Exam 11: Depreciation, Depletion, Impairment, and Disposal

The Jefferson Co. purchased a machine on January 1, 2014. The machine cost $595,000. It had an estimated life of ten years, or 30,000 units, and an estimated residual value of $40,000. In 2014, Jeffries produced 3,000 units. Required: Compute the depreciation charge for 2014 using each of the following methods:

The MACRS Depreciation table as follows: Required: Using the MACRS Depreciation table calculate each year of depreciation for each independent situation.

On January 1, 2014, Major purchased a machine that had an estimated useful life of six years and $5,000 residual value. The depreciation on this machine was $2,700 in 2015 using the 150%-declining-balance depreciation method. Required: Compute the cost of this machine.

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. What is the net book value of this asset that Hills should report on the company's balance sheet at December 31, year 2?

Development costs incurred for the purchasing of equipment can be included as part of the cost of the natural resource.

The use of accelerated methods are appropriate when the asset will be used more in the later periods versus earlier periods.

Karen's purchased a piece of equipment for $42,000 with a useful life of seven years and a residual value of $6,000 on January 2, 2014. If Karen's used the sum-of-the-years'-digits method with the half-year convention, depreciation expense for 2014 was

A company must include impairment disclosures in the year of an impairment write-down and the subsequent three years following to ensure accurate comparability.

What disclosures are required by GAAP for depreciation?

A requirement of GAAP is that companies should review their assets to ensure they are not impaired, especially when a change dictates the book value may not be recoverable.

Consider the following: a.Peters Co. bought a machine for $15,790 on July 1, 2013. The estimated life of the machine was seven years, and salvage value was estimated to be $782. The straight-line depreciation method was used. Compute depreciation expense for 2013. b.Peters Co. bought a machine costing $30,492 on January 1, 2014. A six-year life was estimated with no salvage value. The sum-of-the-years'-digits depreciation method was used. Compute depreciation expense for 2018. c.Peters Co. bought a machine costing $62,000 on January 1, 2014. Salvage value was estimated to be $2,000, a five-year life was determined, and 150%-declining-balance depreciation was used. Compute the amount that would be in the accumulated depreciation account on December 31, 2015.

When conducting an impairment test, a company must estimate

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 is the amount in the accumulated depreciation account prior to bring the depreciation expense up to date before the disposal?

On January 1, 2014, Digger purchased some equipment for $29,600. The anticipated life of the equipment was five years and residual value was estimated to be $4,100. The machine was expected to produce 600,000 units. In January of 2014, 35,000 units were produced and production was doubled in February. The company uses the activity depreciation method. What is the amount of depreciation expense for the month of February?

The Cardwell Company purchased a machine on January 2, 2014, at a cost of $1,200,000. The machine had an estimated useful life of eight years and a residual value of $120,000. Cardwell computes depreciation by the sum-of-the-years'-digits method. What amount, net of accumulated depreciation, will appear on the company's December 31, 2016, balance sheet for this machine?

On January 2, 2014, China Co. bought a machine for $400,000 with a salvage value of $20,000 and a four-year useful life. Straight-line depreciation was used. However, during 2014 and 2015, depreciation expense was erroneously calculated using a $50,000 salvage value. The error was discovered in 2016 after the 2015 books had been closed. Required: Prepare the correcting entry in 2016.

Acquisition costs, exploration costs, development costs, and reclamation costs can all be added to the cost of obtaining the rights to natural resources.

When accounting for long-lived assets, companies may make modifications in the procedures related to specific assets. Companies may change depreciation methods or may change an estimate of the service life of the assets. Required: Describe how these two types of accounting changes are to be handled.

Which one of the following statements is not true regarding depreciation?

Group depreciation is applied to heterogeneous assets.