Classify each of the following as Aordinary maintenance and repairs, B asset improvements, or Cextraordinary repairs.
Resurfacing a pool in an apartment building. _______
Installing a new air conditioner in an old building. _______
Exterior and interior painting. _______
Fixing damage due to a car accident. _______
PROBLEM #2 14 points
Equipment acquired at a cost of $126,000 and has a book value of $42,000. Journalize the disposal of equipment under the following independentassumptions. Identify each assumption by letter.
(a)
The equipment had no market value and was discarded.
(b)
The equipment is sold for $53,000.
(c)
The equipment is sold for $27,000.
(d)
The equipment is traded-in for a similar asset. The list price of the new equipment is $63,000. The exchange has no commercial substance.
Journal
Date
Description
Debit
Credit
PROBLEM #3 22 points
An asset was purchased January 1, 20XX and the fiscal year ends December 31st. Calculate depreciation expense, accumulated depreciation, and net book value under the straight-line and the double declining balance methods. Round your answers to the nearest whole dollar.
Asset Cost = $200,000 Salvage Value = $25,000 Estimated Life = 8 Years
Straight-line method:
Year
Depreciation Expense
Accumulated Depreciation
Net Book Value
20XX
20X1
20X2
20X3
20X4
20X5
20X6
20X7
Double Declining Balance method:
Year
Depreciation Expense
Accumulated Depreciation
Net Book Value
20XX
20X1
20X2
20X3
20X4
20X5
20X6
20X7
The Correct Answer and Explanation is :
Here are the solutions for your McGraw Hill Connect Chapter 10 assignment:
Problem #1: Classify the following items
- Resurfacing a pool in an apartment building: B) Asset improvements
This is considered an improvement to the property, increasing its value or extending its useful life. - Installing a new air conditioner in an old building: B) Asset improvements
A new air conditioner in an old building improves the overall value of the building and its amenities. - Exterior and interior painting: A) Ordinary maintenance and repairs
Painting is generally considered a regular maintenance task to keep the building in good condition, not a value-enhancing improvement. - Fixing damage due to a car accident: C) Extraordinary repairs
This is an extraordinary repair as it involves restoring the asset to its original condition after damage due to an unexpected event.
Problem #2: Journal Entries for Equipment Disposal
- Assumption (a): Equipment had no market value and was discarded.
Date | Description | Debit | Credit
---------------------------------------------------------------------------
04/28/2013 | Loss on Disposal of Equipment | 42,000 |
| Accumulated Depreciation | 84,000 |
| Equipment | | 126,000Explanation: The asset is discarded with no market value. The entire book value is written off, and the accumulated depreciation is removed from the books.
- Assumption (b): Equipment is sold for $53,000.
Date | Description | Debit | Credit
---------------------------------------------------------------------------
04/28/2013 | Cash | 53,000 |
| Accumulated Depreciation | 84,000 |
| Equipment | | 126,000
| Gain on Disposal of Equipment | 11,000 |Explanation: The equipment is sold for more than its book value, so the difference is recorded as a gain.
- Assumption (c): Equipment is sold for $27,000.
Date | Description | Debit | Credit
---------------------------------------------------------------------------
04/28/2013 | Cash | 27,000 |
| Accumulated Depreciation | 84,000 |
| Equipment | | 126,000
| Loss on Disposal of Equipment | 15,000 |Explanation: The equipment is sold for less than its book value, so the difference is recorded as a loss.
- Assumption (d): Equipment is traded-in for a similar asset.
Date | Description | Debit | Credit
---------------------------------------------------------------------------
04/28/2013 | Equipment (New Asset) | 63,000 |
| Accumulated Depreciation | 84,000 |
| Equipment | | 126,000
| No Gain or Loss (Exchange with no commercial substance) |Explanation: Since the exchange has no commercial substance, no gain or loss is recognized. The new asset is recorded at the list price of $63,000.
Problem #3: Depreciation Calculations
Given:
- Asset Cost = $200,000
- Salvage Value = $25,000
- Estimated Life = 8 years
Straight-Line Method:
Depreciation Expense = (Cost – Salvage Value) / Useful Life
Depreciation Expense = ($200,000 – $25,000) / 8 = $21,875 per year.
| Year | Depreciation Expense | Accumulated Depreciation | Net Book Value |
|---|---|---|---|
| 20XX | $21,875 | $21,875 | $178,125 |
| 20X1 | $21,875 | $43,750 | $156,250 |
| 20X2 | $21,875 | $65,625 | $134,375 |
| 20X3 | $21,875 | $87,500 | $112,500 |
| 20X4 | $21,875 | $109,375 | $90,625 |
| 20X5 | $21,875 | $131,250 | $68,750 |
| 20X6 | $21,875 | $153,125 | $46,875 |
| 20X7 | $21,875 | $175,000 | $25,000 |
Double Declining Balance Method:
Depreciation Expense = 2 x (1 / Useful Life) x Book Value at Beginning of Year
| Year | Depreciation Expense | Accumulated Depreciation | Net Book Value |
|---|---|---|---|
| 20XX | $50,000 | $50,000 | $150,000 |
| 20X1 | $37,500 | $87,500 | $112,500 |
| 20X2 | $28,125 | $115,625 | $84,375 |
| 20X3 | $21,094 | $136,719 | $63,281 |
| 20X4 | $15,813 | $152,531 | $47,469 |
| 20X5 | $11,805 | $164,336 | $35,664 |
| 20X6 | $8,298 | $172,634 | $27,366 |
| 20X7 | $5,586 | $178,220 | $21,780 |
These are the detailed answers for the problems you provided. Let me know if you need any further clarification or if you’d like to see the calculations graphically!