ADILENE OROZCO ADAME GROUP 303

EXERCISE 6
As of January 1, 200X, there were the following balances of a fixed asset
Transport equipment $120 000
Accumulated depreciation $60 000

The salvage value of the transportation equipment is $20,000 and it has been
depreciated over 3 years using the straight-line method.
On December 31, 200X, an accident caused the total loss of that asset.
Calculate the following:
a) The useful life of transport equipment
b) The book value as of December 31, 200X

PROCEDURE
The following data is taken into account:
Date: January 1, 200X
Cost of transportation equipment: $120 000
Accumulated depreciation: $60,000
Rescue value: $20 000
Years depreciated by the straight-line method: 3 years
Accident date: December 31, 200X

a) The useful life of transport equipment

Method: Straight line depreciation
Formula: INVESTING VALUES
Accumulated depreciation / years depreciated = Annual depreciation
Equipment cost - salvage value / annual depreciation expense = Years of life

Operation:
60,000 / 3 years = 20,000 annual depreciation 120,000 - 20,000 / 20,000 = 5
years useful life

YEAR COST ANNUAL ACCUMULATED

DEPRECIATION DEPRECIATION
1997 120 000 20 000 20 000
1998 120 000 20 000 40 000
1999 120 000 20 000 60 000
2000 120 000 20 000 80 000
2001 120 000 20 000 100 000

Subsection response to:

The useful life of the transportation equipment would be 5 years with cumulative
depreciation

b) The book value as of December 31, 200X (2000)

What we are going to do here is subtract the transportation cost minus the
accumulated depreciation to obtain the book value

Formula: Cost - accumulated depreciation = Book value

120,000 - 20,000 = 100,000 (Year 1997)
120,000 - 40,000 = 80,000 (Year 1998)
120,000 - 60,000 = 60,000 (Year 1999)
120,000 - 80,000 = 40,000 (Year 2000)

YEAR COST ANNUAL ACCUMULATED VALUE IN

DEPRECIATION DEPRECIATION BOOKS
1997 120 000 20 000 20 000 100 000
1998 120 000 20 000 40 000 80 000
1999 120 000 20 000 60 000 60 000
2000 120 000 20 000 80 000 40 000

Answer to part b:
The book value as of December 31, 2000 was $40,000
us
efu
l

price of $60,000
ADILENE OROZCO ADAME GROUP 303
EXERCISE 7

A company purchased a computer on August 1, 200X for $35,000, with a useful life of four
years and a salvage value of $1,500. It is being evaluated between depr according to the
method of units produced based on hours of use, estimating that the useful life is 19,500
hours or whether the straight line method should be used.
The record of hours of use for the first years is: year 200X ÷ 1 830 hours, year 200X+1 ÷ 4
350 hours, year 200X+2 ÷ 4 400 hours, year 200X+3 ÷ 3 900 hours, year 200X+4 ÷ 4 150
hours.
Complete the following tables to compare the treatment of depreciation with the straight-line
method and the units produced method:

PROCEDURE
The following data is taken into account:
Date of purchase: August 1, 200x
Computer cost:
Useful life:
Rescue value:

And in units produced:

Useful life: 19,500 hours

Year 2000: 1830 hours

Year 2001: 4350 hours

Year 2002: 4400 hours

Year 2003: 3900 hours

Year 2004: 4150 hours

STRAIGHT LINE METHOD

FORMULA: Cost-scrap value / years of useful life = prey amount

Operation

35,000 - 1,500 / 4 years = 8,375 annual depreciation expense

STRAIGHT LINE METHOD

Annual Accumulated Value in
Year depreciation depreciation books
200X 8375 8375 26 625
200X+1 8375 16 750 18 250
200X+2 8375 25 125 9 875
200X+3 8375 33 500 1 500
200X+4 8375 41 875 -6875
METHOD OF UNITS PRODUCED

Formula: Cost - scrap value / units of use = depreciation amount * number

Operation
35 000 - 1500 / 19500 = 1.71 expense per unit produced 1.71 *
1830 = 3129.3 annual depreciation expense (2000) 1.71 * 4350
= 7438.5 annual depreciation expense (2001) 1.71 * 4400 =
7524 annual depreciation expense ( 2002) 1.71 * 3900 = 6669
annual depreciation expense (2003) 1.71 * 4150 = 7096.5
annual depreciation expense (2004)

METHOD OF UNITS PRODUCED

Annual Accumulated Value in
Year depreciation depreciation books
200X 3129.3 3129.3 31870.7
200X+1 7438.5 10567.8 24432.2
200X+2 7524 18091.8 16908.2
200X+3 6669 24760.8 10239.2
200X+4 7096.5 31857.3 3142.7
e
esteem
eciarla
ue su

ode

annual
tion
ro of units = Annual depreciation expense
ADILENE OROZCO ADAME GROUP 303
EXERCISE 8

A building was acquired on July 30, 200X for $3,500,000, of which $1 2 years and a
salvage value of
$200 000. On May 1, 200X+4 it sells for $3,200,000. Calculate the following: a) Book value
of assets as of May 1, 200X+4.
b) Gain or loss on the sale of assets

Procedure
The following data is taken into account:
Purchase date: July 30, 200X
Cost: $3,500,000
Land value included in cost: $1,200,000
Useful life: 30 years
Salvage value: $200,000
Sale date: May 1, 200X + 4
Sale price: $3,200,000

a) Book value of assets as of May 1, 200X + 4

First you have to subtract the total cost of the building minus the value of the t

3,500,000 - 1,200,000 = $2,300,000 of building value

Already having the value of the building, the annual depreciation value is derived by the m

FORMULA: Cost - salvage value / years of

OPERATION
 2,300,000 - 200,000 / 30 years =
70 000 / 12 = 5833.33 expenditure d

Accumulated depreciation is done and the book value is taken with the following formula

FORMULA: Cost - accumulated depreciation

Annual Accumulated
Year Building cost depreciation depreciation
2000 2 300 000 70 000 70 000
2001 2 300 000 70 000 140 000
2002 2 300 000 70 000 210 000
2003 2 300 000 70 000 280 000
LAND VALUE: $1,200,000

Taking into account that the building was sold in May, that is, 2 months before
useful, the book value will be valued through monthly depreciation
Monthly Accumulated
Month Building cost depreciation depreciation
Aug 2 300 000 5833.33 285 833.33
Sep 2 300 000 5833.33 291 666.66
Oct 2 300 000 5833.33 297 499.99
Nov 2 300 000 5833.33 303 333.32
Dec 2 300 000 5833.33 309 166.65
Jan 2 300 000 5833.33 314 999.98
Feb 2 300 000 5833.33 320 833.31
Sea 2 300 000 5833.33 326 666.64
Apr 2 300 000 5833.33 332 499.97
May 2 300 000 5833.33 338 333.3
LAND VALUE: $1,200,000

The book value of the asset of the e

961 666.7 and the value of the land
RESULT:

Subsection b)
The sale price and the book value are subtracted to calculate whether accounting entries
are obtained.

3,200,000 - 3,161,666.7 = 38,333.3 sales profit

Date Detail Has to To have
May 1, 2004 Banks 3 200 000
Dpr. Accum. Building 338 333.3
Building 3 500 000
Gain on sale of fixed assets 38 333.3
Result: The profit from the sale of the asset is $38,333.3
00,000 correspond to the value of the land. It is estimated to have a useful life of 30 years.

straight line method

useful life = annual depreciation

70,000 annual depreciation expense and monthly depreciation

rhyme:

= book value

Value in books
2 230 000
2 160 000
2 090 000
2 020 000

conclude the 5th year of life

Value in books
2 014 166.67
2 008 333.34
2 002 500.01
1 996 666.68
1 990 833.35
1 985 000.02
1 979 166.69
1 973 333.36
1 967 500.03
1,961,666.7 difference calculated to the date of May 1, 2004 is $1, it remains the same
$1,200,000 since the land is not depreciated, a gain or loss on sale and is placed in the
register of
ADILENE OROZCO ADAME GROUP 303
EXERCISE 9
Andros, SA decided to exchange its transportation equipment with a book value of $95,000
(accumulated c) for new equipment for $265,000. Andros, SA paid in cash, receiving a bo
Calculate what
a) profit or

transaction.

Procedure
The following data is taken into account:
Book value: 95,000
Cost: 178,000
Accumulated depreciation: 83,000
Exchange equipment cost: 265,000
Bonus: 100,000

Clause A)
What you have to do is subtract the bonus minus the book value to find out if h

METHOD: From list price

FORMULA: Exchange value - book value = g

Operation:
100,000 - 95,000 = 5,000 profit earned

RESULT: There is a profit of $5,000 pesos

Subsection b)
The accounting record is placed as follows:

Date Detail Has to To have

200X Transport equipment (new) 265 000
Dpr.accum. Transport equipment (used) 83 000
Banks 165 000
Transport equipment (used) 178 000
Gain on exchange of assets 5 000
cost of $178,000 less $83,000 depreciation plus $100,000 for the equipment he had.
following:
loss occurred in the exchange of assets.
 b) accounting record of the

ay profit or loss profit or loss obtained

ADILENE OROZCO ADAME GROUP 303
EXERCISE 10
The following data were presented in the annual report of a company to be c use of its
assets in recent years:

200X 200X-1 200X-2 200X-3 200X-4

Net sales $7,983,000 $6,134,000 $5,941,000 $7,081,000 $9,833,000
Net fixed assets $313,000 $318,000 $348,000 $486,000 $598,000
a) Calculate the rotation of fixed assets from 200X-4 to 200X.
b) How can these results be interpreted?

Procedure:
Clause A)
To calculate the rotation of fixed assets, the following formula is used:

FORMULA: Fixed asset turnover = sales / net fixed assets

Operation:

9 833 000 / 598 000= 16.44 of rotation (year 200X -4)

7 081 000 / 486 000= 14.56 of rotation (year 200X -3)
5 941 000 / 348 000= 17.07 of rotation (year 200X -2)
6 134 000 / 318 000= 19.28 of rotation (year 200X -1)
7 983 000 / 313 000= 25.50 of rotation (year 200X)

RESULT: The rotations from the years 200X -4 to 200X were as follows:

Year 200X -4 = 16.44 The sum of all these rotations gives us a total d
Year 200X -3 = 14.56 92.85
Year 200X -2 = 17.07
Year 200X -1 = 19.28
Year 200X = 25.5

Subsection b)
They can be interpreted as follows:

Fixed net
Date Net sales assets Rotation
1996 9 833 000 598 000 16.44
1997 7 081 000 486 000 14.56
1998 5 941 000 348 000 17.07
1999 6 134 000 318 000 19.28
2000 7 983 000 313 000 25.5
considered in the evaluation of efficiency in the

200X-5
$11,062,000
$711,000

an
d:
ADILENE OROZCO ADAME GROUP 303
PROBLEM 1
. ,.. .
local is 25 years and its residual value is $100,000.
It is requested:
a) Accounting for the purchase of the premises on April 30, 200X.

necessary to record the depreciation expense as of December 31, 200X and 200X+1, using

book value of the premises as of December 31, 200X+5.

d) Prepare the update entry as of December 31, 200X+5 ac. Consider that
the market value of the premises on that date is $1,185,000.
e) If the
would there be in sections b), c) and d)? Show them.

Procedure
The following data is taken into account:
Date of purchase: April 30, 200X
Cost of the premises: $1 250 000
Land cost: $450 000
Useful life: 25 years
Residual value: $100 000

Clause A
The purchase will be registered as follows:

Date Detail Has to To have

Apr 30, 200X Building 800 000
Land 450 000
Banks 1 250 000

Subsection B
The straight line method will be used to make the accounting entry

METHOD Straight line

FORMULA Cost - scrap value / years of useful life = Annual depreciation

Annual depreciation / 12 months = Monthly depreciation

It will be recorded with the monthly depreciation expense

200X Monthly Accumulated
Date Local cost depreciation depreciation
Apr-30 $800,000 $2,333.33 $2,333.33
May-30 $800,000 $2,333.33 $4,666.66
Jun- $800,000 $2,333.33 $6,999.99
30
Jul-30 $800,000 $2,333.33 $9,333.32
Aug-30 $800,000 $2,333.33 $11,666.65
 Sep-30 $800,000 $2,333.33 $13,999.98
Oct-30 $800,000 $2,333.33 $16,333.31
Nov-30 $800,000 $2,333.33 $18,666.64
Dec-30 $800,000 $2,333.33 $20,999.97
LAND VALUE: $450,000

The accumulated depreciation expense until the month of December of the year 200X is
$20 99 the following year, which is 200X + 1 in the month of December (annual) that its
depreciation is d as a result $48 999.97

Subsection C
To calculate the book value of the premises, the following formula is used:
Cost - accumulated depreciation = book value

800,000 - 28,000 = 772,000 (year 200X)

800,000 - 56,000 = 744,000 (year 200X + 1)
800,000 - 84,000 = 716,000 (year 200X + 2)
800,000 - 112,000 = 688,000 (year 200X + 3)
800,000 - 140,000 = 660,000 (year 200X + 4)

800 000 - 142 333.33 = 657 666.67 (May, year 2005)

800,000 - 144,666.66 = 655,333.34 (June, 2005)
800,000 - 146,999.99 = 653,000.01 (July, 2005)
800 000 - 149 333.32 = 650 666.68 (August, 2005)
800 000 - 151 666.65 = 648 333.35 (September, 2005)
800 000 - 153 999.98 = 646 000.02 (October, year 2005)
800 000 - 156 333.31 = 643 666.69 (November, 2005)
800 000 - 158 666.64 = 641 333.36 (December, year 2005)
 b) Prepare the adjustment seat the straight line method.
c) Calculate the

I agree with the replacement value method.

useful life of the premises outside 30 years, what changes

9.97 and $28,000 was added, giving
ADILENE OROZCO ADAME GROUP 303
PROBLEM 2
On January 2, Materiales Andros, SA purchased a machine for its production.
It is estimated to have a useful life of 8 years and a salvage value of $1,500.
The following information is also available:
* MACHINE COST: $70 000
* MACHINE TRANSPORTATION COST:
* INSTALLATION COSTS: $2 000
* THE MACHINE WAS PURCHASED ON CREDIT, SIGNING A 90 DAY DOCUMENT
WITH AN INTEREST RATE OF 18% ANNUAL
* TRANSPORTATION AND INSTALLATION COSTS WERE PAID

It is requested:
a) Calculate the cost of the machine and register your purchase
b) Calculate and record the first year's depreciation expense
c) Calculate the annual depreciation expense if the useful life were 10 years
d) Calculate the annual depreciation expense if the salvage value were $3,000 and the e)
Record the payment of the debt incurred for the purchase of the machine when the term
expires.

Procedure:

a) Calculate the cost of the machine and register your purchase

To do this, the cost of the machine will be added, plus the transportation cost and it will be
recorded in the accounting entry as follows:

Operation:
70,000 + 800 + 2,000 = $72,800 (cost of machine value)

DATE DETAIL HAS TO TO HAVE

January 2, 200X Machine $72 800
Box $2 800
Doc. $70,000
Receivable
b) Calculate and record the first year's depreciation expense
To calculate depreciation expense, we will use the straight line method

METHOD: Straight line

FORMULA: Cost - salvage value / years of useful life = Annual depreciation

Operation:
72,800 - 1,500 / 8 = $8,912.5 annual depreciation expense

It is registered as follows:
DEPRECIATION ACCUMULATED
YEAR COST ANNUAL DEPRECIATION
200X 72 800 $8 912.5 $8 912.5
c) Calculate the annual depreciation expense if the useful life were 10 years. To calculate
the depreciation expense, the straight line method will be used.

METHOD: straight line

FORMULA: Cost - salvage value / years of useful life = Annual depreciation

Operation:
72,800 - 1,500 / 10 = $7,130 annual depreciation expense

Depreciation over 10 years gives us

RESULT OF ITEM C : resulting in annual depreciation
of $7,130 depreciation expense
annual

d) Calculate the annual depreciation expense if the salvage value were $3,000 and the
straight-line method will be used to calculate the depreciation expense.

METHOD: straight line

FORMULA: Cost - salvage value / years of useful life = Annual depreciation

Operation:
72,800 - 3,000 / 8 years = $8,725 annual depreciation

RESULT OF ITEM D: The annual depreciation would be $8,725

e) Record the payment of the debt incurred for the purchase of the machine upon expiration
of the payment period.
DATE HAS TO TO HAVE
Jan 2, 2000 72 800 Machine TO Doc, collect
Apr 1, 2000 1 604.16 Doc. To be paid to Bank

MACHINE DOC. BY
Has to To Has to
72 800 have
 $800

Yes

CASH

useful life of 8 years or payment

date, determines the date.

s the installation cost

The useful life of 8 years at the
payment date, determine the
date.

70 000
4404.16

CHARGE
There are 70,000
DOC. TO PAY
Has to To
1 604.16 have
 BANK
Has to To
have 4404.16
ADILENE OROZCO ADAME GROUP 303
PROBLEM 3
Materiales y Shredded del Sur, SA purchased on April 30, 2000, three machines
were immediately installed and put into operation.
The machines were different so they were registered separately in the The
following information about the machines is available:

Machine A Machine B Machine C

Cost $108 000 $325 000 $217 000
Installation costs $ 8 000 $ 11 000 $ 11 000

Repair costs before use $ 6 000 $ 14 000 $ 16 000

Useful life 5 years 35,000 hours 8 years

Depreciation method Straight line Units produced Straight line

As of December 31, 2000, each machine had been used 7,500 hours

It is requested:
a) Calculate the cost of each machine
b) Calculate the annual and monthly depreciation expense of each machine
c) Determines the depreciation expense for the first year as of December 31,
2020.
d) Accounting for the depreciation of each machine as of December 31
e) Calculate the book value of each machine as of December 31, 200X + 5

Procedure

a) Calculate the cost of each machine

To calculate the cost of each machine, what will be done is to add both the cost
and the repair costs before use.

Operation:
108,000 + 8,000 + 6,000 = $122,000 (Machine A)
325,000 + 11,000 + 11,000 = $347,000 (Machine B)
217,000 + 11,000 + 16,000 = $244,000 (Machine C)

RESULT OF ITEM A: The cost of machine A is $12.

and that of machine C is $244 00

b) Calculate the annual and monthly depreciation expense of each

machine. To do this, the straight line method will be used and the respective
calculations will be made.

METHOD: Straight line

FORMULA: Acquisition cost / years of useful life = depreciation

Annual depreciation / 12 months = Monthly

 depreciation

Operation:
MACHINE A
122,000 / 5 years = $24,400 annual depreciation
24,400 / 12 months = $2,033.33 monthly depreciation

MACHINE C
244,000 / 8 years = $30,500 annual depreciation
30,500 / 12 months = $2,541.66 monthly depreciation

Since machine B has its useful life valued in hours, its depreciation will be taken.

METHOD: Units produced

FORMULA: Cost / units of hour = Depreciation amount
Depreciation amount * Number of us units Annual
depreciation expense / 12 months = Depreciation
expense

Operation
MACHINE B
347,000 / 35,000 = $9.91 expense per unit produced

(To remove the units used during the year)

7,500 hours / 8 months = 937.5 hours used monthly
937.5 hours * 12 months = 11,250 hours used annually

9.91 * 11,250 = $111,487.5 annual depreciation expense

111,487.5 / 12 months = $9,290,625 monthly depreciation expense

RESULT OF ITEM B:
Detail Annual Monthly
Cost depreciation depreciation
MACHINE A 122 000 24 400 2 033.33
MACHINE B 347 000 111 487.5 9 290.625
MACHINE C 244 000 30 500 2 541.66

c) Determine the depreciation expense for the first year as of December 31

d
An annual depreciation is added plus what results from multiplying the
depreciation.

Operation:
24,000 + (2,033.33 * 8 months) = Depreciation for the first year as of December
31
24,000 + 16,266.64 = $40,266.64 depreciation of machine A
111,487.5 + (9,290,625 * 8 months) = Depreciation of machine B
111,487.5 + 74,325 = $185,812.5 depreciation of machine B 30,500 + (2,541.66
* 8 months) = Depreciation of machine C
30,500 + 20,333.28 = $50,833.28 depreciation of machine C

RESULT OF ITEM C: The depreciation expense of the

three

d) Accounting for the depreciation of each machine as of December 31

Date Cost of Annual Accumulated

machine A depreciation depreciation
April 30, 1999 122 000 24 400 24 400

Month Cost of Monthly Accumulated

machine A depreciation depreciation
May, 2000 122 000 2 033.33 26 433.33
June, 2000 122 000 2 033.33 28 466.66
July, 2000 122 000 2 033.33 30 499.99
August, 2000 122 000 2 033.33 32 533.32
September, 2000 122 000 2 033.33 34 566.65
October, 2000 122 000 2 033.33 36 599.98
November, 2000 122 000 2 033.33 38 633.31
December 31, 2000 122 000 2 033.33 40 666.64

Date Cost of Annual Accumulated

machine B depreciation depreciation
April 30, 1999 347 000 111 487.5 111 487.5

Month Cost of Monthly Accumulated

machine B depreciation depreciation
May, 2000 347 000 9 290.625 120 778.125
June, 2000 347 000 9 290.625 130 068.75
July, 2000 347 000 9 290.625 139 359.375
August, 2000 347 000 9 290.625 148 650
September, 2000 347 000 9 290.625 157 940.625
October, 2000 347 000 9 290.625 167 231.25
November, 2000 347 000 9 290.625 176 521.875
December 31, 2000 347 000 9 290.625 185 812.5
 Date Machine C Annual Accumulated
Cost depreciation depreciation
April 30, 1999 244 000 30 500 30 500

Month Machine C Monthly Accumulated

Cost depreciation depreciation
May, 2000 244 000 2 541.66 33 041.66
June, 2000 244 000 2 541.66 35 583.32
July, 2000 244 000 2 541.66 38 124.98
August, 2000 244 000 2 541.66 40 666.64
September, 2000 244 000 2 541.66 43 208.3
October, 2000 244 000 2 541.66 45 749.96
November, 2000 244 000 2 541.66 48 291.62
December 31, 2000 244 000 2 541.66 50 833.28

e) Calculate the book value of each machine as of December 31, 200X + To

obtain the book value, use the following formula:

FORMULA: Cost - accumulated depreciation = Book value

Date Cost of Annual Accumulated

machine A depreciation depreciation
April 30, 1999 122 000 24 400 24 400
April 30, 2000 122 000 24 400 48 800
April 30, 2001 122 000 24 400 73 200
April 30, 2002 122 000 24 400 97 600
April 30, 2003 122 000 24 400 122 000
April 30, 2004 122 000 24 400 146 400
April 30, 2005 122 000 24 400 170 800

Month Cost of Monthly Accumulated

machine A depreciation depreciation
May, 2005 122 000 2 033.33 172 833.33
June, 2005 122 000 2 033.33 174 866.66
July, 2005 122 000 2 033.33 176 899.99
August, 2005 122 000 2 033.33 178 933.32
September, 2005 122 000 2 033.33 180 966.65
October, 2005 122 000 2 033.33 182 999.98
November, 2005 122 000 2 033.33 185 033.31
December 31, 2005 122 000 2 033.33 187 066.64
 Date Cost of Annual Accumulated
machine B depreciation depreciation
April 30, 1999 347 000 111 487.5 111 487.5
April 30, 2000 347 000 111 487.5 222 975
April 30, 2001 347 000 111 487.5 334 462.5
April 30, 2002 347 000 111 487.5 445 950
April 30, 2003 347 000 111 487.5 557 437.5
April 30, 2004 347 000 111 487.5 668 925
April 30, 2005 347 000 111 487.5 780 412.5

Month Cost of Monthly Accumulated

machine B depreciation depreciation
May, 2005 347 000 9 290.625 789 703.125
June, 2005 347 000 9 290.625 798 993.75
July, 2005 347 000 9 290.625 808 284.375
August, 2005 347 000 9 290.625 817 575
September, 2005 347 000 9 290.625 826 865.625
October, 2005 347 000 9 290.625 836 156.25
November, 2005 347 000 9 290.625 845 446.875
December 31, 2005 347 000 9 290.625 854 737.5

Date Machine C Annual Accumulated

Cost depreciation depreciation
April 30, 1999 244 000 30 500 30 500
April 30, 2000 244 000 30 500 61 000
April 30, 2001 244 000 30 500 91 500
April 30, 2002 244 000 30 500 122 000
April 30, 2003 244 000 30 500 152 500
April 30, 2004 244 000 30 500 183 000
April 30, 2005 244 000 30 500 213 500

Month Machine C Monthly Accumulated

Cost depreciation depreciation
May, 2005 244 000 2 541.66 216 041.66
June, 2005 244 000 2 541.66 218 583.32
July, 2005 244 000 2 541.66 221 124.98
August, 2005 244 000 2 541.66 223 666.64
September, 2005 244 000 2 541.66 226 208.3
October, 2005 244 000 2 541.66 228 749.96
November, 2005 244 000 2 541.66 231 291.62
December 31, 2005 244 000 2 541.66 233 833.28
as used, which accounting records.

0X
of 200X as the installation costs

2,000; that of machine B is $347,000 0 annual

operations
sual ion by the method of units produced n
ated during the period = Annual depreciation expense monthly depreciation

the 200X
Monthly depreciation for 8 months of each machine and 200X machines gives us
$276,912.42 of depreciation from the first year to 31, 200X
Value in books
97 600
73 200
48 800
24 400
0
-24400
-48800

Value in books
-50833.33
-52866.66
-54899.99
-56933.32
-58966.65
-60999.98
-63033.31
-65066.64
Book value 235 512.5 124 025 12 537.5
-98950 -210437.5 -321925 -433412.5
Value in books
-442703.125
-451993.75
-461284.375
-470575
-479865.625
-489156.25
-498446.875
-507737.5

Value in books
213 500
183 000
152 500
122 000
91 500
61 000
30 500

Value in books
27 958.34
25 416.68
22 875.02
20 333.36
17 791.7
15 250.04
12 708.38
10 166.72
December 200X
ADILENE OROZCO ADAME GROUP 303
PROBLEM 4
The annual report with last year's financial information of Correos Segura, S. a note
clarifying the following in relation to fixed assets (property, plant and equipment)
expenses for major repairs, improvements and replacement costs of parts of
maintenance equipment were expensed for the period.
This year, Correos Segura, SA made some improvements to its building, adding
delivery. The original building cost $1,500,000.
and at the end of last year, after 10 years, it had been depreciated by 50%, with a useful
life of 20 years and no salvage value, using the line depreciation method

During this year, the following expenses related to the building were incurred:

• $25,000 of repairs and maintenance were paid in cash .

• $28,000 was paid in cash for the parking lot expansion , which was ter • The new wing
of the building was completed in December and a total of $190,000 was paid in cash.

It is requested:
Applying last year's accounting policies of Correos Segura, SA, do the following: a)
Prepare the journal entries to record the expenses that occurred during the current year
b) Obtain the balance at the end of the current year of the building account and the
expense account c) Calculate the annual depreciation expense of the building for the
current year.
d) If the improvements had been completed in October, what accounting implications
would they have?

Procedure

a) Prepare journal entries to record expenses that occurred during the present

DATE CODE DETAILS HAS TO

200X Maintenance expenses 25 000
Building 165 000
Banks
Equal sums 190 000
b) Obtain the balance at the end of the current year of the building account and the
expense account

BUILDING
DATE REFERENCE HAS TO
Dec 31, 1991 1 D-1 1 690 000
Dec 31, 2000 Maintenance expenses 25 000
 Dec 31, 2000 FINAL BALANCE

c) Calculate the annual depreciation expense of the building for the current year. To do
this the straight line method will be used.

METHOD Straight line

FORMULA Cost - salvage value / years of useful life = depreciation

1,500,000 - 0/20 years = 75,000 annual depreciation

YEAR COST ANNUAL DEPRECIATION DEPRECIA

1991 1 500 000 75 000 TION
1992 1 500 000 75 000
1993 1 500 000 75 000
1994 1 500 000 75 000
1995 1 500 000 75 000
1996 1 500 000 75 000
1997 1 500 000 75 000
1998 1 500 000 75 000
1999 1 500 000 75 000
2000 1 500 000 75 000
d) If the improvements had been completed in October, what accounting implications
would they have?

Result: Your expenses, book values would increase

TO. contained
type): “The
of flight were capitalized. Repair costs and

a new wing and expanding the parking area for the equipment

giving a
straight.

mined on December 31. onted during the following year:

year, related to the building.
building repair and maintenance.

estuary? Explain

year, related to the building.

building repair and maintenance.

TO BALAN
HAVE 1CE
715 000
annual

ACCUMULATED ATION
75 000
150 000
225000
300 000
375 000
450 000
525 000
600 000
675 000
750 000 ria? Explain
ADILENE OROZCO ADAME GROUP 303
PROBLEM 5
Compañía Colombiana, SA renewed the office equipment of one of its branches, and
sold the equipment it had. There is the following information about some of those that
were sold:

Rescue
Description Amount Unit cost Useful life value
Desks 5 $4,8508 years $750
Chairs 15 $1,2008 years $200
Computers 5 $10,0005 years $1,500

Additional Information:
*All assets have been depreciated according to the straight-line method
*The desks and chairs have depreciated over 6 and a half years and the computers

It is requested:
With the previous information calculate the following:
a) Complete the following table:
To obtain accumulated depreciation what will be done is to use the straight line method.

METHOD: Straight line

FORMULA: Cost - salvage value / years of useful life = annual depreciation

Operation:
Desks 4 850 - 750 / 8 = $512.5 annual depreciation
512.5 * 6.5 years = $3331.25 accumulated depreciation of a writing
desk
512.6 331.25 * 5 desks sold = $16,656.25 accumulated depreciation

Chairs 1,200 - 200 / 8 = $125 annual depreciation

125 * 6.5 years = $812.5 accumulated depreciation of a chair
812.5 * 15 chairs sold = $12,187.5 of accumulated depreciation of l

Computers 10,000 - 1,500 / 5 = $1,700 annual depreciation

1,700 * 3 years = $5,100 annual depreciation of a desk
5,100 * 5 computers sold = $25,500 accumulated depreciation

To obtain the book value, use the following formula:

FORMULA: Cost - accumulated depreciation = Book value

Operation
Desks (4,850 * 5) - 16,656.25 = Book value 24,250 - 16,656.25 = $7,593.75
Chairs (1 200 * 15) - 12 187.5 = Book value
18 000 - 12 187.5 = $5 812.5

Computers (10,000 * 5) - 25,500 = Book value

 50 000 - 25 000 = $25 000

To calculate the profit or loss on sale, use the following formula:

FORMULA: Exchange value - book value = Profit or loss on sale

Desks (1 350 * 5) - 7593.75 = Profit or loss on sale

6 750 - 7593.75 = -846.75 selling loss

Chairs (450 * 15) - 5 812.5 = Profit or loss on sale

6,750 - 5,812.5 = 937.5 sales profit

Computers (3,500 * 5) - 25,000 = Profit or loss on sale

17,500 - 25,000 = -7,500 sales loss

Accumulated
Asset Value in books Profit or loss
depreciation
on sale
Desks $15,375 $7,594 -$847
Chairs $11,250 $5,813 $938
Computers $25,500 $25,000 -$7,500

b) Shows the accounting record to record the sale of the detailed assets
c) Calculate the gain or loss on the sale of the assets if they had been sold in
d) Show journal entries to update the assets at the date of your sale of ac the following
market values: for each desk $1,200, for each chair $500, and p

b) Shows the accounting record to record the sale of the detailed assets

Asset Amount Sale price

Desks 1 $1,350
1 $1,350
1 $1,350
1 $1,350
1 $1,350
TOTAL 5 $6,750

Asset Amount Sale price

Chairs 1 $450
1 $450
 1 $450
1 $450
1 $450
1 $450
1 $450
1 $450
1 $450
1 $450
1 $450
1 $450
1 $450
1 $450
1 $450
TOTAL 15 $6,750

Asset Amount Sale price

Computers 1 $3,500
1 $3,500
1 $3,500
1 $3,500
1 $3,500
TOTAL 5 $17,500

DESCRIPTION AMOUNT SALE PRICE

Desk 5 $1,350 $6,750
Chairs 15 $450 $6,750
Computers 5 $3,500 $17,500
TOTAL $31,000

c) Calculate the gain or loss on the sale of the assets if they had been sold in

FORMULA: Sales price - book value = Profit or loss on sale

Operation:
Desks (1 350 * 5) - [(512.5 * 8) - (512.5 * 8 * 5)] = Vent gain or loss
6 750 - [ 4100 - (4 100 * 5)] = Profit or loss
6,750 - [4,100 - 20,500] = Profit or loss
6,750 - 16,400 = - 9,650 loss

Chairs (450 * 15) - [(125 * 8) - (125 * 8 * 15)] = Profit or loss

6,750 - [ 1,000 - (1,000 * 15)] = Profit or loss
6,750 - [1,000 - 15,000] = Profit or loss
6,750 - 14,000 = -7,250 loss

Computers (3 500 * 5) - [(1 700 * 5) - (1 700 * 5 * 5)] = Profit or loss

 17,500 - [ 8,500 - ( 8,500 * 5 )] = Profit or loss
17,500 - [ 8,500 - 42,500 ] = Profit or loss
17,500 - 34,000 = -16,500 loss

d) Show journal entries to update the assets at the date of your sale of ac the following
market values: for each desk $1,200, for each chair $500, and p

FORMULA: Net Replacement Value - Book Value = Present Value Amount

Desktop
Operation
1200-365,625=834,375 current value
Chairs 500-243.75=256.25 current value

Computer 3200-1020=2180 current value

Date Detail Has to To have
200X Furniture and 834.375
equipment
Update 834.375

Date Detail Has to To have

200X Furniture and 256.25
equipment
Update 256.25

Date Detail Has to To have

electronic computing
200X equipment 2180
Update 2180
or what you active

Unit sales price $1,350 $450 $3,500 for 3 full years or

all of the desks and chairs and the computers
that same price at the end of its useful life
I use the replacement value method, considering each computer $3,200
That same price at the end of its useful life is calculated with the replacement value method,
considering each computer $3,200.
ADILENE OROZCO ADAME GROUP
303
PROBLEM 6
La Vidriera del Centro, SA sold three of its machines
FORMULA: during the
Exchange year 200X.Value
Value-Book At the= beginning
They Win
of
Operation Rescue Accumulated
Asset
Machine 1 Cost value
80,000 - 72,500 = 7,500depreciation
Useful life profit
Machine 1 $200,000 $30,00 8 years $127,500
Machine
Machine 22 $426,000 070,000
$40,00 10 years
- 117,200 = -47,200 loss $308,800
Machine 3 $762,000 0 $42,00 15 years $576,000
0
RESULT:Information: Machine 1 had a profit of 7,500
Additional Machine 2 had a loss of 47,200

•b)Machine
Calculate the book
1 has been value of machine
depreciated for 6 3years,
at theMachine
time of the accident.
2 for 8 years, and Machine sold on
To calculate the book value, the annual,
credit on January 31, 200X for $80,000. monthly and depreciation must first be done.
counted on December 31, 200X at $70,000.
forklift
METHOD on it on May 27, 200X and completely damaged it beyond
Straight line repair. OR

ItFORMULA:
is requested Cost-scrap value / years of life ú Annual
a) Calculate the profit or loss on the sale of machinesdepreciation
1 and 2. / 12 = Depreciation
Calculate the book value of machine 3 at the time of the accident.* Time used = Deprec
Depreciation
c) Shows the accounting record to deregister each of the three machines
Operation:
MACHINE C
Procedure 762,000 - 42,000 / 15 = 48,000
a) Calculate the profit or loss on the sale of machines 1 and 2. 48,000 / 12 = 4,000
depreciation
To do this first the straight line method will be used.depreciation 48,000 * 12 years =
576,000 depreciation
METHOD: Straight line

FORMULA: Cost - scrap value / years of life

To obtain the book value, use the following formula:
Operation
FORMULA:
Machine 1 Cost - accumulated
200,000 - 30,000 / 8depreciation = Value
years =21,250 of
21,250 * 6 years = 127,500 depreciation
Operation
MACHINE C 762,000 - 576,000 = 186,000 value in
Machine 2 426,000 - 40,000 / 10 years = 38,600
38,600 * 8 years = 308,800 depreciation
RESULT:
To The book value of machine C is
obtain the book value, the following formula is used:

c) Shows the accounting record to deregister each Cost

FORMULA: of the- three machines
accumulated depreciation =
Value
Operation:
Machine 1 MACHINE 1 200,000 - 127,500 = 72,500 value in
Date Reference Has to To have
Jan 31, 2000 Banks 80 000
Machine 2 426,000 - 308,800 = 117,200 value in
To calculate the profit or loss obtained, the following 127
Dpr. Accum. Machine 500 is used:
formula
1 D-1 200 000
Gain on sale of fixed assets 7 500
TOTAL 207 500 207 500

MACHINE 2
Date Reference Has to To have
ADILENE OROZCO ADAME GROUP
303
PROBLEM 7
Dec 31, 2000 Banks 70 000
Dpr, Accum. Machine 308 800
Loss on sale of the asset 47 200
1 D-2 426 000
TOTAL 426 000 426 000

MACHINE 3
Date Reference Has to To have
Dec 31, 2000 Dpr, Accum. Machine 576 000
1 D-3 576 000
TOTAL 576 000 576 000
year the following data was available for each of the machines:

to 3 for 12 years. • Machine 1 is

• Machine 2 was sold
• Machine 3 fell to a scrap metal
collection company and was taken away free of charge.

b)

useful = Annual depreciation

annual valuation
accumulated on

annual depreciation
on accumulated in books

book books
loss or loss

useful accumulated = annual monthly depreciation

accumulated iation annual ciation
unusual
tion in 12 years in books

books $186,000
ADILENE OROZCO ADAME GROUP
303
PROBLEM 7
On April 4, 200X, Víctor Elizondo y Cía., SA purchased new transportation equipment. The
estimated v is six years and the residual value is $14,000. The truck depreciated accordingly

It is requested:

Submit the journal entries necessary to record the sale or delivery, in exchange for the
following independent transactions:
a) At the end of 200X+4 the truck was sold for $85,000 on credit.
b) At the end of its useful life, the truck was sold for cash for $50,000.
c) At the end of 200X+2, the truck was exchanged for a new one at a list price of $365,700
with a bonus of $70,000 (profit or loss is recognized).

DATE DETAIL HAS TO TO HAVE

2004DOCUMENTS RECEIVED 85 000
Delivery or delivery team 85 000

DATE DETAIL HAS TO TO HAVE

2006Bank 50 000
Delivery or delivery team 50 000

DATE DETAIL HAS TO TO HAVE

2002Transport equipment (new) 365 700
Dpr. Accum. Transport equipment (used) 76 666.66
Loss on exchange of assets 143 333.34
Banks 295 700
Transport equipment (used) 290 000
The total invoice value is $290,000, the useful life using the straight-line method.

amion, n a
ADILENE OROZCO ADAME GROUP 303
PROBLEM 8
The Regional Company, SA exchanged the equipment that cost $35,000 in cash, for similar
equipment that the Compa Additional information about the exchange:

Regional State
Equipment cost $805,000 $805,000
Accumulated depreciation $665,000 $560,000
Market value of the $385,000 $420,000
equipment
Cash payment $35,000

It is requested
Prepare the accounting record of the exchange. Sample

DATE 200X

DATE 200X
iliza to manufacture articles, plus the amount of State Owned, SA used in its operations.

the registration that each of the two companies must carry out.

DETAIL HAS TO TO HAVE

Furniture and equipment (exchange) 805 000
Dpr.accum. Furniture and equipment (used) 665 000
Loss from asset changes 35 000
Banks 700 000
Furniture and equipment (used) 805 000
TOTAL 1 505 000 1 505 000

DETAIL HAS TO TO HAVE

Furniture and equipment (exchange) 805 000
Dpr.accum. Furniture and equipment (used) 560 000
Banks 525 000
Used furniture and equipment 805 000
Gain from asset changes 35 000
TOTAL 1 365 000 1 365 000
ADILENE OROZCO ADAME GROUP
303
PROBLEM 9

Carpintería Económica, SA purchased on credit on June 30, 200X, a wooden

machine for $550,000. $7,500 was paid for freight and $15,000 was required for
installation, which was paid in cash.
This machine was estimated to have a useful life of 10 years and/or 25,000 work
hours and a residual of $65,000.
On February 1, 200X+2, the carpentry shop purchased a new cutter for cash. The
company uses annual accounting periods and to record depreciation using a
straight-line depreciation method.
It is requested:
The accounting record of the following:
a) The purchase of the machine on June 30, 200X.
b) The depreciation expense corresponding to 200X.
c) The depreciation expense of 200X+1.
d) The exchange of machines on February 1, 200X+2.
e) If the company bases its depreciation according to the p-units worked method
and there are the following machine usage records: In 200X — 1,230 hours
In 200X+1 — 2,570 hours
In the 200X+2 — 450 hours
Calculate the depreciation expense for each year and present the corresponding
entry

Procedure

a) The purchase of the machine on June 30, 200X.

Date Detail Has to
Jun 30, 2020 Machine 572 500
Banks
Documents to pay
TOTAL 572 500
b) The depreciation expense corresponding to 200X.

METHOD: Straight line

Cost - scrap value / years of useful life = Depreciation expense
FORMULA: Annual depreciation expense / 12 months = Depreciation expense
m
Operation
550,000 - 65,000 / 10 years = 48,500 annual depreciation expense
 48,500 / 12 months = 4041.66 monthly depreciation expense
MACHINE
2000 MONTHLY
Date COST DEPRECIATION
July 550 000 4041.66
August 550 000 4041.66
September 550 000 4041.66
October 550 000 4041.66
November 550 000 4041.66
December 550 000 4041.66
RESULT: The accumulated depreciation for the year 2000 is $24,249.96

c) The depreciation expense of 200X+1.

MACHINE
DEPRECIATION
DATE COST ANNUAL
2000 550 000 48 500

MACHINE
MONTHLY
DATE COST DEPRECIATION
Jul, 2001 550 000 4041.66
August, 2001 550 000 4041.66
Sept, 2001 550 000 4041.66
Oct, 2001 550 000 4041.66
Nov, 2001 550 000 4041.66
Dec, 2001 550 000 4041.66

RESULT: The depreciation expense for the year 2001 is $72,749.96

d) The exchange of machines on February 1, 200X+2.

DATE DETAIL HAS TO

Feb 1, 2002 Transport equipment (new) $800,000
Dpr. Accum. Transport equipment (used) $105,083.24
Banks
Used transport equipment
TOTAL 905 083.24

e) If the company bases its depreciation according to the p-units worked method and
there are the following machine usage records: In 200X — 1,230 hours

In 200X+1 — 2,570 hours

In the 200X+2 — 450 hours
Calculate the depreciation expense for each year and present the corresponding entry
METHOD: Of units produced

FORMULA: Annual depreciation amount = depreciation amount per number

Depreciation amount per units produced * Unit number

Operation:
Year 2000 550,000 - 65,000 / 25,000 = 19.4 depreciation amount
19.4 * 1,230 = 23,862 annual depreciation expense

Year 2001 550 000 - 65 000 / 25 000 = 19.4

19.4 * 2,570 = 49,858 annual depreciation expense

Year 2002 550 000 - 65 000 / 25 000= 9.14

9.14 * 450 = 4,113 annual depreciation expense

DEPRECIATION
DATE COST ANNUAL
2000 550 000 23 862
2001 550 000 49 858
2002 550 000 4 113
a cutter
They required the services of a technician to get it running and who charged for this
work.

a value

more modern one at $800,000 and they took into account his old machine at $400,000.
ilizes the produced (hours nte in each case.

n annual ensual to
ACCUMULATED DEPRECIATION 4041.66 8083.32 12 124.98 16 166.64 20 208.3 24
249.96

DEPRECIATION
ACCUMULATED 48,500

DEPRECIATION
ACCUMULATED
52 541.66
56 583.32
60 624.98
64 666.64
68 708.3
72 749.96

TO HAVE

505 083.24
400 000
905 083.24 produced (hours
nte in each case.

ro of units
ades = Annual depreciation

DEPRECIATION
ACCUMULATED
23 862
73 720
77 833
ADILENE OROZCO ADAME GROUP
303
PROBLEM
A distributor10of computer parts and accessories, which has assets worth $1,356,430 of
property, plant and equipment
At the end of the year 200X and the previous year in that same item it amounted to
$1,138,010. A total of $258,830 was repo as accumulated depreciation for the year 200X
and $220,230 for the year before. Within this classification of assets, the company has the
following:

200X 200X-1
Land $368,660 $305,880
Building $935,820 $776,450
Equipment $197,160 $172,130
Tools $113,620 $103,780
NET TOTAL $1,356,430 $1,138,010
(less dep. accumulated)

Additional Information
• All assets are recorded at cost.
• Depreciation is calculated according to the straight-line method.
• A useful life is estimated between 15 and 40 years for buildings, between 3 and 12
years for e and between 10 and 12 years for tools.
• The company bought some assets, but did not sell any during the year 200X.

It is requested
a) Determines the amount of depreciation recorded in the year 200X.
b) If the company mistakenly records the year's depreciation at a value greater than the
correct one, the error would have the effect (it would be overstated or understated) on:
• the rotation of fixed assets?
• the return on investment?
• earnings per share?
Explain your answers.

PROCEDURE
a) Determines the amount of depreciation recorded in the year 200X

METHOD Straight line

Cost - residual value / years of useful life = annual

FORMULA:
depreciation

BUILDING Operation
935,820 - 0 / 40 years = 23,395.5 depreciation expense
EQUIPMENT 197,160 - 0 / 12 years = 16,430 annual depreciation expense
ADILENE OROZCO ADAME GROUP
303
PROBLEM 11
TOOLS 113 620 - 0 / 12 years = 9 468.33 depreciation expense an
 The annual depreciation expense for the year
RESULT: 2000 excluding the va results from: $49,293.83 annual
depreciation expense

b) If the company mistakenly records the year's depreciation at a value greater than the
correct one, the error would have the effect (it would be overstated or understated) on:
• the rotation of fixed assets?
• the return on investment?
• earnings per share?
Explain your answers.

Its value is overestimated when studying its valuation in earnings per share since
 number of small branches, had

rto a
rior.

l team

that

annu
al

l
ua
l
lor of land, because those do not depreciate, they give us a What are they causing the
overvalue by increasing the depreciation