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Exercise On Chapter 2

XYZ Company purchased land for Birr 100,000 and incurred additional costs of Birr 10,000 for demolition and Birr 2,000 for broker fees, so the total cost of the land was Birr 112,000. Shumway Company purchased land for $85,000 and incurred $1,500 in legal fees, $5,000 for demolition, $3,500 for clearing and grading, and $5,000 for a parking lot. The cost of the land was $85,000 and the cost of improvements was $15,500. Surkis Company purchased equipment for $40,375 plus $625 for shipping, $1,000 for installation, and $1,

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611 views2 pages

Exercise On Chapter 2

XYZ Company purchased land for Birr 100,000 and incurred additional costs of Birr 10,000 for demolition and Birr 2,000 for broker fees, so the total cost of the land was Birr 112,000. Shumway Company purchased land for $85,000 and incurred $1,500 in legal fees, $5,000 for demolition, $3,500 for clearing and grading, and $5,000 for a parking lot. The cost of the land was $85,000 and the cost of improvements was $15,500. Surkis Company purchased equipment for $40,375 plus $625 for shipping, $1,000 for installation, and $1,

Uploaded by

Anwar Adem
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Worksheet for CH-2

1. On April 1, 2020 XYZ Company purchased land at a cost of Birr 100,000. The Company
received Birr 7,000 for scrap from the demolition of an old building that was removed from
the land at a cost of Birr 10,000. A broker’s fee of Birr 2,000 was paid in connection to the
purchased land. Then, determine cost of land?
2. The following costs were incurred by Shumway Company in purchasing land: cash price,
$85,000; legal fees, $1,500; removal of old building, $5,000; clearing and grading, $3,500;
installation of a parking lot, $5,000. (a) What is the cost of the land? (b) What is the cost of
the land improvements?
3. Surkis Company incurs the following costs in purchasing equipment: invoice price, $40,375;
shipping, $625; installation and testing, $1,000; one-year insurance policy, $1,750. What is
the cost of the equipment?
4. Assume that factory equipment is purchased on November 6, 2020, for $10,000 cash and a
$40,000 note payable. Related cash expenditures include insurance during shipping, $500;
the annual insurance policy, $750; and installation and testing, $1,000. What is the cost of the
equipment?
5. Surkis Company acquires equipment at a cost of $42,000 on January 3, 2021. Management
estimates the equipment will have a residual value of $6,000 at the end of its four-year useful
life. Assume the company uses the straight-line method of depreciation. Calculate the
depreciation expense for each year of the equipment’s life. Surkis has a December 31 fiscal
year end.
6. Refer to the data given for Surkis Company in Question 5. Assume instead that the company
uses the diminishing-balance method and that the diminishing-balance depreciation rate is
double the straight-line rate. Calculate the depreciation expense for each year of the
equipment’s life.
7. Speedy Taxi Service uses the units-of-production method in calculating depreciation on its
taxicabs. Each cab is expected to be driven 550,000 km. Taxi 10 cost $38,950 and is
expected to have a residual value of $4,300. Taxi 10 is driven 90,000 km in 2020, and
135,000 km in 2021. Calculate (a) the depreciable amount per kilometer (use three decimals),
and (b) the depreciation expense for2020 and 2021.
8. On January 3, 2021, Ruiz Company retires equipment, which cost $25,700. No residual value
is received. Prepare journal entries to record the transaction if accumulated depreciation is
also $25,700 on this equipment. Ruiz has a December 31 fiscal year end.
9. Wilbur Company sells equipment on March 31, 2021, for $35,000 cash. The equipment was
purchased on January 5, 2018, at a cost of $86,400, and had an estimated useful life of five
years and a residual value of $2,200. Wilbur Company uses straight-line depreciation for
equipment. Adjusting journal entries are made annually at the company’s yearend, December
31. Prepare the journal entries to
(a) Update depreciation to March 31, 2021,
(b) Record the sale of the equipment, and
(c) Record the sale of the equipment if Wilbur Company received $29,000 cash for it.
10. Demeter Company exchanges an industrial oven for an industrial freezer. The carrying
amount of the industrial oven is $31,000 (cost $61,000 less accumulated depreciation
$30,000). The oven’s fair value is $24,000 and cash of $5,000 is paid by Demeter in the
exchange. Prepare the entry to record the exchange.
11. Cuono Mining Co. purchased a mine for $6.5 million that is estimated to have 25 million
tonnes of ore and a residual value of $500,000. In the first year, 5 million tonnes of ore are
extracted and 3 million tonnes are sold. Record annual depletion for the first year, ended
August 31, 2021.
12. Assume that ABC Company acquired land with Mineral deposit for Birr 500,000. The
Mineral deposit is estimated to have 1,000,000 tons of Ore and is estimated to have a residual
value of Birr 100,000 after mining is completed. Suppose the company extracted 90,000 and
80,000 tons of ore during Year 1 and Year 2 respectively. Record annual depletion for Year 1
and Year 2 respectively

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