Solution Manual for Fundamental Accounting Principles, 15th Edition

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Last revised:January 23, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.9-1SOLUTIONS MANUALto accompanyFundamental Accounting Principles,Volume 215thCanadian EditionbyLarson/Jensen/DieckmannPrepared by:Laura Dallas, Kwantlen Polytechnic UniversityTechnical checks by:Elizabeth Hicks,Douglas CollegeMichelle Young, CPA

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Last revised:January 23, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.9-2Chapter9Property, Plant and Equipment and IntangiblesChapter Opening Critical Thinking Challenge Questions*You are asked by the CFO of YVR to evaluate the newest capital asset, the AirsideOperationsBuilding at YVR, and to break it into major components for depreciationpurposes. Identify at least five major components and determine an expected life for eachof those components.Components of the Airside Operations Building could include:1.Building exterior walls40 years2.Roofing25 years3.Pavement15 years4.Landscaping10 years5.Electrical Components15 years6.Flooring15 years7.Plumbing15 years8.Furniture and Fixtures15 years9.Fire Equipment20 years10.Snow Removal Equipment20 years*TheChapter9Critical 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:January 23, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.9-3Concept 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.It is different from other assets such as receivables or inventory in that the property,plant and equipmentis used within the operations of business to generate profit,whereas inventory is purchased or manufactured for resale.Receivables represent theamounts due from customers based on past transactions.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.For example, costincludessuch items asthe invoice price paid, freight costs, non refundable sales taxes(PST, HST)and all costs incurred related to installing and testing an asset before it is putinto use.4.Land is an asset with an unlimited life and, therefore, is not subject todepreciation.Land improvementsrefer to items such as fencing, parking lots surfaces, landscapelighting andhave limited lives and aredepreciated over their useful lives.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,suchastheaccountCashandCashEquivalents.ThebalanceoftheAccumulatedDepreciation, Machinery account shows the portion of the machinery'soriginal cost that has been charged todepreciationexpense, and gives some indicationof 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.After incurring acapitalexpenditure,adepreciationpolicy also needs to be established.7.Because the $75 cost of theplant and equipmentasset is not likely to be material to the users of the financial statements, the materialityprinciple justifies charging it to expense.8.Danier Leather did not report any gains or losses on disposal of assets for its year endedJune28,2014.However,the corporationdid haveanImpairment loss on property andequipmentof $663,000.9.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.

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Last revised:January 23, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.9-411.Typesof intangible assets arepatents, copyrights, leaseholds, drilling rights, andtrademarks.12.WestJetreported $60,623,000 as Intangible assets at December 31, 2014.13.A businesscan onlyrecord goodwillwhen the price paid for a company being purchasedexceeds the fair market value of this company’s net assets (assets minus liabilities) ifpurchased separately.14.Westjet did not report anyGoodwill at December 31,2014.15.When an asset is constructed, such as the development of a new runway, all costs forconstruction-related materials and labour costs can be capitalized.Also any electricityand utilities consumed relating to the project, plus a reasonable amount for depreciationon any equipment used during construction.Other permitted costs include design fees,building materials and any interest charges on debt outstanding during the period ofconstruction incurred to finance the project.

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Last revised:January 23, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.9-5QUICK STUDYQuick Study 9-1 (5 minutes)$18,000 + $180,000 + $3,000 + $600 =$201,600Quick Study 9-2 (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 capitalexpenditure.

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Last revised:January 23, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.9-6Quick Study 9-3 (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 = 194,4002017Apr. 14Land...........................................................345,600Building.....................................................194,400Cash......................................................85,000Notes Payable.......................................455,000To record purchase of land andbuilding.Quick Study 9-4 (10 minutes)TechComPartial Balance SheetOctober 31,2017AssetsCurrent 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:January 23, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.9-7Quick Study 9-5 (10 minutes)($55,900–$1,900)/4 =$13,500/yearQuick Study 9-6 (10 minutes)Rate per copy = ($45,000–$5,000)/4,000,000 copies =$0.01/copyYearCalculationAnnualDepreciation2017$.01 ×650,000=$6,5002018$.01 ×798,000=7,9802019$.01 ×424,000=4,2402020$.01 ×935,000=9,3502021$.01 × 1,193,000=11,930$40,000Quick Study 9-7 (10 minutes)Annual rate ofdepreciation= 2/5 = .40 or 40% per yearYearCalculationAnnualDepreciation201740% × $86,000 =$34,400201840% × ($86,000–$34,400) =20,640201940% × ($86,000–$34,400–$20,640) =12,384202040% × ($86,000–$34,400–$20,640–$12,384) =2,576*20210$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, thedepreciationfor2020must be adjusted to $2,576.

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Last revised:January 23, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.9-8Quick Study 9-8 (10 minutes)Computer panel:$4,000/8 years =$500depreciationDry-cleaningdrum:$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 equipmentfor2017= $500 + $10,075 + $3,750 +$13,000 =$27,325Quick Study 9-9(10 minutes)20172018a.$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 9-10(10 minutes)20172018a.$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 for201720% x (60,000–10,000) = 10,000 for2018b. 20% x 60,000 = 12,000 x 6/12 = 6,000 for201720% x (60,000–6,000) = 10,800 for2018

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Last revised:January 23, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.9-9Quick Study 9-11(10 minutes)20172018a.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 for2017; $0.50 x 28,000 = $14,000 for2018NOTE: 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 9-12(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 9-13 (10 minutes)2017Jan. 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:January 23, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.9-10Quick Study 9-14(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 9-15(10 minutes)a.2017Oct. 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 record disposal of equipment.

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Last revised:January 23, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.9-11Quick Study 9-16(10 minutes)2017Dec 31AccumulatedDepreciation, Automobile..............13,500Computer*..............................................................5,800Automobile........................................................15,000Cash...................................................................2,750Gain on Disposal...............................................1,550To record exchange.*Computer = FV of assetsreceived=$5,800as givenQuick Study 9-17(15 minutes)2017Mar. 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 9-18(10 minutes)2017Jan. 4Franchise...............................................................95,000Cash95,000To record purchase of franchise.Dec. 31Amortization Expense, Franchise........................9,500Accumulated Amortization,Franchise.........9,500To recordamortization of franchise;$95,000/10 years = $9,500 per year

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Last revised:January 23, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.9-12Quick Study 9-19(10 minutes)2017Oct. 1Mineral Rights35,000,000Water Rights4,000,000Cash9,000,000Long-Term Note Payable30,000,000To record thepurchase 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 9-20(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$15,000 ÷ 5 yrs =3,000Total depreciation expense to be recorded on the machine for2017=$ 9,870

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Last revised:January 23, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.9-13EXERCISESExercise 9-1 (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 $190repairs are an expense and therefore not capitalized.Exercise 9-2 (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:2017Mar. 10Land.......................................................................1,860,000Land Improvements..............................................215,000Building.................................................................2,665,000Cash.................................................................4,740,000To recordcosts of plant assets.

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Last revised:January 23, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.9-14Exercise 9-3 (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:2017Apr. 12Land....................................................................................244,346Land Improvements...........................................................81,448Building..............................................................................255,981Cash.............................................................................581,775To record costs of lump-sum purchase.

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Last revised:January 23, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.9-15Exercise 9-4 (20 minutes)2017Jan. 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 IndividualAppraised 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=388,800

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