Property, Plant, and Equipment Practice Problems
Demonstration Problem
Solution to demonstration problems
Solution to demonstration problem A
|
CLEVELAND COMPANY |
||
|
Schedule of Cost of 1,200 Residential Lots |
||
|
Costs incurred: |
||
|
Cash paid |
$486,000 |
|
|
Mortgage note assumed |
240,000 |
|
|
Interest accrued on mortgage note assumed |
6,000 |
|
|
Broker and legal services |
55,200 |
|
|
Clearing and leveling costs incurred |
21,600 |
|
|
Tearing down costs |
9,600 |
$818,400 |
|
Less proceeds from sale of: |
||
|
Crops |
$ 14,400 |
|
|
House |
5,040 |
|
|
Salvaged materials |
10,080 |
29,520 |
|
Net cost of land to be subdivided into1,200 lots |
$788,880 |
|
Solution to demonstration problem B
a. Straight-line
method:
\(\mathrm{2010: }\dfrac{(\text { USD } 45,000-\text { USD }
5,000)}{10}=\text{USD 4,000}\)
\(\mathrm{2011:} \dfrac{(\text { USD } 45,000-\text {
USD5 }, 000)}{10}=\text{USD 4,000}\)
b. Units-of-production method:
\(\text{2010: } \dfrac{(\text {USD 45,000 - USD 5,000)}}{1,000,000}\times 90,000=\text{USD 3,600}\)
\(\text{2011: } \dfrac{\text{(U SD 45,000 - USD
5,000)}}{1,000,000} \times 125,000=\text{USD 5,000} \)
c. Double-declining-balance method:
\(\text { 2010: USD } 45,000 \times 20 \text { per cent }=\text { USD } 9,000\)
\(\text { 2011: }(\text { USD } 45,000-\text { USD } 9,000) \times 20 \text {
per cent }=U S D 7,200\)
d. Straight-line: \(\dfrac{(\mathrm{USD} \, 45,000-\mathrm{USD} \, 5,000)}{10} \times \dfrac{1}{4}=\mathrm{USD} \, 1,000\)
Units-of-production: \((\mathrm{USD}\, 45,000-\mathrm{USD} \, 9,000-\mathrm{USD} \, 7,000) \times 0.2 \times \dfrac{1}{4}=\mathrm{USD} \, 1,440\)
Double-declining-balance: \((\mathrm{USD} \, 45,000-\mathrm{USD} \, 9,000-\mathrm{USD} \, 7,000) \times 0.2 \times \dfrac{1}{4}=\mathrm{USD} \, 1,440\)