Intermediate Accounting I 中级会计Ch 10-3 HW Solutions

Intermediate A ccounting IChapter 10-2 HW SolutionsEXERCISE 10-21 (20–25 minutes)(a) Any addition to plant assets is capitalized because a new asset has been created. This additionincreases the service potential of the plant.(b) Expenditures that do not increase the service benefits of the asset are expensed. Painting costs areconsidered ordinary repairs because they maintain the existing condition of the asset or restore it to normal operating efficiency.(c) The approach to follow is to remove the book value of the old roof and substitute the cost of the newroof. It is assumed that the expenditure increases the future service potential of the asset.(d) Conceptually, the book value of the old electrical system should be removed. However, practically it isoften difficult if not impossible to determine this amount. In this case, one of two approaches is followed.One approach is to capitalize the replacement on the theory that sufficient depreciation was taken on the old system to reduce the carrying amount to almost zero. A second approach is to debit Accumulated Depreciation on the theory that the replacement extends the useful life of the asset and thereby recaptures some or all of the past depreciation. In our present situation, the problem specifically states that the useful life is not extended and therefore debiting Accumulated Depreciation is inappropriate. Thus, this expenditure should be added to the cost of the plant facility.(e) See discussion in (d) above. In this case, because the useful life of the asset has increased, a debit toAccumulated Depreciation would appear to be the most appropriate.EXERCISE 10-24 (20–25 minutes)(a) Depreciation Expense (8/12 X $72,000)..........................................48,000Accumulated Depreciation—Machine..................................48,000 Loss on Disposal of Machine($1,300,000 – $408,000) – $630,000 ...........................................262,000Cash .................................................................................................630,000Accumulated Depreciation—Machine($360,000 + $48,000)....................................................................408,000Machine ................................................................................1,300,000(b) Depreciation Expense (3/12 X $72,000)..........................................18,000Accumulated Depreciation—Machine..................................18,000 Cash ..............................................................................................1,040,000Accumulated Depreciation—Machine($360,000 + $18,000)....................................................................378,000Machine ................................................................................1,300,000Gain on Disposal of Machine[$1,040,000 – ($1,300,000 – $378,000)] .............................118,000(c) Depreciation Expense (7/12 X $72,000)..........................................42,000Accumulated Depreciation—Machine..................................42,000 Contribution Expense .......................................................................1,100,000Accumulated Depreciation—Machine($360,000 + $42,000)....................................................................402,000Machine ................................................................................1,300,000Gain on Disposal of Machine ...............................................202,000* *$1,100,000 – $1,300,000 + $402,000(a) Exchange has commercial substance:Hyde, Inc.’s BooksAsset B ................................................................................................75,000Accumulated Depreciation—Asset A .................................................40,000Asset A ....................................................................................96,000Gain on Disposal of Plant Assets($60,000 – [$96,000 – $40,000]) .........................................4,000Cash ........................................................................................15,000Wiggins, Inc.’s BooksCash ....................................................................................................15,000Asset A ................................................................................................60,000Accumulated Depreciation—Asset B .................................................47,000Asset B ....................................................................................110,000Gain on Disposal of Plant Assets($75,000 – [$110,000 – $47,000]) .......................................12,000 (b) Exchange lacks commercial substance:Hyde, Inc.’s BooksAsset B ($75,000 – $4,000) ................................................................71,000*Accumulated Depreciation—Asset A .................................................40,000Asset A ....................................................................................96,000Cash ........................................................................................15,000 *Computation of gain deferred:Fair value $60,000Book value (56,000)Gain deferred $ 4,000Wiggins, Inc.’s BooksCash 15,000Asset A .............................................................................................. 50,400**Accumulated Depreciation—Asset B................................................ 47,000Asset B .................................................................................... 110,000Gain on Disposal of Plant Assets ........................................... 2,400* Computation of total gain:Fair value of Asset B $75,000Book value of Asset B (63,000)Total gain $12,000*Gain recognized = $15,000X $12,000 = $2,400**Fair value of asset acquired $60,000 Less: Gain deferred ($12,000 – $2,400) 9,600 Basis of Asset A $50,400ORBook value of Asset B $63,000 Portion of book value sold (12,600)$50,400。