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Straight-Line Method of Depreciation

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#1:
Using the following data and the straight-line method of depreciation, compute depreciation expense, and make the necessary journal entry to record depreciation expense for the first year.

Cost of machine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000,000
Estimated useful life (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 years
Salvage value . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $40,000
Estimated useful life (units) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,600,000
Units produced during the first year .

#2:
The company purchased a building 14 years ago for $720,000. The building has accumulated depreciation of $504,000 and a fair market value of $150,000. The company expects the building will generate a net cash inflow of $30,000 per year for the next six years. Determine whether, from an accounting point of view, the building is impaired.

#3:
The company scrapped a truck with a historical cost of $60,000 and accumulated depreciation of $48,000. In addition, the company had to pay $500 to discard the truck. Make the necessary journal entry(ies) to record this transaction.

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Solution Summary

Your responses are in Excel so you can see the computations (click on cells). Commentary is also provided for the impairment situation so you know the rule and the process, as well as how to compute the impairment loss (even though it wasn't asked).

Solution Preview

Your responses are in Excel so you can see the computations (click on cells). ...

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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