BE9­1 These expenditures were incurred by Patnode Company in purchasing land: cash price
$60,000; accord taxes $5,000; attorney’s fees $2,100; real estate broker’s commission $3,300;
and clearing and grading $3,500. What is the cost of the land?
BE9­4 Erin Company purchased land and a building on January 1, 2012. Management’s best
estimate of the value of the land was $100,000 and of the building $250,000. However, man­
agement told the accounting department to record the land at $230,000 and the building at
$120,000. The building is being depreciated on a straight­line basis over 20 years with no sal­
vage value. Why do you suppose management requested this accounting treatment? Is it ethi­
cal?
BE9­5 On January 1, 2012, the Eugene Company ledger shows Equipment $36,000 and Accu­
mulated Depreciation $13,600. The depreciation results from using the straight­line method with
a useful life of 10 years and a salvage value of $2,000. On this date, the company concludes
that the equipment has a remaining useful life of only 2 years with the same salvage value.
Compute the revised annual depreciation.
E9­4 Belinda Lorenz has prepared the following list of statements about depreciation.
1. Depreciation is a process of asset variation, not cost allocation.
2. Depreciation provides for the proper matching of expenses with revenues.
3. The book value of a plant asset should approximate its fair value.
4. Depreciation applies to three classes of plant assets: land, buildings, and equipment.
5. Depreciation does not apply to a building because of its usefulness and revenue­producing
ability to generally remain intact over time.
6. The revenue producing ability of a depreciable asset will decline due to wear and tear and to
obsolescence.
7. Recognizing depreciation on an asset results in accumulation of cash for the replacement of
the asset.
8. The balance in accumulated depreciation represents the total cost that has been charged to
expense.
9. Depreciation expense and accumulated depreciation are reported on the income statement.
10. Four factors affect the computation of depreciation: cost, useful life, salvage value, and
residual value.
Instructions: Identify each statement as TRUE or FALSE. If False please indicate how to
correct the statement.
E9­6 Brett Richard the new controller of Maldonado Company has reviewed the expected usual
lives and salvage values of selected depreciable assets at the beginning of 2012. Here are his
findings:
Accumulated
Useful Life
Type of
Date
Depreciation,
(in years)
Salvage Value
Asset Acquired
Cost Jan. 1, 2012 Old Proposed Old Proposed

Building Jan. 1, 2004 700,000 $130,000 40 48 $50,000 $35,000
Warehouse Jan. 1, 2007 120,000 $23,000
25 20 5,000 3,600

All assets are depreciated by the straight­line method. Maldonado Company uses a calendar
year in preparing annual financial statements. After discussion, management has agreed to ac­
cept Brett’s proposed changes. (The “proposed” useful life is total life, not remaining life.)
Instructions
a) Compute the revised annual depreciation on each asset in 2012. (Show computa­
tions)
b) Prepare the entry (or entries) to record depreciation on the building in 2012
E9­9 The following statements are independent from one another.
1. An accounting student recently employed by a small company doesn’t understand why the
company sonly depreciation its buildings and equipments, but not its land. The student pre­
pared journal entries to depreciate all the company’s property, plant, and equipment for the
current year­end.
2. The same student also thinks the company’s amortization policy on its intangible asset is
wrong. The company is currently amortizing its patients but not its goodwill. The student
fixed that for the current year­end by adding goodwill to her adjusting entry for amortization.
She told a fellow employee that she felt she had improved the consistency of the company’s
accounting policies by making these changes.
3. The same company has a building still in use that has a zero book value but a substantial
fair value. The student felt that this practice didn’t benefit the companies users—especially
the bank—and wrote the building up to its fair value. After all, she reasoned, you can write
down assets if fair value is higher is yet another example of the improved consistency that
she has brought to the companies accounting practices.
Instructions
Explain whether or not the accounting treatment in each of the above situations is in ac­
cordance with with generally accepted accounting principles. Explain what accounting
principle or assumption, if any, has been violated, and what the appropriate accounting
treatment should be.
BE10­1 Jasper company has these obligations at Dec. 31: a) a note payable for $100,000 due
in 2 years, b) a 10­year mortgage payable of 200,000 payables in ten 20,000 annual payments,
c) interest payable of 15,000 on the mortgage, and d) accounts payable of 60,000. For each
obligation, indicate whether it should be classified as a current liability.
BE10­2 Canney Company borrows $90,000 on July 1 from the bank by signing a $90,000, 7%,
1­year note payable. Prepare the journal entries to record a) the proceeds of the note and b) ac­
crued interest at December 31, assuming adjusting entries are made only at the end of the year.
BE10­3 Home Town Supply does not segregate sales and sales taxes at the time of the sale.
The register total for March 16 is $10,388. All sales are subject to a 6% sales tax. Compute
sales taxes payable and make the entry to record sales taxes payable and sales.
E10­3 On June 1, Chetney Company Ltd. borrows $60,000 from the First Bank on a 6­month,
$60,000, 8% note. The note matures on December 1.
Instructions
a. Prepare the entry on June 1.
b. Prepare the adjusting entry on June 30.

c. Prepare the entry at maturity (December 1), assuming monthly adjusting entries have been
made through November 30.
d. What was the total financing cost (interest expense)?
E10­4 In providing accounting services to small businesses, you encounter the following situa­
tions pertaining to cash sales.
1. Duvall Company rings up sales and sales taxes separately on its cash register. On April 10,
the register totals are sales $22,000 and sales taxes $1,100.
2. Hubbard Company does not segregate sales and sales taxes. Its register total for April 15 is
$13,780, which includes a 6% sales tax.
Instructions
Prepare the entries to record the sales transactions and related taxes for a) Duvall Com­
pany and b) Hubbard Company
E10­12 For each situation, prepare the appropriate journal entry for the redemption of the
bonds.
(a) Martha Corporation retired $140,000 face value, 9% bonds on April 30, 2012, at 101. The
carrying value of the bonds at the redemption date was $126,500. The bonds pay annual in­

terest, and the interest payment due on April 30, 2012, has been made and recorded.
(b) Williams, Inc., retired $170,000 face value, 12.5% bonds on June 30, 2012, at 98. The carry­
ing value of the bonds at the redemption date was $184,000. The bonds pay annual interest,
and the interest payment due on June 30, 2012, has been made and recorded.