Exam 1: Property, plant and Equipment Intangibles

The first step in accounting for the disposal of property,plant and equipment is calculating the gain or loss on disposal.

Treating small-dollar-amount capital expenditures as revenue expenditures is likely to mislead users of financial statements.

SportsWorld uses straight-line depreciation for a piece of equipment that cost $12,000,had a salvage value of $2,000,and a five-year service life.At the end of the first year,an impairment loss of $2,000 was recognized on the asset.Calculate the amount of depreciation expense for each of the remaining years of the asset's useful life.

Depreciation is the process of allocating the cost of a tangible asset in a rational and systematic manner over the asset's estimated useful life.

On January 4,2020,SportsWorld purchased a patent for $35,000 with a useful life of 10 years.Prepare the journal entry to amortize the patent for the calendar year 2020.

On April 1,2020,Hogan Industries scrapped a machine that cost $10,000 and had accumulated depreciation through December 31,2019,of $10,000.Prepare the journal entry to record the disposal of the machine.

Hertzog Company purchased and installed a machine on February 1,2019,at a total cost of $72,000.Straight-line depreciation was calculated based on the assumption of a five-year life and no residual value.The machine was disposed of on July 31,2022.Assuming the machine was totally destroyed in a fire and the insurance company settled the claim for $18,000 cash,prepare the general journal entry to record the disposal.

Hertzog Company purchased and installed a machine on February 1,2019,at a total cost of $72,000.Straight-line depreciation was calculated based on the assumption of a five-year life and no residual value.The machine was disposed of on July 31,2022.Assuming the machine was sold for $15,000,prepare the general journal entry to record the disposal.

Intangible assets should be amortized over their anticipated legal,regulatory,contractual,competitive or economic life.

The following information is available for a piece of A Company's machinery: On November 1,2022,the electronic controller was replaced with a new one costing $8,000 purchased for cash.The new controller had an estimated residual value of $1,000 and an estimated useful life of 5 years.During 2022 the machinery was used for 3,200 hours from January 1 to October 31 and 650 hours from November 1 to December 31.Required: Record depreciation on machinery and the controller replacement for 2022.Round depreciation amounts to the nearest dollar.

A new machine is expected to produce 60,000 units of product during its 5-year life.The machine cost $180,000 and is estimated to have a $20,000 residual value.If the machine produces 7,200 units of product during its first year,what is the depreciation for the year calculated by the units-of-production method (round rate to 2 decimals)?

Prepare journal entries to record the following transactions of Salem Sales Co.during the current year: Mar 1 $\quad$ Purchased a truck for $\$ 60,000$ with a 6 year useful life and a $\$ 10,000$ residual value. Salem also paid $\quad$$\quad$$\quad$ $7 \%$ provincial sales tax, a $\$ 500$ annual truck license, $\$ 4,000$ to paint the truck and $\$ 2,300$ for spare $\quad$$\quad$$\quad$ parts. All payments were in cash. Mar 12 $\quad$ Purchased a garage from a neighbouring business with a $\$ 60,000$ note payable. The seller's book value $\quad$$\quad$$\quad$ for the garage was $\$ 57,000$ and the garage was appraised at $\$ 68,000$ . The estimated useful life is 12 years. Salem also $\quad$$\quad$$\quad$ paid a $\$ 4,000$ cash for real estate commission. June 5 $\quad$ Paid $\$ 750$ to replace garage windows broken during a hail storm. Aug 23 $\quad$ Purchase used office equipment for $\$ 13,500$ plus provincial sales tax of $\$ 945$ terms $2 / 10, \mathrm{n} 30$ from $\quad$$\quad$$\quad$ Great West Office Supplies. As well, Salem paid freight of $\$ 300$ and reconditioning cost of $\$ 850$ on $\quad$$\quad$$\quad$ credit. Estimated useful life of 4 years and a residual value of $\$ 1,000$ . Sept 12 $\quad$ Paid for office equipment purchased on August 23'd. Oct 5 $\quad$ Purchased store equipment for $\$ 28,000$ plus $\$ 1,960$ in provincial sales tax. As well, Salem paid $\$ 1,750$ $\quad$$\quad$$\quad$ for repairs incurred from an accident during installation. $\$ 5,200$ for a special base for the equipment $\quad$$\quad$$\quad$ and $\$ 3,700$ of supplies to be used for regular preventive maintenance. Estimated useful life is 9 years $\quad$$\quad$$\quad$ and residual value is $\$ 1,300$ .

Equipment costing $14,000 with accumulated depreciation of $10,000 was sold for $3,000.The company should recognize a $1,000 loss on disposal of the equipment.

Impairment losses must be assessed by companies on an annual basis.

Companies are required to use the straight-line depreciation method for tax purposes because this method yields the lowest depreciation expense and results in the highest payment of tax.

A change in accounting estimate is

Goodwill is not depreciated or amortized but is instead decreased only if its value has been determined by management to be impaired.

Compare the three different depreciation methods: straight-line,units of production,and double-declining balance.

SportsWorld purchased equipment costing $10,000.The equipment has a residual value of $1,000,and an estimated useful life of 5 years or 36,000 shoes.Actual units produced during the year were 7,000 units.Calculate annual depreciation using the straight line method.

Goodwill is written down to its fair value if the fair value is less than its carrying value.