ACC Chapter 11 Final

dispositions journal entry

debit: accumulated depreciation; loss on retirement credit: asset account

impairment loss measurement

an impairment loss is recored for the difference between the asset's fair value and its book value

subsequent expenditures

expenditures that increase future benefits are capitalized initially and expended in future periods

composite depreciation

groups assets that are physically dissimilar

group depreciation

groups assets that have similar service lives and other attributes

value impairments indefinite life intangible assets

if fair value is less than book value an impairment loss is recognized for the difference

impairment loss recoverability

if the undercounted sum of the estimated future cash flows from an asset is less than the asset's book value then an impairment has occurred

types of subsequent expenditures

maintenance and repairs, additions, improvements, rearrangements, successful defense of intangible assets

2 steps for impairment loss finite assets

recoverability and measurement

sum of years digits

(cost-residual value)*(number of years left/sum of all the useful years)

units of production

(cost-residual value)/estimated units * actual units produced

straight line depreciation

(cost-residual value)/useful life

General Optic Corporation operates a manufacturing plant in Arizona. Due to a significant decline in demand for the product manufactured at the Arizona site an impairment test is deemed appropriate. Management has acquired the following information for the assets at the plant: cost-->32,500,000 accum dep.-->14,200,000 undercounted future cash flows-->15,000,000 The fair value of the Arizona plant is estimated to be $11,000,000. 1. Determine the amount of impairment loss if any. 2. If a loss is indicated prepare the entry to recored loss.

1. book value=32,500,000-14,200,000=18,300,000 cash flows= 15,000,000 15 mil<18.3 million there is an impairment loss compare fair value to book value 18.3-11 mil= 7.3 million impairment loss 2. debit: loss on impairment 7,300,000 debit: accumulated dep. 14,200,000 credit: plant 21,500,000

In 2019 Allian Corporation acquired Centerpoint Inc. for $300 million of which $50 million was allocated to goodwill. At the end of 2021 management has provided the following required of goodwill. fair value of centerpoint--> 220 million book value of centerpoint net assets (excluding goodwill)-->200 mil book value of centerpoint net asset (including goodwill)--> 250 mil 1. determine the amount of impairment loss 2. repeat 1 assuming the fair value of centerpoint is $270 million

1. compare fair value to book value 220<250 there is an impairment loss 250-220= 30 million loss 2. compare fair value to book value 270> 250 no impairment loss 0

Belltone Company made the following expenditures related to its 10 year old manufacturing facility: 1. The heating system was replaced at a cost of $250,000. The cost of the old system was not know. The company accounts for improvements as reductions of accumulated depreciation. 2. A new wing was added at a cost of $750,000. The new wing substantially increases the productive capacity of the plant. 3. Annual building maintenance was performed at a cost of $14,000. 4. All of the equipment on the assembly line in the plant was rearranged at a cost of $50,000. The rearrangement clearly increases the productive capacity of the plant. Prepare the journal entires to record each of the above expenditures.

1. debit: accumulated depreciation 250,000 credit: cash 250,000 2. debit: building 750,000 credit: cash 750,000 3. debit: maintenance expense 14,000 credit: cash 14,000 4. debit: equipment 50,000 credit: cash 50,000

double declining depreciation

book value*(2/useful life)

Wardell Company purchased a minicomputer on January 1, 2019 at a cost of $40,000. The computer was depreciated using the straight line method over an estimated 5 year life with an estimated residual value of $4,000. On January 1, 2021 the estimate of useful life was changed 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 2021. No depreciation was recorded during the year. 2. Repeat requirement 1 assuming that the company used the sum-of-the-years digits method instead of straight line method.

cost $40,000 life: 5 salvage: 4,000 40,000-4,000/5= 7,200 per year 2019: 7,200 2020: 7,200 40,000-14,400-900/8= 3,088 1. debit: depreciation expense 3,088 credit: accumulated dep. 3,088 2. 2019: (40,000-4,000)*5/(5+4+3+2+1)= 12,000 2020: (40,000-4,000)*4/(5+4+3+2+1)= 9,600 2021: (40,000-12,000-9,600)*8/(8+7+6+5+4+3+2+1)= 3,889 debit: depreciation expense 3,889 credit: accumulated dep. 3,889

Alteran Corporation purchased office equipment for $1.5 million at the beginning of 2019. The equipment is being depreciated over a 10 year life using double-declining balance method. The residual value is expected to be $300,000. At the beginning of 2021 (two years later) Alteran decided to change to the straight line depreciation method for this equipment. Prepare the journal entry for 2021.

cost: 1,500,000 life: 10 years salvage: 300,000 2019: (1,500,000*2/10)= 300,000 2020: (1,500,000-300,000)*2/10=240,000 2021: (1,500,000-540,000)-300,000/8= 82,500 per year debit: depreciation expense 82,500 credit: accumulated dep. 82,500

On January 1, 2021 the Allegheny Company purchase equipment for $115,000. The estimated service life of the equipment is 10 years and the estimated residual value is $5,000. The equipment is expected to produce 220,000 units during its life. Calculate depreciations for 2021 and 2022 using each of the following methods. Round nearest dollar. 1. straight line 2. double declining 3. units of production (2021:30,000/2022:25,000)

cost: 115,000 useful life: 10 years residual value: 5,000 units: 220,000 1. (115,000-5,000)/10= 11,000 per year 2021: 11,000 2022:11,000 2. 2021: 115,000*2/10= 23,000 2022: (115,000-23,000)*2/10=18,400 3. (115,000-5,000)/220,000=.50 per unit 2021: 30,000*.50= 15,000 2022: 25,000*.50= 12,500

On October 1, 2021 the Allegheny Company purchased equipment for $115,000. The estimated service life of the equipment is 10 years and the estimated residual value is $5,000. The equipment is expected to produce 220,000 units during its life. Calculate depreciation for 2021 and 2022 using each method. Partial-year depreciation is calculated based on the number of months the asset is in service. Round to nearest dollar. 1. straight line 2. double-declining 3. units of production (2021: 10,000/ 2022: 25,000)

cost: 115,000 useful life: 10 years residual value: 5,000 units: 220,000 1. 2021 (115,000-5,000)/10*3/12=2,750 2022 (115,000-5,000)/10=11,000 2. 2021 115,000*2/10*3/12=5,750 2022 (115,000-5,750)*2/10= 21,850 3. 115,000-5,000/220,000= .50 2021 (10,000*.50)=5,000 2022 (25,000*.50)=12,500

At the beginning of 2021 Terra Lumber Company purchased a timber tract from Boise Cantor for $3,200,000. After the timber is cleared the land will have a residual value of $600,000. Roads to enable logging operations were constructed and completed on March 30, 2021. The cost of the roads which have no residual value and no alternative use after the tract is cleared was $240,000. During 2021, Terra logged 500,000 of the estimated 5 million board feet of timer. Calculate the 2021 depletion of the timber tract and depreciation of the logging roads assuming the units of production method is used for both assets.

cost: 3,200,000 salvage: 600,000 roads: 240,000 estimated units: 500,000 timber tract: 3,200,000-600,000/5,000,000= $.52 per ft 500,000*.52= 260,000 depletion expense roads: 240,000-0/5,000,000=$.048 per ft 5,000,000*.048= 24,000 depreciation expense

On January 2, 2021 David Corporation purchased a patent for $500,000. The remaining legal life is 12 years but the company estimated that the patent will be useful for only 8 years. In January 2023 the company incurred legal fees of $45,000 in successfully defending a patent infringement suit. The successful defense did not change the company's estimate of useful life. Prepare journal entries related to the patent 2021, 2022 and 2023.

cost: 500,000 life: 8 years (500,000-0)/8=62,500 1/2/21 debit: patent 500,000 credit: cash 500,000 12/31/21 debit: amortization expense 62,500 credit: patent 62,500 12/31/22 debit: amortization expense 62,500 credit: patent 62,500 1/1/23 debit: patent 45,000 credit: cash 45,000 12/31/23 (500,000-62,500-62,5000+45,000)= 420,000 420,000-0/6= 70,000 debit: amortization expense 70,000 credit: patent 70,000