Property, Plant, and Equipment Practice Problems

Complete the practice problems. Check your answers after you finish.

Demonstration Problem

Demonstration problem A 

Cleveland Company purchased a 2-square-mile farm under the following terms: cash paid, USD 486,000; mortgage note assumed, USD 240,000; and accrued interest on mortgage note assumed, USD 6,000. The company paid USD 55,200 for brokerage and legal services to acquire the property and secure clear title. Cleveland planned to subdivide the property into residential lots and to construct homes on these lots. Clearing and leveling costs of USD 21,600 were paid. Crops on the land were sold for USD 14,400. A house on the land, to be moved by the buyer of the house, was sold for USD 5,040. The other buildings were torn down at a cost of USD 9,600, and salvaged material was sold for USD 10,080.

Approximately 6 acres of the land were deeded to the township for roads, and another 10 acres was deeded to the local school district as the site for a future school. After the subdivision was completed, this land would have an approximate value of USD 7,680 per acre. The company secured a total of 1,200 salable lots from the remaining land.

Present a schedule showing in detail the composition of the cost of the 1,200 salable lots.

Demonstration problem B 

Calvin Company acquired and put into use a machine on 2010 January 1, at a total cost of USD 45,000. The machine was estimated to have a useful life of 10 years and a salvage value of USD 5,000. It was also estimated that the machine would produce one million units of product during its life. The machine produced 90,000 units in 2010 and 125,000 units in 2011.

Compute the amounts of depreciation to be recorded in 2010 and 2011 under each of the following:

a. Straight-line method.

b. Units-of-production method.

c. Double-declining-balance method.

d. Assume 30,000 units were produced in the first quarter of 2010. Compute depreciation for this quarter under each of the three methods.

Source: Textbook Equity,
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