acquisition cost of plant assets depreciation methods

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EX10-2

ACQUISTION COST OF PLANT ASSETS

Benedict Co. incurred the following costs:

1. Sales tax on factory machinery purchased.

$5,000

2. Painting of and lettering on truck immediately upon purchase.

$700

3. Installation and testing of factory machinery

$2,000

4. Real estate broker’s commission on land purchased

$3,500

5. Insurance premium paid for first year’s insurance on new truck

$ 880

6. Cost of landscaping on property purchased

$7,200

7. Cost of paving parking lot for new building constructed

$17,900

8. Cost of clearing, draining, and filling land

$13,300

9. Architect’s fees on self-constructed building

$10,000

Indicate to which account Benedict Co. would debit each of the costs.

EX10-3 ACQUISTION COST OF LAND

On March 1, 2018, Westmorlan Co. acquired real estate on which it planned to construct

a small office building. The company paid $75,000 in cash. An old warehouse on the

property was razed at a cost of $8,600; the salvaged materials were sold for $1,700.

Additional expenditures before construction began included $1,100 attorney’s fee for

work concerning the land purchase, $ 5,000 real estate brokers’ fee, $7,800 architect’s fee,

and $14,000 to put in driveways and a parking lot.

(a) Determine the amount to be reported as the cost of the land.

(b) For each cost not used in part (a), indicate the account to be debited.

P10-3A

DEPRECIATION METHODS

On January 1, 2018, Evers Co. purchased a machine for $180,000. Evers estimates that

the useful life of the machine is 4 years with a $10,000 salvage value remaining at the

end of that time period.

Calculate the amount of depreciation expense that Evers should record each year of its

useful life under the following assumptions:

1) Evers uses straight line method

2) Evers uses the double-declining balance method.

3) Evers uses the units of activity method. It estimates the total useful life of the

machine is 125,000 units. Actual usages is as follows:

2018: 45,000 units

2019: 35,000 units

2020: 25,000 units

2021: 20,000 units.