Exam 8: Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Which of the following statements is incorrect?

If a second-hand machine is purchased for productive use in a business, all renovation and repair costs on the used machine incurred by the purchaser prior to its productive use should be reported as part of the asset's cost on the balance sheet.

Waterloo Corporation purchased factory equipment for a cost of $1,800,000. There was also the cost of $100,000 for delivery, $220,000 for installation and modifications to the factory building, and $60,000 in interest costs on borrowed funds used to acquire the equipment. Required: Calculate the acquisition cost of the new equipment.

The cash-equivalent price of an asset received is measured as the fair value of the consideration given including cash, or the fair value of the asset received, whichever is more determinable.

Frankel Feed purchased a new machine on January 1, 2014. Relevant information is as follows: Cost when acquired \ 26,000 Estimated residual value 2,000 Estimated useful life 10 years Accumulated depreciation at the end of year 5 (assume straight-line depreciation) 12,000 It is now the beginning of year 6 and the management reevaluated the estimates related to the machine. Required: Compute the depreciation expense for year 6 under each of the following independent cases: Case $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Event A $\quad$$\quad$ The estimated total useful life is changed to 15 years, residual value is unchanged. B $\quad$$\quad$ The residual value is changed to $\$ 1,000$ ; useful life unchanged. C $\quad$$\quad$ The estimated total useful life is changed to 7 years and the residual value is changed to $\$ 3,000$ .

The book value of a depreciable asset equals its acquisition cost minus the depreciation expense recorded since the acquisition date.