Cap 11

Mains Corporation owns equipment with a cost of $290,000 and accumulated depreciation at December 31, 2017 of $150,000. It is estimated that he machinery will generate future cash flows of $165,000. The machinery has a fair value of $115,000. Mains should recognize a loss on impairment of $___________

$0.00

Flannery Corporation owns machinery with a book value of $520,000. It is estimated that the machinery will generate future cash flows of $465,000. The machinery has a fair value of $415,000. Florence should recognize a loss on impairment of $______________

$105000

Chattanooga Company purchased a depreciable asset for $80,000 on January 1, 2015. The estimated salvage value is $20,000, and the estimated useful life is 5 years. The straight-line method is used for depreciation. On January 1, 2017, the company made a capital expenditure of $16,000 for an addition to the asset. What is depreciation expense for 2017? (Assume that salvage value remains unchanged) $______________

$17,333

Wildhorse Company purchased a hot tub for $9,395 on January 1, 2016. Straight-line depreciation is used, based on a 6-year life and a $1,505 salvage value. In 2018, the estimates are revised. Wildhorse now feels the hot tub will be used until December 31, 2020, when it can be sold for $705. Compute the 2018 depreciation. Depreciation expense, 2018 $___________________

$2020

Presented below is information related to equipment owned by Blossom Company at December 31, 2017. Cost $7,200,000 Accumulated depreciation to date 720,000 Expected future net cash flows 4,800,000 Fair value 3,360,000 Assume that Blossom will continue to use this asset in the future. As of December 31, 2017, the equipment has a remaining useful life of 4 years. (a) record the impairment of the asset at December 31, 2017: $____________

$3120000

Antigua Company purchased a depreciable asset for $45,000 on October 1, 2015. The estimated salvage value is $9,000, and the estimated useful life is 6 years. The straight-line method is used for depreciation. What is the book value on July 1, 2017 when the asset is sold? $_______________

$34500

Lebanon Corporation owns equipment with a cost of $320,000 and accumulated depreciation at December 31, 2017 of $120,000. It is estimated that the machinery will generate future cash flows of $175,000. The machinery has a fair value of $155,000. If Lebanon uses IFRS, the company should recognize a loss on impairment of: $______________

$45000

Cambodian Import Company purchased a depreciable asset for $160,000 on April 1, 2014. The estimated salvage value is $40,000, and the estimated useful life is 5 years. The straight-line method is used for depreciation. What is the balance in accumulated depreciation on March 1, 2017 when the asset is sold? $_________________

$70000

Dixon Company purchased a depreciable asset for $32,000. The estimated salvage value is $4,000, and the estimated useful life is 4 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset?

$8000

For 2017, Lassiter Company reports beginning of the year total assets of $900,000, end of the year total assets of $1,100,000, net sales of $1,250,000, and net income of $250,000. Lassiter's 2017 asset turnover ratio is .25 times. .23 times. 1.14 times. 1.25 times.

($900000+$1100000)/2=$1000000 $1250000/$1000000=1.25

Under MACRS, which one of the following is not considered in determining depreciation? Half-year convention Cost of asset Salvage value Property recovery class

Salvage value

The replacement of one asset with another more efficient and economical asset is termed:

supersession

Which one of the following statements regarding revision of depreciation rates is incorrect? No entry is made at the time a revision of depreciation rates occurs. Opening balances are not adjusted when a change in estimate occurs. Changes in estimate should be handled in the current period only. Depreciation is computing by dividing the remaining book value less any salvage value by the remaining estimated life.

Changes in estimate should be handled in the current period only.

Which of the following is not true of depreciation accounting? Depreciation lowers the book value of the asset as it ages and its fair value declines . Depreciation is a process of cost allocation. Tangible assets with limited lives are depreciated. Depreciation matches expenses against revenues over the periods which benefit from the asset's use.

Depreciation lowers the book value of the asset as it ages and its fair value declines

The major limitation of the straight-line method is that it is inappropriate in situations in which depreciation is a function of time instead of activity. True False

False

Depletion is normally calculated using the straight-line method. True False

False: Depletion is normally calculated using the units of production method, not the straight-line method.

Under IFRS, when is the recovery of an impairment loss on a tangible asset permitted? On assets held for use. On assets being held for disposal. On all tangible assets whether held for use or disposal. On assets that have been that have already been disposed.

On all tangible assets whether held for use or disposal. (as long as it does not exceed the amount of the original loss.)

When is the restoration of an impairment loss permitted? On assets being held for disposal. On assets held for use. On all tangible assets whether held for use or disposal. None of the answers are correct.

On assets being held for disposal.

Which one of the following is not an accelerated depreciation method? Straight-line method. Sum-of-the years' digits method. Double-declining-balance method. Declining balance method.

Straight-line method.

Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues? Partial recognition Systematic and rational allocation Associating cause and effect Immediate recognition

Systematic and rational allocation

Total depreciation over an asset's life cannot exceed an amount equal to cost minus estimated salvage value. True False

True

Which of the following is not a way in which MACRS differs from GAAP depreciation? Assigned salvage value of zero. Useful life must be shorter than legal life. Cost recovery is accelerated. Estimated life is mandated by tax law.

Useful life must be shorter than legal life.

Marin Inc. purchased machinery on January 1, 2017, for $148,800. The machinery is estimated to have a salvage value of $30,000 after a useful life of 6 years. (a) Compute 2017 depreciation expense using the straight-line method. Depreciation expense: $_________________ (b) Compute 2017 depreciation expense using the straight-line method assuming the machinery was purchased on April 1, 2017. Depreciation expense $__________________

a) $19,800 b) $14850

The total cost of natural resources includes all of the following except: exploration costs. intangible development costs. restoration costs. all of the options are included in the total cost.

all of the options are included in the total cost.

Economic factors that shorten the service life of an asset include obsolescence. supersession. inadequacy. all of these answer choices are correct.

all of these answer choices are correct.

A principal objection to the straight-line method of depreciation is that it assumes that the asset's economic usefulness is the same each year. provides for the declining productivity of an aging asset. gives smaller periodic write-offs than decreasing charge methods. tends to result in a constant rate of return on a diminishing investment base.

assumes that the asset's economic usefulness is the same each year.

An asset impairment occurs when the asset's carrying amount exceeds the: expected future net cash flows. present value of expected future net cash flows. asset's book value. asset's fair value.

expected future net cash flows.

Erie Corporation owns machinery with a book value of $2,200,000. It is estimated that the machinery will generate future cash flows of $1,995,000. The machinery has a fair value of $1,915,000. The journal entry to record the impairment loss will include a $285,000 credit to the asset account. increase the asset's Accumulated Depreciation account by $285,000. reduce income from continuing operations by $205,000. record an extraordinary loss of $80,000.

increase the asset's Accumulated Depreciation account by $285,000

For the composite method, the composite life is the total depreciable cost divided by the total annual depreciation. rate is the total annual depreciation divided by the total depreciable cost. rate is the total cost divided by the total annual depreciation. life is the total cost divided by the total annual depreciation.

life is the total depreciable cost divided by the total annual depreciation.

Ignoring income tax effects, accelerated depreciation methods can decrease funds provided by operations. offset the effect of increasing repair and maintenance costs as the asset ages. generate funds for the earlier replacement of fixed assets. decrease the fixed asset turnover ratio.

offset the effect of increasing repair and maintenance costs as the asset ages.

When an asset being depreciated under the group method is disposed of, any resulting gain or loss is: recorded as an ordinary gain. recorded as an extraordinary gain. recorded in the Accumulated Depreciation account. recorded in the Depreciation Expense account.

recorded in the Accumulated Depreciation account

Reserve recognition accounting is presently the generally accepted accounting method for financial reporting of oil and gas reserves. requires estimates of future production costs, the appropriate discount rate, and the expected selling price of oil and gas reserves. is used for reporting of oil and gas reserves for federal income tax purposes. is a historical cost method similar to the full cost approach and the successful efforts approach.

requires estimates of future production costs, the appropriate discount rate, and the expected selling price of oil and gas reserves.

The major difference between the service life of an asset and its physical life is that physical life is the life of an asset without consideration of salvage value and service life requires the use of salvage value. physical life is always longer than service life. service life refers to the time an asset will be used by a company and physical life refers to how long the asset will last. service life refers to the length of time an asset is of use to its original owner, while physical life refers to how long the asset will be used by all owners.

service life refers to the time an asset will be used by a company and physical life refers to how long the asset will last.

A general description of the depreciation methods applicable to major classes of depreciable assets should be included in corporate financial statements or notes thereto. is not a current practice in financial reporting. is not essential to a fair presentation of financial position. is needed in financial reporting when company policy differs from income tax policy.

should be included in corporate financial statements or notes thereto.

In computing partial-year depreciation, depreciation is normally computed on the basis of: a half year's depreciation in the period of acquisition and disposal. the nearest fraction of a year. the nearest full month. a full year's depreciation in the period of acquisition and none in the year of disposal.

the nearest full month.

Unless otherwise stipulated, depreciation is normally computed on the basis of: the nearest fraction of a year. a full year's depreciation in the period of acquisition, none in the period of disposal. a half-year's depreciation in the period of acquisition and in the period of disposal. the nearest full month.

the nearest full month.

An impairment of property, plant, or equipment has occurred if the revised estimated useful life is less than the original estimated useful life. the sum of the expected future net cash flows is less than the asset's carrying value. the expected future cash outflows exceeds the asset's carrying value. the estimated salvage value is less than the actual proceeds received on disposal.

the sum of the expected future net cash flows is less than the asset's carrying value.

All of the following statements are true regarding IFRS accounting for property, plant, and equipment except: under IFRS, interest costs incurred during construction must be capitalized. under IFRS, depreciation is viewed as an allocation of cost over an asset's life. under IFRS, a fair value test is used to measure impairment loss. under IFRS, units-of-production depreciation is not permitted.

under IFRS, units-of-production depreciation is not permitted.

All of the following are economic factors related to depreciation except: supersession. wear and tear. inadequacy. obsolescence.

wear and tear.