When a capital asset with a 5-year estimated useful life is sold during the second year, how would the use of the SYD method of amortization, instead of the straight-line method, affect the gain or loss on the sale? $\begin{array}{|l|l|l|} \hline &\text { Gain } & \text { Loss } \\ \hline1& \text { No effect } & \text { No effect } \\ \hline 2&\text { Increase } & \text { Increase } \\ \hline 3&\text { Decrease } & \text { ncrease } \\ \hline4& \text { nncrease } & \text { Decrease } \\ \hline \end{array}$

A) Choice 1 B) Choice 2 C) Choice 3 D) Choice 4 A) Choice 1 B) Choice 2 C) Choice 3 D) Choice 4

XYZ purchased a machine that cost $62,000; the estimated residual value is $2,000. The following data are available at the end of the first year of use: $\begin{array} { | l | l | } \hline \text { Estimated Life } & \text { Utilization During First Year } \\ \hline 5 \text { years } & 1 \text { year } \\ \hline 1,500,000 \text { service hours } & 310,000 \\ \hline 300,000 \text { units of product } & 50,000 \\ \hline \end{array}$ Based on the forgoing data, complete the following tabulation. Show computations. $\begin{array}{|l|l|l|} \hline \text { Method } & \text { Method } & \text { Amortization First Year } \\ \hline \text { A } & \text { Straight-line } & \$ \\ \hline \text { B } & \text { Sum-of-the-years'-digits } & \$ \\ \hline \text { C } & \text { Service hours } & \$ \\ \hline \text { D } & \text { Declining balance } & \$ \\ \hline \text { E } & \text { Productive output } & \$ \\ \hline \end{array}$

(a) Straight-line: ($62,000 - $2,000 = $

Exam 10: Depreciation, Amortization, and Impairment

On January 1, 2014, the Accumulated Amortization--Machinery account of a particular company showed a balance of $308,000. At the end of 2014, after the adjusting entries were posted, it showed a balance of $330,000. During 2014, one of the machines, which cost $103,400, was sold for $60,500 cash. This resulted in a loss of $3,300. Assuming that no other assets were disposed of during the year, calculate the amount of amortization expense for 2014. Assume a December 31 year-end and adjusting entries are only made at year-end.

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Question 1

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Net change in accumulated amortization: 330,000 - 308,000 = 22,000 increase
Accumulated amortization of asset disposed of: $\begin{array}{|l|l|}\hline \text { Proceeds from disposition } & \$ 60,500 \\\hline \text { Loss on disposal } & 3,300 \\\hline \text { Book value of asset sold } & \$ 63,800 \\\hline \text { Original cost } & 103,400 \\\hline \text { Accumulated Amortization } & \$ 39,600 \\\hline \text { Net increase in account } & 22,000 \\\hline \text { Amortization expense for year } \$ 61,600 \\\hline\end{array}$

Which of the following statements is not correct?

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Question 2

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B

Under ASPE, the first step in the two-step impairment test for depreciable assets is to determine whether an assets discounted cash flows exceeds its carrying amount.

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Question 3

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False

Which of the following is one of the underlying rationales for recognizing periodic amortization?

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Question 4

A publicly traded enterprise purchases a truck for $150,000. The major components of the truck and their respective values and useful lives have been identified as follows: Body $100,000. 25 Years (No scrap value) Tires $20,000 5 Years (No scrap value) Engine $30,000 20 Years (Scrap value $5,000) Straight-line amortization applies to all components. At the end of Year 15, the company replace the truck's engine with a new engine costing $20,000. The old engine was sold for $2,000. Prepare the journal entries to record the disposal of the old engine and the acquisition of the new one.

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Question 5

At the end of December 31, 2013 fiscal year, JB had the following assets: Estimated Asse Cost Residual Value Useful Life A \ 16,400 \- 0- 4 B 10,000 400 3 C 35,000 2,100 7 Because the assets are dissimilar, composite amortization is used. (a) The composite amortization rate is % (round to the nearest whole percent). (b) Assuming amortization is based on the ending balances, amortization expense for 2013 would be $. (c) If asset B is sold at the beginning of 2014 for $8,000 cash, what gain or loss should JB recognize? $______.

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Question 6

When a capital asset with a 5-year estimated useful life is sold during the second year, how would the use of the SYD method of amortization, instead of the straight-line method, affect the gain or loss on the sale? Gain Loss 1 No effect No effect 2 Increase Increase 3 Decrease ncrease 4 nncrease Decrease

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Question 7

Impairment losses on intangible assets are to be amortized over the asset's remaining useful life.

(True/False)

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Question 8

The declining balance method records higher amortization expense in the earlier years of an asset's useful life.

(True/False)

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Question 9

XYZ purchased a machine that cost $62,000; the estimated residual value is $2,000. The following data are available at the end of the first year of use: Estimated Life Utilization During First Year 5 years 1 year 1,500,000 service hours 310,000 300,000 units of product 50,000 Based on the forgoing data, complete the following tabulation. Show computations. Method Method Amortization First Year A Straight-line \ B Sum-of-the-years'-digits \ C Service hours \ D Declining balance \ E Productive output \

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Question 10

(a) On July 1, 2001, XY purchased a machine that cost $22,000. It has a four-year life and $2,000 estimated residual value. It is to be depreciated using the sum-of-the-years'-digits method. Give the amortization entry at the end of 2001 and 2002 (end of the accounting period). XY has a December, 31 year-end (b) Refer to the data in the above situation. Suppose instead the machine is to be depreciated using the service-hours method and its estimated life is 20,000 hours. Give the amortization entry at the end of 2001 and 2002, assuming it was used 3,000 hours during 2001 and 7,000 hours during 2002.

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Question 11

On January 1, 2014, REP replaced a major component in Plant A, which had been operating for 10 years (from construction date of the plant); its original cost as a part of the plant was $36,000. The replacement component cost $40,000 (cash) and has an estimated life of 25 years. Plant A is depreciated as one unit on the straight-line basis (not group or composite amortization system) and has an estimated life of 30 years (total). All residual values were zero. REP has a December 31 year-end and only accounts for amortization at year-end. (a) Give the entry (entries) on January 1, 2014. (b) At the end of 2014, what amount of amortization should be recorded on the replacement item? $____________________.

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Question 12

Amortization is not recognized until the asset is in its intended condition and location and is contributing to revenue.

(True/False)

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Question 13

The half-year convention is applied to CCA calculations.

(True/False)

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Question 14

Under which of the following amortization systems is expense recognized only in the final year an asset is used?

(Multiple Choice)

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Question 15

The operations of XY are seasonal; therefore, XY defers as much routine machinery maintenance as possible to the next slack season. Repair expense, however, is accrued monthly in an Allowance for repairs account. The balance accumulated in the Allowance account until shortly before the slack season should be reported as a:

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Question 16

The appraisal (inventory), retirement, replacement and composite amortization methods offer significant accounting cost savings over individually applied methods. Discuss how these methods help to save accounting costs.

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Question 17

Amortization expense each period is proportionate to usage of the asset each period with the:

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Question 18

The revaluation model applies only to long-lived assets with an active market.

(True/False)

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Question 19

Held-for-sale capital assets are not depreciated.

(True/False)

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Question 20

Which of the following statements is not correct?

Under ASPE, the first step in the two-step impairment test for depreciable assets is to determine whether an assets discounted cash flows exceeds its carrying amount.

Which of the following is one of the underlying rationales for recognizing periodic amortization?

Impairment losses on intangible assets are to be amortized over the asset's remaining useful life.

The declining balance method records higher amortization expense in the earlier years of an asset's useful life.

Amortization is not recognized until the asset is in its intended condition and location and is contributing to revenue.

The half-year convention is applied to CCA calculations.

Under which of the following amortization systems is expense recognized only in the final year an asset is used?

The appraisal (inventory), retirement, replacement and composite amortization methods offer significant accounting cost savings over individually applied methods. Discuss how these methods help to save accounting costs.

Amortization expense each period is proportionate to usage of the asset each period with the:

The revaluation model applies only to long-lived assets with an active market.

Held-for-sale capital assets are not depreciated.

The Framework for Financial Reporting

Accounting Judgements

Statements of Income and Comprehensive Income

Statements of Financial Position and Changes in Equity; Disclosure Notes

The Statement of Cash Flows

Revenue Recognition

Financial Assets: Cash and Receivables

Cost-Based Inventories and Cost of Sales

Long-Lived Assets

Financial Instruments: Investments in Bonds and Equity Securities

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