Instructions for the Microsoft Excel Templates by Rex A Schildhouse

Be advised, the template workbooks and worksheets are not protected. Overtyping any data may remove it.
Extensive detail and information is contained within the help function of Microsoft Excel and in the provided text. You should enter your name, date, instructor's name, and course into the cells at the top of the page. This information will be printed on the top of each page if the template requires more than one page. Each template is set to print with File Name, Page # of # Page(s), the print date, and the print time to assist in assembly of multiple pages. If more than one page is required by the template, manual page breaks have been set to provide consistent presentation. All of the cells have been correctly formatted for presentation and should not require any adjustment. For example, if the text requires one, two, or three significant digits in a presentation, the template has been set for that presentation in the appropriate cells. In general, the yellow highlighted cells are the cells which work and effort should be presented. These entries may include date(s), account title(s), values, memorandum appropriate to the entry, or text answers to questions. And information or data which may be required by the solution will be entered in cells with borders to help identify them. Where a yellow highlighted cell shows "Date" enter the appropriate date for that step of the challenge. This may be any date format that Microsoft Excel accepts. Some of these formats include "1/1/12", "01/01/12", and "01/01/2012." All of these will return January 01, 2012, in the format set in the template. Where a yellow highlighted cell shows "Acct Nbr" enter the appropriate account number, provided in the template and in the text for that step of the challenge. This is entry may be a "Look to" formula to another cell where that information has been provided or previously entered. Where a yellow highlighted cell shows "Account Title" enter the appropriate account title for that step of the challenge. This is a text entry and most of those cells are set for the proper indentation for that step. Frequently the chart of accounts appropriate to the challenge is provided and you can use the "look to" formula to reference the appropriate account title without typing it. Check with your instructor to see if abbreviated account titles are acceptable. For example "A/R" for Accounts Receivable, "A/P" for Accounts Payable. If your instructor is using a comparison process between workbooks for grading, these abbreviates may not be acceptable. Where a yellow highlighted cell shows titles such as "Values," "Amounts," or "Quantities" enter the appropriate numerical value for that step of the challenge. The cell is formatted for proper presentation of the entered information. If a dollar sign is appropriate, it should not be entered, Microsoft Excel will place it there through formatting. Commas and significant digits (decimals) are also set through formatting for common presentation. Since the formatting of the templates is not protected by any password, you may change any of the formatting found in the templates to meet your desires. Where a yellow highlighted cell shows titles such as "Formula" you may enter the appropriate formula or enter a numerical value appropriate for that step of the challenge. Most of the values necessary for the appropriate formula are located on the template in cells with borders or in other yellow highlighted cells. The formula may be a simple "Look to" formula, an equal sign and a cell reference, "=E27" or more complex as "=E27*5," or something similar to the time-value-of-money formula. These are addressed in the tutorial text provided for Microsoft Excel.

Where a yellow highlighted cell shows titles such as "Formula" you may enter the appropriate formula or enter a numerical value appropriate for that step of the challenge. Most of the values necessary for the appropriate formula are located on the template in cells with borders or in other yellow highlighted cells. The formula may be a simple "Look to" formula, an equal sign and a cell reference, "=E27" or more complex as "=E27*5," or something similar to the time-value-of-money formula. These are addressed in the tutorial text provided for Microsoft Excel. Where a yellow highlighted cell shows "Text" enter the appropriate text for that step of the challenge. This may be a memorandum entry for a journal entry or a lengthy text answer discussing the results of an analysis of a company's financials. These titles can simply be typed over. Where a yellow highlighted cell shows titles such as "Journal Number" or "Journ #" you should enter the appropriate number provided in the template and in the text for that step of the challenge. In general this will appear in instances such as "Record the following events in General Journal number six." The print area is defined to fit onto 8 1/2" 11" sheets in portrait or landscape mode as required. Margins are generally set to no less than 1/2" so most printers can print them without a problem. If you printer cannot accept margins less than 1" you may have to reformat the margins through Page Setup. The display may have "Freeze Pane" invoked so column titles remain visible during data entry. This can be removed by utilizing the View menu and selecting "Unfreeze Panes" under "Freeze Panes." When negative values are required, enter them by starting with a minus sign, "-". Negative values may be shown as ($400) or -$400. Negative values in formulas can be created by putting a minus sign in front of the cell reference - "=E10*-E11" will return a negative value if both cells E10 and E11 contain positive values. Microsoft Office and Microsoft Excel are products of, and copyrighted by, Microsoft Corporation, One Microsoft Way, Redmond, Washington 98052-6399

Solution Name: Date: Instructor: Course: Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield Primer on Using Excel in Accounting by Rex A Schildhouse
E11-1 (Depreciation ComputationsSL, SYD, DDB) Lansbury Company purchases equipment on January 1, Year 1, at a cost of $518,000 . The asset is expected to have a service life of 12 years and a salvage value of $50,000 Instructions: (a) Compute the amount of depreciation for each Years 1 through 3 using the straight-line depreciation method. Straight-line method depreciation for each of Years 1 through 3 is computed as: Cost: Salvage value: Depreciable value: Asset life: (Years) Annual straight-line depreciation value: $518,000 50,000 468,000 12 $39,000

Excel formula = SLN(Cost,Salvage,Life) = SLN(E17,E18,E20) = $39,000 Area for Excel calculations as desired. (b) Compute the amount of depreciation for each Years 1 through 3 using the sum-of-years digits depreciation method. The sum of 1 through 12 = 1+2+3+4+5+6+7+8+9+10+11+12 = 1+12 + 2+11 + 3+10 + 4+9 + 5+8 + 6+7 = (1+12) + (2+11) + (3+10) + (4+9) + (5+8) + (6+7) = (13) + (13) + (13) + (13) + (13) + (13) = 13 X (12/2) = 13 X 6 = 78 the sum of the first year and the last year multiplied by one half of the total number of years. Hint: Since "Sum-of-Years-Digits" title contains an "S", use salvage value to compute periodic depreciation expense. Cost: Salvage value: Depreciable value: $518,000 50,000 468,000 Numerator / Period Year Denominator Depreciation 12 78 $72,000 11 78 $66,000 10 78 $60,000

Depreciation expense for year: Depreciation expense for year: Depreciation expense for year:

1 2 3

Excel formula = SYD(Cost,Salvage,Life,Period) = SYD(E38,E39,E43,D43) = $72,000 for year 1 Depreciation expense for year: Depreciation expense for year: Depreciation expense for year: 1 2 3 $72,000.00 $66,000.00 $60,000.00

153010908.xlsx.ms_office, Exercise 11-1 Solution, Page 3 of 20, 6/20/2013, 6:59 AM

Solution Name: Date: Instructor: Course: (c) Compute the amount of depreciation for each YearsWeygandt, 1 through 3 using the double-declining balance Intermediate Accounting , 14th Edition by Kieso, and Warfield
method. (In performing your calculations, round constant percentage to the nearest one-hundredth of a point and round answers to the nearest dollar.) Hint: Since "Double-Declining Balance Method" title does not contain an "S", do not use salvage value to compute periodic depreciation expense. However, ensure that book value does not violate salvage value. Cost: Salvage value: Asset life: (Years) Annual Straight-line Depreciation rate: Double-Declining factor: Double-Declining annual rate: $518,000 50,000 12 8.33% 200% 16.67% Double Declining rate: 16.67% 16.67% 16.67% Annual Depreciation Amount: $86,333 71,944 59,954

Year: 1 2 3

Beginning Balance $518,000 431,667 359,722

Ending Balance $431,667 359,722 299,769

Excel formula = DDB(Cost,Salvage,Life,Period,Factor) = DDB(E63,E64,E65,C71) = $86,333 for year 1 1 $86,333 2 $71,944 3 $59,954 Note: Minor differences may occur due to rounding and significant digits.

153010908.xlsx.ms_office, Exercise 11-1 Solution, Page 4 of 20, 6/20/2013, 6:59 AM

Name: Date: Instructor: Course: Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield Primer on Using Excel in Accounting by Rex A Schildhouse
E11-1 (Depreciation ComputationsSL, SYD, DDB) Lansbury Company purchases equipment on January 1, Year 1, at a cost of $518,000 . The asset is expected to have a service life of 12 years and a salvage value of $50,000 Instructions: (a) Compute the amount of depreciation for each Years 1 through 3 using the straight-line depreciation method. Straight-line method depreciation for each of Years 1 through 3 is computed as: Cost: Salvage value: Depreciable value: Asset life: (Years) Annual straight-line depreciation value: Amount Amount Formula Number Formula

Excel formula for straight-line depreciation is =SLN(Cost,Salvage,Life) Area for Excel calculations as desired. (b) Compute the amount of depreciation for each Years 1 through 3 using the sum-of-years digits depreciation method. The sum of 1 through 12 = 1+2+3+4+5+6+7+8+9+10+11+12 = 1+12 + 2+11 + 3+10 + 4+9 + 5+8 + 6+7 = (1+12) + (2+11) + (3+10) + (4+9) + (5+8) + (6+7) = (13) + (13) + (13) + (13) + (13) + (13) = 13 X (12/2) = 13 X 6 = 78 the sum of the first year and the last year multiplied by one half of the total number of years. Hint: Since "Sum-of-Years-Digits" title contains an "S", use salvage value to compute periodic depreciation expense. Cost: Salvage value: Depreciable value: Amount Amount Formula Numerator / Period Year Denominator Depreciation Number Number Formula Number Number Formula Number Number Formula

Depreciation expense for year: Depreciation expense for year: Depreciation expense for year:

1 2 3

The Excel formula for Sum-of-Years-Digits Depreciation is =SYD(Cost,Salvage,Life,Period) Depreciation expense for year: Depreciation expense for year: Depreciation expense for year: 1 2 3 Formula Formula Formula

153010908.xlsx.ms_office, Exercise 11-1, Page 5 of 20, 6/20/2013, 6:59 AM

Name: Date: Instructor: Course: (c) Compute the amount of depreciation for each YearsWeygandt, 1 through 3 using the double-declining balance Intermediate Accounting , 14th Edition by Kieso, and Warfield
method. (In performing your calculations, round constant percentage to the nearest one-hundredth of a point and round answers to the nearest dollar.) Hint: Since "Double-Declining Balance Method" title does not contain an "S", do not use salvage value to compute periodic depreciation expense. However, ensure that book value does not violate salvage value. Cost: Salvage value: Asset life: (Years) Annual Straight-line Depreciation rate: Double-Declining factor: Double-Declining annual rate: Amount Amount Number Formula 200% Formula

Year: 1 2 3

Double Annual Beginning Declining Depreciation Balance rate: Amount: Amount Percentage Formula Value Percentage Formula Value Percentage Formula

Ending Balance Formula Formula Formula

The Excel formula for Accelerated Depreciation is =DDB(Cost,Salvage,Life,Period,Factor) 1 Formula 2 Formula 3 Formula Note: Minor differences may occur due to rounding and significant digits.

153010908.xlsx.ms_office, Exercise 11-1, Page 6 of 20, 6/20/2013, 6:59 AM

Solution Name: Date: Instructor: Course: Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield Primer on Using Excel in Accounting by Rex A Schildhouse
E11-2 (DepreciationConceptual Understanding) Hasselback Company acquired a plant asset at the beginning of Year 1. The asset has an estimated service life of 5 years. An employee has prepared depreciation schedules for this asset using three different methods to compare the results of using one method with the results of using other methods. You are to assume that the following schedules have been correctly prepared for this asset using: (1) the straight-line method, (2) the sum-of-the-years-digits method, and (3) the double-declining-balance method. Sum-ofDoubleStraightYears'DecliningYear Line Digits Balance 1 $9,000 $15,000 $20,000 2 9,000 12,000 12,000 3 9,000 9,000 7,200 4 9,000 6,000 4,320 5 9,000 3,000 1,480 Total $45,000 $45,000 $45,000 Instructions: Answer the following questions. (a) What is the cost of the asset being depreciated? If there is any salvage value and the amount is unknown (as is the case here), the cost would have to be determined by looking at the data for the double-declining balance method.

100% 5 years = 20%; 20% 200% = 40% Cost 40% = $20,000 $20,000 40% = $50,000 (b) What amount, if any, was used in the depreciation calculations for the salvage value for this asset? $50,000 cost [from (a)] $45,000 total depreciation = $5,000 salvage value.

(c) Which method will produce the highest charge to income in Year 1? The highest charge to income for Year 1 will be yielded by the double-declining-balance method.

(d) Which method will produce the highest charge to income in Year 4? The highest charge to income for Year 4 will be yielded by the straight-line method.

153010908.xlsx.ms_office, Exercise 11-2 Solution, Page 7 of 20, 6/20/2013, 6:59 AM

Solution Name: Date: Instructor: Course: th (e) Which method will produce the highest book value for the assetand at the end of Year 3? Intermediate Accounting , 14 Edition by Kieso, Weygandt, Warfield
The method that produces the highest book value at the end of Year 3 would be the method that yields the lowest accumulated depreciation at the end of Year 3, which is the straight-line method.

Computations: St.-line = $50,000 ($9,000 + $9,000 + $9,000) = $23,000 book value, end of Year 3. S.Y.D. = $50,000 ($15,000 + $12,000 + $9,000) = $14,000 book value, end of Year 3. D.D.B. = $50,000 ($20,000 + $12,000 + $7,200) = $10,800 book value, end of Year 3. (f) If the asset is sold at the end of Year 3, which method would yield the highest gain (or lowest loss) on disposal of the asset? The method that will yield the highest gain (or lowest loss) if the asset is sold at the end of Year 3 is the method which will yield the lowest book value at the end of Year 3, which is the double-declining balance method in this case.

153010908.xlsx.ms_office, Exercise 11-2 Solution, Page 8 of 20, 6/20/2013, 6:59 AM

Name: Date: Instructor: Course: Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield Primer on Using Excel in Accounting by Rex A Schildhouse
E11-2 (DepreciationConceptual Understanding) Hasselback Company acquired a plant asset at the beginning of Year 1. The asset has an estimated service life of 5 years. An employee has prepared depreciation schedules for this asset using three different methods to compare the results of using one method with the results of using other methods. You are to assume that the following schedules have been correctly prepared for this asset using: (1) the straight-line method, (2) the sum-of-the-years-digits method, and (3) the double-declining-balance method. Sum-ofDoubleStraightYears'DecliningYear Line Digits Balance 1 $9,000 $15,000 $20,000 2 9,000 12,000 12,000 3 9,000 9,000 7,200 4 9,000 6,000 4,320 5 9,000 3,000 1,480 Total $45,000 $45,000 $45,000 Instructions: Answer the following questions. (a) What is the cost of the asset being depreciated? Enter answer here.

Area for formulas as desired. Area for formulas as desired. Area for formulas as desired. (b) What amount, if any, was used in the depreciation calculations for the salvage value for this asset? Enter answer here.

(c) Which method will produce the highest charge to income in Year 1? Enter answer here.

(d) Which method will produce the highest charge to income in Year 4? Enter answer here.

153010908.xlsx.ms_office, Exercise 11-2, Page 9 of 20, 6/20/2013, 6:59 AM

Name: Date: Instructor: Course: th (e) Which method will produce the highest book value for the assetand at the end of Year 3? Intermediate Accounting , 14 Edition by Kieso, Weygandt, Warfield
Enter answer here.

Computations: Area for formulas as desired. Area for formulas as desired. Area for formulas as desired. (f) If the asset is sold at the end of Year 3, which method would yield the highest gain (or lowest loss) on disposal of the asset? Enter answer here.

153010908.xlsx.ms_office, Exercise 11-2, Page 10 of 20, 6/20/2013, 6:59 AM

Name: Date: Instructor: Course: Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield Primer on Using Excel in Accounting by Rex A Schildhouse
E11-4 (Depreciation ComputationsFive Methods) Wenner Furnace Corp. purchased machinery for $279,000 on May 1, 2012. It is estimated that it will have a useful life of 10 years, salvage value of $15,000 , production of 240,000 units, and working hours of 25,000 . During 2013, Wenner Corp. uses the machinery for 2,650 hours, and the machinery produces 25,500 units. Instructions: From the information given, compute the depreciation charge for 2013 under each of the following methods. (Round to the nearest dollar.) (a) Straight-line (Note - Utilize Excel formula =SLN(Cost,Salvage,Life) to solve the problem.) $26,400 (b) Units-of-output (Note: Since units-of-production has an "s" in it, utilize salvage value in computing period depreciation.) Cost: $279,000 Salvage value: 15,000 Depreciable value: 264,000 Life units expected: 240,000 Depreciation per unit: $1.10 Period units: 25,500 Period depreciation: $28,050 (c) Working hours (Note: Working hours is a "units-of-production" method and since units-ofproduction has an "s" in it, utilize salvage value in computing period depreciation.) Cost: $279,000 Salvage value: 15,000 Depreciable value: 264,000 Hours of expected life: 25,000 Depreciation per hour: $10.56 Period hours: 2,650 Period depreciation: $27,984 (d) Sum-of-years-digits (Note - Utilize Excel formula =SYD(Cost,Salvage,Life,Period) to solve the problem.) (Note: Second year covers two depreciation periods.) First part of 2013 $264,000 (10/55) (1/3) = $16,000 Second part of 2013 $264,000 (9/55) (2/3) = $28,800 $44,800 (e) Declining balance, (10 year life, DDB results in 20% annual rate, use 200% for Factor in Excel). (Note: Utilize Excel formula =DDB(Cost,Salvage,Life,Period,Factor) to solve the problem. (Note: Second year covers two depreciation periods.) First part of 2013 $279,000 20% (1/3) = $18,600 Second part of 2013 $223,200 20% (2/3) = $29,760 $48,360

153010908.xlsx.ms_office, Exercise 11-4 Solution, Page 11 of 20, 6/20/2013, 6:59 AM

Name: Date: Instructor: Course: Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield Primer on Using Excel in Accounting by Rex A Schildhouse
E11-4 (Depreciation ComputationsFive Methods) Wenner Furnace Corp. purchased machinery for $279,000 on May 1, 2012. It is estimated that it will have a useful life of 10 years, salvage value of $15,000 , production of 240,000 units, and working hours of 25,000 . During 2013, Wenner Corp. uses the machinery for 2,650 hours, and the machinery produces 25,500 units. Instructions: From the information given, compute the depreciation charge for 2013 under each of the following methods. (Round to the nearest dollar.) (a) Straight-line (Note - Utilize Excel formula =SLN(Cost,Salvage,Life) to solve the problem.) Formula (b) Units-of-output (Note: Since units-of-production has an "s" in it, utilize salvage value in computing period depreciation.) Cost: Amount Salvage value: Amount Depreciable value: Formula Life units expected: Number Depreciation per unit: Formula Period units: Number Period depreciation: Formula (c) Working hours (Note: Working hours is a "units-of-production" method and since units-ofproduction has an "s" in it, utilize salvage value in computing period depreciation.) Cost: Amount Salvage value: Amount Depreciable value: Formula Hours of expected life: Number Depreciation per hour: Formula Period hours: Number Period depreciation: Formula (d) Sum-of-years-digits (Note - Utilize Excel formula =SYD(Cost,Salvage,Life,Period) to solve the problem.) (Note: Second year covers two depreciation periods.) First part of 2013 Formula Time period factor Formula Second part of 2013 Formula Time period factor Formula Formula (e) Declining balance, (10 year life, DDB results in 20% annual rate, use 200% for Factor in Excel). (Note: Utilize Excel formula =DDB(Cost,Salvage,Life,Period,Factor) to solve the problem. (Note: Second year covers two depreciation periods.) First part of 2013 Formula Time period factor Formula Second part of 2013 Formula Time period factor Formula Formula

153010908.xlsx.ms_office, Exercise 11-4, Page 12 of 20, 6/20/2013, 6:59 AM

Solution Name: Date: Instructor: Course: th Intermediate Accounting, 14 Edition by Kieso, Weygandt, and Warfield Primer on Using Excel in Accounting by Rex A Schildhouse
P11-1 (Depreciation for Partial PeriodSL, SYD, and DDB) Alladin Company purchased Machine #201 on May 1, 2012. The following information relating to Machine #201 was gathered at the end of May. Price Credit terms Freight-in costs Prep and installation costs Labor costs during regular production operations $85,000 2 / 10, N / 30 $800 $3,800 $10,500

It was expected that the machine could be used for 10 years, after which the salvage value would be $0 Alladin intends to use the machine only 8 years, however, after which it expects to be able to sell it for $1,500 The invoice for Machine #201 was paid May 5, 2012. Alladin uses the calendar year as the basis for the preparation of financial statements. Instructions: (a) (1) Compute the depreciation expense for the years indicated using the straight-line method for 2012. (Round to the nearest dollar.) Total Cost = Price Less: Credit terms Freight-in costs Prep and installation costs Salvage value Total Cost = Depreciable value Life of the asset Annual depreciation exp Partial year depreciation $85,000 (1,700) 800 3,800 87,900 1,500 $86,400 86,400 8 $10,800 $7,200 8 of 12 months of 2012

(a) (2) Compute the depreciation expense for the years indicated using the sum-of-years'-digits method for 2013. (Round to the nearest dollar.) Utilize the Excel formula =SYD(Cost,Salvage,Life,Period). $19,200 $6,400 for last 4 of 12 months of first year 16,800 11,200 for first 8 of 12 months of second year $17,600 Total for second calendar year (a) (3) Compute the depreciation expense for the years indicated using the double-declining balance method for 2012. (Round to the nearest dollar.) Utilize the Excel formula =DDB(Cost,Salvage,Life,Period). $21,975 $14,650 for last 8 of 12 months of first year

153010908.xlsx.ms_office, Problem 11-1 Solution, Page 13 of 20, 6/20/2013, 6:59 AM

Solution Name: Date: Instructor: Course: th (b) Suppose Kate Crow, the president of Alladin, tells you that because the company is a new Intermediate Accounting , 14 Edition by Kieso, Weygandt, and Warfield
organization, she expects it will be several years before production and sales reach optimum levels. She asks you to recommend a depreciation method that will allocate less of the companys depreciation expense to the early years and more to later years of the assets lives. What method would you recommend? Recommendation and comments: Activity based methodology since any accelerated depreciation basis will provide more (proportionally) depreciation expense in the earlier years than straight-line. However, straight-line will not reflect lower utilization of the early years based on the assumed production peak after several years where Kate wants the expense and tax advantage to be apparent.

153010908.xlsx.ms_office, Problem 11-1 Solution, Page 14 of 20, 6/20/2013, 6:59 AM

Name: Date: Instructor: Course: th Intermediate Accounting, 14 Edition by Kieso, Weygandt, and Warfield Primer on Using Excel in Accounting by Rex A Schildhouse
P11-1 (Depreciation for Partial PeriodSL, SYD, and DDB) Alladin Company purchased Machine #201 on May 1, 2012. The following information relating to Machine #201 was gathered at the end of May. Price Credit terms Freight-in costs Prep and installation costs Labor costs during regular production operations $85,000 2 / 10, N / 30 $800 $3,800 $10,500

It was expected that the machine could be used for 10 years, after which the salvage value would be $0 Alladin intends to use the machine only 8 years, however, after which it expects to be able to sell it for $1,500 The invoice for Machine #201 was paid May 5, 2012. Alladin uses the calendar year as the basis for the preparation of financial statements. Instructions: (a) (1) Compute the depreciation expense for the years indicated using the straight-line method for 2012. (Round to the nearest dollar.) Total Cost = Price Less: Credit terms Freight-in costs Prep and installation costs Salvage value Total Cost = Depreciable value Life of the asset Annual depreciation exp Partial year depreciation Amount Amount Amount Amount Formula Amount Formula Formula Number Formula Formula 8 of 12 months of 2012

(a) (2) Compute the depreciation expense for the years indicated using the sum-of-years'-digits method for 2013. (Round to the nearest dollar.) Utilize the Excel formula =SYD(Cost,Salvage,Life,Period). Formula Formula for last 4 of 12 months of first year Formula Formula for first 8 of 12 months of second year Formula Total for second calendar year (a) (3) Compute the depreciation expense for the years indicated using the double-declining balance method for 2012. (Round to the nearest dollar.) Utilize the Excel formula =DDB(Cost,Salvage,Life,Period). Formula Formula for last 8 of 12 months of first year

153010908.xlsx.ms_office, Problem 11-1, Page 15 of 20, 6/20/2013, 6:59 AM

Name: Date: Instructor: Course: th (b) Suppose Kate Crow, the president of Alladin, tells you that because the company is a new Intermediate Accounting , 14 Edition by Kieso, Weygandt, and Warfield
organization, she expects it will be several years before production and sales reach optimum levels. She asks you to recommend a depreciation method that will allocate less of the companys depreciation expense to the early years and more to later years of the assets lives. What method would you recommend? Enter text answer here.

153010908.xlsx.ms_office, Problem 11-1, Page 16 of 20, 6/20/2013, 6:59 AM

Solution Name: Date: Instructor: Course: Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield Primer on Using Excel in Accounting by Rex A Schildhouse
11-12 (DepreciationSL, DDB, SYD, Act., and MACRS) On January 1, 2011, Locke Company, a small machine-tool manufacturer, acquired for $1,260,000 a piece of new industrial equipment. The new equipment had a useful life of 5 years, and the salvage value was estimated to be $60,000 . Locke estimates that the new equipment can produce 12,000 machine tools in its first year. It estimates that production will decline by 1,000 units per year over the remaining useful life of the equipment. The following depreciation methods may be used: (1) Straight-line, (2) Double-declining balance, (3) Sum-of-years'-digits, and (4) Units-of-output. For tax purposes, the class life is 7 years. Use the MACRS tables for c omputing depreciation. Instructions: (a) Which depreciation method would maximize net income for financial statement reporting for the 3-year period ending December 31, 2013? Prepare a schedule showing the amount of accumulated depreciation at December 31, 2013, under the method selected. Ignore present value, income tax, and deferred income tax considerations. The straight-line method would provide the highest total net income for financial reporting over the three years, as it reports the lowest total depreciation expense. These computations are provided below.

(1) Straight-line:

Cost Salvage value Depreciable value Life Annual depreciation expense Depreciation Expense $240,000 240,000 240,000 $720,000

$1,260,000 60,000 1,200,000 5 $240,000 Accumulated Depreciation $240,000 480,000 720,000

Year 2011 2012 2013

(2) Double-declining balance: Year 2011 2012 2013 Depreciation Expense $504,000 302,400 181,440 $987,840 Accumulated Depreciation $504,000 806,400 987,840

153010908.xlsx.ms_office, Problem 11-12 Solution, Page 17 of 20, 6/20/2013, 6:59 AM

Solution Name: Date: Instructor: Course: (3) Sum-of-the-years-digits: Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield
Year 2011 2012 2013 Depreciation Expense $400,000 320,000 240,000 $960,000 Accumulated Depreciation $400,000 [(5/15) $1,200,000] 720,000 [(4/15) $1,200,000] 960,000 [(3/15) $1,200,000]

(4) Units-of-output: Year 2011 2012 2013 2014 2015 Total units Expected Output 12,000 11,000 10,000 9,000 8,000 50,000 Depreciation Expense $288,000 $264,000 $240,000 $792,000 Accumulated Depreciation $288,000 552,000 792,000

Cost Salvage value Depreciable value Expected life output Unit depreciation expense

$1,260,000 60,000 1,200,000 50,000 $24.00

(b) Which depreciation method (MACRS or optional straight-line) would minimize net income for income tax reporting for the 3-year period ending December 31, 2011? Determine the amount of accumulated depreciation at December 31, 2011. Ignore present value considerations. General MACRS method: (Values taken from the MACRS rates schedule.) MACRS Total Cost Rates (%) 2011 1,260,000 14.29% = 2012 1,260,000 24.49% = 2013 1,260,000 17.49% =

Depreciation Expense $180,054 308,574 220,374 $709,002

Accumulated Depreciation $180,054 488,628 709,002

Optional straight-line method: Total Cost 2011 2012 2013 1,260,000 1,260,000 1,260,000 Depreciation Rate (1/7 X 1/2) 1/7 1/7 = = = Annual Depreciation $90,000 180,000 180,000 $450,000 Accumulated Depreciation $90,000 270,000 450,000

The general MACRS method would have higher depreciation expense ($709,002) than that of the optional straight-line method ($450,000) for the three-year period ending December 31, 2013. Therefore, the general MACRS method would minimize net income for income tax purposes for this period.

153010908.xlsx.ms_office, Problem 11-12 Solution, Page 18 of 20, 6/20/2013, 6:59 AM

Name: Date: Instructor: Course: Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield Primer on Using Excel in Accounting by Rex A Schildhouse
11-12 (DepreciationSL, DDB, SYD, Act., and MACRS) On January 1, 2011, Locke Company, a small machine-tool manufacturer, acquired for $1,260,000 a piece of new industrial equipment. The new equipment had a useful life of 5 years, and the salvage value was estimated to be $60,000 . Locke estimates that the new equipment can produce 12,000 machine tools in its first year. It estimates that production will decline by 1,000 units per year over the remaining useful life of the equipment. The following depreciation methods may be used: (1) Straight-line, (2) Double-declining balance, (3) Sum-of-years'-digits, and (4) Units-of-output. For tax purposes, the class life is 7 years. Use the MACRS tables for c omputing depreciation. Instructions: (a) Which depreciation method would maximize net income for financial statement reporting for the 3-year period ending December 31, 2013? Prepare a schedule showing the amount of accumulated depreciation at December 31, 2013, under the method selected. Ignore present value, income tax, and deferred income tax considerations. The straight-line method would provide the highest total net income for financial reporting over the three years, as it reports the lowest total depreciation expense. These computations are provided below.

(1) Straight-line:

Cost Salvage value Depreciable value Life Annual depreciation expense Depreciation Expense Formula Formula Formula Formula

Amount Amount Formula Number Formula Accumulated Depreciation Formula Formula Formula

Year 2011 2012 2013

(2) Double-declining balance: Year 2011 2012 2013 Depreciation Expense Formula Formula Formula Formula Accumulated Depreciation Formula Formula Formula

153010908.xlsx.ms_office, Problem 11-12, Page 19 of 20, 6/20/2013, 6:59 AM

Name: Date: Instructor: Course: (3) Sum-of-the-years-digits: Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield
Year 2011 2012 2013 Depreciation Expense Formula Formula Formula Formula Accumulated Depreciation Formula Formula Formula

(4) Units-of-output: Year 2011 2012 2013 2014 2015 Total units Expected Depreciation Output Expense Formula Formula Formula Formula Formula Formula Formula Formula Formula Formula Accumulated Depreciation Formula Formula Formula

Cost Salvage value Depreciable value Expected life output Unit depreciation expense

Amount Amount Formula Number Formula

(b) Which depreciation method (MACRS or optional straight-line) would minimize net income for income tax reporting for the 3-year period ending December 31, 2011? Determine the amount of accumulated depreciation at December 31, 2011. Ignore present value considerations. General MACRS method: (Values taken from the MACRS rates schedule.) MACRS Total Cost Rates (%) 2011 1,260,000 Percentage = 2012 1,260,000 Percentage = 2013 1,260,000 Percentage =

Depreciation Expense Formula Formula Formula Formula

Accumulated Depreciation Formula Formula Formula

Optional straight-line method: Total Cost 2011 2012 2013 1,260,000 1,260,000 1,260,000 Depreciation Rate Rate Rate Rate = = = Annual Depreciation Formula Formula Formula Formula Accumulated Depreciation Formula Formula Formula

Enter text answer here.

153010908.xlsx.ms_office, Problem 11-12, Page 20 of 20, 6/20/2013, 6:59 AM