Exam 11: Depreciation, Depletion, Impairment, and Disposal

Lucas, Inc. purchased ten air conditioning units for $5,000 each, with an average expected service life of eight years and a residual value of $700 each. The depreciation rate for the assets, assuming the group depreciation method is used, will be

Wayne Co. purchased $40,000 of equipment with a salvage value of $5,000 and a useful life of nine years on August 15, 2016. If the company used sum-of-the-years'-digits depreciation computed to the nearest whole year, depreciation expense for 2017 was

On January 1, 2016 Hill Bowling purchased equipment for $3.5 million. The equipment is being depreciated by the straight-line method over 10 years with no residual value. In 2020, new advanced bowling equipment has come on the market. As a result, Hill believes the bowling equipment currently being used is going to become obsolete quicker than anticipated, so Hill wants to complete an impairment test on that equipment. Hill estimates that the net cash flows from using the current equipment will be $250,000 per year for the next five years. Hill also expects it could sell the current equipment immediately for $25,000. Hill uses a 14% discounted rate to evaluate other projects of this nature. Required: Complete the Impairment test for Hill Bowling. PV of $1.519 PV of an annuity 3.433 FV of $11.925 FV of an annuity 6.610

On January 2, 2016, China Co. bought a machine for $400,000 with a salvage value of $20,000 and a four-year useful life. Straight-line depreciation was used. However, during 2016 and 2017, depreciation expense was erroneously calculated using a $50,000 salvage value. The error was discovered in 2018 after the 2017 books had been closed. Required: Prepare the correcting entry in 2018.

GAAP does not require companies to disclose the balances of depreciable assets by nature or function but by major classes.

An example of an event where the book value of property, plant, and equipment may not be recoverable would include

Exhibit 11-1 On January 1, Year 1, Hills purchased equipment for $350,000. The equipment had an estimated useful life of ten years and an estimated residual value of $50,000. Use the double-declining-balance method to answer the following questions). -Refer to Exhibit 11-1. How much depreciation should Hills record on the asset in year 2?

An impairment loss must be recognized when

Which one of the following statements is an advantage of the group and composite methods of depreciation?

Exhibit 11-03 On January 1, 2016, Wheeler, Inc. purchased some equipment for $3,900. The equipment had an estimated life of five years and an expected residual value of $200. On July, 1, 2018, the equipment was sold for $1,000. Wheeler uses straight-line depreciation. -Refer to Exhibit 11-03, what is the amount of depreciation expense that needs to be brought up to date prior to the sale?

The Jefferson Co. purchased a machine on January 1, 2016. The machine cost $595,000. It had an estimated life of ten years, or 30,000 units, and an estimated residual value of $40,000. In 2016, Jeffries produced 3,000 units. Required: Compute the depreciation charge for 2016 using each of the following methods: a. Double-declining-balance method b. Activity method units of output) c. Sum-of-the-years'-digits method d. Straight-line method

The Roberto Company purchased a limo for $75,000 on October 10, 2016. The limo has a salvage value of $5,000 and an eight-year useful life. The company uses double-declining-balance depreciation. Required: Compute depreciation expense for 2016 using the a. nearest whole month method b. nearest whole year method c. half-year convention method

On January 1, 2016, Travis Company purchased machinery costing $3,000,000. The company uses straight-line depreciation assuming the machinery's useful life to be 10 years and its residual value to be $600,000. At the end of 2019, the company felt that technological advances had caused an impairment of its machinery and that the remaining useful life of the machinery was only four years. The company estimates the machinery will generate cash inflows of $850,000 and cash outflows of $100,000 over each of the next four years. The company uses a 15% rate of return to evaluate capital budgeting projects. Required: a. Determine if an impairment loss has occurred. Show all calculations). b. Calculate the amount of any impairment loss to be recognized. The present value of an annuity is 2.85498; present value of $1 is 0.57175; and future value of annuity is 4.99338.

Peanut Company purchased a machine on January 1, 2016, for $100,000 with a $20,000 salvage value and an eight- year useful life. The company uses double-declining-balance depreciation. Required: Compute the depreciation expense to the nearest whole dollar) for 2016 and 2017.

On June 1, 2016, Bagby Co. purchased a new car for $36,000 with a useful life of eight years and a residual value of $4,800. If the company used double-declining-balance depreciation computed to the nearest whole year, depreciation expense for 2017 was

On January 1, 2016, Paradise Hotels and Spa's purchased a machine. Residual value was estimated to be $13,000 after a 15-year life. Using sum-of-the-years'-digits depreciation, the company recorded $8,500 depreciation expense in 2018. Required: Compute the cost of the machine.

The FASB established principles for evaluating asset impairment because it hoped financial reporting would

Generally, IFRS require asset impairments to be recorded sooner than U.S. GAAP requires recognition. Required: Discuss the differences between IFRS and GAAP procedures for identifying and measuring asset impairments, and explain why the IFRS approach is likely to result in write-downs sooner.

Which one of the following statements about group depreciation is true?

Companies can apply composite depreciation to a grouping of dissimilar assets. What procedures must be followed?