26) On February 1, 2011, Delta Distribution Company purchased a delivery truck that cost $30,000. The truck has an estimated useful life of 150,000 miles and an estimated salvage value of $3,000. The truck is driven 10,000; 34,000; and 28,000 miles for the years 2011, 2012, and 2013, respectively.
Required:
1. Calculate the depreciation expense per mile using the activity (units-of-production) method.
2. Use the activity method to complete the chart below:
Year
Miles
driven
Depreciation expense
for the year ended Dec. 31
Book value at Dec. 31
2011
10,000
$
$
2012
34,000
$
$
2013
28,000
$
$
3. Explain why long-term assets must be depreciated, rather than recorded as expenses in the period when the asset is purchased.
4. Explain why land is NOT depreciated when other assets, such as trucks, are depreciated.
27) On January 1, 2011, Gamma Company purchased equipment that cost $30,000. The equipment has an estimated useful life of 10 years and an estimated salvage value of $5,000.
Required:
1. Use the double-declining balance method to complete the chart below:
Year
Depreciation expense for the year
ended Dec. 31
Book value at Dec. 31
2011
$
$
2012
$
$
2013
$
$
2. Explain why long-term assets must be depreciated.
3. Explain why land is NOT depreciated when assets like equipment are.
28) Indicate which financial statement would report the items listed in the table below.
Use the following code:
IS = Income statement
SE = Statement of changes in shareholders’ equity
BS = Balance sheet
CF = Statement of cash flows
NONE = The item does not appear on any financial statement.
Depreciation expense
Cash paid to purchase equipment
Accumulated depreciation
Cash received from selling land
Equipment book value
Cash paid to purchase a building
Cash paid to purchase new computers
Cash received from selling 3-year machinery
An asset’s estimated useful life
An asset’s estimated residual value
Cash paid to purchase land
Amortization expense
29) Indicate which financial statement would report the items listed in the table below.
Use the following code:
IS = Income statement
SE = Statement of changes in shareholders’ equity
BS = Balance sheet
CF = Statement of cash flows
NONE = The item does not appear on any financial statement.
Accumulated depreciation
Cash paid to purchase machinery
Cash received from selling an old building
The current fair market value of land owned
Cash received from selling 10-year old machinery
Cash paid to purchase a building
The historical cost of equipment owned
Depreciation expense
The amount of revenue a specific asset generates
Cash paid to purchase office furniture
Cash paid to buy other businesses
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