Part 1

Monte’s Coffee Company purchased packaging equipment on January 5, 2014, for $98,000. The equipment was expected to have a useful life of three years, or 20,000 operating hours, and a residual value of $6,000. The equipment was used for 8,980 hours during 2014, 6,930 hours in 2015, and 4,090 hours in 2016.

Required:
1. Determine the amount of depreciation expense for the years ended December 31, 2014, 2015, and 2016 by (a) the straight-line method, (b) the units-of-output method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the three years by each method. (Note: For STRAIGHT-LINE ONLY, round each year to the nearest whole dollar and round the last year of depreciation as necessary. For DECLINING BALANCE ONLY, round the multiplier to four decimal places. Then round the answer for each year to the nearest whole dollar.)
2. What method yields the highest depreciation expense for 2014?
3. What method yields the most depreciation over the three-year life of the equipment?

1. Determine the amount of depreciation expense for the years ended December 31, 2014, 2015, and 2016 by (a) the straight-line method, (b) the units-of-output method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the three years by each method. (Note: For STRAIGHT-LINE ONLY, round each year to the nearest whole dollar and round the last year of depreciation as necessary. For DECLINING BALANCE ONLY, round the multiplier to four decimal places. Then round the answer for each year to the nearest whole dollar.)

Depreciation Expense

1 Year Straight-Line Method Units-of-Output Method Double-Declining-Balance Method
2 2014
3 2015
4 2016
5 Total

2. What method yields the highest depreciation expense for 2014?
Straight-line method
Units-of-output method
Double-declining-balance method
All three depreciation methods

3. What method yields the most depreciation over the three-year life of the equipment?
Straight-line method
Units-of-output method
Double-declining-balance method
All three depreciation methods

Part 2

The following payments and receipts are related to land, land improvements, and buildings acquired for use in a wholesale ceramic business. The receipts are identified by an asterisk next to the item letter.
a. Fee paid to attorney for title search $ 2,430
b. Cost of real estate acquired as a plant site: Land 266,100
Cost of real estate acquired as a plant site: Building 59,800
c. Delinquent real estate taxes on property, assumed by purchaser 16,620
d. Cost of razing and removing building 5,205
e.* Proceeds from sale of salvage materials from old building 4,255
f. Special assessment paid to city for extension of water main to the property 30,770
g. Architect’s and engineer’s fees for plans and supervision 57,130
h. Premium on one-year insurance policy during construction 5,640
i. Cost of filling and grading land 11,640
j.* Money borrowed to pay building contractor 924,000
k. Cost of repairing windstorm damage during construction 5,160
l. Cost of paving parking lot to be used by customers 30,670
m. Cost of trees and shrubbery planted 11,290
n. Cost of floodlights installed on parking lot 2,140
o. Cost of repairing vandalism damage during construction 2,535
p.* Proceeds from insurance company for windstorm and vandalism damage 6,935
q. Payment to building contractor for new building 780,000
r. Interest incurred on building loan during construction 34,090
s.* Refund of premium on insurance policy (h) canceled after 11 months 470

1. Assign each payment and receipt to Land (unlimited life), Land Improvements (limited life), Building, or Other Accounts in the table provided. Enter receipts as negative amounts using the minus sign.
2. Determine the amount debited to Land, Land Improvements, and Building.
Allocation to Fixed Asset Accounts

1 Item Land Land Improvements Building Other Accounts
2 a.
3 b.
4 c.
5 d.
6 e.
7 f.
8 g.
9 h.
10 i.
11 j.
12 k.
13 l.
14 m.
15 n.
16 o.
17 p.
18 q.
19 r.
20 s.
21 Debited amounts

Required:
1. Assign each payment and receipt to Land (unlimited life), Land Improvements (limited life), Building, or Other Accounts in the table provided. Enter receipts as negative amounts using the minus sign.
2. Determine the amount debited to Land, Land Improvements, and Building.
3. The costs assigned to the land, which is used as a plant site, will not be depreciated, while the costs assigned to land improvements will be depreciated. Explain this seemingly contradictory application of the concept of depreciation.
4. What would be the effect on the income statement and balance sheet if the cost of filling and grading land of $11,640 [payment (i)] was incorrectly classified as Land Improvements rather than Land? Assume Land Improvements are depreciated over a 20-year life using the double-declining-balance method.

3. The costs assigned to the land, which is used as a plant site, will not be depreciated, while the costs assigned to land improvements will be depreciated. Explain this seemingly contradictory application of the concept of depreciation.
Since land used as a plant site lose its ability to provide services, it depreciated. Land improvements lose their ability to provide services as time passes and are therefore . does/does not; is/is not; do/do not; appreciated/not appreciated

4. What would be the effect on the income statement and balance sheet if the cost of filling and grading land of $11,640 [payment (i)] was incorrectly classified as Land Improvements rather than Land? Assume Land Improvements are depreciated over a 20-year life using the double-declining-balance method.
The effect would be that: Check all that apply.
Depreciation expense would be understated
Land would be overstated
Owner's Capital would be understated
Net income would be overstated
Land Improvements would be overstated

Part 1 Monte’s Coffee Company purchased packaging equipment on J...