Exam 11: Depreciation, Impairment, and Disposition

Which of the following is INCORRECT regarding depreciation?

On January 1, 2019, Incredible Corp. purchased a new machine for $350,000. The new machine has an estimated useful life of eight years and the residual value was estimated to be $25,000. Depreciation was calculated using the double-declining-balance method. To the nearest dollar, what amount should be shown in Incredible's balance sheet at December 31, 2020, net of accumulated depreciation, for this machine?

Which of the following best describes the concept of cash-generating units (CGU)?

Changes in the depreciation rate are accounted for as a(n)

Which of the following does NOT apply to the declining-balance method?

Use the following information to answer questions: Tarantula Corp. reported the following information about the only machine that it owns: Date of purchase..............................March 31, 2020 Capital cost................................ $\$ 200,000$ Estimated useful life......................10 years Estimated residual value................ $\$ 20,000$ CCA Class..................................Class $10(30 \%)$ Tarantula uses straight-line depreciation to the nearest month for accounting purposes. -Assume that at the end of calendar 2019, the UCC for this machine is $83,300. Tarantula sells the machine on January 2, 2020 for $90,000, and does not replace it. The recapture of CCA or terminal loss would be

Long-lived assets that are held for sale

On July 1, 2017, Puppy Corp. purchased a machine for $500,000. The machine was estimated to have a useful life of ten years with an estimated residual value of $28,000. During 2020, it became apparent that the machine would become uneconomical after December 31, 2021, and that the machine would have no salvage value. Accumulated depreciation on this machine at December 31, 2019, was $118,000, using the straight-line method. The depreciation expense for 2020 should be

On April 1, 2018, Chickadee Corp. purchased new machinery for $400,000. The machinery has an estimated useful life of ten years, a residual value of $20,000, and depreciation is calculated using the double-declining-balance method. Chickadee's year end is December 31. The accumulated depreciation on this machinery at March 31, 2020, should be

On April 10, 2019, Rio Corp. purchased machinery for $180,000. Residual value was estimated at $4,000. The machinery will be depreciated over ten years using the straight-line method. If depreciation is calculated on the basis of the nearest full month, the related Accumulated Depreciation account at December 31, 2020 will be

Depreciation commences or continues when

On January 1, 2018, Phonetic Company purchased machinery costing $146,000 and incurred $5,000 in installation costs. The machinery has an estimated useful life of 15 years and a residual value of $10,000. The company uses the straight-line method of depreciation. At the end of 2019, Phonetic recorded depreciation and assessed the asset, determining a recoverable amount of $122,000. Phonetic sold the equipment to Voilex Corporation on June 30, 2020, for $120,000. Instructions Prepare the necessary entries assuming Phonetic has a December 31 year-end. (Show calculations.)

On April 1, 2015, Ninja Ltd. purchased equipment for $120,000. The equipment was estimated to have a residual value of $15,000 and is being depreciated over ten years using the straight-line method. What should be the depreciation expense for this equipment for the year ended December 31, 2020?

Cost recovery impairment model, revision of depreciation Rhino Corporation is a manufacturer of automobile parts. Its capital assets include specialized equipment that is being used in the finishing stage of its manufacturing process. The equipment was purchased in 2017 and is being depreciated using the units of production method. By December 31, 2018, the book (carrying) value was $430,000 (after depreciation expense had been recorded). However, at that time, Rhino became aware of new technology that would make the equipment obsolete within the next five years. An appraisal puts the equipment's future undiscounted net cash flows at $390,000 and its fair value at $300,000. While considering its options for the eventual replacement, Rhino will continue using the equipment, but will change to straight-line depreciation. Instructions Assuming Rhino is a private Canadian corporation, a) Prepare the journal entry, if any, to record the impairment loss at December 31, 2018. b) Prepare the journal entries to record 2019 and 2020 depreciation.

JB Corporation purchased equipment costing $135,000 on January 1, 2018. At that time the useful life of the equipment was estimated to be 12 years and the residual value was estimated to be $7,500. Depreciation up to December 31, 2019 has been recorded using the straight-line method and the company operates on a calendar year basis. On January 1, 2020, the estimated useful life was revised to a total of 10 years and the residual value was revised to $8,000. Instructions Prepare the journal entry to record the depreciation expense for 2020. (Show calculations.)

Explain why assets that are held for sale are not depreciated while they are held.

On July 1, 2019, Boots Corporation purchased factory equipment for $200,000. Residual value was estimated to be $5,000. The equipment will be depreciated over ten years using the double-declining-balance method. Counting the year of acquisition as one-half year, Boots should record depreciation expense on this equipment for the calendar year 2020 of

The most common method of recording depletion for accounting purposes is the

The asset turnover ratio is calculated by dividing

When the unit of production method of depreciation is used, which of the following best describes depreciation expense?