Question 1

Will the method of depreciation affect the net cash outflow associated with the purchase and subsequent sale of property, plant and equipment?

Accepted Answer

The net cash flows will be identical. Is

Question 2

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.

Accepted Answer

This expenditure should be tre

Question 3

Under ASPE, what is the acceptable treatment for borrowing costs on a self constructed property, plant and equipment?

Accepted Answer

A) Must capitalize costs that would have been avoided if the expenditure had not been made. 
B) Must capitalize costs of any debt incurred for the inventory needs of the corporation. 
C) Must expense the directly attributable borrowing costs on qualifying assets. 
D) A company can make a policy choice on the treatment of borrowing costs. 
A) Must capitalize costs that would have been avoided if the expenditure had not been made. 
B) Must capitalize costs of any debt incurred for the inventory needs of the corporation. 
C) Must expense the directly attributable borrowing costs on qualifying assets. 
D) A company can make a policy choice on the treatment of borrowing costs.

Question 4

Easter Corp. owns a machine that it purchased on Jan 1, 2019 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, 2021 for $140,000. What was the accumulated depreciation at December 31, 2020?

Accepted Answer

A) $100,000 
B) $120,000 
C) $180,000 
D) $216,000 
A) $100,000 
B) $120,000 
C) $180,000 
D) $216,000

Question 5

Polar Sky Railway (PSR), a transportation company, has substantial investments in property, plant, and equipment. In 2020, 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.

Accepted Answer

With commercial substance-use

Question 6

Zach Co. Ltd. was incorporated on January 2, 2021, but was unable to begin their manufacturing operations immediately. The new factory facilities became available for use on July 1, 2021. During the start-up period, the company provisionally used a "Land and Factory Building" account to record the following transactions, in chronological order:
 \[\begin{array} { | l | l | r | } 
\hline \text { Tan 31 } & \text { Purchase of land and building } & \$ 410,000 \
\hline \text { Feb 19 } & \text { Cost of removing existing building } & 7,000 \
\hline \text { Mar 15 } & \text { Proceeds from sale of scrap material from } & ( 1,500 ) \
& \text { demolition } & \
\hline \text { Mar 15 } & \text { Partial payment on new construction } &80,000 \
\hline \text { Mar 15 } & \text { Legal fees paid (see note (i) below) } & 3,200 \
\hline \text { Apr 1 } & \text { Second payment on new construction } &80,000\
\hline \text { Tun 3 } & \text { Insurance premium (ii) } & 4,200 \
\hline \text { Jun 20 } & \text { Special tax assessment (iii) } &5,000 \
\hline \text { Jul 3 } & \text { General expenses (iv) } & 38,000 \
\hline \text { Dec 31 } & \text { Final payment on new construction } &65,000 \
\hline \text { Dec 31 } & \text { Asset write-up (v) } & \underline{23,000} \
\hline & { \text { Subtotal } } & 713,900 \
\hline \text { Dec 31 } & \text { Less depreciation for 2021 (vi) } & \underline{(17,500)} \
\hline & \text { Account Balance } & \$696,400\
\hline
\end{array}\] Additional info
i. Legal fees of $3,200 covered the following:
 $$\begin{array} { | l | r | } 
\hline \text { Cost of incorporating the company } & \$ 600 \
\hline \text { Examination of title covering purchase of land } & 1,100 \
\hline \text { Legal work in connection with construction contract } & 1,500 \
\hline
\end{array}$$ ii. Insurance covered the building for a one-year term beginning April 1, 2021.
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, 2021 to June 30, 2021.
 $\begin{array}{llcc}
  \text {  President's salary} &\$34,000  \
 \text {  Plant superintendent covering supervision of new building} &4,000\
\end{array}$
 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, 2021. Round values to the nearest dollar, if necessary.

Accepted Answer

\[\begin{array} { | l | l | r | r | } 
\

Question 7

Explain the accounting purpose of "depreciation." Does depreciation represent the decline in value of an asset?

Accepted Answer

Depreciation is a systematic (yet arbitr

Question 8

Under IFRS, what is the acceptable treatment for borrowing costs on a self constructed property, plant and equipment?

Accepted Answer

A) Capitalize costs that would have been avoided if the expenditure had not been made. 
B) Capitalize costs of any internal debt incurred within the corporation. 
C) Capitalize all indirectly attributable borrowing costs and expense the directly attributable costs. 
D) A company can make a policy choice on the treatment of borrowing costs. 
A) Capitalize costs that would have been avoided if the expenditure had not been made. 
B) Capitalize costs of any internal debt incurred within the corporation. 
C) Capitalize all indirectly attributable borrowing costs and expense the directly attributable costs. 
D) A company can make a policy choice on the treatment of borrowing costs.

Question 9

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?

Accepted Answer

A) $35,000 
B) $36,000 
C) $47,000 
D) $49,000 
A) $35,000 
B) $36,000 
C) $47,000 
D) $49,000

Question 10

Polar Sky Railway (PSR), a transportation company, has substantial investments in property, plant and equipment. In 2020, 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.

Accepted Answer

No commercial substance-use carrying val

Question 11

Francisco owns a machine that it purchased on July 1, 2019 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, 2024 for $350,000. What was the depreciation expense for 2019?

Accepted Answer

A) $30,729 
B) $36,875 
C) $73,750 
D) $75,000 
A) $30,729 
B) $36,875 
C) $73,750 
D) $75,000

Question 12

Hotel-R-Us owns a machine that it purchased on Jan 1, 2019 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 20%. The machine was sold on December 31, 2021 for $140,000. What was the accumulated depreciation at December 31, 2021?

Accepted Answer

A) $292,800 
B) $180,000 
C) $150,000 
D) $76,800 
A) $292,800 
B) $180,000 
C) $150,000 
D) $76,800

Question 13

Which of the following is a concern on the initial recognition of property, plant and equipment?

Accepted Answer

A) Whether a gain or loss to be recorded in the income statement. 
B) How much should be recorded on the balance sheet at the acquisition date. 
C) What amount should be recorded on the balance sheet at the reporting date. 
D) What expenditures should be capitalized on the balance sheet. 
A) Whether a gain or loss to be recorded in the income statement. 
B) How much should be recorded on the balance sheet at the acquisition date. 
C) What amount should be recorded on the balance sheet at the reporting date. 
D) What expenditures should be capitalized on the balance sheet.

Question 14

What is the meaning of "residual value"?

Accepted Answer

A) The estimated amount that an entity would currently obtain from disposal of the asset, after deducting disposal costs, for an asset of similar age and condition expected at the end of its useful life. 
B) The total amount to be expensed through depreciation. 
C) The systematic allocation of an asset's depreciable amount over its estimated useful life. 
D) The estimated period of time over which an asset is expected to be available for use by an entity. 
A) The estimated amount that an entity would currently obtain from disposal of the asset, after deducting disposal costs, for an asset of similar age and condition expected at the end of its useful life. 
B) The total amount to be expensed through depreciation. 
C) The systematic allocation of an asset's depreciable amount over its estimated useful life. 
D) The estimated period of time over which an asset is expected to be available for use by an entity.

Question 15

Francisco purchased a machine on Jan 1, 2019 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?

Accepted Answer

A) $70,000 loss. 
B) $70,000 gain. 
C) $73,000 loss. 
D) $73,000 gain. 
A) $70,000 loss. 
B) $70,000 gain. 
C) $73,000 loss. 
D) $73,000 gain.

Question 16

A machine was purchased during 2019 for $3,750,000. At the time of purchase it was estimated that the machine would have a useful life of ten years and a residual value of $750,000. During 2025 the machine was sold for $1,850,000. The company uses straight-line depreciation, but does not record depreciation expense in the year of acquisition or disposal.
Required:
a. Prepare the journal entry to record the derecognition of the asset in 2025.
b. Assume that rather than using the straight-line method, the company uses the declining balance method of depreciation at a 20% rate. Prepare the journal entry to record the derecognition of the asset in 2025.

Accepted Answer

a. Derecognition of the asset in 2025-st

Question 17

Using the conceptual framework, explain why there is a difference between IFRS and ASPE in accounting for interest capitalization for property, plant and equipment.

Accepted Answer

This variation in standards illustrates

Question 18

Historic Pieces Inc. purchased equipment on January 1, 2021 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 2021?

Accepted Answer

A) $27,500 
B) $50,000 
C) $55,000 
D) $60,000 
A) $27,500 
B) $50,000 
C) $55,000 
D) $60,000

Question 19

Seneca Valley owns a machine that it purchased on Jan 1, 2019 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, 2021 for $140,000. What was the depreciation expense for 2019?

Accepted Answer

A) $100,000 
B) $120,000 
C) $200,000 
D) $240,000 
A) $100,000 
B) $120,000 
C) $200,000 
D) $240,000

Question 20

What costs should not be capitalized to "equipment"?

Accepted Answer

A) Non-refundable sales tax. 
B) Refundable sales tax. 
C) Interest during construction of equipment. 
D) Transportation and delivery. 
A) Non-refundable sales tax. 
B) Refundable sales tax. 
C) Interest during construction of equipment. 
D) Transportation and delivery.

Will the method of depreciation affect the net cash outflow associated with the purchase and subsequent sale of property, plant and equipment?

Under ASPE, what is the acceptable treatment for borrowing costs on a self constructed property, plant and equipment?

Explain the accounting purpose of "depreciation." Does depreciation represent the decline in value of an asset?

Under IFRS, what is the acceptable treatment for borrowing costs on a self constructed property, plant and equipment?

Which of the following is a concern on the initial recognition of property, plant and equipment?

What is the meaning of "residual value"?

Using the conceptual framework, explain why there is a difference between IFRS and ASPE in accounting for interest capitalization for property, plant and equipment.

What costs should not be capitalized to "equipment"?

Fundamentals of Financial Accounting Theory

Conceptual Frameworks for Financial Reporting

Accrual Accounting

Revenue and Recognition

Cash and Receivables

Inventories

Financial Assets

Intangible Assets, Goodwill, Mineral Resources, and Government Grants

Applications of Fair Value to Non-Current Assets

Filters

Exam 8: Property, Plant and Equipment

Will the method of depreciation affect the net cash outflow associated with the purchase and subsequent sale of property, plant and equipment?

Under ASPE, what is the acceptable treatment for borrowing costs on a self constructed property, plant and equipment?

Explain the accounting purpose of "depreciation." Does depreciation represent the decline in value of an asset?

Under IFRS, what is the acceptable treatment for borrowing costs on a self constructed property, plant and equipment?

Which of the following is a concern on the initial recognition of property, plant and equipment?

What is the meaning of "residual value"?

Using the conceptual framework, explain why there is a difference between IFRS and ASPE in accounting for interest capitalization for property, plant and equipment.

What costs should not be capitalized to "equipment"?

Fundamentals of Financial Accounting Theory

Conceptual Frameworks for Financial Reporting

Accrual Accounting

Revenue and Recognition

Cash and Receivables

Inventories

Financial Assets

Intangible Assets, Goodwill, Mineral Resources, and Government Grants

Applications of Fair Value to Non-Current Assets

Filters