Required information
Exercise 11-2 (Algo) Depreciation methods [LO11-2]
Skip to question
[The following information applies to the questions displayed below.]
On January 1, 2024, the Allegheny Corporation purchased equipment for $116,000. The estimated service life of the equipment is 10 years and the estimated residual value is $6,000. The equipment is expected to produce 260,000 units during its life.
Required:
Calculate depreciation for 2024 and 2025 using each of the following methods.
Exercise 11-2 (Algo) Part 1
- Straight-line.
Required information
Exercise 11-2 (Algo) Depreciation methods [LO11-2]
Skip to question
[The following information applies to the questions displayed below.]
On January 1, 2024, the Allegheny Corporation purchased equipment for $116,000. The estimated service life of the equipment is 10 years and the estimated residual value is $6,000. The equipment is expected to produce 260,000 units during its life.
Required:
Calculate depreciation for 2024 and 2025 using each of the following methods.
Exercise 11-2 (Algo) Part 2
- Double-declining-balance.
Required information
Exercise 11-2 (Algo) Depreciation methods [LO11-2]
Skip to question
[The following information applies to the questions displayed below.]
On January 1, 2024, the Allegheny Corporation purchased equipment for $116,000. The estimated service life of the equipment is 10 years and the estimated residual value is $6,000. The equipment is expected to produce 260,000 units during its life.
Required:
Calculate depreciation for 2024 and 2025 using each of the following methods.
Exercise 11-2 (Algo) Part 3
- Units of production (units produced in 2024, 32,000; units produced in 2025, 27,000).
Note: Round “Depreciation per unit rate” answers to 2 decimal places.
Required information
Exercise 11-3 (Algo) Depreciation methods; partial periods [LO11-2]
Skip to question
[The following information applies to the questions displayed below.]
On October 1, 2024, the Allegheny Corporation purchased equipment for $289,000. The estimated service life of the equipment is 10 years and the estimated residual value is $3,000. The equipment is expected to produce 520,000 units during its life.
Required:
Calculate depreciation for 2024 and 2025 using each of the following methods. Partial-year depreciation is calculated based on the number of months the asset is in service.
Exercise 11-3 (Algo) Part 1
- Straight-line.
Required information
Exercise 11-3 (Algo) Depreciation methods; partial periods [LO11-2]
Skip to question
[The following information applies to the questions displayed below.]
On October 1, 2024, the Allegheny Corporation purchased equipment for $289,000. The estimated service life of the equipment is 10 years and the estimated residual value is $3,000. The equipment is expected to produce 520,000 units during its life.
Required:
Calculate depreciation for 2024 and 2025 using each of the following methods. Partial-year depreciation is calculated based on the number of months the asset is in service.
Exercise 11-3 (Algo) Part 2
- Double-declining-balance.
Required information
Exercise 11-3 (Algo) Depreciation methods; partial periods [LO11-2]
Skip to question
[The following information applies to the questions displayed below.]
On October 1, 2024, the Allegheny Corporation purchased equipment for $289,000. The estimated service life of the equipment is 10 years and the estimated residual value is $3,000. The equipment is expected to produce 520,000 units during its life.
Required:
Calculate depreciation for 2024 and 2025 using each of the following methods. Partial-year depreciation is calculated based on the number of months the asset is in service.
Exercise 11-3 (Algo) Part 3
- Units of production (units produced in 2024, 26,000; units produced in 2025, 41,000).
Note: Round “Depreciation per unit rate” answers to 2 decimal places.
Exercise 11-10 (Algo) Disposal of property, plant, and equipment [LO11-2]
Mercury Incorporated purchased equipment in 2022 at a cost of $294,000. The equipment was expected to produce 530,000 units over the next five years and have a residual value of $29,000. The equipment was sold for $150,000 part way through 2024. Actual production in each year was: 2022 = 76,000 units; 2023 = 121,000 units; 2024 = 61,000 units. Mercury uses units-of-production depreciation, and all depreciation has been recorded through the disposal date.
Required:
- Calculate the gain or loss on the sale.
- Prepare the journal entry to record the sale.
- Assuming that the equipment was instead sold for $179,000, calculate the gain or loss on the sale.
- Prepare the journal entry to record the sale in requirement 3.
Problem 11-2 (Algo) Comprehensive problem; Chapters 10 and 11 [LO11-2, 11-4]
At December 31, 2023, Cord Company’s plant asset and accumulated depreciation and amortization accounts had balances as follows:
| Category | Plant Asset | Accumulated Depreciation and Amortization |
| Land | $ 184,000 | $ — |
| Land improvements | — | — |
| Buildings | 1,950,000 | 427,540 |
| Equipment | 1,575,000 | 326,500 |
| Automobiles and trucks | 181,000 | 109,325 |
| Leasehold improvements | 234,000 | 117,000 |
Depreciation methods and useful lives:
Buildings—150% declining balance; 25 years.
Equipment—Straight line; 10 years.
Automobiles and trucks—200% declining balance; 5 years, all acquired after 2020.
Leasehold improvements—Straight line.
Land improvements—Straight line.
Depreciation is computed to the nearest month and residual values are immaterial. Transactions during 2024 and other information:
- On January 6, 2024, a plant facility consisting of land and building was acquired from King Corporation in exchange for 34,000 shares of Cord’s common stock. On this date, Cord’s stock had a fair value of $50 a share. Current assessed values of land and building for property tax purposes are $210,000 and $630,000, respectively.
- On March 25, 2024, new parking lots, streets, and sidewalks at the acquired plant facility were completed at a total cost of $246,000. These expenditures had an estimated useful life of 12 years.
- The leasehold improvements were completed on December 31, 2020, and had an estimated useful life of eight years. The related lease, which would terminate on December 31, 2026, was renewable for an additional four-year term. On April 30, 2024, Cord exercised the renewal option.
- On July 1, 2024, equipment was purchased at a total invoice cost of $334,000. Additional costs of $10,000 for delivery and $59,000 for installation were incurred.
- On September 30, 2024, Cord purchased a new automobile for $13,400.
- On September 30, 2024, a truck with a cost of $24,900 and a book value of $10,800 on date of sale was sold for $12,400. Depreciation for the nine months ended September 30, 2024, was $2,430.
- On December 20, 2024, equipment with a cost of $21,500 and a book value of $3,200 at date of disposition was scrapped without cash recovery.
Required:
- Prepare a schedule analyzing the changes in each of the plant asset accounts during 2024. Do not analyze changes in accumulated depreciation and amortization.
- For each asset category, prepare a schedule showing depreciation or amortization expense for the year ended December 31, 2024.
Explanation
- Plant facility acquired from King 1/6/2024—allocation to Land and Building:
Fair value—34,000 shares of Cord common stock at $50 per share fair value = $1,700,000.
Allocation in proportion to appraised values at date of exchange:
| Amount | % of Total | |
| Land | $ 210,000 | 25 |
| Building | 630,000 | 75 |
| $ 840,000 | 100 |
| Land | $ 1,700,000 × 25% = | $ 425,000 |
| Building | $ 1,700,000 × 75% = | 1,275,000 |
| $ 1,700,000 |
Equipment purchased 7/1/2024:
| Invoice cost | $ 334,000 |
| Delivery cost | 10,000 |
| Installation cost | 59,000 |
| Total acquisition cost | $ 403,000 |
| CORD COMPANY | ||
| Depreciation and Amortization Expense | ||
| For the Year Ended December 31, 2024 | ||
| Land Improvements: | ||
| Cost | $ 246,000 | |
| Straight-line rate (1 ÷ 12 years) | × 8 13/8 13 % | |
| Annual depreciation | 20,500 | |
| Depreciation on land improvements for 2024: (3/25 to 12/31/2024) | × 34/34 | $ 15,375 |
| Buildings: | ||
| Book value, 1/1/2024 ($1,950,000 − $427,540) | $ 1,522,460 | |
| Building acquired 1/6/2024 | 1,275,000 | |
| Total amount subject to depreciation | 2,797,460 | |
| 150% declining balance rate: (1 ÷ 25 years = 4% × 1.5) | × 6% | $ 167,848 |
| Equipment: | ||
| Balance, 1/1/2024 | $ 1,575,000 | |
| Straight-line rate (1 ÷ 10 years) | × 10% | 157,500 |
| Purchased on 7/1/2024 | 403,000 | |
| Depreciation for one-half year | × 5% | 20,150 |
| Depreciation on equipment for 2024 | $ 177,650 | |
| Automobiles and trucks: | ||
| Book value, 1/1/2024 ($181,000 − $109,325) | $ 71,675 | |
| Deduct 1/1/2024 book value of truck sold on 9/30 ($10,800 + $2,430 depreciation taken for 9 months) | (13,230) | |
| Amount subject to depreciation at 1/1/2024 | 58,445 | |
| 200% declining balance rate: (1 ÷ 5 years = 20% × 2) | × 40% | 23,378 |
| Automobile purchased 9/30/2024 | 13,400 | |
| Depreciation for 2024 (40% × 3 ÷ 12) | × 10% | 1,340 |
| Truck sold on 9/30/2024 – depreciation (given) | 2,430 | |
| Depreciation on automobiles and trucks | $ 27,148 | |
| Leasehold improvements: | ||
| Book value, 1/1/2024 ($234,000 − $117,000) | $ 117,000 | |
| Amortization period (1/1/2024 to 12/31/2028) | ÷ 5 years | |
| Amortization of leasehold improvements for 2024 | $ 23,400 | |
| Total depreciation and amortization expense for 2024 | $ 411,421 | |
- Note: the amortization period was originally over the shorter of the asset life (8 years) or the lease (6 years). Three years have passed. The lease will end in 2030 but the life will end in 2028. The new amortization period is thus 5 years.
Explanation
- Plant facility acquired from King 1/6/2024—allocation to Land and Building:
Fair value—34,000 shares of Cord common stock at $50 per share fair value = $1,700,000.
Allocation in proportion to appraised values at date of exchange:
| Amount | % of Total | |
| Land | $ 210,000 | 25 |
| Building | 630,000 | 75 |
| $ 840,000 | 100 |
| Land | $ 1,700,000 × 25% = | $ 425,000 |
| Building | $ 1,700,000 × 75% = | 1,275,000 |
| $ 1,700,000 |
Equipment purchased 7/1/2024:
| Invoice cost | $ 334,000 |
| Delivery cost | 10,000 |
| Installation cost | 59,000 |
| Total acquisition cost | $ 403,000 |
| CORD COMPANY | ||
| Depreciation and Amortization Expense | ||
| For the Year Ended December 31, 2024 | ||
| Land Improvements: | ||
| Cost | $ 246,000 | |
| Straight-line rate (1 ÷ 12 years) | × 8 13/8 13 % | |
| Annual depreciation | 20,500 | |
| Depreciation on land improvements for 2024: (3/25 to 12/31/2024) | × 34/34 | $ 15,375 |
| Buildings: | ||
| Book value, 1/1/2024 ($1,950,000 − $427,540) | $ 1,522,460 | |
| Building acquired 1/6/2024 | 1,275,000 | |
| Total amount subject to depreciation | 2,797,460 | |
| 150% declining balance rate: (1 ÷ 25 years = 4% × 1.5) | × 6% | $ 167,848 |
| Equipment: | ||
| Balance, 1/1/2024 | $ 1,575,000 | |
| Straight-line rate (1 ÷ 10 years) | × 10% | 157,500 |
| Purchased on 7/1/2024 | 403,000 | |
| Depreciation for one-half year | × 5% | 20,150 |
| Depreciation on equipment for 2024 | $ 177,650 | |
| Automobiles and trucks: | ||
| Book value, 1/1/2024 ($181,000 − $109,325) | $ 71,675 | |
| Deduct 1/1/2024 book value of truck sold on 9/30 ($10,800 + $2,430 depreciation taken for 9 months) | (13,230) | |
| Amount subject to depreciation at 1/1/2024 | 58,445 | |
| 200% declining balance rate: (1 ÷ 5 years = 20% × 2) | × 40% | 23,378 |
| Automobile purchased 9/30/2024 | 13,400 | |
| Depreciation for 2024 (40% × 3 ÷ 12) | × 10% | 1,340 |
| Truck sold on 9/30/2024 – depreciation (given) | 2,430 | |
| Depreciation on automobiles and trucks | $ 27,148 | |
| Leasehold improvements: | ||
| Book value, 1/1/2024 ($234,000 − $117,000) | $ 117,000 | |
| Amortization period (1/1/2024 to 12/31/2028) | ÷ 5 years | |
| Amortization of leasehold improvements for 2024 | $ 23,400 | |
| Total depreciation and amortization expense for 2024 | $ 411,421 | |
- Note: the amortization period was originally over the shorter of the asset life (8 years) or the lease (6 years). Three years have passed. The lease will end in 2030 but the life will end in 2028. The new amortization period is thus 5 years.