Exam 10: Depreciation, Amortization, and Impairment

On January 1,2014,Ryan Ltd.purchased equipment for $30,000 cash.Ryan Ltd's fiscal year end is December 31.At the time of acquisition,the equipment was expected to last 8 years and had an estimated salvage value of $1,200.Ryan Ltd.uses the straight - line method to depreciate its assets.On January 1,2015,Ryan Ltd.changed its total estimated useful life of the vehicle from 8 years to 5 years and the estimated salvage value was changed to $2,000.Prepare the journal entry to record the depreciation on December 31,2015.

The records of CTC reported rent expense for 20x5 (paid in cash during 20x5)of $53,500.An audit revealed that the following accrued and prepaid amounts were not recorded in the adjusting entries for 20x4 and 20x5: What amount should have been reported for 20x5 rent expense?

Ending inventory for 20x0 is overstated in error by $4,000 due to a faulty count and costing.The tax rate is 30%.Assume the same accounting methods for both financial reporting and taxes.The error is discovered late in 20x1.Retained earnings at 1/1/x0 was $20,000,and reported earnings (both before correction of error)are: 20x0,$5,000; 20x1,$6,000. Prepare the comparative retained earnings statements for 20x0 and 20x1. The error overstates 20x0 earnings $4,000 before tax and $2,800 after tax.

Failure to record accrued wages at year-end (an adjusting entry)results in what usually is called a counterbalancing error.

Indicate how the following errors would affect income and owners' equity.Use the symbol + (plus)for Overstated,- (minus)for Understated by,and 0 (zero)for no effect or error offset.

A plant asset was purchased for $19,000 on 1/1/x0 with a residual value of $2,000 and useful life of five years.In 20x3,the total useful life is re-estimated to be seven years and the estimated salvage value is assumed to be zero.Sum-of-the-year's-digits depreciation is used.What is depreciation expense in 20x3?

KEC has a machine that cost $75,000 (no residual value)that was being depreciated over a 15-year estimated life,using SL.On the basis of more experience,during the 9^th year,management decided to use a revised total estimate of 20 years. (a)What kind of accounting change does this represent? __________. (b)Give entry in 9^th year to reflect the change; if none is required,explain. (c)Give the depreciation entry (year-end adjusting entry)for the 9^th year.Show computations.

A change in the unit depletion rate would be accounted for as a:

The errors listed below occurred in 20x3 but were not discovered until much later in 20x4. The accounting period ends December 31. What net effect did these errors have on 20x3 pre-tax income?

When an asset's residual value estimate is changed,the entire depreciation schedule for the asset is recomputed all the way back to the date of acquisition.

An understatement of ending inventory will result in a credit to Future Income Taxes.

The effects for a change in accounting principle would usually be reported on the face of the income statement for a change:

The following accounting errors occurred in 20x1; they were discovered in 20x2: Purchases for 20x1 Overstated $600; ending 20x1 inventories Overstated $600; and depreciation expense for 20x1 Overstated $600.The combined effect of these errors caused 20x1 pre-tax income to be: Overstated $___________; or Understated by $___________; or No Effect ________.

Accounting policy changes are only justifiable when there is a change to a primary source of GAAP.

Under which of the following changes would no "catch-up" entry be required,because the remaining accounting value is allocated over the present and future periods?

A change,for depreciation purposes,of either estimated useful life or estimated residual value usually is referred to as a change in accounting estimate.

In 20x2,a firm changed from the completed contract (CC)method of accounting for revenue on long-term contracts to the percentage of completion (PC)method.The firm's 20x1 and 20x2 comparative financial statements will reflect which method or methods.

An overstatement of opening inventory will result in an understatement of operating cash flows in the current period.

MKC is being audited for the years 20x1 and 20x2,and the errors listed below were found (have not been corrected in the accounts). (a)You are to complete the following schedule to compute the correct income for each year (disregard income tax): Accruals and deferrals omitted at year-end: Ending inventory: (8)Correct income (b)Assuming the books are already closed for 20x2,give the single journal entry required to correct all of the accounts on January 25,20x3:

An asset that originally cost $6,000 is being depreciated on the straight-line basis over an estimated useful life of 5 years.The estimated residual value was $1,500.Near the end of year 3,it was decided that better estimates would have been a total life of 6 years and a residual value of $800.Depreciation expense for year 3 would be: