South Shore Petroleum holds huge reserves of oil assets. Assume that at the end of 2018, South Shore Petroleum's cost of oil reserves totaled $99,000,000, representing 9,000,000 barrels of oil. Read the requirements. Requirement 1. Which method does South Shore Petroleum use to compute depletion? is the method used to compute depletion. Requirement 2. Suppose South Shore Petroleum removed and sold 300,000 barrels of oil during 2019. Journalize depletion expense for 2019. (Assume no residual value. Record debits first, then credits. Select the explanation on the last line of the journal entry table.)
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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.Estimate the average total estimated useful life of depreciable property, plant, and equipment. Starbucks reports 580.6 million of depreciation and amortization in the statement of cash flows, of which 4.5 million relates to amortization of limited-life intangible assets. Does the estimate reconcile with stated accounting policy on useful lives for property, plant, and equipment? Explain.Kam Company purchased a machine on January 2, 2019, for 20,000. The machine had an expected life of 8 years and a residual value of 300. The double-declining-balance method of depreciation is used. Required: 1. Compute the depreciation expense for each year of the assets life and book value at the end of each year. 2. Assuming that the company has a policy of always changing to the straight-line method at the midpoint of the assets life, compute the depreciation expense for each year of the assets life. 3. Assuming that the company always changes to the straight-line method at the beginning of the year when the annual straight-line amount exceeds the double-declining-balance amount, compute the depreciation expense for each year of the assets life.
- On January 1, 2014, Klinefelter Company purchased a building for 520,000. The building had an estimated life of 20 years and an estimated residual value of 20,000. The company has been depreciating the building using straight-line depreciation. At the beginning of 2020, the following independent situations occur: a. The company estimates that the building has a remaining life of 10 years (for a total of 16 years). b. The company changes to the sum-of-the-years-digits method. c. The company discovers that it had ignored the estimated residual value in the computation of the annual depreciation each year. Required: For each of the independent situations, prepare all journal entries related to the building for 2020. Ignore income taxes.On July 1, 2018, Mundo Corporation purchased factory equipment for 50,000. Residual value was estimated at 2,000. The equipment will be depreciated over 10 years using the double-declining balance method. Counting the year of acquisition as one-half year, Mundo should record 2019 depredation expense of: a. 7,680 b. 9,000 c. 9,600 d. 10,000Utica Machinery Company purchases an asset for 1,200,000. After the machine has been used for 25,000 hours, the company expects to sell the asset for 150,000. What is the depreciation rate per hour based on activity?
- Dunedin Drilling Company recently acquired a new machine at a cost of 350,000. The machine has an estimated useful life of four years or 100,000 hours, and a salvage value of 30,000. This machine will be used 30,000 hours during Year 1, 20,000 hours in Year 2, 40,000 hours in Year 3, and 10,000 hours in Year 4. With DEPREC5 still on the screen, click the Chart sheet tab. This chart shows the accumulated depreciation under all three depreciation methods. Identify below the depreciation method that each represents. Series 1 _____________________ Series 2 _____________________ Series 3 _____________________ When the assignment is complete, close the file without saving it again. Worksheet. The problem thus far has assumed that assets are depreciated a full year in the year acquired. Normally, depreciation begins in the month acquired. For example, an asset acquired at the beginning of April is depreciated for only nine months in the year of acquisition. Modify the DEPREC2 worksheet to include the month of acquisition as an additional item of input. To demonstrate proper handling of this factor on the depreciation schedule, modify the formulas for the first two years. Some of the formulas may not actually need to be revised. Do not modify the formulas for Years 3 through 8 and ignore the numbers shown in those years. Some will be incorrect as will be some of the totals. Preview the printout to make sure that the worksheet will print neatly on one page, and then print the worksheet. Save the completed file as DEPRECT. Hint: Insert the month in row 6 of the Data Section specifying the month by a number (e.g., April is the fourth month of the year). Redo the formulas for Years 1 and 2. For the units of production method, assume no change in the estimated hours for both years. Chart. Using the DEPREC5 file, prepare a line chart or XY chart that plots annual depreciation expense under all three depreciation methods. No Chart Data Table is needed; use the range B29 to E36 on the worksheet as a basis for preparing the chart if you prepare an XY chart. Use C29 to E36 if you prepare a line chart. Enter your name somewhere on the chart. Save the file again as DEPREC5. Print the chart.South Shore Petroleum holds huge reserves of oil assets. Assume that at the end of 2018,South Shore Petroleum cost of oil reserves totaled $56,000,000, representing 7,000,000 barrels of oil. Requirement 2.Suppose South Shore PetroleumS removed and sold 600,000 barrels of oil during 2019. Journalize depletion expense for 2019.5. In 2018, IRIS Company paid ₱4,000,000 to purchase land containing a total estimated 160,000 tons of extractable mineral deposits. The estimated value of the property after the mineral has been removed is ₱800,000. Extraction activities began in 2019 and by the end of the year, 20,000 tons had been recovered and sold. In 2020, geological studies indicated that the total amount of mineral deposits had been underestimated by 60,000 tons. During 2020, 30,000 tons were extracted and 28,000 tons were sold. How much depletion expense is to be presented in the cost of sales of 2020? * a. ₱ 436,364 b. ₱ 420,000 c. ₱ 392,000 d. ₱ 600,000
- In 2018, DAISY Company paid ₱4,000,000 to purchase land containing a total estimated 160,000 tons of extractable mineral deposits. The estimated value of the property after the mineral has been removed is ₱800,000. Extraction activities began in 2019 and by the end of the year, 20,000 tons had been recovered and sold. In 2020, geological studies indicated that the total amount of mineral deposits had been underestimated by 60,000 tons. During 2020, 30,000 tons were extracted and 28,000 tons were sold. How much depletion expense is to be presented in the cost of sales of 2020? ₱ 392,000 ₱ 420,000 ₱ 600,000 ₱ 436,364During 2018, Libby Oil and Gas Company completed the last well from its drilling and production platform off the coast of Texas. Unrecovered costs not including decommissioning costs on December 31, 2018, were $25 million, including $5 million in acquisition costs and $20 million in drilling and development costs. Total proved developed reserves were estimated to be 600,000 barrels as of the January 1, 2018. Production during 2018 was 30,000 barrels. At the end of the life of the reservoir, decommissioning costs are estimated to be $14 million, and salvage value is estimated to be $1 million. Required: compute DD&A for 2018.In 2018, IRIS Company paid ₱4,000,000 to purchase land containing a total estimated 160,000 tons of extractable mineral deposits. The estimated value of the property after the mineral has been removed is ₱800,000. Extraction activities began in 2019 and by the end of the year, 20,000 tons had been recovered and sold. In 2020, geological studies indicated that the total amount of mineral deposits had been underestimated by 60,000 tons. During 2020, 30,000 tons were extracted and 28,000 tons were sold. 1.) What is the depletion rate per ton in 2020? a. 12.73 b. 20 c. 14 d. 15.56 2.) How much depletion expense is to be presented in the cost of sales of 2020? a. 420,000 b. 392,000 c. 436,364 d. 600,000 3.) What is the carrying value of the wasting asset? a. 3,180,000 b. 3,000,000 c. 3,040,000 d. 3,208,000