Kchat purchased equipment that was installed and ready for use at the beginning of January 2025 for a total cost of $1,275,000. The salvage value was estimated at $219,000. The machinery is depreciated over five years using the straight-line method. At December 31, 2027, the undiscounted expected future net cash flows were $505,000 and the discounted expected net cash flows were $454,500 Assume that Blossom did not use the asset in 2028 and listed it for sale. At 12/31/28, the asset had a fair value of $505,000 and a disposal cost of $13,000. Prepare any journal entry needed at that date with regard to the asset.

Kchat purchased equipment that was installed and ready for use at the beginning of January 2025 for a total cost of $1,275,000. The salvage value was estimated at $219,000. The machinery is depreciated over five years using the straight-line method. At December 31, 2027, the undiscounted expected future net cash flows were $505,000 and the discounted expected net cash flows were $454,500 Assume that Blossom did not use the asset in 2028 and listed it for sale. At 12/31/28, the asset had a fair value of $505,000 and a disposal cost of $13,000. Prepare any journal entry needed at that date with regard to the asset.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter11: Depreciation, Depletion, Impairment, And Disposal

Section: Chapter Questions

Problem 14P: Hunter Company purchased a light truck on January 2, 2019 for 18,000. The truck, which will be used...

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Gray Companys financial statements showed income before income taxes of 4,030,000 for the year ended December 31, 2020, and 3,330,000 for the year ended December 31, 2019. Additional information is as follows: Capital expenditures were 2,800,000 in 2020 and 4,000,000 in 2019. Included in the 2020 capital expenditures is equipment purchased for 1,000,000 on January 1, 2020, with no salvage value. Gray used straight-line depreciation based on a 10-year estimated life in its financial statements. As a result of additional information now available, it is estimated that this equipment should have only an 8-year life. Gray made an error in its financial statements that should be regarded as material. A payment of 180,000 was made in January 2020 and charged to expense in 2020 for insurance premiums applicable to policies commencing and expiring in 2019. No liability had been recorded for this item at December 31, 2019. The allowance for doubtful accounts reflected in Grays financial statements was 7,000 at December 31, 2020, and 97,000 at December 31, 2019. During 2020, 90,000 of uncollectible receivables were written off against the allowance for doubtful accounts. In 2019, the provision for doubtful accounts was based on a percentage of net sales. The 2020 provision has not yet been recorded. Net sales were 58,500,000 for the year ended December 31, 2020, and 49,230,000 for the year ended December 31, 2019. Based on the latest available facts, the 2020 provision for doubtful accounts is estimated to be 0.2% of net sales. A review of the estimated warranty liability at December 31, 2020, which is included in other liabilities in Grays financial statements, has disclosed that this estimated liability should be increased 170,000. Gray has two large blast furnaces that it uses in its manufacturing process. These furnaces must be periodically relined. Furnace A was relined in January 2014 at a cost of 230,000 and in January 2019 at a cost of 280,000. Furnace B was relined for the first time in January 2020 at a cost of 300,000. In Grays financial statements, these costs were expensed as incurred. Since a relining will last for 5 years, Grays management feels it would be preferable to capitalize and depreciate the cost of the relining over the productive life of the relining. Gray has decided to nuke a change in accounting principle from expensing relining costs as incurred to capitalizing them and depreciating them over their productive life on a straight-line basis with a full years depreciation in the year of relining. This change meets the requirements for a change in accounting principle under GAAP. Required: 1. For the years ended December 31, 2020 and 2019, prepare a worksheet reconciling income before income taxes as given previously with income before income taxes as adjusted for the preceding additional information. Show supporting computations in good form. Ignore income taxes and deferred tax considerations in your answer. The worksheet should have the following format: 2. As of January 1, 2020, compute the retrospective adjustment of retained earnings for the change in accounting principle from expensing to capitalizing relining costs. Ignore income taxes and deferred tax considerations in your answer.
Hunter Company purchased a light truck on January 2, 2019 for 18,000. The truck, which will be used for deliveries, has the following characteristics: Estimated life: 5 years Estimated residual value: 3,000 Depreciation method for financial statements: straight-line method Depreciation for income tax purposes: MACRS (3-year life) From 2019 through 2023, each year, Hunter had sales of 100,000, cost of goods sold of 60,000, and operating expenses (excluding depreciation) of 15,000. The truck was disposed of on December 31, 2023, for 2,000. Required: 1. Prepare an income statement for financial reporting through pretax accounting income for each of the 5 years, 2019 through 2023. 2. Prepare, instead, an income statement for income tax purposes through taxable income for each of the 5 years, 2019 through 2023. 3. Compare the total income for all 5 years under Requirements 1 and 2.
On May 10, 2019, Horan Company purchased equipment for 25,000. The equipment has an estimated service life of 5 years and zero residual value. Assume that the straight-line depreciation method is used. Required: Compute the depreciation expense for 2019 for each of the following four alternatives: 1. Horan computes depreciation expense to the nearest day. (Use 12 months of 30 days each and round the daily depreciation rate to 2 decimal places.) 2. Horan computes depreciation expense to the nearest month. Assets purchased in the first half of the month are considered owned for the whole month. 3. Horan computes depreciation expense to the nearest whole year. Assets purchased in the first half of the year are considered owned for the whole year. 4. Horan records one-half years depreciation expense on all assets purchased during the year.
At December 31, 2022, Whispering Winds Company reported the following as plant assets. Land- $3,500,000 Buildings- $27,000,000 Less: Accumulated deprecation- buildings 10,000,000 17,000,000 Equipment 47,000,000 Less: Accumulated depreciation- equipment 4,500,000 42,500,000 Total plant assets $63,000,000 During 2023, the following selected cash transactions occurred. April 1- Purchased land for $2,000,000 May 1- Sold equipment that cost $600,000 when purchased on January 1, 2019. The equipment was sold for $360,000. June 1- Sold land purchased on June 1, 2013 for $1,410,000. The land costs $391,000. July 1- Purchased equipment for $2,300,000. Dec. 31- Retired equipment that cost $471,000 when purchased on December 31, 2013. A.) Journalize the above transactions. The company uses straight-line deprecation for buildings and equipment. The buildings are estimated to have 50-year life and no salvage value. The equipment is estimated to have a 10-year useful life and no salvage value.…
At December 31, 2020, Maguire Inc. reported these plant assets. Land $5,000,000 Buildings $25,000,000 Less: Accumulated depreciation - Buildings 10,000,000 Building, net 15,000,000 Equipment 20,000,000 Less: Accumulated depreciation - Equipment 4,000,000 Equipment, net 16,000,000 Total plant assets $36,000,000 During 2020, the following selected cash transactions occurred: Mar 1 Purchased land for $3,000,000.June 1 Sold land purchased on June 1, 2005, for $2,000,000. The land cost is $500,000.Jul 1 Sold equipment that cost $1,000,000 when purchased on January 1, 2016. The equipment was sold for $250,000.Oct 1 Purchased equipment for $2,000,000.Dec 31 Retired equipment that cost $500,000 when purchased on December 31, 2016.No salvage value was received. Required:Journalize the transactions for 2020. Hints: Pouncer uses straight-lime depreciation for building and…
At December 31, 2022, Ayayai Corporation reported the following plant assets. Land $ 3,003,000 Buildings $26,510,000 Less: Accumulated depreciation—buildings 11,936,925 14,573,075 Equipment 40,040,000 Less: Accumulated depreciation—equipment 5,005,000 35,035,000 Total plant assets $52,611,075 During 2023, the following selected cash transactions occurred. Apr. 1 Purchased land for $2,202,200. May 1 Sold equipment that cost $600,600 when purchased on January 1, 2016. The equipment was sold for $170,170. June 1 Sold land for $1,601,600. The land cost $1,001,000. July 1 Purchased equipment for $1,101,100. Dec. 31 Retired equipment that cost $700,700 when purchased on December 31, 2013. No salvage value was received. Journalize the transactions. Ayayai uses straight-line depreciation for buildings and equipment. The buildings are estimated to have a 40-year useful life and no salvage…
In 2023 , Kahlon Company sold equipment for $ 15,000 . The equipment originally cost Kahlon $30,000 in 2019 , and accumulated depreciation when Kahlon sold the equipment was $ 18,000 . The gain on the sale-\$3.000-wa included in Kahlon's 2023 income statement . The sale of the equipment would affect Kahlon's statement of cash flows as follows : The $15,000 would be reported as a positive cash flow in the Financing Activities section . The $ 3,000 gain would be deducted from net income in the Operating Activities section . All of the choices listed above are correct . None of the listed choices are correct . The $18,000 accumulated depreciation would be added to net income in the Operating Activities section .
In 2018, Batman Company ( an IFRS reporter) acquired equipment at a cost of $620,000. The balance of accumulated depreciation is $340,000. The sum of the discounted future cash flows expected from the use of this asset is $290,000 and the asset's current fair value is $250,000 before considering costs of disposal of $5,000. What is the recoverable amount?
On January 1, 2022, the Vallahara Company purchased machinery for P 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 P 50,000. Late in 2026, because of increasing competition in the industry, the company believes that its asset may be impaired and will have a remaining useful life of five years, over which it estimates the asset will produce total cash inflows of P 1,000,000 and will incur total cash outflows of P 825,000. The cash flows are independent of the company's other activities and will occur evenly each year. The company is not able to determine the fair value based on a current selling price of the machinery. The company's discount rate is 10%. Required 1. Prepare schedules to determine whether, at the end of 2026, 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 impairment.…
On January 1, 2022, the Vallahara Company purchased machinery for P 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 P 50,000. Late in 2026, because of increasing competition in the industry, the company believes that its asset may be impaired and will have a remaining useful life of five years, over which it estimates the asset will produce total cash inflows of P 1,000,000 and will incur total cash outflows of P 825,000. The cash flows are independent of the company’s other activities and will occur evenly each year. The company is not able to determine the fair value based on a current selling price of the machinery. The company’s discount rate is 10%. Required 1. Prepare schedules to determine whether, at the end of 2022, the machinery is impaired and, if so, the impairment loss to be recognized. 2. If the machinery is impaired, prepare the journal entry…
On January 1, 2021, Bambi Ltd. purchased equipment for $728,000. The equipment was assumed to have an 8-year useful life and no residual value and was to be depreciated using the straight-line method. On January 1, 2023, Bambi's management became concernedthat the equipment may have become obsolete. Management calculated that the undiscounted future net cash flows from the equipment was $523,250, the discounted future net cash flows was $464,100, and the current fair value of the equipment less cost ofdisposal (of $1,800 ) was $455,000. (a)Assuming that Bambi is a private Canadian company following ASPE, identify which model should be used to test for impairment. b) Record the journal entry to record the impairment loss, if any. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List debit entry before credit entry.) Account Titles and…
On January 1, 2021, Bambi Ltd. purchased equipment for $728,000. The equipment was assumed to have an 8-year useful life and no residual value and was to be depreciated using the straight-line method. On January 1, 2023, Bambi's management became concernedthat the equipment may have become obsolete. Management calculated that the undiscounted future net cash flows from the equipment was $523,250, the discounted future net cash flows was $464,100, and the current fair value of the equipment less cost ofdisposal (of $1,800 ) was $455,000. c) Assuming that Bambi is a public Canadian company, identify which model should be used to test for impairment. d) Record the journal entry to record the impairment loss, if any. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List debit entry before credit entry.) Account Titles and Explanation Debit…