Slide 17 Basket Purchase Example - On 1/1/14, a used truck and fork lift are purchased for $50,000 cash. The Fair Market Value (FMV) on the truck is $30,000 and the FMV for the fork lift is $30,000. Journalize the purchases. Slide 26 Straight Line Depreciation - Truck purchase for $41,000; residual value = $1,000; useful life = 5 years. What is Annual Depreciation Expense based on Straight-line? Journalize. Check-in #1: The cost of training employees on new equipment is considered part of the asset acquisition cost. True or False

Activity Based Depreciation – Example Truck purchase $41,000, 5 year useful life, $1,000 residual value, 100,000 miles expected use. UseMiles Year ,000 Year ,000 Year ,000 Year ,000 Year , ,000 2

Double Declining Balance (DDB) - STEPS 1.Straight line Depreciation as a % - Compute straight-line deprec. in the form of a percentage. For example, 4 year useful life = 25% of the value each year (1 / useful life) 2.DDB Percentage Rate - Multiply the straight-line percentage rate by 2 (hence, the title of ‘double’ declining balance) to compute the DDB percentage rate. 3.First Year Depreciation Expense - Multiply the DDB % rate by the period’s beginning asset book value ***Under the DDB method, ignore the residual value of the asset in computing depreciation, except during the last year. *** 4.Record Depreciation Expense - Record and post the calculated depreciation expense (debit depreciation expense and credit accumulated depreciation) 5.Next Years Depreciation Expense - Multiply the DDB % rate by the period’s beginning asset book value (cost less accumulated depreciation). 6. Determine the final year’s depreciation amount—that is, the amount needed to reduce asset book value to its residual value. The residual value should not be depreciated but should remain on the books until the asset is disposed. 3

DDB – Example – Using Depreciation Schedule - Truck purchase for $41,000; residual value = $1,000; useful life = 5 years. What is Annual Depreciation Expense? Journalize. 4

Bought van on for $19,000 4 year useful life (36,000) miles Residual value = $2,800 Actual usage – Year 1 – 11,000 miles; Year 2 – 13,000 miles Slide 40 - What is book value at the end of year 2 using straight line depreciation? Slide 42 - What is book value at the end of year 2 using activity based depreciation?

6 Double-declining-balance Bought van on year useful life (36,000) miles Residual value = $2,800  Step 1  Step 2

Recording Long-Term Asset Disposals Little King Sandwiches purchased a new delivery truck. Here are the specific details: Cost of the new truck$40,000 Estimated residual value$5,000 Estimated service life5 years 7-7 Slide 53 - Assume a sale at the end of 3 years for 22,000 & SL Depreciation Slide 55 – Retirement: If we assume that the delivery truck is totaled in an accident at the end of year 3, we have a $19,000 loss on retirement.

Bonus Questions 1.) The purchase and recording of the bicycle air pump ($10,000) in Check-in #2 on 1/1/16 will impact which financial statements on 1/1/16? A.) Balance Sheet; B.) Income Statement; C.) A.) Balance Sheet and Income Statement; D.) No impact 2.) The sale of an asset for cash that resulted in a gain will impact the financial statements as follows: A.) Increase in net profit and a decrease in assets B.) Increase in net profit and an increase in assets C.) Decrease in net profit and a decrease in assets D.) Decrease in net profit and an increase in assets UCF College of Engineering purchased a patent on 10/1/16 for $50,000. The remaining legal life of the patent is 5 years but the firm only expects to benefit from the patent for 2.5 years. No residual value is expected. Assuming the straight- line method is used, what is the amortization expense, if any, for 2016? A.) $20,000; B.) $10,000; C.) $5,000 UCF athletics purchased land for a new figure skating rink for 10,000 cash. They also incurred commissions of $1,000, fencing for $5,000, back property taxes of $2,000, and title insurance of $1,000. What is the total amount to be recorded in the land account as the cost of the land? A.) $14,000; B.) $19,000; C.) $10,000; D.) $17,000