Exam 11: Depreciation, Depletion, Impairment, and Disposal

Exhibit 11-1 On January 1, 2014, Hills purchased equipment for $350,000. The equipment had an estimated useful life of ten years and an estimated residual value of $50,000. Use the double-declining-balance method to answer the following question(s). -Refer to Exhibit 11-1. How much depreciation should Hills record on the asset in year 1?

Many companies that use the declining-balance method of depreciation switch to the straight-line method at what point in the life of a depreciable asset?

On January 1, 2013, the Wintergreen Co. acquired three assets that it intends to combine into a single account and depreciate using the composite depreciation (straight-line) method. The assets have the following characteristics: Required: a.Determine the composite rate for depreciation of these assets. b.Why did Wintergreen Co. use a composite rate than a group depreciation rate?

Depletion of a natural resource is typically recorded as a

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Companies can apply composite depreciation to a grouping of dissimilar assets. What procedures must be followed?

On June 15, 2015, Jupiter Corporation purchased a machine for $50,000 with an estimated useful life of six years and a residual value of $8,000. The company uses units-of-production depreciation and estimates the machine will last 300,000 units. The machine made 15,000 units in 2015 and 45,000 units in 2016. The accumulated depreciation balance on December 31, 2016, after the adjusting entries have been posted should be

When must a company must include disclosures concerning the write down of an impairment?

Which of the following depreciation methods should be used when the expected benefits to be received from an asset will decline each period?

It has been suggested that repair and maintenance costs should be considered when selecting a depreciation method. Required: Discuss the reasoning behind this assertion and explain how it would be implemented.

On January 1, 2014 Hill Bowling purchased equipment for $3.5 million. The equipment is depreciated over 10 years and has no residual value but if sold would want to get $25,000. Hill uses the straight line method of depreciation. In 2018 new advanced bowling equipment came on the market. Hill believes the bowling equipment currently being used is going to become obsolete quicker than anticipated. Hill wants to complete an impairment test. Estimates are made concerning the net cash flows of $250,000 for the next five years. Hill uses a 14% discounted rate to evaluate other projects of this nature. Required: Complete the Impairment test for Hill's Bowling.

Which of the following is not a factor in selecting a depreciation method?

On January 1, 2014, Flo, Inc. purchased an asset for $48,000. It was estimated that the asset life was seven years, after which it would have a residual value of $4,100. Assuming the use of the sum-of-the-years'-digits method, depreciation expense for 2014 would be

In what three respects does the computation for depreciation for federal income tax purposes and financial reporting purposes differ for assets purchased after 1987?

The depreciation base is computed as follows: Estimated Residual Value = Depreciation Base - Asset Cost

The straight-line and accelerated depreciation methods differ significantly in the amount and timing of the depreciation expense recognized and reported each year. Required: Discuss the factors that should be considered when choosing between the straight-line and accelerated depreciation methods.

Green Vegetable Mfg. Co. purchased equipment on January 1, 2014, at a cost of $800,000. The equipment is expected to have a service life of ten years, or 40,000 hours, and a residual value of $70,000. During 2014, the equipment was operated for 5,000 hours, and during 2015, it was operated for 7,000 hours. Required: Determine the depreciation expense (to the nearest whole dollar) for this machine in 2014 and 2015 under each of the following depreciation methods:

IFRS and GAAP use similar approaches when it comes to the disposal of assets and the subsequent gain or loss. The only difference is GAAP requires the use of the reevaluation method.

Exhibit 11-1 On January 1, 2014, Hills purchased equipment for $350,000. The equipment had an estimated useful life of ten years and an estimated residual value of $50,000. Use the double-declining-balance method to answer the following question(s). -Refer to Exhibit 11-1. How much depreciation should Hills record on the asset in year 2?

Exhibit 11-05 Wilson is preparing his tax returns using the MACRS convention. The following information relates to the purchase of an asset on January 1, 2013. -Refer to Exhibit 11-05, what amount of depreciation would have been recorded in Wilson's books for year 3?