of a business to generate revenue is called a fixed asset. The historical cost principle is applied to fixed assets. A fixed asset should be recorded at its cost, which includes any expenditures necessary to prepare it for its intended use. The cost of a fixed asset, except for the cost of land, is allocated as an expense. When multiple assets are purchased as a group and each asset has a different estimated life, the cost of each asset must have a separate ledger account. In the case of a group purchase, the cost must be allocated among the assets acquired on the basis of each asset's proportion of the total fair market value of the assets acquired.
Fixed assets are reported in the Selectnoncurrent assetscurrent assetsoperating expensesCorrect 1 of Item 1 section of the Selectbalance sheetincome statementCorrect 2 of Item 1 . Fixed assets with different useful lives but purchased as a group must have Selectseparate ledger accountsa group accounttheir useful lives equalizedCorrect 3 of Item 1 . Land has an indefinite life and is classified as Selecta fixed assetan intangible asseta current assetCorrect 4 of Item 1 .
Assume that a building and the land it is situated on, along with a dump truck, are purchased at an auction. The three assets were purchased together for a price of $230,000. The fair market value of the assets are shown in the table below. Determine each asset's percentage of fair market value total. Then, apply that percentage to the group purchase cost to determine the allocated cost to be recorded for each asset.
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Use this example and replace with the numbers of the problem:
The Nature and Measurement of Depreciation
Depreciation is the process by which an asset's cost is allocated to expense over the asset's useful life and matched with the revenues that it helped earn. All fixed assets are depreciated with one exception—land. Depreciation is recorded with a debit to Depreciation Expense (an expense) and a credit to Accumulated Depreciation (a contra-asset). The difference between the historical cost of the asset and its accumulated depreciation is known as the asset's book value. The acquisition cost must be accurately measured; the useful life and the salvage value must be estimated to calculate depreciation. The difference between the cost of the asset and the salvage value is known as the depreciable cost, the amount that will be expensed over the asset's life. By now, you should be able to complete the following statements.
1. Accumulated Depreciation is SelectincreaseddecreasedCorrect 1 of Item 2 when depreciation is recorded.
2. Acquisition cost less salvage is Selectdepreciable costbook valueCorrect 2 of Item 2
3. At the purchase date, the book value of an asset is equal to the Selectacquisition costdepreciable costaccumulated depreciationCorrect 3 of Item 2
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Declining Balance Depreciation
The declining balance method is an accelerated depreciation method. Depreciation is calculated by multiplying a constant depreciation rate by the book value. Because the book value decreases each period, so does the depreciation—hence the name, the declining balance method. The first step is to calculate the declining balance depreciation rate. The concept is that the declining-balance rate is some multiple (m) of the straight-line rate. The formula is shown below.
Depreciation Rate = (m) x Straight-Line Rate
At the end of each period, the declining balance rate is applied to the current book value of the asset to determine the depreciation for the period. The depreciation is recorded with a debit to Depreciation Expense and a credit to Accumulated Depreciation. Note: The asset must be fully depreciated by the end of its useful life. The balance in Accumulated Depreciation should equal depreciable cost, and book value should equal the residual value. Therefore, the final year's depreciation often needs to be calculated by comparing the accumulated depreciation to the depreciable cost. (See the example below.)
APPLY THE CONCEPTS: Measure and record the purchase of a fixed asset
On January 1, 2011, Kulatsu Engineering acquired a new piece of machinery and a used truck from Acme Equipment Company. Kulatsu negotiated a price of $120,000 for both items. The fair market value of the equipment was $120,000, and the fair market value of the truck was $30,000. Kulatsu Engineering signed a note with Acme to make the purchase.
Prepare the journal entry to record the purchase of the equipment. Use Smart Entry when selection lists are not available to enter the account title in the Description column.
+ Assets
+ Liabilities
+ Equity
+ Revenues/Gains
+ Expenses/Losses
GENERAL JOURNAL
Jan. 1
120000
30000
15000
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Use the example of the first part of this problem to calculate the Allocated Cost for each item purchased.
In a fixed asset purchase, the assets are increased, and either cash is decreased or a liability is increased, depending on how we pay for the asset.
How does each row of the above journal entry affect the accounting equation, and on which financial statement is it reported?
If it is not affected then select "No effect" as correct answer.
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Review how the accounts in the above entry are impacted, and on which financial statement they appear.
APPLY THE CONCEPTS: Calculate and determine depreciation using the declining balance method
The machine purchased by Kulatsu Engineering (see journal entry above) is expected to have a useful life of four years. At the end of its useful life, the salvage value of the machine is estimated to be $7,000. Kulatsu Engineering's fiscal year ends each December 31. The company has elected to depreciate the machine using the declining balance method at two times the straight-line rate.
Using the data above, calculate the depreciation rate for the machine:
Depreciation Rate = X % = %
Complete the table below:
Fair market value Percent of total Allocated cost Land $96,600 % $ Building 151,800 % $ Truck 27,600 % $ Total $ 100% $230,000Explanation / Answer
Fixed assets are reported in Non current section of Balance sheet Separate ledger Land has indefinate life Classified as fixed asset Fair market value Percent of total (asset/Total FMV*100) Allocated cost (230000*%) Land $96,600 35 80500 Building 151,800 55 126500 Truck 27,600 10 23000 Total $276,000 230000 1) Accumulated Depreciation is increased when depreciation is recorded. 2) Depreciable cost 3) Cost Accounts Title Dr Cr 1-Jan Equipment 96000 Truck 24000 Notes Payable 120000 Fair market value Percent of total (asset/Total FMV*100) Allocated cost (120000*%) Equipment $120,000 80 96000 Truck 30,000 20 24000 Total $150,000 120000 Asset Liabilities Equity Appears on 1 Increase Increase No eefect Balance sheet Declining Balance Method DDB rate= 1/4*200%=50% Year Beginning Book value Dep rate Depreciation Accumulated Book expense depreciation value 2011 96000 50% 48000 48000 48000 2012 48000 50% 24000 72000 24000 2013 24000 50% 12000 84000 12000 2014 12000 50% 6000 90000 6000