Exam 10: Depreciation,Amortization,and Impairment

Amortization:

On January 1,2014,the Accumulated Amortization--Machinery account of a particular company showed a balance of $308,000.At the end of 2014,after the adjusting entries were posted,it showed a balance of $330,000.During 2014,one of the machines,which cost $103,400,was sold for $60,500 cash.This resulted in a loss of $3,300.Assuming that no other assets were disposed of during the year,calculate the amount of amortization expense for 2014.Assume a December 31 year-end and adjusting entries are only made at year-end.

Accumulated amortization represents the cash set aside for the replacement of assets.

Straight-line amortization emphasizes that the service value of the asset declines primarily as a function of:

Choose the best description of depreciable cost.

On January 1,2014,CK purchased a machine that had a list price of $22,980.CK paid cash of $10,000 and executed a one-year non-interest-bearing note for the $12,980 balance.The going rate of interest was 18 percent.Assume straight-line amortization with an estimated useful life of six years and a $1,200 estimated residual value.Amortization expense for the accounting year ending December 31,2014,would be $___________________.

If income tax effects are ignored,accelerated amortization methods provide funds for the earlier replacement of fixed assets.

All other factors remaining constant,use of the straight-line amortization method will result in a decreasing rate-of-return on assets in the later years of the life of an asset.

At the end of December 31,2013 fiscal year,JB had the following assets: Estimated Asset Cost Residual Value Useful Life \ 16,400 \ -0- 4 10,000 400 3 35,000 2,100 7 Because the assets are dissimilar,composite amortization is used. (a) The composite amortization rate is ______% (round to the nearest whole percent). (b) Assuming amortization is based on the ending balances,amortization expense for 2013 would be $____________________. (c) If asset B is sold at the beginning of 2014 for $8,000 cash,what gain or loss should JB recognize? $____________________.

GAAP requires that,when recording amortization expense,the credit must always be made to a contra asset account,rather than directly to the asset account.

Amortization expense each period is proportionate to usage of the asset each period with the:

The 2009 revaluation journal entry would include

A general description of the amortization methods applicable to major classes of depreciable assets is needed in financial reporting only when company policy differs from income tax policy.

On January 1,2001,VS purchased a machine that cost $50,000; the estimated residual value was $4,640.At December 31,2001,the following data are available (end of the accounting period): Estimated Life Utilization During 2001 6 years 1 year 216,000 service hours 20,000 service hours 100,000 units of product 15,000 units Give the 2001 amortization expense for each of the following methods: $\text { Case\quad Method \quad\quad\quad\quad\quad Amortization First Year }$ $\text { A) Straight-line.. \quad\quad\quad\$\_\_\_\_}$ $\text { B) Sum-of-the-years'-digits...\quad\quad\quad\quad\$\_\_\_\_ }$ $\text { C) Service hours..\quad\quad\quad\quad\$\_\_\_\_ }$ $\text { D) Productive output............ \$\_\_\_\_}$ $\text { E Declining balance. }\quad\quad\quad\quad\$\_\_\_\_$

On January 1,2013,JK purchased a depreciable asset that cost $30,000.It has an estimated useful life of 100,000 units of output and an estimated 15 percent residual value.It will be depreciated using the productive output method.The asset produced units of output as follows: 2013:20,000 units,2014: 15,000 units.The accounting year ends December 31.The amortization expense and accumulated amortization account balances (before closing) at the end of 2014 will be: Amortization Expense Accumulated Amortization 1 \ 3,825 \ 8,925 2 3,825 10,500 3 4,500 10,500 4 6,000 8,925

Under which of the following amortization systems is expense recognized only in the final year an asset is used?

On January 1,2013,SK purchased a machine that cost $20,000.It has an estimated four-year life,and a 10 percent residual value.The machine is expected to be used for a total of 1,500 productive hours over the next 4 years.During 2013,it was used 430 hours.Using (a) straight-line and (b) productive time,SK should report 2013 amortization expense as follows: Straight-line Productive Hours 1 \ 4,500 \ 5,160 2 \ 4,500 \ 5,735 3 \ 5,000 \ 5,160 4 \ 5,000 \ 5,735

Which of the following methods permits total amortization on a plant asset to exceed depreciable cost?

The appraisal (inventory),retirement,replacement and composite amortization methods offer significant accounting cost savings over individually applied methods.Discuss how these methods help to save accounting costs.

Accelerated depreciation methods such as the double-declining balance methods are preferable when assets have shorter useful lives,and in industries where rapid obsolescence is the norm.