1. Chapter 9 Demonstration Problems Plant Assets, Natural Resources, and Intangibles Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall9-1

2. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall9-2 E9-21D Silver Tree Inc. purchased a building for $1,500,000 and depreciated it on a straight-line basis over a 30-year period. The estimated residual value is $250,000. After using the building for 10 years, Silver Tree realized that wear and tear on the building would wear it out before 30 years and that the estimated residual value should be $220,000. Starting with the 11th year, Silver Tree began depreciating the building over a revised total life of 20 years using the new residual value. Requirement Journalize depreciation expense on the building for years 10 and 11.

3. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall9-3 E9-21D Straight-line depreciation═ Cost − Residual value Useful life ═$1,500,000 − $250,000 30 years ═ $41,667 Cost$1,500,000 Residual value250,000 Useful life30 years

4. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall9-4 E9-21D Straight-line depreciation═ Cost − Residual value Useful life ═$1,500,000 − $250,000 30 years ═ $41,667 Cost$1,500,000 Residual value250,000 Useful life30 years Accumulated depreciation after 10 years═$41,667 × 10 years ═ $416,667

5. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall9-5 Depreciation expense on the building for year 10. E9-21D DateAccounts and ExplanationDebitCredit Year 10 Depreciation Expense—Building41,667 Accumulated Depreciation—Building 41,667 To record depreciation on building.

6. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall9-6 E9-21D Book value after 10 years═Cost − Accumulated depreciation ═$1,500,000 − $416,667 ═ $1,083,333 Cost$1,500,000 Accumulated depreciation416,667 Revised residual value220,000 Revised useful life remaining10 years

7. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall9-7 E9-21D Book value after 10 years═Cost − Accumulated depreciation ═$1,500,000 − $416,667 ═ $1,083,333 Cost$1,500,000 Accumulated depreciation416,667 Revised residual value220,000 Revised useful life remaining10 years Revised depreciation═ Book value − Revised residual value Revised useful life remaining ═ $1,083,333 − $220,000 10 years ═ $863,333 10 years ═$86,333 per year

8. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall9-8 Depreciation expense on the building for the year 11. E9-21D DateAccounts and ExplanationDebitCredit Year 11 Depreciation Expense—Building86,333 Accumulated Depreciation—Building 86,333 To record depreciation on building.

9. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall9-9 E9-24D Mountain View Mining paid $500,000 for the right to extract mineral assets a 600,000-ton deposit. In addition to the purchase price, Mountain View also paid a $600 filing fee, a $1,200 license fee to the state of Arizona, and $70,000 for a geological survey of the property. Because Mountain View purchased the rights to the minerals only, it expects the asset to have zero residual value. During the first year, Mountain View removed and sold 75,000 tons of the minerals. Requirement Make journal entries to record (a) purchase of the minerals (debit Minerals), (b) payment of fees and other costs, and (c) depletion for the first year.

10. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall9-10 E9-24D Purchase price of minerals $500,000 Add related costs: Filing fee $600 License 1,200 Geological survey 70,000 71,800 Total cost of minerals$571,800 Purchase price$500,000 Filing fee600 License fee1,200 Geological survey of property70,000

11. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall9-11 a. Purchase of the minerals. E9-24D DateAccounts and ExplanationDebitCredit a. Minerals500,000 Cash 500,000 To record purchase of mineral rights.

12. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall9-12 b. Payment of fees and other costs. E9-24D DateAccounts and ExplanationDebitCredit b. Minerals71,800 Cash 71,800 To record payment of costs associated with purchase of minerals.

13. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall9-13 E9-24D Cost$571,800 Residual value0 Estimated total units600,000 Units extracted75,000 Depletion per unit═ Cost − Residual value Estimated total units ═$571,000 − $0 600,000 tons ═ $0.953 per ton

14. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall9-14 E9-24D Cost$571,800 Residual value0 Estimated total units600,000 Units extracted75,000 Depletion per unit═ Cost − Residual value Estimated total units ═$571,000 − $0 600,000 tons ═ $0.953 per ton Depletion expense═Depletion per unit × Number of units extracted ═0.953 × 75,000 ═ $71,475

15. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall9-15 c. Depletion for the first year. E9-24D DateAccounts and ExplanationDebitCredit c. Depletion Expense—Minerals71,475 Accumulated Depletion—Minerals 71,475 To record depletion.

16. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall9-16 E9-25D Great Electric Industries Corp. manufactures air conditioners. Assume that Great Electric recently paid $500,000 for a patent on a AC induction motors. Although it gives legal protection for 20 years, the patent is expected to provide a competitive advantage for only ten years. Requirements 1.Assuming the straight-line method of amortization, make journal entries to record (a) the purchase of the patent and (b) amortization for year 1. 2.After using the patent for five years, Great Electric learns at an industry trade show that another company is designing a more efficient AC induction motors. On the basis of this new information, Great Electric decides, starting with year 6, to amortize the remaining cost of the patent over three remaining years, giving the patent a total useful life of eight years. Record amortization for year 6.

17. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall9-17 E9-25D Cost$500,000 Residual value0 Useful life10 years Amortization expense═ Cost − Residual value Useful life ═$500,000 − $0 10 years ═ $50,000

18. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall9-18 a. Purchase of the patent. E9-25D DateAccounts and ExplanationDebitCredit a. Patent500,000 Cash 500,000 To record purchase of patent.

19. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall9-19 b. Amortization for year 1. E9-25D DateAccounts and ExplanationDebitCredit b. Amortization Expense—Patent50,000 Patent 50,000 To record amortization.

20. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall9-20 E9-25D Cost$500,000 Amortization expense$50,000 Revised useful life remaining3 years Accumulated amortization after 5 years═$50,000 per year × 5 years ═$250,000

21. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall9-21 E9-25D Cost$500,000 Amortization expense$50,000 Revised useful life remaining3 years Accumulated amortization after 5 years═$50,000 per year × 5 years ═$250,000 Book value after 5 years═Cost − Accumulated depreciation ═$500,000 − $250,000 ═ $250,000

22. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall9-22 E9-25D Cost$500,000 Amortization expense$50,000 Revised useful life remaining3 years Revised amortization═ Book value − Revised residual value Revised useful life remaining ═$250,000 − $0 3 years ═ $83,333( Rounded) Accumulated amortization after 5 years═$50,000 per year × 5 years ═$250,000 Book value after 5 years═Cost − Accumulated depreciation ═$500,000 − $250,000 ═ $250,000

23. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall9-23 Amortization for year 6. E9-25D DateAccounts and ExplanationDebitCredit Amortization Expense—Patent83,333 Patent 83,333 To record amortization.

24. End of Chapter 9 9-24Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall