Ex 1

A mining company purchased for $7 million a mine that is

estimated to have 35 million tons of ore and no salvage value.
In the first year, 6 million tons of ore are extracted and sold.
(a) Prepare the journal entry to record depletion expense for
the first year.
(b) Show how this mine is reported on the balance sheet at the
end of the first year.

(a) depletion cost per ton = $7,000,000 ÷ 35,000,000 = $.20

Depletion expense for the First year = $.20 X 6,000,000 = $1,200,000

Dr Cr
Depletion expense 1,200,000
Accumulated depletion 1,200,000

(b)
Balance sheet (partial)
Ore mine .............................................................. $7,000,000
Less: Accumulated depletion .................... 1,200,000

$5,800,000

1
Ex2:
A company purchases a patent for $120,000 on January 1, 2020. Its
estimated useful life is 10 years.

(a) Prepare the journal entry to record amortization expense for the first
year.
(b) Show how this patent is reported on the balance sheet at the end of
the first year.

Dr Cr
(a) Amortization Expense 12,000
Patents 12,000
($120,000 ÷ 10)

(b)

Balance sheet (partial)

Intangible Assets
Patents ................................................................ $108,000

2
Ex3:
A manufacturing company has old equipment that cost $50,000. The
equipment has accumulated depreciation of $28,000 and a fair value of
$26,000. The company has decided to sell the equipment.
(a) Journalize the sale of the equipment for $26,000 cash.
(b) Journalize the sale of the equipment for $15,000 cash.

(a) Sale of truck for $26,000 cash:

Dr Cr

Cash 26,000
Accumulated depreciation—equipment 28,000
Equipment 50,000
Gain on disposal of plant asset 4,000

(b) Sale of truck for $15,000 cash:

Dr Cr

Cash 15,000
Accumulated depreciation—equipment 28,000
Loss on disposal of plant asset 7,000
Equipment 50,000

3
Ex 4:
The following expenditures relating to plant assets were made by
Delta Company during 2020.

1. Paid $5,000 of accrued taxes at time plant site was acquired.

2. Paid $200 insurance to cover possible accident loss on new factory machinery

while the machinery was in transit.

3. Paid $850 sales taxes on new delivery truck.

4. Paid $17,500 for parking lots and driveways on new plant site.

5. Paid $250 to have company name painted on new delivery truck.

6. Paid $8,000 for installation of new factory machinery.

7. Paid $900 for one-year accident insurance policy on new delivery truck.

8. Paid $75 motor vehicle license fee on the new truck.

Instructions
Indicate the account title to which each expenditure should be debited.

1. Land
2. Equipment
3. Equipment
4. Land Improvements
5. Equipment
6. Equipment
7. Prepaid Insurance
8. License Expense

4
Ex 5:
Swinton company purchased a new machine on October 1, 2020, at a
cost of $120,000. The company estimated that the machine will have a
salvage value of $12,000. The machine is expected to be used for
10,000 working hours during its 5-year life.

Instructions
Compute the depreciation expense under the following methods for
the year indicated.
(a) Straight-line for 2020.
(b) Units-of-activity for 2020, assuming machine usage was 1,700
hours.
(c) Declining-balance using double the straight-line rate for 2020 and
2021.

(a) Straight-line method:

120,000 – 12,000 = $21,600 per year.

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2020 depreciation expense = $21,600 X 3/12 = $5,400.

(b) Units-of-activity method:

120,000 – 12,000 = $10.80 per hour.

10,000

2020 depreciation expense = 1,700 hours X $10.80 = $18,360.

(c) Declining-balance method:

2020 depreciation expense = $120,000 X 40% X 3/12 = $12,000.

Book value January 1, 2021 = $120,000 – $12,000 = $108,000.
2021 depreciation expense = $108,000 X 40% = $43,200.

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Ex 6:
Presented below are selected transactions at of A company for 2012.
Jan. 1 Retired a piece of machinery that was purchased on January 1,
2002. The machine cost $62,000 on that date. It had a useful life of 10
years with no salvage value.

June 30 Sold a computer that was purchased on January 1, 2009. The

computer cost $40,000. It had a useful life of 5 years with no salvage
value. The computer was sold for $14,000.
Instructions
Journalize all entries required on the above dates.

Dr Cr
Jan. 1 Accumulated depreciation—equipment 62,000
Equipment 62,000

June 30 Depreciation expense 4,000

Accumulated depreciation—equipment 4,000
($40,000 X %20 X 6/12)

30 Cash 14,000
Accumulated depreciation—equipment 28,000

Gain on disposal of plant assets 2,000

Equipment 40,000

* Accumulated depreciation = ($40,000 X 3/5 = $24,000;

$24,000 + $4,000) = 28000

* Gain = [$14,000 – ($40,000 – $28,000)] = 2000

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Ex 7:
A company owns equipment that cost $50,000 that purchased on
January 1, 2009. It has been depreciated using the straight-line method
based on estimated salvage value of $5,000 and an estimated useful life
of 5 years.
Instructions
Prepare company’s journal entries to record the sale of the equipment
in these four independent situations.
(a) Sold for $28,000 on January 1, 2012.
(b) Sold for $28,000 on May 1, 2012.
(c) Sold for $11,000 on January 1, 2012.
(d) Sold for $11,000 on October 1, 2012.

(a) Cash 28,000

Accumulated depreciation—equipment 27,000
[($50,000 – $5,000) X 3/5]
Equipment 50,000
Gain on disposal of plant asset 5,000

(b) Depreciation expense 3,000

[($50,000 – $5,000) X 1/5 X 4/12]
Accumulated depreciation—equipment 3,000

Cash 28,000
Accumulated depreciation—equipment 30,000
($27,000 + $3,000)
Equipment 50,000
Gain on disposal of plant asset 8,000

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(c) Cash 11,000
Accumulated depreciation—equipment 27,000
Loss on disposal of plant assets 12,000
Equipment 50,000

(d) Depreciation expense 6,750

[($50,000 – $5,000) ÷ 5 X 9/12]
Accumulated depreciation—equipment 6,750

Cash 11,000
Accumulated depreciation—equipment 33,750
($27,000 + $6,750)
Loss on Disposal of Plant Assets 5,250
Equipment 50,000

Ex 8: A Company has the following transactions related to intangible

assets in 2012.
1/1/2012 Purchased patent (7-year life) $560,000
1/4/2012 Goodwill purchased (indefinite life) $360,000
1/7/2012 10-year franchise $440,000
Instructions
Prepare the necessary entries to record these intangibles. All costs
incurred were for cash. Make the adjusting entries as of December 31,
2012, recording any necessary amortization and reflecting all balances
accurately as of that date.

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1/1/2012 Patents 560,000
Cash 560,000

1/4/2012 Goodwill 360,000

Cash 360,000
(Part of the entry to record
purchase of another company)

1/7/2012 Franchises 440,000

Cash 440,000

12/31/2012 Amortization expense 102,000

($560,000 ÷ 7) + [($440,000 ÷ 10) X 1/2]
Patents 80,000
Franchises 22,000

Ending balances, 12/31/12:

Patents = $480,000 ($560,000 – $80,000).
Goodwill = $360,000
Franchises = $418,000 ($440,000 – $22,000).