Intermediate accounting quiz 11

Solar Products purchased a machine for $82404 on July 1, 2012. The company intends to depreciate it over 4 years using the double-declining balance method. Salvage value is $3,000. Depreciation for 2012 is

(1/4) x 2 = 50% Year 1 (july 1,2012) - (82404 x 0.50) = 41202 - 41202 x (6/12) = 20601 *20601*

An asset has a cost of $68116 and an estimated salvage value of $5000. If the company uses double declining balance depreciation method, and the asset is estimated to have a four year life, what is the amount of depreciation expense in year four of the asset's life?

(1/4) x 2 = 50% Year 1: 68118 x 0.50 = 34059 Year 2: New BV (68118-34059) = 34059 - (34059 X 0.50) = 17029.50 Year 3: New BV (34059-17029.5) = 17029.5 - (17029.5 X 0.50) = 8514.75 Year 4: New BV: 8514.75 - 5000 salvage = 3515 3515*

The following is true of depreciation accounting

- not a matter of valuation - it is a part of the matching of revenues and expenses - it retains funds by reducing income taxes and dividends

During 2012, Noller Co. sold equipment that had cost $293688 for $175177. This resulted in a gain of $12,900. The balance in Accumulated Depreciation—Equipment was $975,000 on January 1, 2012, and $930,000 on December 31. No other equipment was disposed of during 2012. Depreciation expense for 2012 was

1. Difference between 1/1 balance and 12/31 balance (975 - 930) = 45,000 2. Journal entry for sale Debit: - Cash 175177 - Acc dep: Credit: - Equipment 293688 - Gain 12900 Total credit = 306,588 - (306,588-175177) = 131411 3. Subtract 2 Accumulated depreciation values - (131411 - 45000) = 86411 *Depreciation expense 2012 = 86411*

Use of the double-declining balance method

1. results in a decreasing charge to depreciation expense 2. means salvage value is not deducted in computing the depreciation base 3. means the book value should not be reduced below salvage value

XYZ Company purchased an asset for $45625. It cost $2172 in freight costs to get it to their loading dock. They also had $4973 in installation costs. Salvage value is estimated to be $10461 and the useful life is 10 years. What is year 10 depreciation expense? (they use straight line depreciation).

45625+2172+4973 - 10461= 42309 - 42309 / 10 = 4231 depreciation expense per year

In January 2015, Fehr Mining Corporation purchased a mineral mine for $6121915 with removable ore estimated by geological surveys at 2516346 tons. The property has an estimated value of $600,000 after the ore has been extracted. Fehr incurred $1729211 of development costs preparing the property for the extraction of ore. During 2015, 340,000 tons were removed and 300,000 tons were sold. For the year ended December 31, 2015, Fehr should add what dollar amount to Inventory for ore mined during 2015?

6,121,915 + 1,729,211 - 600,000 = 7,251,126 7,251,126 / 2,516,346 = 2.8816 per unit - Invenory: 340,000 * 2.8816 = 979,747

On January 1, 2011, Munoz Co. purchased machinery. The machinery has an estimated useful life of eight years and an estimated salvage value of $2102. The depreciation applicable to this machinery was $33383 for 2013, computed by the sum-of-the-years'-digits method. The acquisition cost of the machinery was (rounding hint: if you convert a fraction to a decimal, don't round it when going forward to use it in any calculations. For example, if 32/55 = .581818181818181...leave all those decimals in your calculator when going on to do any further calculations.)

8(9)/2 = 36 denominator Year 1: cost - 2102 x (8/36) = Year 2: (7/36) x Year 3: (6/12) x (x) = 33,383 (x) = 33383 x 6 = 200,298 Cost = 200298 + 2102 = 202,400 *202,400*

XYZ Company purchased an asset for $41726. It cost $2176 in freight costs to get it to their loading dock. They also had $3475 in installation costs. Salvage value is estimated to be $11755 and the useful life is 10 years. What is net book value at the end of year 5? (Net book value: cost + fees to get good ready for use - depreciation/amortization)

Cost: 41,726 + 2176 + 3475 - 11,755 ---------------------- Depreciable base: 35,622 / 10 = 3562.20 depreciation expense - 3562.20 x 5 = 17811 Accumulated depreciation NBV: 41,726+2176+3475 = 47,377 *don't include salvage value when computing NBV* - 47,377 - 17811 dep = 29,566 NBV *NBV = 29,566*

In January 2015, Fehr Mining Corporation purchased a mineral mine for $6193783 with removable ore estimated by geological surveys at 2567320 tons. The property has an estimated value of $600,000 after the ore has been extracted. Fehr incurred $1713993 of development costs preparing the property for the extraction of ore. During 2015, 340,000 tons were removed and 300,000 tons were sold. For the year ended December 31, 2015, Fehr should include what amount of depletion in its cost of goods sold? (do not round the depletion rate when multiplying it by units removed or sold)

Cost: 6,193,783 + 1,713,993 - 600,000 = Depreciable base: 7,307,776 - 7,307,776 / 2,567,320 = 2.8465 per unit - sold 300,000 x 2.8465 = 853,938 COGS= 853,938

The asset turnover ratio is computed by dividing net sales by ending total assets

False - (net sales / total average assets)

XYZ Company purchased an asset for $39184. It cost $2477 in freight costs to get it to their loading dock. They also had $3918 in installation costs. Salvage value is estimated to be $4177 and the useful life is 10 years. What is net book value at the end of 10 years?

NBV = salvage value and end of 10 years *4177*

Depreciation, depletion, and amortization all involve the allocation of the cost of a long-lived asset to expense. T or F

True

Which of the following disclosures is not required in the financial statements regarding depreciation?

details demonstrating how depreciation was calculated

An accelerated depreciation method is appropriate when the asset's economic usefulness is the same each year

false

Depreciation is based on the decline in the fair market value of the asset.

false

The three factors involved in the depreciation process are the depreciation base, the useful life, and the risk of obsolescence

false

Use of the sum-of-the-years'-digits method

means the book value should not be reduced below salvage value

Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues?

systematic and rational

Depreciation is a means of cost allocation, not a matter of valuation.

true

The first step in determining whether an impairment has occurred is to estimate the future net cash flows expected from the use of that asset and its eventual disposition.

true