Exam 8: Property, plant and Equipment

Francisco owns a machine that it purchased on July 1,2016 for $600,000.The machine had an estimated useful life of 8 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 depreciation expense for 2016?

Rene exchanged similar assets with Simone Company in a transaction with commercial substance.Rene gave up equipment that had a net book value of $47,000 (fair value $49,000)and Simone exchanged equipment with a net book value of $36,000 (fair value $35,000).What is the correct value at which Simone should record the new equipment?

Which factor will affect the estimated useful life of property,plant or equipment?

A truck has a new engine installed for $155,000 which will increase gas mileage by 25% and reduce pollution.Originally,the truck and engine were not set up as separate assets.Management confidently estimates that the cost of the engine is one-third of the overall cost of the truck.The truck's original cost was $420,000 and it is 40% depreciated. Prepare the necessary journal entries to record the transaction.Provide a short justification for your chosen treatment.

Every three years a major component (part #45)in a machine must be replaced.By doing this regular but expensive repair the machine can be used for 15 years.If Part #45 were not replaced,the machine could be used only for a maximum of six years.When the machine was originally purchased for $5,000,000 it was set up as one asset and depreciated over its estimated useful life of 15 years.Recently this repair was completed at a cost of $700,000 for Part #45.The earlier Part #45 cost $550,000 when it was installed three years ago.Neither the old nor the new Part #45 has any residual value. Prepare the necessary journal entry to record the transaction.Provide a short justification for your chosen treatment.

Growth Industries incurred the following costs in fiscal 2017: Additional information: • Growth Industries estimates that future site restoration of $1 million will be required in 20 years at an interest rate of 8%. • While the equipment has a useful life of 10 years,the engine in the equipment will require replacement in 3 years.The engine has a fair value of $150,000. • The landscaping,parking lot and fences will need to be replaced every 4 years. • The useful life of the building and roof will be 20 years.The heating and air conditioning system will have a useful life of only 10 years. Required: a)Determine how much should be capitalized to property,plant and equipment. b)Provide the journal entries required to record all of these transactions. c)Provide all the adjusting journal entries required at year end for fiscal 2017. d)Assume that the building is painted in fiscal 2018 at a cost of $45,000.Prepare the required journal entry. e)Assume that the engine for the machine requires replacing after 2 years at a cost of 125,000.Prepare the required journal entries. Round all values to the nearest dollar,if necessary.

Zach Co.Ltd.was incorporated on January 2,2018,but was unable to begin their manufacturing operations immediately.The new factory facilities became available for use on July 1,2018.During the start-up period,the company provisionally used a "Land and Factory Building" account to record the following transactions,in chronological order: Additional info i.Legal fees of $3,200 covered the following: ii.Insurance covered the building for a one-year term beginning April 1,2018. iii.The special tax assessment covered repaving the street in front of the building. iv.General expenses covered the following for the period January 2,2018 to June 30,2018. v.The board of directors increased the value of the building by $23,000,believing that such an increase was justified to reflect the current market at the time the building was completed;Retained Earnings was credited for this amount. vi.Engineers estimate the useful life of the building to be 40 years.The company believes that the declining balance method at a 5% rate is appropriate.The company's policy for new PPE is to depreciate the assets according to the time available for use in the fiscal year,rounded to the closest month. Required: Prepare entries to reflect correct land,factory building,and accumulated depreciation accounts at December 31,2018.Round values to the nearest dollar,if necessary.

What is the IFRS treatment for replacements versus repairs?

A car rental company has a fleet of 32,000 cars.Every three months all the cars are given scheduled oil changes,rotation,and replacement of small components.The cost per car is $210, ($70 in parts and $140 for the wages of the in-house mechanics),$6,720,000 in total.As well,for half of the cars a satellite radio receiver was installed at a cost of $150 each (total $2,400,000).The gadget allows the car to receive satellite radio.The company will provide this service free and promote it heavily to increase rentals.This advertising campaign will cost $1,500,000.After the original free use of the satellite feature,the company will charge later users a fee for the use of satellite radio. Prepare the necessary journal entry to record the above transactions.Provide a short justification for your chosen treatment.

On March 1,2019,Penguin Company (PC)had been renting its office building for several years and decided to have a new office building constructed.On April 1,2019,it acquired land with an abandoned warehouse on it for $100,000.Other costs included: How much will be capitalized to "building" in fiscal 2019?

What is the meaning of "residual value"?

Castle Rock owns a machine that it purchased on Jan 1,2016 for $400,000.The machine had an estimated useful life of 10 years with a production capacity for 80,000 units and was expected to have no residual value.The company uses the units-of-production method to record depreciation.The machine produced 15,000 units in 2016,18,000 units in 2017 and 25,000 units in 2018.The machine was sold on December 31,2018 for $350,000.What was the depreciation expense for 2018?

Discuss how inappropriate capitalization of costs during the acquisition of PPE can manipulate earnings.

The following transactions occurred in fiscal 2018: • Synthesize Inc.exchanged machinery with Energize Corp. • Synthesize Inc.purchased equipment by signing a 5 year non-interest bearing note payable for $200,000.The implicit rate of interest was 5%. • Synthesize received a government grant of $10,000 to help purchase the equipment. Required: a)Assuming the machinery exchange has commercial substance,prepare the required journal entries for the exchange for both Synthesize and Energize. b)Assuming the machinery exchange does not have commercial substance,prepare the required journal entries for the exchange for both Synthesize and Energize. c)Prepare the required journal entry to record the purchase of the equipment purchased by the non-interest bearing note. d)Prepare the required journal entries to record the government grant using both the gross method and the net method.

Explain how the depreciation method should be selected for property,plant and equipment.

What is the meaning of "value in use"?

Francisco purchased a machine 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 $140,000.What was the gain/loss on disposal of the machine?

Listed below are several long-lived assets owned by X Corp.The company uses straight-line depreciation.Assume in all cases that the asset's first and last years are full years,and that all assumptions and estimates used to derive depreciation remain unchanged throughout the assets' useful lives. Required: For each asset,calculate the depreciation expense for the last year of the assets' useful lives. Show your calculations.

On April 1,2019,Omega Company paid $15,000 for office furniture.The furniture is expected to last 10 years with no residual value.Omega uses the double declining balance method of depreciation and fractional-year depreciation based on the number of months. Required: What is the depreciation expense for the year ended December 31,2019?

How should $45,000 spent to obtain greater productive efficiency for a machine with a carrying value of $80,000 be accounted for?