Exam 8: Property, Plant, and Equipment

In December 2012, 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 2013 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 2012?

What is the meaning of "depreciation"?

Centennial owns a machine that it purchased on Jan 1, 2010 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 2010, 18,000 units in 2011 and 25,000 units in 2012. The machine was sold on December 30, 2012 for $350,000. What was the accumulated depreciation at December 31, 2010?

Which of the following is a not characteristic of property, plant and equipment (PPE)?

Which of the following is not a characteristic of property, plant and equipment (PPE)?

What factor will not affect the estimated useful life of property, plant or equipment?

Explain why it is necessary to separate property, plant and equipment (PPE)items into separate components.

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

On April 1, 2013, 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, 2013?

Oregona Ltd. owns a machine that it purchased on Jan 1, 2010 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, 2013 for $200,000. What is the accumulated depreciation at December 31, 2013?

Seneca Valley owns a machine that it purchased on Jan 1, 2010 for $600,000. The machine had an estimated useful life of 5 years and an estimated residual value of $100,000. The company uses the declining balance method with a rate of 40%. The machine was sold on December 31, 2012 for $140,000. What was the depreciation expense for 2010?

Ceila Manufacturing purchased equipment on January 1, 2011 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 2012?

What is the meaning of "entry value"?

On March 1, 2013, Pear Company (PC)had been renting its office building for several years and decided to have a new office building constructed. On April 1, 2013, it acquired land with an abandoned warehouse on it for $100,000. Other costs included: How much will be capitalized to "land" in fiscal 2013?

On March 31, 2013, a machine costing $3,000,000 was acquired. The company estimates that the asset will have an estimated useful life of five years and a residual value of $450,000. On April 1, 2018, the asset is sold for $550,000. The company uses straight-line depreciation. The company has a December 31 year-end, and records partial depreciation in the year of acquisition or disposal based on the number of months the asset is available for use in the year. Required: Prepare the entries to record depreciation expense for 2013 and 2014, and all entries required for 2018 as they relate to this asset.

What is the meaning of "current value"?

What is the meaning of "units-of-production method"?

Polar Sky Railway (PSR), a transportation company, has substantial investments in property, plant and equipment. In 2011, 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 traded railway tracks running Vancouver-Calgary-Winnipeg to its competitor, High Land Railway, in exchange for the Vancouver-Edmonton-Winnipeg route. PSR received $15 million from High Land because the southern route was shorter. Aside from this $15 million differential, there are no other significant differences in the amount, risk, and timing of future benefits from these two sets of tracks. The tracks, originally laid down in the late 19th century, had a cost of $125 million, accumulated depreciation of $90 million, and a fair value of $100 million. The Vancouver-Edmonton-Winnipeg tracks were recorded on High Land's books at a cost of $105 million and accumulated depreciation of $70 million. Required: Record the journal entry for the above transaction on PSR's books. State your reason(s)for the chosen accounting method.

On January 1, 2013, BigBen purchased a machine, incurring the expenditures listed below. The machine had an estimated useful life of 10 years, and BigBen uses straight-line depreciation for its equipment. What amount should be capitalized as the cost of the machinery for 2013?

Francisco purchased a machine on Jan 1, 2010 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, 2012 for $350,000. What was the gain/loss on disposal of the machine?