Exam 10: Depreciation, Amortization, and Impairment

Which of the following items relevant to the amortization of an asset can be negative?

During 2014, King Co. sold equipment that had cost $82,000 for $49,200. This resulted in a gain of $4,300. The balance in Accumulated Amortization--Equipment was $270,000 on January 1, 2014, and $258,000 on December 31. No other equipment was disposed of during 2014. Calculate the amount of amortization expense for 2014. King Co. has a calendar year-end and adjusting entries are only made at year-end.

A machine cost $21,000 and has an estimated useful life of five years and a residual value of $3,000. What is the annual amortization expense for each of the first two years under the following amortization methods? Year Year 1 2 (a) Sum-of-the-years'-digits (b) Declining balance \ \ (c) Productive output (potential output is estimated at 90,000 units, in the first year, the machine turned \ \ out 15.000 units, in the second year. 18.000 units) (d) Straight line \ \

DBB purchased new equipment on January 1, 2014. The equipment cost $4,400, had an estimated useful life of four years, and a residual value of $200. Using sum-of-the-years'-digits amortization, the amortization expense recorded at the end of 2016 should be:

Accelerated depreciation methods such as the double-declining balance methods are preferable when assets have shorter useful lives, and in industries where rapid obsolescence is the norm.

Under both IFRS and ASPE, if the fair value of a reporting unit is less than its book value, an impairment loss has automatically occurred and no further impairment testing is required.

Goodwill is said to be impaired if the carrying value of the CGU including Goodwill is greater than its Fair Value.

The Capital Cost Allowance Method (CCA) used for amortization for Canadian Income Tax purposes is most similar to which of the following methods permitted for financial reporting?

The Declining balance method of amortization take into account residual value.

With the exception of Goodwill, all impairment losses are reversible under ASPE.

On September 19, 2013, Samson Co. purchased machinery for $150,000. Residual value was estimated to be $6,000. The machinery will be amortized over eight years using the double-declining balance method. If amortization is computed on the basis of the nearest full month, calculate the amount that Samson should record for amortization expense for 2014 on this machinery. Samson Co. has a December 31 year-end and only accounts for amortization at year-end.

Under capital cost allowance, residual value is not considered in determining amortization for tax purposes.

Calculate amortization for the first year (to the nearest dollar) for a capital asset which cost $11,500, has a $500 residual value, and a 10-year estimated life under each of the amortization methods listed below. (a) Straight-line $_____________________. (b) Sum-of-the-years'-digits $_____________________. (c) Declining balance $_________________. (d) Productive output (where total potential output is 1,250 units and output for the year is 200 units) $_________________.

On January 1, 2013, N'Store for U Ltd. purchased a weight machine for $11,000. The machine has an estimated useful life of 4 years and a $1,000 estimated residual value. It will be depreciated using the SYD method. The amortization expense and accumulated amortization account balances, before the closing entries on December 31, 2014 (end of the accounting period) will be: 2014 Amortization Expense Accumulated amortization at the end of 2014 1 \ 3,000 \ 4,000 2 3,000 7,000 3 4,000 4,000 4 4,000 7,000

All of the following amortization methods take into account residual value except:

On July 1, 2013, Rankin Co. purchased equipment for $126,000. Residual value was estimated to be $3,500. The equipment will be amortized over 10 years using the double-declining balance method. Counting the year of acquisition as one-half year, calculate the amount Rankin should record as amortization expense for 2014 on this equipment.

TX signed a 5-year lease on a tract of vacant land owned by UT. TX immediately constructed a metal building on the land at a cost of $120,000 (estimated life 10 years and a 20 percent residual value). There was no lease provision for removal of the building by TX. Assuming straight-line amortization, the annual amortization expense recorded by TX would be:

Cummings corporation has a capital asset . The estimated cost of dismantling and removing the machine at the end of year 4 is $150. Assuming straight-line amortization, the annual amortization expense is:

On January 2, 2007, Jones & Smith Limited acquired equipment to be used in its manufacturing operations. The equipment has an estimated useful life of 10 years, an estimated residual value of $15,000, and was expected to be used 38,000 hours. The amortization applicable to this equipment was $63,075 for 2000, computed under the activity method after the machine was used 4,350 hours. Calculate the acquisition cost of the equipment.

All other factors remaining constant, straight-line amortization in a manufacturing situation produces a constant unit product cost, whereas output amortization, generally produces a changing unit product cost.