Property, Plant, and Equipment Practice Problems

Demonstration Problem

Solution to demonstration problems

Solution to demonstration problem A

CLEVELAND COMPANY
Schedule of Cost of 1,200 Residential Lots
Costs incurred:
Cash paid	$486,000
Mortgage note assumed	240,000
Interest accrued on mortgage note assumed	6,000
Broker and legal services	55,200
Clearing and leveling costs incurred	21,600
Tearing down costs	9,600	$818,400
Less proceeds from sale of:
Crops	$ 14,400
House	5,040
Salvaged materials	10,080	29,520
Net cost of land to be subdivided into1,200 lots		$788,880

Solution to demonstration problem B

a. Straight-line method:
$\mathrm{2010: }\dfrac{(\text { USD } 45,000-\text { USD } 5,000)}{10}=\text{USD 4,000}$

$\mathrm{2011:} \dfrac{(\text { USD } 45,000-\text { USD5 }, 000)}{10}=\text{USD 4,000}$
b. Units-of-production method:

$\text{2010: } \dfrac{(\text {USD 45,000 - USD 5,000)}}{1,000,000}\times 90,000=\text{USD 3,600}$

$\text{2011: } \dfrac{\text{(U SD 45,000 - USD 5,000)}}{1,000,000} \times 125,000=\text{USD 5,000}$

c. Double-declining-balance method:
$\text { 2010: USD } 45,000 \times 20 \text { per cent }=\text { USD } 9,000$
$\text { 2011: }(\text { USD } 45,000-\text { USD } 9,000) \times 20 \text { per cent }=U S D 7,200$

d. Straight-line: $\dfrac{(\mathrm{USD} \, 45,000-\mathrm{USD} \, 5,000)}{10} \times \dfrac{1}{4}=\mathrm{USD} \, 1,000$

Units-of-production: $(\mathrm{USD}\, 45,000-\mathrm{USD} \, 9,000-\mathrm{USD} \, 7,000) \times 0.2 \times \dfrac{1}{4}=\mathrm{USD} \, 1,440$

Double-declining-balance: $(\mathrm{USD} \, 45,000-\mathrm{USD} \, 9,000-\mathrm{USD} \, 7,000) \times 0.2 \times \dfrac{1}{4}=\mathrm{USD} \, 1,440$