Exam 8: Property, plant and Equipment

What is the meaning of "replacement cost"?

Fantasmic Moulds purchased equipment on January 1,2015 for $275,000.It was estimated that the equipment would have a residual value of $25,000 at the end of its useful life.The asset's useful life was estimated at 5 years or 10,000 units of output.The company has a December 31 year end. Additional Information Assuming the company uses the units-of-production depreciation method,what is the depreciation expense for 2015?

When is property,plant,and equipment (PPE)not derecognized?

Historic Pieces Inc.purchased equipment on January 1,2018 for $275,000.It was estimated that the equipment would have a residual value of $25,000 at the end of its useful life.The asset's useful life was estimated at 5 years or 10,000 units of output.The company has a December 31 year end.Assuming the company uses straight-line depreciation,what is the depreciation expense for 2018?

Oregona Ltd.owns a machine that it purchased on Jan 1,2016 for $750,000.The machine had an estimated useful life of 5 years and an estimated residual value of $50,000.The company uses straight-line depreciation and records monthly depreciation.The machine was sold on December 31,2019 for $200,000.What is the accumulated depreciation at December 31,2019?

Peter exchanged similar assets with Sunshine Company in a transaction without commercial substance.Peter gave up equipment that had a net book value of $47,000 (fair value $49,000)and Sunshine exchanged equipment with a net book value of $36,000 (fair value $35,000).What is the correct value at which Sunshine should record the new equipment?

AccountingPro purchased equipment on January 1,2015 for $275,000.The asset's useful life was estimated at 5 years or 10,000 units of output,with no residual value.The company has a December 31 year end. Additional Information Assuming the company uses the units-of-production depreciation method,what is the depreciation rate per unit for 2019?

Seally Corp.owns a machine that it purchased on Jan 1,2016 for $600,000.The machine had an estimated useful life of 10 years and an estimated residual value of $100,000.The company uses the declining balance method with a rate of 20%.The machine was sold on December 31,2018 for $140,000.What was the depreciation expense for 2017?

A machine was acquired on January 1,2018 for $4,000,000.At that time it was estimated the machine would last eight years and have a residual value of $560,000.Due to reduced levels of activity during 2020,management revised the estimate of useful life to 10 more years (i.e. ,the machine was to be operational until December 31,2029,12 years in total)and its residual value would be $410,000.The company has a December 31 year-end. Required: Case A: Prepare the journal entries to record depreciation for 2018 and 2020.The company uses straight-line depreciation. Case B: Same as Case A except the company uses the double-declining balance method.The rate used will be 25% for the first two years and then 20% thereafter.Prepare the journal entries to record depreciation for 2018 and 2020.

In December 2018,Ami,the owner of Elm,paid for a parcel of land along with a warehouse on behalf of Elm,the registered owner of the property,for a total cost of $700,000.Ami also paid a real estate commission of $35,000 and legal fees of $5,000 in connection with this purchase,plus $25,000 for the demolition of the warehouse.Elm will reimburse Ami for these costs in January 2019 and will begin construction of an office building on this land.Prior to the purchase,the land and warehouse were appraised at $500,000 and $200,000,respectively.How much should be capitalized to the value of the land in 2018?

Francisco purchased a machine on Jan 1,2016 for $600,000.The machine had an estimated useful life of 10 years and an estimated residual value of $10,000.The company uses straight-line depreciation and records monthly depreciation.The machine was sold on December 31,2021 for $350,000.What was the gain/loss on disposal of the machine?

Explain derecognition of property,plant or equipment.

Forest Company paid $38,000,000 for a warehouse and related assets from a company that was in bankruptcy.The warehouse includes land,building,moving equipment,and heating/ventilation/air conditioning (HVAC)system.An independent appraiser valued these items individually as follows: Required: Allocate the purchase price among the assets acquired.

Explain how non-monetary transactions are accounted for.

Ceila Manufacturing purchased equipment on January 1,2017 for $275,000.It was estimated that the equipment would have a residual value of $25,000 at the end of its useful life.The asset's useful life was estimated at 5 years or 10,000 units of output.The company has a December 31 year end.Assuming the company uses the double-declining-balance depreciation method,what is the depreciation expense for 2018?

Fantasy Limited purchased equipment on January 1,2015 for $275,000.The asset's useful life was estimated at 5 years or 10,000 units of output,with no residual value.The company has a December 31 year end. Additional Information Assuming the company uses the units-of-production depreciation method,what is the depreciation expense for 2015?

Explain what costs should be capitalized to property,plant and equipment.Include a discussion of costs incurred for acquired assets,self constructed assets and repairs.

Daniel Manufacturing Limited (DML)purchased a large lathe.The invoice cost of the lathe was $6,200,000 but DML was able to get the price reduced to $5,800,000.The seller provided terms whereby if the entire amount was paid within 30 days a further discount of 3% was available.DML paid on the 25th day.Transportation of the machine cost DML $70,000.Insurance while in transit was $30,000.To encourage DML to purchase another machine,the manufacturer gave DML a $50,000 discount voucher on its next purchase of a similar machine.Workers were paid $45,000 to install the machine.Start-up and testing costs were $45,000.Unfortunately,during the installation,one of the workers accidentally damaged the machine,and it cost $15,000 to repair the damage.Non-refundable sales taxes paid were $700,000,however,later a sales tax rebate of $80,000 was received relating to this transaction.During installation,part of the plant had to be shut down;lost profit from the shutdown was $100,000. Required: For each expenditure,identify whether it should be included in the cost of the lathe or expensed.Briefly justify each of your responses.

Polar Sky Railway (PSR),a transportation company,has substantial investments in property,plant,and equipment.In 2017,the company exchanged some of these assets with other companies.[Note: any depreciation expense prior to the following transaction has already been properly recorded.] PSR is trying to expand its business in transportation beyond rail,so the company traded some railcars in return for several trucks.On PSR's books,the railcars had a cost of $12 million,accumulated depreciation of $9 million,and fair value of $6 million.The trucks had a fair value of $5.9 million and were recorded on the seller's books at a cost of $4 million and accumulated depreciation of $1 million.No cash was involved in this exchange. Required: Record the journal entry for the above transaction on PSR's books.State your reason(s)for the chosen accounting method.

What costs should not be capitalized to "equipment"?