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Chapter 11 Solutions To The Assigned Exercise Problems

This document contains solutions to accounting problems related to depreciation calculations using different methods like straight-line, double declining balance, section 179, bonus depreciation and MACRS. It provides step-by-step workings and calculations for determining depreciation expense and book value of assets each year over multiple years using different allowed depreciation methods.

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Luis Menuci
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29 views

Chapter 11 Solutions To The Assigned Exercise Problems

This document contains solutions to accounting problems related to depreciation calculations using different methods like straight-line, double declining balance, section 179, bonus depreciation and MACRS. It provides step-by-step workings and calculations for determining depreciation expense and book value of assets each year over multiple years using different allowed depreciation methods.

Uploaded by

Luis Menuci
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Chapter 11 Solutions

11-2
Cost of the asset, B = $16,000
Depreciation in year 1 is 100% = $16,000
Book value (BV) at end of year 1 = $16,000 - $16,000 = $0
Given a BV of $0 at the beginning of year 2, depreciation in year 2 would be $0

11-4
The company will claim the $1,000,000 limit under Section 179, reducing the equipment‘s
cost basis to $1,600,000 - $1,000,000 = $600,000.
Using 100% bonus depreciation in year 1 results in depreciation amount of $600,000
Book value (BV) at end of year 1 = $600,000 - $600,000 = $0
Given a BV of $0 at the beginning of year 2, depreciation in years 2 until disposal will be $0

11-6
Given a cost basis of $150,000, we can use figure 11-7 to determine the allowed bonus
depreciation percentage to use for each part:
(a) In 2014, 50% bonus depreciation is permitted = 50% * $150,000 = $75,000
(b) In 2018, 100% bonus deprec. will be permitted = 100% * $150,000 = $150,000
(c) In 2024, 60% bonus depreciation will be permitted = 80% * $150,000 = $120,000
(d) In 2026, 20% bonus depreciation will be permitted = 20% * $150,000 = $30,000

11-12
a) SL Dep = $76,000/5 = $15,200
b) DDBt = (2/5)($76,000 – BVt-1) vs SLNt = (B – BVt-1)/(6-t), taking the larger.
c) 100% Bonus depreciation: Year 1 Depreciation = $76,000
d) MACRS – Assuming a 5 year property (see Table 11-2 for percentage values).
Year SLN DDB 100 BONUS MACRS
1 15200 30400 76000 15200
2 15200 18240 0 24320
3 15200 10944 0 14592
4 15200 8208 0 8755
5 15200 8208 0 8755
6 0 0 0 4378
Total 76000 76000 76000 76000
11-42
This equipment is classified as MACRS 7-year property.

year SLN Dep DDB Dep Cum Dep BV MACRS Dep Cum Dep BV
0 150000 150000
1 $13,500 $30,000 $30,000 $120,000 $98,571 $98,571 $51,429
2 $13,500 $24,000 $54,000 $96,000 $14,694 $113,265 $36,735
3 $13,500 $19,200 $73,200 $76,800 $10,496 $123,761 $26,239
4 $13,500 $15,360 $88,560 $61,440 $7,497 $131,258 $18,742
5 $13,500 $12,288 $100,848 $49,152 $5,355 $136,613 $13,387
6 $13,500 $9,830 $110,678 $39,322 $5,355 $141,968 $8,032
7 $13,500 $7,864 $118,543 $31,457 $5,355 $147,323 $2,677
8 $13,500 $6,291 $124,834 $25,166 $2,677 $150,000 $0
9 $13,500 $5,083 $129,917 $20,083 $0 $150,000 $0
10 $13,500 $5,083 $135,000 $15,000 $0 $150,000 $0
Total = $135,000 $135,000 $150,000

Depreciation in year 4 and book value at end of year 8:


a) SL Dep = ($150,000 - $15,000)/10 = $13,500
BV(yr8) = $150,000 - 8*$13,500 = $42,000

b) DDB = (2/10)(BV year 3) = (0.2) $76,800 = $15,360


BV(yr8) = $150,000 - ($30,000 + $24,000 + $19,200 + $15,360 + $12,288
+ $9,830 + $7,864 + $6,291) = $25,166

c) 60% bonus + MACRS: Dep4 = $60,000 (0.1249) = $7,494 ($7,497 is from use of VDB
function), BV(yr8) = $0

11-46
(1) Using MACRS with a 5-Year property class
B = $50,000
BV3 = $50,000 − $50,000 (0.2000 + 0.3200 + (0.1920/2)) = $19,200
(a) MV3 − BV3 = $15,000 − $19,200 = −$4,200
Thus there is a $4,200 loss.
(b) MV3 − BV3 = $25,000 − $19,200= $5,800
Thus there is $5,800 depreciation to be recaptured.
(c) Because MV3 > B there is a capital gain.
MV3 − B = $60,000 − $50,000 = $10,000 capital gain
B − BV3 = $50,000 − $19,200 = $30,800 in recaptured depr.
$60,000 − $19,200 = $40,800 is the total difference between MV3 − BV3
(2) Using 100% Bonus Depreciation
B = $50,000, all of the depreciation is taken in year 1 ($50,000)
BV3 = $0
(a) MV3 − BV3 = $15,000 − $0 = $15,000
Thus, there is $15,000 depreciation to be recaptured.
(b) MV3 − BV3 = $25,000 − $0 = $25,000
Thus, there is $25,000 depreciation to be recaptured.
(c) Because MV3 > B there is a capital gain.
MV3 − B = $60,000 − $50,000 = $10,000 capital gain
B − BV3 = $50,000 − $0 = $50,000 in recaptured depr.
$60,000 − $0 = $60,000 is the total difference between MV3 − BV3

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