ACCT 1A Lecture Notes - Lecture 3: Book Value, Retained Earnings, Impaired Asset

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amaranthgrasshopper262

25 Aug 2020

School

Irvine Valley College

Department

Accounting

Course

ACCT 1A

Professor

Bradshaw

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Document Summary

Depreciation is the systematic allocation (not valuation) of the depreciable. Depreciation method depends on useful life, residual value (sale or scrap), pattern. Useful life: the period over which an asset is expected to be available for use by an entity; or the number of production or similar units expected to be obtained from the asset by the entity. Relates to expected utility. of flow of benefits over the useful life reassessed annually. Depreciation methods: straight-line; reducing balance; units of production. Recall recording gain/loss on sale based on discrepancies between book and. Improvements to assets are capitalised (where repairs/maintenance are. A machine with an original cost of ,000 and accumulated depreciation of ,000 (as at 30 june 2008) It was sold on 1 aug 2008 for ,000 cash. The straight-line method was used to record depreciation on the old asset. The annual amount of depreciation was ,000. Additional expenditure on assets after acquisition (maintenance versus.

Related Questions

1.As a company records depreciation expense for a period oftime, cash is accumulated to replace fixed assets as they wearout.

True/False

4.An asset was purchased for $110,000.00 on January 1, Year 1and originally estimated to have a useful life of 11 years with aresidual value of $9,000.00. At the beginning of the third year, itwas determined that the remaining useful life of the asset was only4 years with a residual value of $2,600.00. Calculate thethird-year depreciation expense using the revised amounts andstraight line method.

Select the correct answer.

$22,759.09

$21,259.09

$22,259.09

$23,259.09

5. Costs associated with normal research and developmentactivities should be treated as intangible assets.

True/False

7. The amount of the depreciation expense for the second fullyear of use of a fixed asset costing $100,000, with an estimatedresidual value of $5,000 and a useful life of 4 years, is $25,000by the double-declining-balance method.

True/False

9. The amount of depreciation expense for the first full year ofuse of a fixed asset costing $95,000, with an estimated residualvalue of $5,000 and a useful life of 5 years, is $19,000 by thestraight-line method.

True/False

12. The accumulated depletion of a natural resource is reportedon the:

a. balance sheet as a deduction from the cost of theresource

b. income statement as a deduction from revenues

c. balance sheet as depreciation from the cost of theresource

d. income statement as an increase in revenue

15. An exchange is said to have commercial substance if futurecash flows remain the same as a result of the exchange.

True/False

18 Equipment with a cost of $220,000 has an estimated residualvalue of $30,000 and an estimated life of 10 years or 19,000 hours.It is to be depreciated by the straight-line method. What is theamount of depreciation for the first full year, during which theequipment was used 2,100 hours?

$19,000

$22,000

$30,000

$21,000

30. When exchanging equipment, if the trade-in allowance isgreater than the book value a loss results.

True/False

38. Once the useful life of a depreciable asset has beenestimated and the amount to be depreciated each year has beendetermined, the amounts cannot be changed.

True/False

Depreciation by Three Methods; Partial Years

Perdue Company purchased equipment on April 1 for $48,870. The equipment was expected to have a useful life of three years, or 4,320 operating hours, and a residual value of $1,350. The equipment was used for 800 hours during Year 1, 1,500 hours in Year 2, 1,300 hours in Year 3, and 720 hours in Year 4.

Required:

Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by (a) the straight-line method, (b) units-of-output method, and (c) the double-declining-balance method.

Note: FOR DECLINING BALANCE ONLY, round the multiplier to four decimal places. Then round the answer for each year to the nearest whole dollar.

a. Straight-line method

Year	Amount
Year 1	$
Year 2	$
Year 3	$
Year 4	$

b. Units-of-output method

Year	Amount
Year 1	$
Year 2	$
Year 3	$
Year 4	$

c. Double-declining-balance method

Year	Amount
Year 1	$
Year 2	$
Year 3	$
Year 4	$

Feedback

Asset cost minus residual value equals depreciable cost. Sum the yearly depreciation to determine total depreciation.

Annual units-of-output depreciation allocates the cost of the asset equally over the units produced (hours).

The double-declining rate is two times the straight-line rate. Book value is the asset cost minus accumulated depreciation.

Compare the total depreciation for all methods over the time period. Recall that straight-line depreciation allocates the depreciable cost of the asset equally over the period of use, while double-declining method is an accelerated method.

Learning Objective 2.

goldtermite491

Avery Corporation made the following determinations about threedepreciable assets:

? Depreciable asset M was purchased on January 1, 2015. Theoriginal cost was $114,000 and this amount was entirely expensed in2015. This particular asset has an 8-year useful life and nosalvage value. The straight-line method should have been used fordepreciation purposes.

? Depreciable asset N was purchased January 1, 2016. Itoriginally cost $540,000 and, for depreciation purposes, thesum-of-the-yearsâ digit method was originally chosen. The asset wasoriginally expected to be useful for 10 years and have a zerosalvage value. In 2017, the decision was made to change thedepreciation method from sum-of-the-yearsâ digits to straight-lineto better match costs.

Note: The estimates relating to useful life and salvage valueremained unchanged.

? Depreciable asset O was purchased January 1, 2013. Itoriginally cost $160,000 and, for depreciation purposes, thestraight-line method was chosen. The asset was originally expectedto be useful for 8 years and have a zero salvage value. In 2017,the decision was made to extend the total life of this asset to 10years and to estimate the salvage value at $5,000.

a) Indicate if the situation is a change in accountingprinciple, a change in accounting estimate or an error in thefinancial statement. What is the proper accounting treatment(retrospective, restatement,prospective) for each of theseassets?

You must support your conclusions with cites to the applicableguidance listed in the FASB Codification. Ignore tax implicationsand assume all errors are material to the client and requireadjustment.

b) What journal entries would be appropriate at12/31/2017 for each of these assets? Ignore taximplications.

ACCT 1A Lecture Notes - Lecture 3: Book Value, Retained Earnings, Impaired Asset

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