CHAPTER 10 SOLUTIONS TO B EXERCISES E101B (15–20 minutes) Item (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) (n) (o) (p) Land Land Improvements $357,500 $ 10,400 9,100 325,000 11,700 14,300 (6,500) 18,200 Building Other Accounts ($357,500) Notes Payable 7,800 (1,300) 28,600 $ 5,200 24,700 16,900 3,900 E102B (10–15 minutes) The allocation of costs would be as follows: Land Razing costs Salvage Legal fees Survey Plans Title insurance Liability insurance Construction Interest Land $80,000 8,400 (1,260) 370 300 $87,810 Building $ 440 13,600 180 548,000 34,000 $596,220 Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 101 E103B (10–15 minutes) Truck #1 34,750 Cash Truck #2 37,408* Discount on Notes Payable 2,542 Cash Notes Payable *PV of $35,000 @ 8% for 1 year = $35,000 X .92593 = $32,408 $32,408 + $5,000.00 = $37,408 Truck #3 38,000 Cost of Goods Sold 30,000 Inventory Sales 34,750 5,000 35,000 30,000 38,000 [Note: The selling (retail) price of the computer system appears to be a better gauge of the fair value of the consideration given than is the list price of the truck as a gauge of the fair value of the consideration received (truck). Vehicles are very often sold at a price below the list price.] Truck #4 26,000 Common Stock Paidin Capital in Excess of Par (1,000 shares X $26 = $26,000) 10,000 16,000 102 Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) E104B (20–25 minutes) Purchase Cash paid for equipment, including sales tax of $31,000 Freight and insurance while in transit Cost of moving equipment into place at factory Cost to hire technicians to test equipment Special electrical wiring required for new equipment Total cost $522,500 7,000 2,850 10,000 3,200 $545,550 The insurance premium paid during the first year of operation on this equip ment should be reported as insurance expense, and not be capitalized. Repair cost incurred in the first year of operations related to this equipment should be reported as repair and maintenance expense, and not be capitalized. Both these costs relate to periods subsequent to purchase Construction Material and purchased parts ($100,000 X 0.98) Labor costs Overhead costs Cost of installing equipment Total cost $ 98,000 76,700 28,000 6,500 $209,200 Note that the cost of material and purchased parts is reduced by the amount of cash discount not taken because the equipment should be reported at its cash equivalent price The imputed interest on funds used during construction related to stock financing should not be capitalized or expensed. This item is an opportunity cost that is not reported. Profit on selfconstruction should not be reported. Profit should only be reported when the asset is sold Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 103 E105B (30–40 minutes) Land Attorney fee for title search Architect’s fees Assessment by city Cash paid for land and barn Excavation before construction Freight on equipment Hauling charges—equipment Installation—equipment Interest on loans during construction New building Removal of barn ($10,000 – $500) Storage charges caused by early delivery $ 750 Landscaping Equipment purchased 9,200 Buildings M & E Other $ 12,500 18,600 220,000 12,000 $ 860 $ 700 —Misc. expense (Loss) 1,500 —Misc. expense (Loss) 1,600 $3,800 —Misc. expense (Discount Lost) 2,600 16,000 721,600 9,500 $258,050 $762,100 78,400 $81,860 E106B (15–20 minutes) Land 262,500 Buildings 218,750 Equipment 218,750 Cash $700,000 X $300,000 $800,000 = $262,500 Land $700,000 X $250,000 $800,000 = $218,750 Buildings $700,000 X $250,000 $800,000 = $218,750 Equipment 700,000 104 Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) E106B (Continued) Store Equipment 50,000 Cash Note Payable 10,000 40,000 Office Equipment 49,500 Accounts Payable ($50,000 X 0.99) 49,500 Land 120,000 Contribution Revenue 120,000 Warehouse 750,000 Cash 750,000 E107B (20–25 minutes) (a) Avoidable Interest WeightedAverage Accumulated Expenditures $1,000,000 800,000 X Interest Rate = Avoidable Interest 15% $150,000 10.42% 83,360 $233,360 Weightedaverage interest rate computation 10% shortterm loan 11% longterm loan Principal $ 700,000 500,000 $1,200,000 Interest $ 70,000 55,000 $125,000 Total interest $125,000 = = 10.42% Total principal $1,200,000 Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 105 E107B (Continued) (b) Actual Interest Construction loan Shortterm loan Longterm loan $1,000,000 X 15% = $700,000 X 10% = $500,000 X 11% = Total $150,000 70,000 55,000 $275,000 Because avoidable interest in lower than actual interest, use avoidable interest Cost Interest capitalized Total cost Depreciation expense = $2,600,000 233,360 $2,833,360 $2,833,360 – $150,000 = $89,445 30 years E108B (20–25 minutes) (a) Computation of WeightedAverage Accumulated Expenditures Expenditures Date Amount June 1 July 1 September 1 December 1 X $ 400,000 600,000 1,200,000 600,000 $2,800,000 Capitalization Period = WeightedAverage Accumulated Expenditures 7/12 6/12 4/12 1/12 $ 233,333 300,000 400,000 50,000 $ 983,333 Computation of Avoidable Interest WeightedAverage Accumulated Expenditures X $983,333 Interest Rate 10% (Construction loan) = Avoidable Interest $98,333 Computation of Actual Interest Actual interest $1,000,000 X 10% $10,000,000 X 8% $2,500,000 X 10% $100,000 800,000 250,000 $1,150,000 Note: Use avoidable interest for capitalization purposes because it is lower than actual interest 106 Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) E108B (Continued) (b) Building 98,333 Interest Expense* 1,051,667 Cash *Actual interest for year Less: Amount capitalized Interest expense debit 1,150,000 $1,150,000 (98,333) $1,051,667 E109B (20–25 minutes) (a) Computation of WeightedAverage Accumulated Expenditures Expenditures Date Amount July 31 November 1 X $300,000 150,000 Interest revenue Capitalization Period = WeightedAverage Accumulated Expenditures 3/12 $75,000 0 $75,000 $150,000 X 8% X 3/12 = $3,000 Avoidable interest WeightedAverage Accumulated Expenditures X $75,000 Total interest cost $450,000 X 10% X 5/12 = $45,000 X 6% = Interest capitalized Interest Rate 10% = Avoidable Interest $7,500 $18,750 2,700 $21,450 $ 7,500 Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 107 E109B (Continued) (b) 7/31 11/1 Cash 450,000 Note Payable 450,000 Machine 300,000 Trading Securities 150,000 Cash 450,000 Cash 153,000 Interest Revenue ($150,000 X 8% X 3/12) Trading Securities 3,000 150,000 Machine 150,000 Cash 150,000 12/31 Machine 7,500 Interest Expense ($21,450 – $7,500) 13,950 Cash ($45,000 X 6%) Interest Payable ($450,000 X 10% X 5/12) 2,700 18,750 E1010B (20–25 minutes) Situation I. $96,000—The requirement is the amount Navarone should report as capitalized interest at December 31, 2014. The amount of interest eligible for capitalization is WeightedAverage Accumulated Expenditures X Interest Rate = Avoidable Interest Since Navarone has outstanding debt incurred specifically for the construction project, in an amount greater than the weightedaverage accumulated expenditures of $1,200,000, the interest rate of 8% is used for capitalization purposes. Therefore, the avoidable interest is $96,000, which is less than the actual interest $1,200,000 X 0.08 = $96,000 Finally, per GAAP (FASB ASC 835203010), the interest earned of $175,000 is irrelevant to the question addressed in this problem because such interest earned on the unexpended portion of the loan is not to be offset against the amount eligible for capitalization 108 Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) E1010B (Continued) Situation II. $44,500—The requirement is total interest costs to be capitalized GAAP identifies assets which qualify for interest capitalization: assets constructed for an enterprise’s own use and assets intended for sale or lease that are produced as discrete projects. Inventories that are routinely produced in large quantities on a repetitive basis not qualify for interest capitalization. Therefore, only $41,000 and $3,500 are capitalized Situation III. $75,000—The requirement is to determine the amount of interest to be capitalized on the financial statements at June 30, 2015 The GAAP requirements are met: (1) expenditures for the asset have been made, (2) activities that are necessary to get the asset ready for its intended use are in progress, and (3) interest cost is being incurred. The amount to be capitalized is determined by applying an interest rate to the weightedaverage amount of accumulated expenditures for the asset during the period Because the $1,500,000 of expenditures incurred for the year ended June 30, 2015, were incurred evenly throughout the year, the weightedaverage amount of expenditures for the year is $750,000, ($1,500,000 ÷ 2). Therefore, the amount of interest to be capitalized is $75,000 ($750,000 X 10%). In any period the total amount of interest cost to be capitalized shall not exceed the total amount of interest cost incurred by the enterprise. (Total interest is $500,000). Finally, the interest earned of $121,000 is irrelevant to the question addressed in this problem because such interest earned on the unexpended portion of the loan is not to be offset against the amount eligible for capitalization E1011B (10–15 minutes) (a) Equipment 12,000 Accounts Payable 12,000 Accounts Payable 12,000 Equipment ($12,000 X .02) Cash 240 11,760 Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 109 E1011B (Continued) (b) Equipment (new) 11,880* Loss on Disposal of Equipment 1,920** Accumulated Depreciation 7,200 Accounts Payable Equipment (old) *Cost ($11,400 + $480) **Cost Accumulated depreciation Book value Fair market value Loss (c) 11,400 9,600 $11,880 $ 9,600 7,200 2,400 480 $ 1,920 Accounts Payable 11,400 Cash 11,400 Equipment ($12,960 X .92593) 12,000 Discount on Note Payable 960 Note Payable 12,960 Interest Expense 960 Note Payable 12,960 Discount on Note Payable Cash 960 12,960 1010 Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) E1012B (15–20 minutes) (a) Land 173,000 Contribution Revenue 173,000 (b) Land 150,000 Buildings 350,000 Common Stock ($10 X 10,000) Additional Paidin Capital* 100,000 400,000 *Since the market value of the stock is not determinable, the market value of the properly is used as the basis for recording the asset and issuance of the stock (c) Machinery 47,250 Materials Direct Labor Factory Overhead [(25% X $20,000) + $3,000 + $1,250] 18,000 20,000 9,250 E1013B (20–25 minutes) Land 175,000 Building 525,000 Machinery and Equipment 350,000 Common Stock (12,500 X $10) Paidin Capital in Excess of Par ($1,050,000 – $125,000) (The cost of the plant assets is $1,050,000, or 12,500 X $84. The cost is allocated in proportion to the appraised value: 1/6 to Land, 1/2 to Building, and 1/3 to Machinery and Equipment.) 125,000 925,000 Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 1011 E1013B (Continued) Buildings ($73,000 + $184,000) 257,000 Machinery and Equipment 17,000 Land Improvements 88,000 Land 19,000 Cash Machinery and Equipment 172,900 Cash ($8,000 + $164,900, which is 97% of $170,000.) 381,000 172,900 E1014B (15–20 minutes) (a) Equipment 399,271* Discount on Notes Payable 100,729 Notes Payable 500,000 *PV of $100,000 annuity @ 8% for 5 years ($100,000 X 3.99271) = $399,271 (b) Interest Expense 31,942* Notes Payable 100,000 Discount on Notes Payable Cash 31,942 100,000 *(8% X $399,471) Year 1/2/14 12/31/14 12/31/15 Note Payment $100,000 100,000 8% Interest $31,942 26,497 Reduction of Principal Balance $68,058 73,503 $399,271 331,213 257,710 1012 Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) E1014B (Continued) (c) (d) Interest Expense 26,497 Notes Payable 100,000 Discount on Notes Payable Cash 26,497 100,000 Depreciation Expense 39,927* Accumulated Depreciation 39,927 *($399,271 ÷ 10) E1015B (15–20 minutes) (a) Equipment 64,927* Discount on Notes Payable 10,073 Cash Notes Payable *PV of $10,000 annuity @ 8% for 5 years ($10,000 X 3.99271) Down payment Capitalized value of equipment (b) $39,927 25,000 $64,927 Notes Payable 10,000 Interest Expense (see schedule) 3,194 Cash Discount on Notes Payable Year 12/31/13 12/31/14 12/31/15 25,000 50,000 Note Payment 8% Interest Reduction of Principal $10,000 10,000 $3,194 2,650 $6,806 7,350 10,000 3,194 Balance $39,927 33,121 25,771 Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 1013 E1015B (Continued) (c) Notes Payable 10,000 Interest Expense 2,650 Cash Discount on Notes Payable 10,000 2,650 E1016B (25–35 minutes) OGDEN INDUSTRIES Acquisition of Assets 1 and 2 Use appraised values to breakout the lumpsum purchase Description Machinery Office Furniture Appraisal $160,000 40,000 $200,000 Percentage 160/200 40/200 LumpSum $186,000 186,000 Value on Books $148,800 37,200 Machinery 148,800 Office Furniture 37,200 Cash 186,000 Acquisition of Asset 3 Use the cash price as a basis for recording the asset with a discount recorded on the note Machinery 91,000 Discount on Notes Payable ($100,000 – $91,000) 9,000 Cash Notes Payable 25,000 75,000 1014 Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) E1016B (Continued) Acquisition of Asset 4 Since the exchange lacks commercial substance, a gain will be recognized in the proportion of cash received ($20,000/$96,000) times the $6,000 gain (FMV of $96,000 minus BV of $90,000). The gain recognized will then be $1,250 with $4,750 of it being unrecognized and used to reduce the basis of the asset acquired Machinery ($76,000 – $4,750) 71,250 Accumulated Depreciation 60,000 Cash 20,000 Machinery Gain on Disposal of Machinery 150,000 1,250 Acquisition of Asset 5 In this case, the Machinery should be placed on the books at the fair market value of the stock. The difference between the stock’s par value and its fair value should be credited to Paidin Capital in Excess of Par Machinery (1,000 X $7 per share) 7,000 Common Stock Paidin Capital in Excess of Par 1,000 6,000* *($7 – $1) X 1,000 Shares Schedule of WeightedAverage Accumulated Expenditures Date March 1 March 1 May 1 June 1 September 1 Amount $ 120,000 200,000 300,000 100,000 400,000 $1,120,000 Current Year Capitalization Period 6/12 6/12 4/12 3/12 0/12 WeightedAverage Accumulated Expenditures $ 60,000 100,000 100,000 25,000 0 $285,000 Note that the capitalization is only 9 months in this exercise Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 1015 E1016B (Continued) Avoidable Interest WeightedAverage Accumulated Expenditures $285,000 Interest Rate X 10% Avoidable Interest = $28,500 Since the weightedaverage expenditures are less than the amount of specific borrowing, the specific borrowing rate is used Land Cost Building Cost $ 120,000 $1,028,500 ($1,000,000 + $28,500) Land 120,000 Building 1,028,500 Cash Interest Expense 1,120,000 28,500 E1017B (10–15 minutes) Phillips Corporation Machine ($680 + $170) Accumulated Depreciation Loss on Disposal of Machine Machine (old) Cash Computation of loss: Book value of old machine ($580 – $280) Fair value of old machine Loss on exchange 850 280 130 580 680 $300 (170) $130 Note to instructor: Cash exchange (Boot) exceeds 25% of the exchange value, thus all gains and losses on this exchange would be recognized, as a monetary transaction 1016 Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) E1017B (15–20 minutes) Luzinski Business Machine Company Cash Inventory (old) Cost of Goods Sold Sales Inventory (new) 680 170 540 850 540 E1018B (20–25 minutes) (a) Exchange has commercial substance: Depreciation Expense 1,700 Accumulated Depreciation—Press ($35,000 – $1,000 = $34,000; $34,000 ÷ 10 = $3,400; $3,400 X 6/12 = $1,700) Press 18,600** Accumulated Depreciation—Press 28,900 Gain on Disposal of Plant Assets Press Cash *Cost of old asset Accumulated depreciation ($27,200 + $1,700) Book value Fair value of old asset Gain (on disposal of plant asset) (28,900) 6,100 (6,600) $ 500 **Cash paid Fair value of old press Cost of new press $12,000 6,600 $18,600 1,700 500* 35,000 12,000 $35,000 Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 1017 E1018B (Continued) (b) Exchange lacks commercial substance: Depreciation Expense 1,700 Accumulated Depreciation—Press Press 18,600** Accumulated Depreciation—Press 28,900 Gain on Disposal of Plant Assets Press Cash **Cash paid Fair value of old asset Cost of new asset 1,700 500 35,000 12,000 $12,000 6,600 $18,600 Note that the entries are the same for both (a) and (b). The gain is not deferred because cash boot is greater than 25%, which makes the transaction mone tary in nature E1019B (15–20 minutes) (a) Exchange lacks commercial substance Mathews Company: Equipment (New) 24,000 Accumulated Depreciation 38,000 Equipment (Old) Cash Fair value received Less: Gain deferred New equipment *Fair value of old equipment Book value of old equipment Gain on disposal 56,000 6,000 $31,000 7,000* $24,000 $25,000 (18,000) $ 7,000 1018 Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) E1019B (Continued) Biggio Company: Cash 6,000 Loss on Disposal of Equipment 5,000 Equipment (New) 25,000 Accumulated Depreciation 20,000 Equipment (Old) Fair value received *Fair value of old equipment Book value of old equipment Loss on disposal 56,000 $25,000 $31,000 (36,000) $ 5,000 (b) Exchange has commercial substance Mathews Corporation: Equipment 31,000* Accumulated Depreciation—Equipment 38,000 Equipment Cash Gain on Disposal of Equipment 56,000 6,000 7,000** *Cost of new equipment: Cash paid $ 6,000 Fair value of old equipment 25,000 Cost of new equipment $31,000 **Computation of gain on disposal of equipment: Fair value of old equipment Book value of old equipment ($56,000 – $38,000) Gain on disposal of equipment $25,000 18,000 $ 7,000 Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 1019 E1019B (Continued) Biggio Company: Cash 6,000 Equipment 25,000* Accumulated Depreciation—Equipment (Old) 20,000 Loss on Disposal of Equipment 5,000** Equipment 56,000 *Cost of new equipment: Fair value of equipment $31,000 Less: Cash received 6,000 Cost of new equipment $25,000 **Computation of loss on disposal of equipment: Book value of old equipment ($56,000 – $20,000) Fair value of equipment (Old) Loss on disposal of equipment $36,000 31,000 $ 5,000 E1020B (15–20 minutes) (a) Exchange has commercial substance Equipment 55,300 Accumulated Depreciation—Equipment 38,500* Gain on Disposal of Equipment Equipment Cash ($16,000 + $2,500) 4,300 71,000 18,500 *$71,000 – $32,500 Valuation of equipment Cash Installation cost Market value of used equipment Cost of new equipment $16,000 2,500 36,800 $55,300 1020 Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) E1020B (Continued) Computation of gain Cost of old asset Accumulated depreciation Book value Fair market value of old asset Gain on disposal of equipment (b) $71,000 38,500 32,500 36,800 $ 4,300 Fair value not determinable Automatic Equipment 51,000* Accumulated Depreciation—Equipment 38,500 Equipment Cash 71,000 18,500 *Basis of new equipment Book value of old equipment Cash paid (including installation costs) Basis of new equipment $32,500 18,500 $51,000 E1021B (20–25 minutes) (a) Any addition to plant assets is capitalized because a new asset has been created. This addition increases the service potential of the plant (b) Expenditures that do not increase the service benefits of the asset are expensed. Painting costs are considered 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 new roof. It is assumed that the expenditure increases the future service potential of the asset Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 1021 E1021B (Continued) (d) Conceptually, the book value of the old plumbing system should be removed However, practically it is often 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 to Accumulated Depreciation would appear to be the most appropriate E1022B (15–20 minutes) 1/30 Accumulated Depreciation—Buildings 142,500* Loss on Disposal of Plant Assets 125,500** Buildings Cash 250,000 18,000 *(3% X $250,000 = $7,500; $7,500 X 19 = $142,500) **($250,000 – $142,500) + $18,000 3/10 Cash ($1,500 – $1,000) 500 Accumulated Depreciation—Machinery 14,000* Loss on Disposal of Plant Assets 5,500** Machinery 20,000 *(70% X $20,000 = $14,000) **($20,000 – $14,000 – $500) 1022 Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) E1022B (Continued) 3/20 Equipment Repairs and Maintenance Expense 750 Cash 5/18 Machinery (New) 6,000 Accumulated Depreciation—Machinery 1,800* Loss on Disposal of Plant Assets 1,200** Machinery (Old) Cash 750 3,000 6,000 *(60% X $3,000 = $1,800) **($3,000 – $1,800) 6/23 Building Maintenance and Repairs Expense 12,000 Cash 12,000 E1023B (20–25 minutes) (a) (b) (c) (d) (e) (f) (g) (h) (i) C C E, assuming the amount is immaterial C C E E C C Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 1023 E1024B (20–25 minutes) (a) Depreciation Expense (10/12 X $72,000) 60,000 Accumulated Depreciation—Machine Cash 460,000 Accumulated Depreciation—Machine ($720,000 + $60,000) 780,000 Machine Gain on Disposal of Machine $460,000 – ($980,000 – $780,000) (b) Depreciation Expense (5/12 X $72,000) 30,000 Accumulated Depreciation—Machine Cash 300,000 Accumulated Depreciation—Machine ($720,000 + $30,000) 750,000 Machine Gain on Disposal of Machine [$300,00 – ($980,000 – $750,000)] (c) 60,000 980,000 260,000 30,000 980,000 70,000 Depreciation Expense (8/12 X $72,000) 48,000 Accumulated Depreciation—Machine 48,000 Contribution Expense 610,000 Accumulated Depreciation—Machine ($720,000 + $48,000) 768,000 Machine Gain on Disposal of Machine 980,000 398,000* *$610,000 – ($980,000 – $768,000) 1024 Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) E1025B (15–20 minutes) April 1 Cash 375,000 Accumulated Depreciation—Building 125,000 Land Building Gain on Disposal of Plant Assets 50,000 350,000 100,000 Aug. 1 Land 70,000 Building 525,000 Cash 595,000 Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 1025 ... 102 Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) E104B (20–25 minutes) Purchase Cash paid for equipment, including sales tax of $31,000... Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 103 E105B (30–40 minutes) Land Attorney fee for title search... 104 Copyright © 2014 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) E106B (Continued) Store Equipment