Exam 11: Property, Plant, and Equipment and Intangible Assets: Utilization and Disposition

Calloway Shoes purchased a delivery truck on September 30, 2018, for $32,000. The estimated useful life of the truck is 10 years with no residual value. After five years, the refrigeration unit will need to be replaced. The $8,000 cost of the unit is included in the cost of the truck. Calloway uses the straight-line depreciation method. Depreciation for 2018 under U.S. GAAP and International Financial Reporting Standards (IFRS), respectively, is:

Wicker Corporation operates a manufacturing plant in California. Due to a change in business climate, an impairment test is deemed appropriate. Management has acquired the following information for the assets at the plant: Required: 1. Determine the amount of impairment loss, if any. 2. If a loss is indicated, where would it appear in Wicker's multiple-step income statement? 3. If a loss is indicated, prepare the entry to record the loss. 4. Repeat requirement 1 assuming that the estimated undiscounted sum of future cash flows is $27,000,000 instead of $30,000,000. 5. Repeat requirement 1 assuming that the estimated undiscounted sum of future cash flows is $34,000,000 instead of $30,000,000.

Depreciation:

Jung Inc. owns a patent for which it paid $66 million. At the end of 2018, it had accumulated amortization on the patent of $16 million. Due to adverse economic conditions, Jung's management determined that it should assess whether an impairment loss should be recognized for the patent. The estimated undiscounted future cash flows to be provided by the patent total $43 million, and the patent's fair value at that point is $35 million. Under these circumstances, Lester:

On June 30, 2016, Mobley Corporation acquired a patent for $4 million. The patent was estimated to have an eight-year life and no residual value. Mobley uses the straight-line method of amortization for intangible assets. At the beginning of January 2018, Mobley successfully defended its patent against infringement. Litigation costs totaled $650,000. Required: 1. Calculate patent amortization for 2016 and 2017. 2. Prepare the journal entry to record the 2018 litigation costs. 3. Calculate amortization for 2018. 4. Repeat requirements 2 and 3 assuming that Mobley prepares its financial statements according to International Financial Reporting Standards (IFRS).

Archie Co. purchased a framing machine for $45,000 on January 1, 2018. The machine is expected to have a four-year life, with a residual value of $5,000 at the end of four years. -Using the straight-line method, depreciation for 2018 and book value at December 31, 2018, would be:

An activity-based method is most often used to allocate the cost of natural resources over its useful life because:

On January 1, 2018, Morrow Inc. purchased a spooler at a cost of $40,000. The equipment is expected to last eight years and have a residual value of $4,000. During its eight-year life, the equipment is expected to produce 250,000 units of product. In 2018 and 2019, 42,000 and 76,000 units respectively were produced. -Required: Compute depreciation for 2018 and 2019 and the book value of the spooler at December 31, 2018 and 2019, assuming the sum-of-the-years'-digits method is used.

Comet Cleaning Co. reported the following on its December 31, 2018, balance sheet: Equipment (at cost) $3,000,000 In a disclosure note, Comet indicates that it uses straight-line depreciation over six years and estimates salvage value as 10% of cost. Comet's equipment averages 4.5 years at December 31, 2018. Required: What is the book value of Comet's equipment at December 31, 2018?

Herman Apparel has purchased equipment on January 1, 2015, for $560,000. In 2015-2017, Herman depreciated the asset on a straight-line basis with an estimated useful life of eight years and a $80,000 residual value. In 2018, Herman has started to change its business strategy and now believes that the equipment will be used for only another two years (five years total) but does not believe the residual value has changed. What depreciation would Herman record for the year 2018 on this equipment?

Nanki Corporation purchased equipment on January 1, 2016, for $650,000. In 2016 and 2017, Nanki depreciated the asset on a straight-line basis with an estimated useful life of eight years and a $10,000 residual value. In 2018, due to changes in technology, Nanki revised the useful life to a total of six years with no residual value. What depreciation would Nanki record for the year 2018 on this equipment?

If a material error is discovered in an accounting period subsequent to the period in which the error is made:

In its 2018 annual report to shareholders, Buffalo Burgers Company, Inc. included the following in a disclosure note: E. Property, Plant and Equipment Property, plant and equipment for the years ended December 28, 2018, and December 29, 2017, consisted of the following ($ in thousands): The Company recorded depreciation related to these assets of $23,565 thousand in the 2018 fiscal year. Also, Buffalo Burgers reported the following information in the annual report ($ in thousands): -Prepare the journal entry to record Buffalo Burgers' sale of property, plant and equipment during 2018.

On June 2, 2018, Tabitha Co. purchased a franchise for $560,000 by signing a five-year contract. At the end of the five years, the franchise right reverts back to the seller. On September 1, 2020, Tabitha decides to sell the franchise right for $323,000. The company amortizes intangible assets using the straight-line method and records partial-year amortization based on the number of months in service. Assuming the company has a December 31 year end, what is the gain or loss recorded on the sale of the patent?

Activity-based methods of depreciation are appropriate for assets whose service life is a function of use rather than time.

On September 30, 2018, Bricker Enterprises purchased a machine for $200,000. The estimated service life is 10 years with a $20,000 residual value. Bricker records partial-year depreciation based on the number of months in service. -Depreciation (to the nearest dollar) for 2019, using sum-of-the-years' digits method, would be:

Atlas Trucking incurred the following costs during 2018: 1. Spent $15,000 on a major overhaul for a tractor-trailer rig. The overhaul is expected to increase the service life of the rig by three years. 2. Repaired the air-conditioning system for $3,000. 3. Rearranged and reconfigured the maintenance, loading, and unloading facilities at a cost of $75,000. The rearrangement is expected to result in substantial cost savings and increased efficiency over the next several years. Required: Prepare journal entries to record the above costs.

An asset should be written down if there has been an impairment of value that is:

Broadway Ltd. purchased equipment on January 1, 2016, for $800,000, estimating a five-year useful life and no residual value. In 2016 and 2017, Broadway depreciated the asset using the straight-line method. In 2018, Broadway changed to sum-of-years'-digits depreciation for this equipment. What depreciation would Broadway record for the year 2018 on this equipment?

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Residual value