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Exam 11: Property, Plant, and Equipment and Intangible Assets: Utilization and Disposition

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Question 91

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An asset was acquired on August 1, 2018, for $22,000 with an estimated 5-year life and $2,000 residual value. The company uses straight-line depreciation. Calculate the gain or loss if the asset was sold on April 30, 2020, for $13,000. Partial-year depreciation is calculated based on the number of months the asset is in service.

A) $3,000 gain.
B) $2,000 loss.
C) $6,000 gain.
D) $4,000 loss.

E) None of the above
F) A) and C)

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Question 92

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Cutter Enterprises purchased equipment for $72,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $6,000. - Using the straight-line method, the book value at December 31, 2018, would be:

A) $57,600.
B) $51,600.
C) $58,800.
D) $52,800.

E) C) and D)
F) None of the above

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Question 93

Multiple Choice

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The amount of impairment loss is the excess of book value over:

Listed below are five terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term. -Book value

Gulf Consulting Co. reported the following on its December 31, 2018, balance sheet: Equipment (at cost) $700,000 In a disclosure note, Gulf indicates that it uses straight-line depreciation over five years and estimates salvage value as 10% of cost. Gulf's equipment averages 3.5 years at December 31, 2018. What is the book value of Gulf's equipment at December 31, 2018?

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Depreciation

On September 30, 2018, Sternberg Company sold office equipment for $12,000. The equipment was purchased on March 31, 2015, for $24,000. The asset was being depreciated over a five-year life using the straight-line method, with depreciation based on months in service. No residual value was anticipated. Required: Prepare the journal entries to record 2018 depreciation and the sale of the equipment.

Robertson Inc. prepares its financial statements according to International Financial Reporting Standards (IFRS) . At the end of its 2018 fiscal year, the company chooses to revalue its equipment. The equipment cost $540,000, had accumulated depreciation of $240,000 at the end of the year after recording annual depreciation, and had a fair value of $330,000. After the revaluation, the accumulated depreciation account will have a balance of:

The table below contains data on depreciation for machinery. Required: Fill in the missing data in the table.

In its 2018 annual report to shareholders, Plank Breweries included the following note: Property, Plant, and Equipment Property, plant, and equipment consist of the following (in $ thousands): Total depreciation expense was approximately $2.121 million and $2.179 million for the years ended December 31, 2018 and 2017, respectively. Also, Plank Breweries reported the following information in its annual report (in $ thousands): -Prepare the journal entry to record Plank's disposal of the property, plant, and equipment during 2018.

Cutter Enterprises purchased equipment for $72,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $6,000. -Using the double-declining balance method, depreciation for 2019 would be:

In January 2018, Vega Corporation purchased a patent at a cost of $200,000. Legal and filing fees of $50,000 were paid to acquire the patent. The company estimated a 10-year useful life for the patent and uses the straight-line amortization method for all intangible assets. In January, 2021, Vega spent $40,000 in legal fees for an unsuccessful defense of the patent and the patent is no longer usable. The amount charged to income (expense and loss) in 2021 related to the patent should be:

Recognition of impairment for property, plant, and equipment is required if book value exceeds:

Fellingham Corporation purchased equipment on January 1, 2016, for $200,000. The company estimated the equipment would have a useful life of 10 years with a $20,000 residual value. Fellingham uses the straight-line depreciation method. Early in 2018, Fellingham reassessed the equipment's condition and determined that its total useful life would be only six years in total and that it would have no salvage value. How much would Fellingham report as depreciation on this equipment for 2018?

Briefly discuss the factors that determine the service life of a depreciable asset.

Briefly explain the differences between the terms depreciation, depletion, and amortization.

According to International Financial Reporting Standards (IFRS), the impairment loss for an indefinite-life intangible asset other than goodwill is the difference between book value and the recoverable amount.

Meca Concrete purchased a mixer on January 1, 2016, at a cost of $45,000. Straight-line depreciation for 2016 and 2017 was based on an estimated eight-year life and $3,000 estimated residual value. In 2018, Meca revised its estimate and now believes the mixer will have a total service life of only six years, and that the residual value will be only $2,000. Required: Compute depreciation for 2018 and 2019.

Once selected for existing assets, a company must consistently use the same method of depreciation for all subsequent fixed asset acquisitions.

In 2018, the internal auditors of KJI Manufacturing discovered the following material errors made in prior years: 1. Equipment was purchased on June 30, 2016, for $100,000. The purchase was incorrectly recorded as a debit to repair and maintenance expense. The equipment has a useful life of five years and no residual value. 2. On March 31, 2017, $50,000 was paid to a contractor to landscape the area around a manufacturing plant including the installation of a sprinkler system. The expenditure was debited to the Land account. The landscaping is expected to have a 20-year useful life and no residual value. KJI uses the straight-line method of depreciation for all depreciable assets. Required: 1. Prepare the journal entries at December 31, 2018, to correct the errors (ignore income taxes). 2. Prepare the journal entries to record 2018 depreciation for any assets recorded in requirement.