E9-17 (Algo) (Supplement 9A) Calculating and Reporting Depletion [LO 9-S1]Olive Companies (OC) paid $5,760,000 for an oil reserve estimated to hold 90,000 barrels of oil. Oil production is expected to be14,000 barrels in year 1, 62,000 barrels in year 2, and 14,000 barrels in year 3. Olive Companies expects to begin selling barrels fromits oil inventory in year 4.Required:1. Assuming these estimates prove to be accurate, show the balances in the oil reserve, accumulated depletion, and oil inventoryaccounts in each of the three years.2. What effect does this yearly depletion have on the income statement?Complete this question by entering your answers in the tabs below.Required 1Required 2Assuming these estimates prove to be accurate, show the balances in the oil reserve, accumulated depletion, and oilinventory accounts in each of the three years.Oil ReserveAccumulated DepletionOil Reserve, NetOil InventoryYear 1Year 2Year 3$ 4,864,000$ 4,864,000$ 4,864,000 ×896,0004,864,000 ×3,968,000896,0003,968,000 ☑896,0004,864,000< Required 104,864,000 ×Required 2>

The oil reserve is the cost paid which is $5,760,000.To continue on, first we compute the estimated…

Answered: E9-17 (Algo) (Supplement 9A)…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

E11-18 Depletion Feller Company purchased a site for a limestone quarry for $100,000 on January 2, 2019. It estimate that the quarry will yield 400,000 tons of limestone. It estimates that its retirement obligation has a fair value of $20,000, after which the land could be sold for $10,000. In 2019, 80,000 tons were quarried and 60,000 tons sold. Costs of production (excluding depletion) are $4 per ton. Required: 1. Compute the depletion cost per ton. 2. Compute the total cost of the inventory at December 31, 2019. 3. Compute the total cost of goods sold for 2019.
E11-15 Asset Impairment On January 1, 2015, Vallahara Company purchased machinery for $650,000, which it installed in a rented factory. It is depreciating the machinery over 12 years by the straight-line method to a residual value of $50,000. Late in 2019, because of increasing competition in the industry, the company believes that its asset may be impaired and will have a remaining useful life of 5 years, over which it estimates the asset will produce total cash inflows of $1,000,000 and will incur total cash outflows of $825,000. The cash flows are independent of the company’s other activities and will occur evenly each year. Vallahara is not able to determine the fair value based on a current selling price of the machinery. Vallahara’s discount rate is 10%. Required: 1. Prepare schedules to determine whether, at the end of 2019, the machinery is impaired and, if so, the impairment loss to be recognized. 2. If the machinery is impaired, prepare the journal entry to record the…
E11-15 Asset Impairment On January 1, 2015, Vallahara Company purchased machinery for $650,000, which it installed in a rented factory. It is depreciating the machinery over 12 years by the straight-line method to a residual value of $50,000. Late in 2019, because of increasing competition in the industry, the company believes that its asset may be impaired and will have a remaining useful life of 5 years, over which it estimates the asset will produce total cash inflows of $1,000,000 and will incur total cash outflows of $825,000. The cash flows are independent of the company’s other activities and will occur evenly each year. Vallahara is not able to determine the fair value based on a current selling price of the machinery. Vallahara’s discount rate is 10%. Required: 4. Assuming that the recoverable amount of the machinery is determined to be $220,000 at the end of 2020, what entry will Vallahara make to record this increase in value under U.S. GAAP? Under IFRS?
1.On December 5, 2021, the company purchased new machinery from Nine Bhd for $45,000.The new machinery, like the rest of the company's machinery, will be depreciated at 15% per year using the declining balance technique on a yearly basis. The new machinery, on the other hand, is expected to have a residual worth of $5,000. On that date, the company received a $20,000 government subsidy for the purchase of new machinery and paid the remaining balance by check. The company's policy is to adopt the net-off approach for accounting for government grants. 2. On September 1, 2021, Fern Bhd purchased a retail building for $180,000 in order to demonstrate and advertise its products. The marketing department immediately put the shop building to use. A further $20,000 had been spent on a small repair of the shop building by Fern Bhd. On September 1, 2021, the renovation will commence. However, because to a covid-19 case involving two of the renovation workers, the work was halted for two weeks.…
Texas Oil Company (TOC) paid $3,000,000 for an oil reserve estimated to hold 50,000 barrels ofoil. Oil production is expected to be 10,000 barrels in year 1, 30,000 barrels in year 2, and 10,000barrels in year 3. TOC expects to begin selling barrels from its oil inventory in year 4.Required:Assuming these estimates prove to be accurate, show the balances in the oil reserve, accumulateddepletion, and oil inventory accounts in each of the three years. What effect does this yearly depletion have on the income statement?
On January 2021, AAA Company paid the national government a fee in the amount of P129,000,000 for an area of interest with removable ore estimated by geological surveys at 10,000,000 tons. AAA is required by the national government to restore the area of interest after the extraction of the estimated units of reserves, AAA Company estimates that it will take 10 years to fully extract the reserves and estimates its restoration cost to be P10,000,000. The relevant discount rate is 10% (use 3 decimal places to round off the present value factor). The Company also incurred P2,150,000 of development costs in preparing the property for the extraction of the ore During 2021, 540,000 tons were mined. How much is the depletion/amortization expense for the year ended December 31, 2021?
E8-28 Computing Depreciation and Accounting for a Change of Estimate In January 2016, Rankine Company paid $8,500,000 for land and a building. An appraisal estimated that the land had a fair value of $2,500,000 and the building was worth $6,000,000. Rankine estimated that the useful life of the building was 30 years, with no residual value. a. Calculate annual depreciation expense using the straight-line method. b. Calculate depreciation for 2016 and 2017 using the double-declining-balance method. c. Assume that in 2018, Rankine changed its estimate of the useful life of the building to 25 years. If the company is using the double-declining-balance method of depreciation, what amount of depreciation expense would Rankine record in 2018?
8. On January 1, 2018, Stefan company purchased a mining site that will have to be restored to certain specifications when the mining production ceases. The cost of the mining site is 6,000,000 and the restoration cost is expected to be 1,500,000. It is estimated that the mine will continue in operation for 10 years. The appropriate discount rate is 8%. The present value of 1 at 8% for 10 periods is 0.4632. On December 31, 2027, the entity contracted with another entity for the restoration of the mining site in accordance with specifications at a cost of 1,350,000. How much is the decommissioning liability on January 1, 2018?
SE9-6 Goodwill impairment Bruceton Farms Equipment had goodwill valued at $80 million on its balance sheet at year-end. A review of the goodwill by the company’s CFO indicated that the goodwill was impaired and was now only worth $50 million. Prepare a journal entry to record the goodwill impairment on the books of the company.
E9-22 Gain Contingency On December 31, 2019, Braino Tech Inc. learned that its competitor had introduced a prod-uct using an accessory to which Braino has exclusive patent rights. Braino planned to file suit and its attorneys esti-mated that Braino should recover at least $500,000. Braino’s December 31, 2019, year-end financial statements were issued March 2, 2020. At that date, Braino still planned to file suit, even though it had not yet done so. Required: Next Level Discuss the accounting treatment in regard to the 2019 financial statements of Braino Tech called for by GAAP concerning the described circumstances. Be sure to conceptually justify this treatment.
SE9-7 Amortization Expense Smith and Sons obtained a patent for an new optical scanning device. The fees incurred to file for the patent and to defend the patent in court against several companies which challenged the patent amounted to $45,000. Smith & sons concluded that the economic life of the patent was 12 years. Calculate the amortization expense that should be recorded in the second year and record the journal entry for the amortization expense on the books of Smith & sons.
E10-20 Expenditures after Acquisition McClain Company incurred the following expenditures during 2019: Apr. 9 The air conditioning system in the old manufacturing facility was replaced for $83,000. The old air conditioning system had a cost of $74,000 and a book value of $2,000. The old air conditioning system had no scrap value. June 29 Annual maintenance of $38,000 was performed. Sept. 12 The roof of the old manufacturing facility is replaced at a cost of $65,000. This expenditure substantially extended the life of the facility. Dec. 28 A new wing was added to the manufacturing facility at a cost of $275,000. This expenditure substantially increased the productive capacity of the plant. Required: 1. Prepare journal entries to record McClain’s expenditures for 2019. 2. Next Level What is the effect on the financial statements if management had improperly accounted for the: a. addition of the new wing to the manufacturing facility b. annual maintenance expenditures

SEE MORE QUESTIONS

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS