Exam 11: Depreciation, Depletion, Impairment, and Disposal

Choice Mining Co. paid $9,000 for some land that was expected to have 50,000 units of a natural resource on it. Development costs amounted to $520. It was expected that the land would require $780 of reclamation costs after production. In the first year of mining, 5,000 units of the natural resource were mined. At the beginning of the second year, it was estimated that only 40,000 units of the natural resource remained and estimated reclamation costs should be increased to $960. In the second year, 8,000 units were mined. What was the amount of depletion for the second year?

What four factors must be considered in the computation of depreciation? Provide a brief description of each.

Clementine Co. computes depreciation to the nearest whole month and uses the straight-line method. On May 2, 2013, the company purchased an asset for $18,000 with a four-year life and a $3,600 residual value. On October 6, Karen also sold an asset with a cost of $34,500 that had been purchased in 2011. The sold asset had been estimated to have a five-year life and no residual value when it was purchased. The depreciation expense on these two assets for 2013 totals

Tangible assets that are attached to natural resources are depreciated over

The factors involved in computing periodic depreciation charges for an asset do not include the

Bagby Co. purchased a new car for $36,000 on June 1, 2014, with a useful life of eight years and a residual value of $4,800. If the company used double-declining-balance depreciation computed to the nearest whole year, depreciation expense for 2015 was

Which of the following is not considered involuntary disposal?

On January 1, 2013, the Jones-Smith Corp. acquired a parcel of land for $6,000,000 from which it expects to extract 300,000 tons of coal over the next ten years. Afterwards, the land will be reclaimed at an estimated cost of $650,000 and sold for an estimated $350,000. In 2014, a building was constructed on the mine site for $680,000 with an estimated zero value when mining is completed. During 2013, 15,000 tons were mined, and in 2014, 19,000 tons were mined. At the beginning of 2014, the amount of ore remaining was revised to 250,000 tons. Required: a.Prepare the depletion entry for 2013. b.Determine the total amount of inventoriable costs to be recorded in 2014.

On April 1, 2014, an uninsured machine was totally destroyed in an accident at Rogers' manufacturing plant. The machine had been acquired on January 1, 2011, at a cost of $70,000. The machine had been expected to have a useful life of seven years and a residual value of $7,000. Rogers depreciates machines using the straight-line method and computes depreciation to the nearest whole month. No depreciation has been recorded in 2014. Required: Record the 2014 depreciation expense and the disposal of the machine.

On January 1, 2014, Travis Company purchased machinery costing $3,000,000. The company uses straight-line depreciation and estimated the machinery's useful life to be 10 years and its residual value to be $600,000. At the end of 2017, the company felt that technological advances had caused an impairment of its machinery and that its remaining useful life was only four years. The company estimates the machinery will generate cash inflows of $850,000 and cash outflows of $100,000 each of the next four years. The company uses a 15% rate of return to evaluate capital budgeting projects. Required: a.Determine if an impairment loss has occurred. (Show all calculations). b.Calculate the amount of any impairment loss to be recognized. The present value of an annuity is 2.85498; present value of $1 is 0.57175; and future value of annuity is 4.99338.

The Sahara Company purchased equipment on January 1, 2015, for $100,000. The equipment had an estimated residual value of $10,000, an estimated useful life of five years, and estimated lifetime output of 18,000 units. In 2016, the company produced 4,400 units and recorded depreciation expense of $22,000. What depreciation method did the company use?

Which one of the following statements is an advantage of the group and composite methods of depreciation?

Which one of the following statements is not true?

The service life of an asset may be measured by all of the following except

Which one of the following statements about group depreciation is true?

Which one of the following is not a factor that limits the service life of an asset?

Devon Manufacturing Company purchased a new canning machine on July 1, 2013, for $190,000. The estimated salvage value is $15,000. The company uses units-of-production depreciation and estimates the machine will produce 125,000 units during its useful life. In 2013, the company manufactured 5,000 units after acquiring the machine. Depreciation expense for 2013 will be

Information for heterogeneous assets A, B, and C of America Health and Fitness Club is provided below. The company uses composite depreciation for these assets. Required: a.Calculate the composite depreciation rate. b.Journalize the sale of Asset C for $28,000 after two full years of use.

Exhibit 11-04 Kieso Company purchased a tract of land for $4,500,000 in anticipation of extracting 1,425,000 tons of ore. The residual value of the land is expected to be $480,000. The company mines 125,000 tons of ore in the first year. -Refer to Exhibit 11-04, what is the unit depletion rate?

Which depreciation method ignores residual value when computing the depreciable base of an asset?