Exam 11: Investments in Noncurrent Operating Assets-Utilization and Retirement

Python Mining Company has a copper mine in Nevada operating at a reduced level of production for the past two years.The market for copper has been adversely affected by weak prices,low demand,and foreign competition.Management believes that the market likely will improve next year and does not plan to abandon this facility.Nevertheless,the controller of the company plans to test the plant and equipment of the operation for impairment due to the decrease in its use.The plant and equipment used in this operation were acquired five years ago for $1,600,000 and have been depreciated using straight-line depreciation over a 20-year life with no residual value.The controller estimates that the assets have a remaining useful life of 15 years and that the following two cash flow scenarios are possible,with the indicated probabilities: The fair value of the plant and equipment is estimated to be $890,000. Prepare the entry (if any)required to recognize the impairment loss.

On January 1,2014,Ashton Company purchased equipment at a cost of $570,000.The equipment was estimated to have a useful life of five years and a salvage value of $60,000.Ashton uses the sum-of-the-years'-digits method of depreciation.What should the accumulated depreciation be at December 31,2016?

Which of the following assets generally is required to be tested at least annually for impairment?

Which of the following depreciation methods is computed in the same way as depletion?

When assets are exchanged at a loss in an exchange lacking commercial substance,the basis of the new asset is usually

Roadworthy Company acquired Highway Company on January 1,2014.As part of the acquisition,$1,000,000 in goodwill was recognized and assigned to Roadworthy's Transportation reporting unit.For 2014,earnings from the Transportation reporting unit were $450,000.Separately traded companies with operations similar to the Transportation reporting unit had market values approximately equal to five times earnings.As of December 31,2014,book values and fair values of the Transportation reporting unit were: Prepare the impairment test of goodwill as well as any entry needed to record an impairment loss.

Legal fees incurred in successfully defending a patent suit should be capitalized when the patent has been

Zenith Corporation bought a machine on January 1,2014.In purchasing the machine,the company paid $40,000 cash and signed an interest-bearing note for $105,000.The estimated useful life of the machine is five years,after which time the salvage value is expected to be $10,000.Given this information,how much depreciation expense would be recorded for the year ending December 31,2015,if the company uses the sum-of-the-years'-digits depreciation method?

Masdirt Mining Company has a copper mine in Tanzania.The company is subject to the pronouncements of the International Accounting Standards Board,and,specifically,IFRS 36. The plant and equipment used in this operation were acquired five years ago for $1,600,000 and have been depreciated using straight-line depreciation over a 20-year life.The controller estimates that the assets have a remaining useful life of 15 years. The controller of the company is preparing the financial statements for the year just ended and notes that the fair value of the plant and equipment is estimated to be $1,150,000 at the close of last year.The controller also determines that the present value of the discounted future cash flows associated with the asset's future use equals $1,300,000. Prepare the entry (if any)the controller should make under IFRS 36 relating to the current fair value of the plant & equipment.Additionally,assume that the company sold the plant & equipment for $1,300,000 immediately after the end of last year.Prepare the entry (if any)required under IFRS 36.

The Bromley Company purchased a tooling machine in 2004 for $120,000.The machine was being depreciated on the straight-line method over an estimated useful life of 20 years,with no salvage value.At the beginning of 2014,when the machine had been in use for ten years,the company paid $20,000 to overhaul the machine.As a result of this improvement,the company estimated that the useful life of the machine would be extended an additional five years.What would be the depreciation expense recorded for the machine in 2014?

The 2014 annual report of Fracking,Inc.,provides the following disclosures regarding its oil and gas operations: During 2014,the company reported exploration expenses totaling $306 million,and depreciation,depletion,and amortization totaling $1,198 million.The amount of capitalized costs for the fiscal years ending December 31,2014,and 2013,were: Capitalized costs for fiscal years ending December 31,2014,and 2013 (in millions dollars): Fracking uses the successful-efforts method to account for exploration costs. Required: 1.What amount of the exploration cost incurred by Fracking in 2014 were capitalized? 2.If Fracking were using the full-cost method of accounting for exploration cost,what amount of exploration cost would be capitalized in 2014.State any assumptions made in order to answer this question. 3.Use the information above to determine the amount of capitalized costs removed (retired or otherwise disposed of)from the capitalized cost account,and the amount of accumulated depreciation,depletion,and amortization related to this item.

A method that ignores salvage value in the early years of the asset's life in calculating periodic depreciation expense is the

Hyde Company traded in an old machine with a book value of $15,000 on a new machine.The exchange did not have commercial substance.The new machine,which had a cash price of $75,000,was purchased for $64,000 cash plus the old machine.Hyde should record the cost of the new machine as

The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were

On January 1,2013,Pastel Colors Corporation purchased drilling equipment for $11,500.The equipment has an estimated useful life of four years and a salvage value of $200.Assuming that Pastel Colors uses the straight-line method of depreciation,if it trades the equipment for new equipment with a list price of $15,500 on December 31,2014,and pays $4,050 in the exchange,assuming the exchange lacks commercial substance,the new equipment should be recorded at

Cavallo Company acquired a tract of land containing an extractable natural resource.Cavallo is required by the purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource.Geological surveys estimate that the recoverable reserves will be 2,500,000 tons and that the extraction will be completed in five years.Relevant cost information follows: What should be the depletion charge per ton of extracted material?

When the estimate of an asset's useful life is changed,

Which of the following depreciation methods most closely approximates the method used to deplete the cost of natural resources?

The Corey Company exchanged equipment costing $190,000 with accumulated depreciation of $45,000 for equipment owned by Salvo Corporation.The Salvo equipment cost $305,000 with accumulated depreciation of $105,000.The fair value of both pieces of equipment was $275,000. Provide the necessary entries to record the transaction on both companies' books assuming: (1)The exchange lacks commercial substance. (2)The exchange has commercial substance.

A company owns a piece of land that originally cost $10,000 and has a fair market value of $8,000.It is exchanged along with $5,000 cash for another piece of land having a fair value of $13,000.The exchange had commercial substance.The proper journal entry to record this transaction is