Chapter 2: Plant assets, natural resources and intangible assets Worksheet

1. Fews Clinic purchases land for Birr 130,000 cash. The clinic assumes Birr 1,500 in property taxes due
on the land. The title and attorney fees totaled Birr 1,000. The elinic has the land graded for Birr 2.200.
What amount does Fews Clinic record as the cost for the land? Record the journal entry.

2. Neptun Company purchased equipment on January 1 at a list price of ETB 50,000, with credit terms
2/10, n/30. Payment was made within the discount period and Neptun was given a $1,000 cash
discount. Neptun paid ETB 2,500 sales tax on the equipment, and paid installation charges of ETB 880.
Prior to installation, Upton paid ETB 2,000 to pour a concrete slab on which to place the equipment.
What is the total cost of the new equipment?

3. Kestedemena Company purchased factory equipment with an invoice price of ETB 80,000. Other costs
incurred were freight costs, ETB 1,100, installation wiring and foundation, ETB 2.200; material and labor
costs in testing equipment, ETB 700; oil lubricants and supplies to be used with equipment, ETB 500; fire
insurance policy covering equipment, ETB 1,400. The equipment is estimated to have ETB 5,000 salvage
value at the end of its 5-year useful service life. Instructions

a) Compute the acquisition cost of the equipment. Clearly identify each element of cost

b) If the double-declining-balance method of depreciation was used, the constant percentage applied to
a declining book value would be

4. Equipment was purchased for birr 75,000. Freight charges amounted to ETB 3,500 and there was a
cost of ETB 10,000 for building a foundation and installing the equipment. It is estimated that the
equipment will have ETB 15,000 salvage value at the end of its 5- year useful life. Depreciation expense
each year using the straight-line method will be

5. A company purchased factory equipment on April 1, 2008 for ETB 64,000. It is estimated that the
equipment will have an ETB 8,000 salvage value at the end of its 10-year useful life. Using the straight-
line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2008
is

6:A company purchased factory equipment for ETB 250,000. It is estimated that the equipment will have
ETB 25,000 salvage value at the end of its estimated 5-year useful life. If the company uses the double-
declining-balance method of depreciation, the amount of annual depreciation recorded for the second
year after purchase would be

7. A factory machine was purchased for ETB 75,000 on January 1. 2008. It was estimated that it would
have ETB 15,000 salvage value at the end of its 5-year useful life. It was also estimated that the machine
would be run 40,000 hours in the 5 years. The company ran the machine for 4,000 actual hours in 2008.
If the company uses the units-of-activity method of depreciation, the amount of depreciation expense
for 2008 would be
8. An asset was purchased for ETB 150,000, It had an estimated salvage value of ETB 30,000 and an
estimated useful life of 10 years. After 5 years of use, the estimatedsalvage value is revised to ETB
24,000 but the estimated useful life is unchanged. Assuming straight-line depreciation, depreciation
expense in year 6 would be

9. ABEL's mini Shop bought machinery for ETB 25,000 on January 1, 2008. Abel estimated. the useful life
to be 5 years with no salvage value, and the straight-line method of depreciation will be used. On
January 1, 2009, ABEL decides that the business will use the machinery for a total of 6 years. What is the
revised depreciation expense for 2009

10. On July 1, 2008, M&N PLc sells equipment for ETB 66,000. The equipment originally cost ETB
180,000, had an estimated 5-year life and an expected salvage value of ETB 30,000. The accumulated
depreciation account had a balance of ETB 105,000 on January 1, 2008, using the straight-line method.
The gain or loss on disposal is

11. On July 4, 2008, Misrak Mining Company purchased the mineral rights to a granite deposit for ETB
800,000. It is estimated that the recoverable granite will be 400,000 tons. During 2008, 100,000 tons of
granite was extracted and 60,000 tons were sold. The amount of the Depletion Expense recognized for
2008 would be

12. A company exchanges its old office equipment and ETB 40,000 for new office equipment. The old
office equipment has a book value of ETB 28,000 and a fair market value of ETB 20,000 on the date of
the exchange. The cost of the new office equipment would be recorded at

13. Robot Enterprises sold equipment on January 1, 2008 for ETB 5,000. The equipment had cost ETB
24,000. The balance in Accumulated Depreciation at January 1 is ETB 20,000. What entry would Robot
make to record the sale of the equipment?

14. On January 2, 2008, Zemen Company purchased a patent for ETB 38,000. The patent has an
estimated useful life of 25 years and a 20-year legal life. What entry would the company make at
December 31, 2008 to record amortization expense on the patent?

15. Ethiopian Airlines purchased a 747 aircraft on January 1. 2007, at a cost of ETB 350,000,000. The
estimated useful life of the aircraft is 20 years, with an estimated salvage value of ETB 50,000,000. On
January 1, 2010 the airline revises the total estimated useful life to 15 years with a revised salvage value
of ETB 35,000,000. Instructions

a) Compute the depreciation and book value at December 31, 2009 using the straight-line method and
the double-declining-balance method.

b) Assuming the straight-line method is used; compute the depreciation expense for the year ended
December 31, 2010,

16. Zang Word Processing Service uses the straight-line method of depreciation. The company's fiscal
year end is December 31. The following transactions and events occurred during the first three years.
2007 July Purchased a computer from the Computer Center for ETB 2,300 cash plus sales tax of ETB 150,
and shipping costs of ETB 50. Nov. 3 Incurred ordinary repairs on computer of ETB 140.

Dec. 31 Recorded 2007 depreciation on the basis of a four year life and estimated salvage value of ETB
500. 2008 Dec. 31 Recorded 2008 depreciation. 2009 Jan. 1 Paid ETB 400 for an upgrade of the
computer. This expenditure is expected to increase the operating efficiency and capacity of the
computer. Instructions: prepare the necessary entries. (Show computations.)

17. Bing Company sold equipment on July 31, 2008 for ETB 50,000. The equipment had cost ETB 140,000
and had ETB 80,000 of accumulated depreciation as of January 1, 2008. Depreciation for the first 6
months of 2008 was ETB 8,000, Instructions: Prepare the journal entry to record the sale of the
equipment.

18. BM Company purchased equipment in 2001 for ETB 90,000 and estimated ETB 6,000 salvage value at
the end of the equipment's 10-year useful life. At December 31, 2007, there was ETB 58,800 in the
Accumulated Depreciation account for this equipment using the straight-line method of depreciation.
On March 31, 2008, the equipment was sold for ETB 24,000. Prepare the appropriate journal entries to
remove the equipment from the books of BM Company on March 31, 2008,

19. Record journal entries for the selected transactions of Hope Company for 2008. Jan. I received ETB
9,000 scrap value on retirement of machinery that was purchased on January 1, 1998. The machine cost
ETB 90,000 on that date, and had a useful life. of 10 years with no salvage value. April 30 sold a machine
for ETB 28,000 that was purchased on January 1, 2005. The machine cost ETB 75,000, and had a useful
life of 5 years with no salvage value. Dec. 31 discarded a business automobile that was purchased on
October 1, 2003. The car cost ETB 32,000 and was depreciated on a 5-year useful life with a salvage
value of ETB 2.000. Instructions journalize all entries required as a result of the above transactions. Hope
Company uses the straight-line method of depreciation and has recorded depreciation through
December 31.2007

20. ABC Mining Company purchased a mine for ETB 70 million which is estimated to have 250,000 tons
of ore and a salvage value of ETB 10 million.

a) In the first year, 50,000 tons of ore are extracted and sold. Prepare the journal entry to record
depletion expense for the first year.

b) In the second year, 150,000 tons of ore are extracted but only 125,000 tons are sold. Prepare the
journal entry to record depletion expense for the second year.

c) What amount and in what account are the tons of ore not sold reported?

21. A company purchased a patent on January 1, 2008, for ETB 2,000,000. The patent's legal life is 20
years but the company estimates that the patent's useful life will only be 5 years from the date of
acquisition. On June 30, 2008, the company paid legal costs of ETB 135,000 in successfully defending the
patent in an infringement suit. Prepare the journal entry to amortize the patent at year end on
December 31, 2008.
22. Royal Company exchanged an old machine (cost ETB 100,000 less ETB 60,000 accumulated
depreciation) plus ETB 7,000 cash for a new machine. The old machine had

a fair market value of ETB 36,000. Prepare the entry to record the exchange of assets by Royal Company.

23. YZ Company trades old equipment (cost ETB 90,000 less ETB 54,000 accumulated depreciation) for
new equipment. YZ paid ETB 36,000 cash in the trade. The old equipment that was traded had a fair
market value of ETB 54,000, Prepare the entry to record the exchange of assets by YZ Company.

24. Fetan Delivery Company and Derash Delivery Company exchanged delivery trucks on January 1,
2008. Fetan's truck cost ETB 84,000, had accumulated depreciation of ETB69,000, and has a fair market
value of ETB 9,000. Derash's truck cost ETB 63,000, had accumulated depreciation of ETB 54,000, and
has a fair market value of ETH 9,000. Instructions (a) journalize the exchange for Fetan Delivery
Company. (b) Journalize the exchange for Derash Delivery Company.

25. On September 30, 2008, Addis Company exchanged old delivery equipment and ETB 24,000 for new
delivery equipment. The old delivery equipment was purchased on January 1, 2006, for ETB 84,000 and
was estimated to have ETB 12,000 salvage value at the end of its 5-year life. Depreciation on the delivery
equipment has been recorded. through December 31, 2007. It is estimated that the fair market value of
the old delivery equipment is ETB 36,000 on September 30, 2008. Prepare the journal entries to record
the transactions for Addis Company which has a calendar year end and uses the straight-line method of
depreciation.