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ADMS 3585 Chapter Notes - Chapter 11: Income Statement, Impaired Asset, Book Value

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ivoryjackal461
30 Mar 2014
School
York University
Department
Administrative Studies
Course
ADMS 3585
Professor
Liona Lai

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Document Summary

Means of cost allocation to match expense with revenue not a method of valuation involves allocating the depreciable amount of property, plant, and equipment over the periods expected to benefit from the use of the assets. Depreciation process: depreciate by component, by useful lives and patterns of consumption group similar, by depreciation method, depreciation base, ifrs: cost less residual value. Residual value - net amount expected to be received for the asset today if it were of the age and in the condition expected at the end of its useful life. Ifrs requires at least annual review of residual value: aspe: higher of cost less residual value or cost less salvage value. Diminishing balance - assumes assets deliver higher benefits in earlier years (declining and double declining balance) Activity based - depreciate based on actual usage or productivity instead of time. Depreciation charge = (cost residual value)/estimated useful life (500,000 50,000) / 5 = 90,000.

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Related Questions

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-years’ 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-years’ 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.

QUESTION 1 Which of the following is considered in computing depreciation expense using the straight-line method? A. Net income of the company B. Balance in accumulated depreciation C. Asset's fair value D. Cost of inventory produced by equipment E. Asset's historical cost

QUESTION 2 Which of the following methods of depreciation allocates an equal expense to each period in which the asset is used to generate revenue? A. The sum-of-years' digits method B. The units-of-production method C. The double-declining balance method D. The straight-line method E. The activity depreciation method

QUESTION 3 What type of an account is accumulated depreciation? A. Expense B. Equity C. Loss D. Liability E. Contra asset

4 Which of the following accounting principles dictates that an asset's cost should be expensed over its useful life? A. Matching B. Revenue recognition C. Going concern D. Conservatism E. Consistency 1

QUESTION 5 Opine Company uses the double-declining-balance method of depreciation. It purchases a building with a cost of $560,000, a salvage value of $32,000 and a useful life of 16 years. What is the depreciation expense for the second year? A. $61,250 B. $60,000 C. $57,750 D. $70,000 E. $66,000

QUESTION 6 Clark Company acquired a desk for $500. The estimated salvage value is $50 and the estimated life is 5 years. What journal entry should Clark make to record depreciation expense? A. Depreciation Expense 100 Desk 100 B. Depreciation Expense 90 Desk 90 C. Accumulated Depreciation 90 Depreciation Expense 90 D. Depreciation Expense 90 Accumulated Depreciation 90 E. Depreciation Expense 100 Accumulated Depreciation 100

QUESTION 7 Jacobs Company estimates that its new equipment will last 6 years and have a residual value of $3,000. The original cost of the equipment was $39,000. What would be the balance in the accumulated depreciation account at the end of year 4? A. $0 B. $26,000 C. $24,000 D. $39,000 E. $6,000

QUESTION 18 Which of the following accounts will be shown on the balance sheet with accumulated depreciation account? A. Building B. Prepaid rent C. Cash D. Land E. Goodwill

6. On June 28 Lexicon Corporation acquired 100% of the common stock of Gulf & Eastern. The purchase price allocation included the following items: $5.7 million, patent; $4.7 million, developed technology; $3.7 million, in-process research and development; $6.7 million, goodwill. Lexicon’s policy is to amortize intangible assets using the straight-line method, no residual value, and a five-year useful life.

What is the total amount of expenses (ignoring taxes) that would appear in Lexicon’s income statement for the year ended December 31 related to these items? (Enter your answers in whole dollars.)

Cost Select Amortization expense in current (partial) year
Patent $5,700,000 ? ?
Developed technology 4,700,000 ? ?
In-process research and development 3,700,000 ? ?
Goodwill 6,700,000 ? ?
Total amortization expense - current year ?

7. On January 2, 2018, the Jackson Company purchased equipment to be used in its manufacturing process. The equipment has an estimated life of eight years and an estimated residual value of $56,625. The expenditures made to acquire the asset were as follows:

Purchase price $ 242,000
Freight charges 8,400
Installation charges 12,000


Jackson’s policy is to use the double-declining-balance (DDB) method of depreciation in the early years of the equipment’s life and then switch to straight line halfway through the equipment’s life.

Required:

1. Calculate depreciation for each year of the asset’s eight-year life.

Depreciation for the Period End of Period
Year Beginning of Period Book Value Depreciation Rate Annual Depreciation Accumulated Depreciation Book Value
2018 ? ? % ? ? ?
2019 ? ? % ? ? ?
2020 ? ? % ?
2021 ? ? % ?
2022 ? ?
2023 ?
2024 ?
2025 ?
Total

8. In 2018, internal auditors discovered that PKE Displays, Inc., had debited an expense account for the $369,000 cost of equipment purchased on January 1, 2015. The equipment’s life was expected to be five years with no residual value. Straight-line depreciation is used by PKE.


Required:
1. Prepare the correcting entry assuming the error was discovered in 2018 before the adjusting and closing entries. (Ignore income taxes.)
2. Assume the error was discovered in 2020 after the 2019 financial statements are issued. Prepare the correcting entry.

Prepare the correcting entry assuming the error was discovered in 2018 before the adjusting and closing entries. (Ignore income taxes.) (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)