Exam 11: Depreciation, Depletion, Impairment, and Disposal

GAAP requires the general description of the methods used in the computation of depreciation regarding major classes of assets to be disclosed in the notes of the financial statements.

Property, plant, and equipment must be reviewed for impairment when which one of the following events occurs?

Under the MACRS principles, the tax life of an asset is usually shorter than the asset's economic life.

A company purchased ten delivery vehicles at a cost of $20,000 each and used the group depreciation method. Which of the following entries would be correct when recording the subsequent sale of a vehicle for $8,500 group accumulated depreciation is $88,000)?

Making intercompany comparisons is equally as important to insiders as to outsiders. What two measures can provide investors and analysts with information regarding a company's property, plant, and equipment?

The Sahara Company purchased equipment on January 1, 2015, for $100,000. The equipment had an estimated residual value of $10,000, an estimated useful life of five years, and estimated lifetime output of 18,000 units. In 2016, the company produced 4,400 units and recorded depreciation expense of $22,000. What depreciation method did the company use?

The use of accelerated methods is appropriate when the asset will be used more in the later periods versus earlier periods.

The depreciation base is computed as follows: Estimated Residual Value = Depreciation Base - Asset Cost

The MACRS Depreciation table is as follows: MACRS Depreciation as a Percentage of the Cost of the Asset Required: Using the MACRS Depreciation table calculate each year of depreciation for each independent situation.

Assets from time to time become impaired. GAAP requires companies to review their assets for impairment. This review should take place whenever events or circumstances indicate the carrying value of the asset may not be recoverable. Provide three examples of events or circumstances which may cause a company to review their assets for impairment.

Which one of the following is not a factor that limits the service life of an asset?

When conducting an impairment test, a company must estimate

List the time based methods of cost allocation, provide a brief explanation of each.

GAAP allows companies to choose between time-based, activity, group, or composite cost allocation methods, but once the method is chosen it must be applied consistently over time. This ensures that financial information is comparable.

On April 20, 2016, Maskell Co. purchased an asset costing $66,000 with a useful life of nine years and a residual value of $6,000. The company uses sum-of-the-years'-digits depreciation. Required: Compute depreciation expense for 2016 using the a. nearest whole month method b. nearest whole year method c. half-year convention method

The factors involved in computing periodic depreciation charges for an asset do not include the

It has been suggested that repair and maintenance costs should be considered when selecting a depreciation method. Required: Discuss the reasoning behind this assertion and explain how it would be implemented.

Composite depreciation is applied to homogeneous assets which have similar service lives and residual values.

On January 1, 2016, Digger purchased some equipment for $29,600. The anticipated life of the equipment was five years and residual value was estimated to be $4,100. The machine was expected to produce 600,000 units. In January of 2016, 35,000 units were produced and production was doubled in February. The company uses the activity depreciation method. What is the amount of depreciation expense for the month of February?

Which one of the following statements is not true regarding depreciation?