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ACCTG 305 Chapter 4 Homework

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Accounting 305

Chapter 4 Homework

 

  1. On January 1, 2014 Behrend acquired a parcel of real estate that included land and a building for a negotiated price of $19,870,000.  Before purchasing the property, Behrend paid $30,000 for an appraisal.  Behrend also incurred closing costs of $100,000.  The appraisal estimated fair value of the land at $19,800,000 and the building at $2,200,000.

Required:

Assuming Behrend occupies the building, record the real estate acquisition using the accounting equation format.

 

  1. On January 1, 2013, Behrend Corp. purchased a weaving machine for $1,800,000.  Cost to ship the machine and set it up totaled $100,000.  The machine is expected to have a useful life of 5 years and a $400,000 salvage value.  The machine is expected to produce 1,500,000 units over its lifetime.  During 2013, 320,000 units were produced.  During 2014, 400,000 units were produced.

Required:

Calculate what depreciation expense would be for years 2013 and 2014 under each of the following depreciation methods:

  1. a.              Straight-line
  2. b.              Double Declining Balance
  3. c.              Units of Output
  4. d.              Sum of the year’s digits

  

  1. Refer to the previous exercise part a) where Behrend applies straight-line depreciation.  Assume that in 2015 Behrend revised its estimate of the weaving machine’s total service life from 5 years to 4 years and also revised its estimate of residual value from $400,000 to only $300,000. 

Required:

Determine the amount of depreciation recognized in each year 2015 and 2016 given the changes in estimate.

 

 

  1. Refer again to the weaving machine depreciated by Behrend under the straight-line method.  Assume that Behrend exchanges the machine on 1/1/2015 for a new machine.  The new machine has a fair value of $2,000,000 and in addition to its old machine Behrend pays $500,000 in cash. 

Required:

Assuming that the exchange has “commercial substance” record the exchange using the accounting equation format applying “fair value treatment.”

 

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