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Chapter 11: Q19 Q (page 583)
Explain how gains or losses on impaired assets should be reported in income.
Answer
Impaired asset losses are reported as part of the income from continuing operations.
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If Remmers, Inc. uses the composite method and its composite rate is 7.5% per year, what entry should it make when plant assets that originally cost \(50,000 and have been used for 10 years are sold for \)14,000?
Holt Company purchased a computer for \(8,000 on January 1, 2016. Straight-line depreciation is used, based on a 5-year life and a \)1,000 salvage value. In 2018, the estimates are revised. Holt now feels the computer will be used until December 31, 2019, when it can be sold for $500. Compute the 2018 depreciation.
(Depreciation Computation鈥擱eplacement, Nonmonetary Exchange) George Zidek Corporation bought a machine on June 1, 2015, for \(31,000, f.o.b. the place of manufacture. Freight to the point where it was set up was \)200, and \(500 was expended to install it. The machine鈥檚 useful life was estimated at 10 years, with a salvage value of \)2,500. On June 1, 2016, an essential part of the machine is replaced, at a cost of \(1,980, with one designed to reduce the cost of operating the machine. The cost of the old part and related depreciation cannot be determined with any accuracy.
On June 1, 2019, the company buys a new machine of greater capacity for \)35,000, delivered, trading in the old machine which has a fair value and trade-in allowance of \(20,000. To prepare the old machine for removal from the plant cost \)75, and expenditures to install the new one were \(1,500. It is estimated that the new machine has a useful life of 10 years, with a salvage value of \)4,000 at the end of that time. (The exchange has commercial substance.)
Instructions
Assuming that depreciation is to be computed on the straight-line basis, compute the annual depreciation on the new equipment that should be provided for the fiscal year beginning June 1, 2019. (Round to the nearest dollar.)
(Depreciation for Partial Period鈥擲L, SYD, and DDB) Alladin Company purchased Machine #201 on May 1, 2017. The following information relating to Machine #201 was gathered at the end of May.
Price | \(85,000 |
Credit terms | 2/10, n/30 |
Freight-in | \) 800 |
Preparation and installation costs | \( 3,800 |
Labor costs during regular production operations | \)10,500 |
It is expected that the machine could be used for 10 years, after which the salvage value would be zero. Alladin intends to use the machine for only 8 years, however, after which it expects to be able to sell it for $1,500. The invoice for Machine #201 was paid May 5, 2017. Alladin uses the calendar year as the basis for the preparation of financial statements.
Instructions
Presented below is information related to equipment owned by Pujols Company at December 31, 2017.
Cost (residual value \(0) | \)9,000,000 |
Accumulated depreciation to date | 1,000,000 |
Value-in-use | 5,500,000 |
Fair value less cost of disposal | 4,400,000 |
Assume that Pujols will continue to use this asset in the future. As of December 31, 2017, the equipment has a remaining useful life of 8 years. Pujols uses straight-line depreciation.
Instructions
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