6.2-51) SML International owns an oil field that contains an estimated 10,000,000 barrels of oil. The oil field was acquired at a cost of $35,000,000 and has no salvage value. In 2011, 1,000,000 barrels were produced and in 2012, 1,750,000 barrels were produced. How much depletion expense should be recorded in 2011 and 2012?
6.2-52)
Part A:
Put an X in the appropriate box to show if these amounts related to the purchase of a new computer system are expenses or capital expenditures.
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During 2012, Webmasters, Inc.:
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Expense
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Capital expenditure
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1
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paid $100,000 for a new computer system.
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2
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paid the vendor $5,000 to install the system.
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3
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paid $4,000 to the computer programmers to transfer the data from the old system to the new system.
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4
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paid $400 for the removal of the old computer system.
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5
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paid $1,000 training the employees to use the new computer system.
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6
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paid $1,000 for the annual off-site storage of its backed-up data.
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7
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paid $10,000 for additional memory to be installed in the computer system.
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Part B:
What other information is needed to calculate double-declining depreciation expense for the year 2012?
6.2-53) On January 1, 2012, Orbit, Inc. purchased land and a building for a total of $90,000 by paying $20,000 cash and issuing a note for the rest. The market value of the building was appraised at $80,000 and the land at $20,000. Write in both the correct dollar amounts and the account titles involved. Use a plus for increases and parentheses () for decreases.
Part A:
Show the effect of the purchase on the accounting equation.
Assets
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Liabilities
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Shareholders’ equity
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CC
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Retained earnings
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Part B:
Show the effect of the first year’s depreciation, assuming the straight-line method and an estimated useful life of 20 years with a $32,000 salvage value.
Assets
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Liabilities
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Shareholders’ equity
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CC
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Retained earnings
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Part C: Show the effect of the first year’s depreciation, assuming double-declining depreciation and an estimated useful life of 20 years with a $32,000 salvage value.
Assets
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Liabilities
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Shareholders’ equity
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CC
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Retained earnings
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Part D: Show the amounts that would appear on the annual financial statements at the end of the
THIRD YEAR
for each method.
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Straight-line
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Double-declining balance
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1. Depreciation expense
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$
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$
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2. Accumulated depreciation
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$
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$
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3. Building (net of accumulated
depreciation)
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$
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$
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4. Land
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$
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$
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