Fundamental Accounting Principles, Volume 2, 14th Canadian Edition Solution Manual

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Last revised:November 19, 201210-1SOLUTIONS MANUALto accompanyFundamental Accounting Principles14thCanadian Editionby Larson/JensenPrepared by:Tilly Jensen, Athabasca UniversityWendy Popowich, Northern Alberta Institute of TechnologySusan Hurley, Northern Alberta Institute of TechnologyRuby So Koumarelas, Northern Alberta Institute of TechnologyTechnical checks by:Ross MeacherBetty Young, Red River College,ANSR Source

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Last revised:November 19, 201210-2Chapter 10Property, Plant and Equipment and IntangiblesChapter Opening Critical Thinking Challenge Questions*How do PPE assets generate sales? The article says thatproperty, plant and equipment(PPE)are an “asset group on the balance sheet”. What other asset groups are there?-PPE assets, such as manufacturing equipment and the building in which theequipment is housed, are responsible for producing the goods a company sellsto“generate sales”. Other asset groups on the balance sheet are current assets,long-term investments, and intangible assets.*TheChapter 10Critical Thinking Challengequestions are askedat the beginning of thischapter. Students are remindedat the conclusion ofthe chapterto refer to the CriticalThinking Challenge questions at the beginning of the chapter. The solutions to theCritical Thinking Challenge questions are available here in the Solutions Manual andaccessible to studentsat Connect.

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Last revised:November 19, 201210-3Concept Review Questions1.Aproperty, plant and equipment assetis long-lived in that it has a service life of longerthan one accounting period; it is used in the production or sale of products or services.2.Land held for future expansion is classified as a long-term investment. It is not aproperty, plant and equipment assetbecause it is not being used in the production orsale of other assets or services.3.The cost of aproperty, plant and equipment assetincludes all normal, reasonable, andnecessary costs of getting the asset in place and ready to use.4.Land is an asset with an unlimited life and, therefore, is not subject todepreciation.Land improvements have limited lives and are subject todepreciation.5.No.The AccumulatedDepreciation, Machinery account is a contra asset account with acredit balance thatdoes not represent cash or any other funds.Funds available forbuying machinery would be shown on the balance sheet as liquid assets with debitbalances.The balance of the AccumulatedDepreciation, Machinery account shows theportion of the machinery's original cost that has been charged todepreciationexpense,and gives some indication of how soon the asset will need to be replaced.6.Revenue expenditures, such as repairs,are made to keepa plant and equipment assetinnormal, good operating condition, and should be charged to expense of the currentperiod.Capital expendituresare made to extend the service potential or the life ofaplant and equipment assetbeyond the original estimated life and are charged to theplant and equipmentasset account.7.Because the $75 cost of theplant and equipmentasset is not likely to be material to theusers of the financial statements, the materiality principle justifies charging it to expense.8.Danier Leather did not report any gains or losses on disposal of assets for its yearended June 25, 2011. High Liner Foods reported a “loss on disposal of assets” of$271,000 for its December 31, 2011 year end. Shoppers Drug Mart showed a $2,015,000“loss on sale or disposal of property and equipment, including impairments” for itsDecember 31, 2011 year end. WestJet reported a “loss on disposal of property andequipment of $54,000 for its December 31, 2011 year end.9.A company might sell or exchange an asset when it reaches the end of its useful life, orif it becomes inadequate or obsolete, or because the company has changed its businessplans. An asset mayalsobe damaged or destroyed by fire or some other accident.10.An intangible asset has no physical existence.Its value comes from the unique legaland contractual rights held by its owner.11.Intangible assets are generally recorded at their cost and amortized over their predicteduseful lifein a manner that is similar to what is used to depreciate plant and equipmentassets.12. High Liner Foods reported $103,109,000 as Intangible assets at December 31, 2011.13.A business has goodwill when the price paid for a company being purchased exceedsthe fair market value of this company’s net assets (assets minus liabilities) if purchasedseparately.14. Shoppers Drug Mart reported $2,499,722,000 as Goodwill at December 31, 2011.

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Last revised:November 19, 201210-4QUICK STUDYQuick Study 10-1 (5 minutes)$18,000 + $180,000 + $3,000 + $600 =$201,600Quick Study 10-2 (10 minutes)1.(a) R(b) C(c) R(d) C2.(a)Mar. 15Repairs Expense.................................120Accounts Payable..........................120To record repairs.(b)Mar. 15Refrigeration Equipment....................40,000Accounts Payable..........................40,000To record capital expenditure.(c)Mar. 15Repairs Expense.................................200Accounts Payable..........................200To record repairs.(d)Mar. 15Office Building....................................175,000Accounts Payable..........................175,000To record capital expenditure.

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Last revised:November 19, 201210-5Quick Study 10-3 (10 minutes)(a)(b)(c)PPEItemAppraisedValuesRatio of Individual AppraisedValue to Total Appraised Value(a)Total Appraised ValueCost Allocation(b) x Total ActualCostLand..............$ 320,000320,000500,000 = .64 or 64%$ 345,6001Building........180,000180,000500,000 = .36 or 36%194,4002Totals............$ 500,000$ 540,0001.64% x 540,000 = 345,6002.36% x 540,000 = 194,4002014Apr. 14Land...........................................................345,600Building.....................................................194,400Cash......................................................85,000Notes Payable.......................................455,000To record purchase of land andbuilding.Quick Study 10-4 (10 minutes)TechComPartial Balance SheetOctober 31, 2014AssetsCurrent assets:Cash.......................................................................$ 9,000Accounts receivable..............................................$16,400Less: Allowance for doubtful accounts............80015,600Total current assets...............................................$ 24,600Property, plant and equipment:Land........................................................................$48,000Vehicles..................................................................$62,000Less: Accumulateddepreciation.......................13,80048,200Equipment..............................................................$25,000Less: Accumulateddepreciation.......................3,80021,200Total property, plant and equipment....................117,400Intangible assets:Patent.....................................................................$20,100Less: Accumulated amortization, patent3,10017,000Total assets.....................................................................$159,000

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Last revised:November 19, 201210-6Quick Study 10-5 (10 minutes)($55,900–$1,900)/4 =$13,500/yearQuick Study 10-6 (10 minutes)Rate per copy = ($45,000–$5,000)/4,000,000 copies =$0.01/copyYearCalculationAnnualDepreciation2014$.01 ×650,000=$6,5002015$.01 ×798,000=7,9802016$.01 ×424,000=4,2402017$.01 ×935,000=9,3502018$.01 × 1,193,000=11,930$40,000Quick Study 10-7 (10 minutes)Annual rate ofdepreciation= 2/5 = .40 or 40% per yearYearCalculationAnnualDepreciation201440% × $86,000 =$34,400201540% × ($86,000–$34,400) =20,640201640% × ($86,000–$34,400–$20,640) =12,384201740% × ($86,000–$34,400–$20,640–$12,384) =2,576*20180$70,000*The calculation shows $7,430 ofdepreciationbut that amount would cause accumulateddepreciationto exceed the maximum allowed of cost less residual ($86,000–$16,000 =$70,000). Therefore, thedepreciationfor 2017must be adjusted to $2,576.

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Last revised:November 19, 201210-7Quick Study 10-8 (10 minutes)Computer panel:$4,000/8 years =$500depreciationDrycleaning drum:$70,000-$5,000 = $65,000/400,000 garments = $0.1625/garment;$0.1625/garment × 62,000 garments =$10,075depreciationStainless steel housing:$85,000-$10,000 = $75,000/20 years =$3,750depreciationMiscellaneous parts:$26,000/2 years =$13,000depreciationTotal depreciationon the dry cleaning equipmentfor 2014= $500 + $10,075 + $3,750 +$13,000 =$27,325Quick Study 10-9(10 minutes)20142015a.$5,000$6,000b.$3,000$6,000Calculations:a.60,000-0=6,000/yearx10/12 = 5,00010 yearsb. 6,000/year x 6/12 = 3,000Quick Study 10-10(10 minutes)20142015a.$10,000$10,000b.$6,000$10,800Calculations:a. 2/10 = .2 or 20%; 20% x 60,000 = 12,000 x 10/12 = 10,000 for 201420% x (60,000–10,000) = 10,000 for 2015b. 20% x 60,000 = 12,000 x 6/12 = 6,000 for 201420% x (60,000–6,000) = 10,800 for 2015

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Last revised:November 19, 201210-8Quick Study 10-11(10 minutes)20142015a.10,00014,000b.10,00014,000Calculations:75,000–15,000 = 60,000/120,000 = $0.50depreciationexpense per unit produced$0.50 x 20,000 = $10,000 for 2014; $0.50 x 28,000 = $14,000 for 2015NOTE: The units-of-production method is a usage-based method as opposed to a time-based method (such as straight-line and double-declining-balance)andtherefore partialperiods do not affect the calculations.Quick Study 10-12(10 minutes)[($35,720–$11,8201)–$1,570]/ 72years remaining =$3,1901.($35,720–$4,200)/8 = $3,940/year × 3 years = $11,8202.10–3 = 7Quick Study 10-13 (10 minutes)2014Jan. 3Barbecue–Rotisserie……………………………………1,000Cash…………………………………………………..1,000To record the purchase of electronic rotisserie.Dec. 31Depreciation Expense, Barbecue………………………1,560Accumulated Depreciation, Barbecue…………1,560To record revised depreciation on the barbecue caused by the additionof a rotisserie; $7,000-$200 = $6,800 ÷ 5 years = $1,360 PLUS$1,000 ÷5 years = $200; Total depreciation = $1,360 + $200 = $1,560.

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Last revised:November 19, 201210-9Quick Study 10-14(10 minutes)Impairment losses occurred on the computer and the furniture in the amounts of $1,500and $21,000, respectively.Calculations:AssetCostAccumulatedDepreciationBook ValueRecoverableAmountImpairmentLossBuilding$1,200,000$465,000$735,000$735,000N/AComputer3,5001,8001,700200$1,500Furniture79,00053,00026,0005,00021,000Land630,0000630,000790,000N/AMachine284,000117,000167,000172,000N/AQuick Study 10-15(10 minutes)a.2014Oct. 1AccumulatedDepreciation, Equipment................39,000Cash........................................................................17,000Equipment.........................................................56,000To record sale of equipment.b.Oct. 1AccumulatedDepreciation, Machinery................96,000Cash........................................................................27,000Machinery..........................................................109,000Gain on Disposal...............................................14,000To record sale of equipment.c.Oct. 1AccumulatedDepreciation, Truck........................33,000Cash........................................................................11,000Loss on disposal....................................................4,000Delivery truck....................................................48,000To record sale of equipment.d.Oct. 1AccumulatedDepreciation,Furniture..................21,000Loss on disposal....................................................5,000Furniture............................................................26,000To recorddisposalof equipment.

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Last revised:November 19, 201210-10Quick Study 10-16(10 minutes)2014Dec 31AccumulatedDepreciation, Automobile..............13,500Computer*..............................................................5,800Automobile........................................................15,000Cash...................................................................2,750Gain on Disposal...............................................1,550To record exchange.*Computer = FV of assetsreceived=$5,800as givenQuick Study 10-17(15 minutes)2014Mar. 1AccumulatedDepreciation, Machine (old)..........36,000Machine (new)2.....................................................117,000Cash1............................................................63,000Machine (old)...............................................90,000To record exchange of machines.1.Cash paid = $123,000-$60,000 = $63,0002.Machine (new) = $63,000 cash paid + $54,000 book value of old = $117,000Quick Study 10-18(10 minutes)2014Jan. 4Franchise...............................................................95,000Cash95,000To record purchase of franchise.Dec. 31Amortization Expense, Franchise........................9,500Accumulated Amortization,Franchise..........9,500To record amortization of franchise;$95,000/10 years = $9,500 per year

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Last revised:November 19, 201210-11Quick Study 10-19(10 minutes)2014Oct. 1Mineral Rights35,000,000Water Rights4,000,000Cash9,000,000Long-Term Note Payable30,000,000To record the purchase of intangibles.Dec. 31Amortization Expense, Mineral Rights875,000Accumulated Amortization, Mineral Rights875,000To record amortization of mineral rights;$35,000,000 ÷ 10 years = $3,500,000/year;$3,500,000/year × 3/12 = $875,000.31Amortization Expense, Water Rights100,000Accumulated Amortization, Water Rights100,000To record amortization of water rights;$4,000,000 ÷ 10 years = $400,000/year;$400,000/year × 3/12 = $100,000.*Quick Study 10-20(20 minutes)Motor(old)$45,000-$5,000 = $40,000 ÷ 10yrs×8/12=$ 2,667Motor (new)$60,000-$10,000 = $50,000 ÷ 8 yrs×4/12=2,083Metal housing$68,000-$15,000 = $53,000 ÷ 25 yrs =2,120Misc. parts$15,000 ÷ 5 yrs =3,000Total depreciation expense to be recorded on the machine for 2014=$9,870

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Last revised:November 19, 201210-12EXERCISESExercise 10-1 (10 minutes)Invoice cost...........................................................$15,000Freight costs.........................................................260Steel mounting......................................................795Assembly...............................................................375Raw materials for testing......................................120Less: discount ($15,000 × 2%)............................300Total acquisition costs.....................................$16,250Note: The $190 repairs are an expense and therefore not capitalized.Exercise 10-2 (15 minutes)Cost of land:Purchase price for land................................................................$1,200,000Purchase price for old building................................480,000Demolition costs for old building................................75,000Levelling the lot................................................................105,000Total cost of land................................................................$1,860,000Cost of new building:Construction costs................................................$2,880,000Less: Cost of land improvements*......................215,000Cost of new building.............................................$2,665,000*The land improvements are a distinctPPE assetthatdepreciatesat a different rate than the building. Therefore it should bedebited to an account separate from the building.Journal entry:2014Mar. 10Land.......................................................................1,860,000Land Improvements..............................................215,000Building.................................................................2,665,000Cash.................................................................4,740,000To record costs of plant assets.

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Last revised:November 19, 201210-13Exercise 10-3 (15 minutes)Allocation of total cost:(a)(b)(c)PPEAssetAppraisedValuesRatio of Individual AppraisedValue to Total Appraised Value(a)Total Appraised ValueCost Allocation(b) x Total Actual CostLand$249,480249,480594,000 = .42 or 42%$244,3462Land Imprv.83,16083,160594,000 = .14 or 14%81,4483Building261,360261,360594,000 = .44 or 44%255,9814Totals$594,000$581,77511.552,375+29,400 =581,7752.42% x581,775=244,3463.14% x581,775=81,4484.44% x581,775=255,981Journal entry:2014Apr. 12Land....................................................................................244,346Land Improvements...........................................................81,448Building..............................................................................255,981Cash.............................................................................581,775To record costs of lump-sum purchase.

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Last revised:November 19, 201210-14Exercise 10-4 (20 minutes)2014Jan. 1Land................................................................................1,296,000Building..........................................................................1,512,000Equipment......................................................................1,123,200Tools...............................................................................388,800Cash..........................................................................1,104,000Notes Payable...........................................................3,216,000To record lump-sum purchase.Calculations:(a)(b)(c)PPE AssetAppraisedValuesRatio of Individual Appraised Valueto Total Appraised Value(a)Total Appraised ValueCost Allocation(b) x Total Actual CostLand$1,152,0001,152,0003,840,000 = .30 or 30%$1,296,0001Building1,344,0001,344,0003,840,000 = .35 or 35%1,512,0002Equipment998,400998,4003,840,000 = .26 or 26%1,123,2003Tools345,600345,6003,840,000 = .09 or9%388,8004Totals$3,840,000$4,320,0001.30% x4,320,000 =1,296,0002.35% x4,320,000=1,512,0003.26% x4,320,000=1,123,2004.9% x4,320,000=388,800Exercise 10-5(10 minutes)2014Dec. 31DepreciationExpense, Truck11,100AccumulatedDepreciation, Truck11,100To recorddepreciation.Calculation:[(37,500 +13,500 +6,750 +5,250)–7,500] / 5 years =11,100

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Last revised:November 19, 201210-15Exercise 10-6 (15 minutes)(a)(b)(c)YearStraight-lineDouble-declining-balance(Rate = 2/4 = .50 or 50%)Units-of-production(Rate = [(169,200–24,000)/181,500] = .80/unit)201436,300150% ×169,200 =84,60030,640(.80 × 38,300)201536,30050% × (169,200–84,600) =42,30032,920(.80 × 41,150)201636,300$18,300242,080(.80 × 52,600)201736,300039,56031. (169,200–24,000)/4 =36,300/year2. Maximumdepreciationis limited to $145,200 which is cost less residual ($169,200–$24,000) thereforedepreciationfor 2016is $18,300 calculated as $145,200–$126,900 accumulateddepreciationrecorded to date.3. Maximumdepreciationis limited to $145,200 which is cost less residual($169,200–$24,000) thereforedepreciationfor 2017is$39,560calculated as $145,200–$105,640 accumulateddepreciationrecorded to date.

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