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Chapter 9: 6RQ (page 488)
What is the difference between capital expenditure and a revenue expenditure? Give an example of each.
The capital expenditure increases the capacity but revenue expenditure will not increase any such capacity of the assets of the company.
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2. On January 1, Alamo Cranes purchased a crane for \(140,000. Alamo expects the crane to remain useful for six years (1,000,000 lifts) and to have a residual value of \)2,000. The company expects the crane to be used for 80,000 lifts the first year. Compute the first-year depreciation expense on the crane using the following methods: a. Straight-line b. Units-of-production (Round depreciation per unit to two decimals. Round depreciation expense to the nearest whole dollar.) Compute the first-year and second-year depreciation expense on the crane using the following method: c. Double-declining-balance (Round depreciation expense to the nearest whole dollar.)
This problem continues the Canyon Canoe Company situation from Chapter 8. Amber and Zack Wilson are continuing to review business practices. Currently, they are reviewing the company鈥檚 property, plant, and equipment and have gathered the following information:
Asset | Acquisition Date | Cost | Estimated Life | Estimated Residual value | Depreciation Method | Monthly Depreciation Expense |
Canoes | Nov. 3, 2018 | \(4,800 | 4 Years | \) 0 | SL | $100 |
Land | Dec 1, 2018 | 85,000 | n/a | |||
Building | Dec 1, 2018 | 35,000 | 5 Years | 5,000 | SL | 500 |
Canoes | Dec 2, 2018 | 7,200 | 4 Years | 0 | SL | 150 |
Computer | Mar. 2, 2019 | 3,600 | 3 Years | 300 | DDB | |
Office Furniture | MAR. 3, 2019 | 3,000 | 5 Years | 600 | SL |
*SL = Straight@line; DDB = Double@declining@balance
Requirements
1. Calculate the amount of monthly depreciation expense for the computer and office furniture for 2019.
2. For each asset, determine the book value as of December 31, 2018. Then, calculate the depreciation expense for the first six months of 2019 and the book value as of June 30, 2019.
3. Prepare a partial balance sheet showing Property, Plant, and Equipment as of June 30, 2019.
Accounting for depletion of natural resources Ajax Petroleum holds huge reserves of oil assets. Assume that at the end of 2018, Ajax Petroleum鈥檚 cost of oil reserves totaled $27,000,000, representing 3,000,000 barrels of oil.
Requirements
If a business changes the estimated useful life or estimated residual value of a plant asset, what must the business do in regard to depreciation expense?
Computing depreciation鈥攖hree methods Crispy Fried Chicken bought equipment on January 2, 2018, for \(33,000. The equipment was expected to remain in service for four years and to operate for 6,750 hours. At the end of the equipment鈥檚 useful life, Crispy鈥檚 estimates that its residual value will be \)6,000. The equipment operated for 675 hours the first year, 2,025 hours the second year, 2,700 hours the third year, and 1,350 hours the fourth year.
Requirements
1. Prepare a schedule of depreciation expense, accumulated depreciation, and book value per year for the equipment under the three depreciation methods: straight-line, unit鈥檚 of-production, and double-declining-balance. Show your computations. Note: Three depreciation schedules must be prepared.
2. Which method tracks the wear and tear on the equipment most closely?
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