Exam 11: Depreciation, Depletion, Impairment, and Disposal

GAAP requires the general description of the methods used in the computation of depreciation regarding major classes of assets to be disclosed in the notes of the financial statements.

On January 1, 2014, Pistachio purchased an asset that had an estimated residual value of $700 after an economic life of four years. Pistachio used sum-of-the-years'-digits depreciation and recorded $1,560 of depreciation expense in 2016. What was the cost of the asset?

An impairment loss must be recognized when an asset's

Exhibit 11-2 Browning purchased a business copier for $4,500 on August 3, 2014. It has an estimated residual value of $500 and an expected service life of five years. Browning uses double-declining-balance depreciation computed to the nearest whole month. -Refer to Exhibit 11-2. Depreciation expense for 2014 was

Willis Limo Service purchased three used assets with the following characteristics: Assuming Willis uses straight-line depreciation, the composite depreciation rate is

The Bourbon Street Ice Cream Company discovers that depreciation expense was overstated last year. How should this discovery be reported in the current year?

Information concerning a mine is as follows: Required: Compute the total cost of inventory at the end of the year.

In 2014, Western Maryland Company paid $3,000,000 for a mining tract with reserves of 100,000 tons of ore, which the company planned to mine over a 20-year period. The company spent $500,000 developing the mine. Western plans to spend $200,000 for reclamation when mining has been completed, after which the land will have an estimated value of $600,000. In 2014, Western mined and sold 8,000 tons of ore. What depletion should Western record for the year?

The service life of an asset can only be measured in units of activity or output.

GAAP does not require companies to disclose the balances of depreciable assets by nature or function but by major classes.

Which one of the following disclosures is required by generally accepted accounting principles?

Wayne Co. purchased $40,000 of equipment with a salvage value of $5,000 and a useful life of nine years on August 15, 2014. If the company used sum-of-the-years'-digits depreciation computed to the nearest whole year, depreciation expense for 2015 was

Exhibit 11-2 Browning purchased a business copier for $4,500 on August 3, 2014. It has an estimated residual value of $500 and an expected service life of five years. Browning uses double-declining-balance depreciation computed to the nearest whole month. -Refer to Exhibit 11-2. Depreciation expense for 2015 should be

On January 1, 2014, Bauer Co. had purchased a machine for $60,000. This machine had an estimated service life of eight years and an estimated residual value of $4,000. It has been depreciated by the straight-line method since acquisition. On January 1, 2017, it was determined that the remaining service life for this machine was nine years and that the residual value would be $3,000. Required: Record the depreciation expense for 2017.

Composite depreciation is applied to homogeneous assets which have similar service lives and residual values.

Exhibit 11-03 On January 1, 2014, Wheeler, Inc. purchased some equipment for $3,900. The equipment had an estimated life of five years and an expected residual value of $200. On July, 1, 2016, the equipment was sold for $1,000. -Refer to Exhibit 11-03, what was the amount of the loss or gain recognized in the sale?

Consider the following: a.Regent Corp. bought a machine costing $22,400 on January 1, 2014. A six-year life was estimated, and a $1,400 residual value was expected. The sum-of-the-years'-digits depreciation method was used. Compute depreciation expense for 2018. b.The company bought a machine costing $50,000 on January 1, 2014 A six-year life was expected, and residual value was estimated to be $8,000. The 150%-declining-balance depreciation method was used. Compute depreciation expense for 2015.

The FASB established principles for evaluating asset impairment because it hoped financial reporting would

On January 1, 2013, Smith-Jones Company purchased office furniture for $80,000. Other data on the purchase include the following: Required: a.Compute the depreciation deduction for the 2013 tax return. b.Assume the asset is sold on April 1, 2021 for $3,000. Compute the gain/loss on disposal for both financial reporting and tax reporting.

A student is defending a certain depreciation method. She uses the argument that repairs and maintenance costs will probably increase as the asset gets older. She also argues that the asset will produce less as it gets older. What depreciation method is she probably defending?