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Chapter 11 Homework
Exercises 11-1, 2, 3, 11, 16, 17, 22
E11-1 (Depreciation Computations – SL, SYD, DDB) Lansbury Company purchases equipment on January 1, Year 1, at a cost of $518,000. The asset is expected to have a service life of 12 years and a salvage value of $50,000. Instructions: a. Compute the amount of depreciation for each of Years 1 through 3 using the straight-line depreciation method. Year 1 $39, Year 2 $39, Year 3 $39, b. Compute the amount of depreciation for each of Years 1 through 3 using the sum-of-the-years’- digits method. Year 1 $72, Year 2 $66, Year 3 $60, c. Compute the amount of depreciation for each of Years 1 through 3 using the double-declining- balance method. (In performing your calculations, round constant percentage to the nearest one-hundredth of a point and round answers to the nearest dollar.) Year 1 $518,
Year 2 $439,
Year 3 $373,
E11-2 (Depreciation – Conceptual Understanding) Hasselback Company acquired a plant asset at the beginning of Year 1. The asset has an estimated service life of 5 years. An employee has prepared depreciation schedules for this asset using three different methods to compare the results of using one method with the results of using other methods. You are to assume that the following schedules have been correctly prepared for this asset using (1) the
straight-line method, (2) the sum-of-the-years’-digits method, and (3) the double-declining-balance method. Straight- Line Sum-of-the- Years'- Digits Double- Declining- Year Balance 1 $9,000 $15,000 $20, 2 9,000 12,000 12, 3 9,000 9,000 7, 4 9,000 6,000 4, 5 9,000 3,000 1, Total $45,000 $45,000 $45, Instructions: Answer the following questions. a. What is the cost of the asset being depreciated? $50, b. What amount, if any, was used in the depreciation calculations for the salvage value for this asset? $5, c. Which method will produce the highest charge to income in Year 1? Double-Declining-Balance d. Which method will produce the highest charge to income in Year 4? Straight-Line e. Which method will produce the highest book value for the asset at the end of Year 3? Straight-Line f. If the asset is sold at the end of Year 3, which method would yield the highest gain (or lowest loss) on disposal of the asset? Double-Declining-Balance
Depreciation Expense
Accumulated Depreciation - Machinery
E11-16 (Impairment) Presented below is information related to equipment owned by Pujols Company at December 31, 2012. Cost
Accumulated depreciation to date 1,000, Expected future net cash flows 7,000, Fair value 4,400, Assume that Pujols will continue to use this asset in the future. As of December 31, 2012, the equipment has a remaining useful life of 4 years. Instructions: a. Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2012. Loss on impairment
Accumulated depreciation - Equipment
b. Prepare the journal entry to record depreciation expense for 2013. Depreciation expense
Accumulated depreciation - Equipment
c. The fair value of the equipment at December 31, 2013, is $5,100,000. Prepare the journal entry (if any) necessary to record this increase in fair value. No entry required.
E11-17 (Impairment) Assume the same information as E11-16, except that Pujols intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $20,000. Instructions: a. Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2012. Loss on impairment
Accumulated Depreciation - Equipment
b. Prepare the journal entry (if any) to record depreciation expense for 2013. No entry required. c. The asset was not sold by December 31, 2013. The fair value of the equipment on that date is $5,100,000. Prepare the journal entry (if any) necessary to record this increase in fair value. It is expected that the cost of disposal is still $20,000. Accumulated depreciation - Equipment
Recovery on impairment loss
E11-22 (Depletion Computations – Mining) Henrik Mining Company purchased land on February 1, 2012, at a cost of $1,250,000. It estimated that a total of 60,000 tons of mineral was available for mining. After it has removed all the natural resources, the company will be required to restore the property to its previous state because of strict environmental protection laws. It estimates the fair value of this restoration obligation at $90,000. It believes it will be able to sell the property afterwards for $100,000. It incurred developmental costs of $200,000 before it was able to do any mining. In 2012, resources removed totaled 30,000 tons. The company sold 24,000 tons. Instructions: Compute the following information for 2012.
