CHAPTER 11

P11-6

SEE NOTES

P11-8

SEE NOTES

E11-24 Change in principle, change in depreciation methods

See notes

E11-22 Changes in esitmate; useful life and residual value of equipment Wardell company purchase a mini computer on Jan 1, 2016 at a cost of $40.000. The computer was depreciated using the straight-line method over an estimate five-year life with an estimated residual value of $4.000. On Jan, 1, 2018, the estimate of useful life was change to a total of 10 years, and the estimate of residual value was changed to $900. 1. Prepare the year-end journal entry for depreciation in 2018. No depreciation was recorded during the year. 2. Repeat 1, assuming the company uses the sum of the years-digits method instead of straight-line method.

1. (d) Depreciation expense 3088 (c) Accum depreciation - computer 3088 2. Depreciation expense 3889 Accum depreciation 3889

E11-11 Disposal of PPE; partial periods On July 1, 2013 Farm Fresh Industries purchased a specialized delivery truck for 126.000. At the time, Farm Freash estimated the truck to have a useful life of right years and a residual value of 30.000. On March 1, 2018, the truck was sold for 58.000. Farm Fresh uses the straight-line depreciation method for all of its plant and equipment. Partial-year depreciation is calculated based on the number of months the assets is in service. 1. Prepare the journal entry to update depreciation in 2018

Depreciation= (126.000 - 30.000) /8 = 12.000 per year or 1.000 per month 1. to update depreciation in 2018, 2 months of service to date of disposal Depreciation expense 2.000 Accum. depreciation 2.000

E11-11 Disposal of PPE; partial periods On July 1, 2013 Farm Fresh Industries purchased a specialized delivery truck for 126.000. At the time, Farm Freash estimated the truck to have a useful life of right years and a residual value of 30.000. On March 1, 2018, the truck was sold for 58.000. Farm Fresh uses the straight-line depreciation method for all of its plant and equipment. Partial-year depreciation is calculated based on the number of months the assets is in service. 2.Prepare the journal entry to record the sale of the truck

To record the sale of the truck D: Cash: 58.000 D: Loss on sale of truck : 12.000 D: Accum. Depreciation 56.000* C: Truck 126.000 *July 1, 2013 - March 1, 2018 = 56 months Total accum dep. = 56m x 1k = 56.000

E11-10 Disposal of PPE Mercury Inc. Purchased equipment in 2016 at a cost of 400.000 The equipment was expected to produce 700.000 units over the next five years and have a residual value of 50.000 The equip was sold for 210.000 part way through 2018. Actual production in each year was 2016: 100.000 units; 2017: 160.000 units; 2018=80.000 units. Mercury uses units of production depreciation and all depreciation has been recorded through the disposal date 1. Prepare the journal entry to record the sale 2. Assuming that the equipment was sold for 245.000 prepare the journal entry to record the sale

1. D: Cash - 210.000 D: Accum. Depreciation - equip (acct. bal) 170.000-* D: Loss on sale of equipment (difference) 20.000 C.Equipment (acct bal) 400.000 * depreciation per unit (400-50)/700.000 units = .50 340.000 units x .50 = 170.000 2. D: Cash 245.000 D. Acc. depreciation - equipment (Acct. bal) 170.000 C: Equipment (acct bal) 400.000 C: Gain on sale of equipment (difference) 15.000

E11-6 Depreciation methods; partial periods On April 30, 2018, Quality appliances purchased equipment for 260.000. The estimated service life of the equipment is six years and the estimates residual value is 20.000. Quality fiscal year end on December 31. Calculate depreciation for 2018 and 2019 using each of the three methods listed. Quality calculates partial year depreciation based on the number of months the asset is in service. Round all computations to the nearest dollar. 1. Straight-line 2. Sum of the years digits 3. Double declinings

1. Straight-line 260.000-20.000/6 years = 40.000 2018: 40.000 x8/12 = 26667 2019: 40.000 x 12/12 = 40.000 2. Sum of the years digits Sum of the years digits is ([6(6+1)]/2)=21 2018 240.000 x 6/21 x 8/12 = 45714 2019 240.000 x 6/21 x 4/12 = 22857 + 240.000 x 5/21 x 8/12 = 38095 Total 60952 3. Double-declining balance 1/6 (the straight-line rate) x 2 = 1/3 DDB rate 2018 260.000 x 1/3 x 8/12 = 57778 2019: (260.000 - 57778) x 1/3 = 67407

E11-4 Depreciation methods; asset addition' partial period Tristen company purchased a five-story office building on Jan 1 2016, at a cost of 5m. The building has a residual value of 200.000 and a 30 year life. The striaght-line depreciation method is used. On June 30 2018, construction of a sixth floor was completed at a cost of 1.650.000 Required: Calculate the depreciation ont he building and building addition for 2018 and 2019 assuming that the addition did not change the life or residual value of the building

Building depreciation: 5.000.000-200.000/30 years = 160.000 per years Building addition depreciation Remaining useful life from June 30th 2018 is 27.5 1.650.000/27.5 years = 60.000 2018 60.000 x 6/12 = 30.000 2019 60.000 x 12/12 = 60.000

E11-11 Disposal of PPE; partial periods On July 1, 2013 Farm Fresh Industries purchased a specialized delivery truck for 126.000. At the time, Farm Freash estimated the truck to have a useful life of right years and a residual value of 30.000. On March 1, 2018, the truck was sold for 58.000. Farm Fresh uses the straight-line depreciation method for all of its plant and equipment. Partial-year depreciation is calculated based on the number of months the assets is in service. 3. Assuming that the truck was sold for 80.000 prepare the journal entry to record the sale.

To record the sale of the trucks D.:Cash 80.000 D: Acc. Depreciation 56.000 * ( see 2) C: Truck = 126.000 C: Gain on sale of truck= 10.000

E11-15 Depletion On April 17.2018 the loadstone mining company purchased the rights to a coal mine. The purchase price plus additional costs necessary to prepare the mine for extraction of the coal totaled 4.500.000. The company expects to extract 900.000 tons of coal during a four-year period. During 2018, 240.000 tons were extracted and sold immediately. 1. Calculate depletion for 2018 2. Discuss the accounting treatment of the depletion calulated in 1.

1. Depletion per ton 4.500.000/900.000 = 5.00 2018 depletion = 5.00 x 240.00 tons = 1.200.000 2. Depletion is part of product cost and is included in the cost of the inventory of coal, just as the depreciation on manufacturing equipment is included in inventory cost. The depletion is then included in cost of goods sold in the income statement when the coal is sold

E11-3 Depreciation method; partial periods On Jan 1 2018, the allegheny corp. purchased machinery for 115.000. The estimated service life of the machinery is 10 years and the estimated residual value is 5.000. The machine is expected to produce 220.000 units during its life. Calculate depreciation for 2018, 2019 using each of the following methods. Partial-year depreciation is calculated based on the number of months the asset is in service. 1. Straight line 2. Sum of the years digits 3. Double declining balance 4. One hundred fifty percent declining balance 5. Units of production (units produced in 2018, 10.000; units produced in 2019, 25.000)

1. Straight line: 115.000-5000/10 = 11.000 2018: 11.000x3/12 - 2750 2019: 11.000 x 12/12 = 11.000 2.Sum of the years digits Sum of the digits is {[10(10+1)]/2=55 2018: 110.000 x 10/55 x 3/12 = 5.000 2019: 110.000 x 10/55 x 9/12 = 15.000 PLUS (+) 110.000x9/55 x 3/12 = 4500 = 19.500 3. Double declining balance Straight-line rate is 10% (1/10) x 2 = 20% DDB rate 2018 115.000 x 20% x 3/12 = 5750 2019: 115.000 x 20% x 9/12 = 17250 PLUS(+) (115.000-23.000) x 20% x 3/12 = 4600 = 21850 OR (115.000 - 5750) x 20% = 21850 4. One hundred fifty percent declining balance Straight-line rate is 10% (1/10 years)x1.5 = 15% 2018 115.000 x 15% x 3/12 = 4313 2019 115.000 x 15% x 9/12 [12937] + (115.000 - 17250) x 15% x 3/12 = [3666]=16603 5. Units of productions 115.000 - 5.000/220.000 units = $.50 2018 10.000 units x .50 = 5000 2019 25000 units x .50 = 12500

E11-29 Impairment; PPE General Optic Corp. operates a manufacturing plant in Arizona. Due to a significant decline in demand for product manufactured at the Arizona site, an impairment test is deemed appropriate. Management has acquired the following information or the assets at the plant: Cost 32500000 Accum depreciation 14200000 Products manufactured at Arizona plant, not discounted to present value 15000000 The fair value of the Arizona plant is estimated to be 11.000.000 Required: 1. Determine the amount of impair loss, if any 2. If a loss is indicated, where would it appear in General Optic's Multistep income statement 3. If a loss is indicated, prepare the entry to record the loss 4. Repeat 1, assuming that estimated undiscounted sum of future cash flow is 12000000 insead of 15000000 5. Repeat 1, assume that est undiscounted CF is 19000000 instead of 15000000

1. Sum of Future CF is 15m, while BV is 18.3 - an impairment loss is indicated. 1A. loss is calculated using est. fair value not undiscounted future CF. Book value: 18300000 Est. Fair value: 11000000 Impairment loss: 7300000 2. The loss would appear in the income statement along with other operating EXPENSES 3. (d)Loss on impairment 7300000 (d)Accumulated depreciation 14200000 (c) Plant Assets 21500000 4. There is still an loss because est future CF (12) is still less than book value (18.3) **but to calculate we use est. fair value 18300000 est. FV 11000000 Impairment loss = 7300000 5. There is no impairment loss because the estimated undiscounted sum of future cash flow (19m) exceeds book value of (18.3)

E11-2 Depreciation methods On Jan 1 2018, the allegheny corp. purchased machinery for 115.000. The estimated service life of the machinery is 10 years and the estimated residual value is 5.000. The machine is expected to produce 220.000 units during its life Required: Calculate depreciation for 2018, 2019 using each of the following methods. Round all computation to the nearest dollar 1. Straight line 2. Sum of the years digits 3. Double declining balance 4. One hundred fifty percent declining balance 5.Units of production (units produced in 2018, 30.000; units produced in 2019, 25.000)

1. straight-line 115.000-5.000/10 years = 11.000 per year 2. Sum of the years dogots Sum of the digits ([10(10+1)]/2) = 55 2018: 110.000 x 10/55 = 20.000 2019: 110.000 x 9/55 = 18.000 3. Double-declining balance: Straight-line rate is 10% (1-10 years) x 2 = 20% DDB rate 2018 115.000 x 20% = 23.000 2019 (115.000-23.000) x 20% = 18400 4. One hundred fifty percent declining balance Straight-line rate is 10% (1-10 years) x 1.5 = 15% 2018: 115.00 x 15% = 17250 2019 (115.000 -17250) x 15% = 14663 5. Units of productions 115.000-5000/220000 units = .50 per unit depreciation rate 2018: 30.000 units x $.50 = 15.000 2019 25.000 units x $.50 = 12.500

E11-22 Changes in esitmate; useful life and residual value of equipment Wardell company purchase a mini computer on Jan 1, 2016 at a cost of $40.000. The computer was depreciated using the straight-line method over an estimate five-year life with an estimated residual value of $4.000. On Jan, 1, 2018, the estimate of useful life was change to a total of 10 years, and the estimate of residual value was changed to $900. How do you calculate depreciation using straight line vs *sum of digits

Calculation of annual depreciation after est change (sum of digits) 40000 Cost 12000 - 2016 prev depreciation (36000 x 5/15) 9600 - 2017 prev deprec. (36000 x 4/15) 21600 Depreciation to date (16-17) 18400 Undepreciated cost - 900 revised residual value 17500 revised depreciable base x 8/36 est reamining life - 8 years 3889 2018 depreciation SUMMARY: Cost (40) - previous years depreciation(21.6) = undepreciated cost (18.4) Undepreciated cost (18.4) - revised residual value (900) = Revised depreciate base (17.5) TIMES estimated remaining life - 8 years (8/36) 17.500 times 8/36 = 3889

E11-22 Changes in esitmate; useful life and residual value of equipment Wardell company purchase a mini computer on Jan 1, 2016 at a cost of $40.000. The computer was depreciated using the straight-line method over an estimate five-year life with an estimated residual value of $4.000. On Jan, 1, 2018, the estimate of useful life was change to a total of 10 years, and the estimate of residual value was changed to $900. How do you calculate depreciation using *straight line vs sum of digits

Calculation of annual depreciation after est. change 40000 cost 7200 prev annual depreciation (36.000/5 yrs) 14400 depreciation to date (7200 * 2 yrs )(16, 17) 25600 (Undepreciated cost - 40.000 - 14400) - 900 Revised residual value = 24700 Revised depreciable base divided by (8) estimated remaining life (10 years - 2) 24700/8 = 3088 SUMMARY: Cost - Depreciation to date = undpreciated cost Undepreciated cost - revised residual value = revised depreciable base divided by estimated remaining life = New annual depreciation (3088)