The management of Petro Garcia Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence. This equipment has a cost of $900,000 with depreciation to date of $400,000 as of December 31, 2020. On December 31, 2020, management projected its future net cash flows from this equipment to be $300,000 and its fair value to be $230,000. The company intends to use this equipment in the future. What accounting issues did management face in accounting for this impairment?
Q: Prepare the journal entries for the following transactions provided by MPM as at January 31, 2011…
A: Answer - Adjusting Journal Entry - An adjusting journal entry is usually made at the end of an…
Q: correct chart of accounts
A: A chart of accounts is actually a list of all your venture’s accounts in one place. It offers you…
Q: Problem 7-48 The MARSHALL Company Production & Sales Data Details Ying Yang Bit Total…
A: Part a: Computation of the joint cost to be allocated between Ying and Yang:
Q: Sun Co.'s monthly data for the past year follow. Management wants to use these data to predict…
A: High-low method is one of the methods to separate the variable cost and fixed cost from the mixed…
Q: make resources available
A: Expansion of a project refers to the act of becoming bigger than usual. When a project expands, the…
Q: View Policies Current Attempt in Progress Indigo Corporation issued 142,000, $4.50 cumulative…
A: The dividend is declared and paid to the shareholders from the retained earnings of the business.…
Q: Stress Free Realty Co. pays weekly salaries of $7,500 on Friday for a five-day workweek ending on…
A: A journal entry is a record of a commercial transaction made in an organization's monetary system.…
Q: 1. Estimated fixed manufacturing overhead for the coming period of $220,000 2. Estimated variable…
A: Formula : Predetermined overhead rate = Total estimated overhead / Estimated direct labor hours
Q: But why? for number 3
A: Held-to-Maturity (HTM) Securities Held-to-maturity securities are those that companies purchase with…
Q: Prepare a multi-step income statement.
A: INTRODUCTION: An income statement is a type of financial statement that reveals the profitability of…
Q: Required information [The following information applies to the questions displayed below.] Martinez…
A: The variable cost per unit remains constant but fixed cost per unit changes with change in level of…
Q: Describe how total variable costs and unit variable costs behave with changes in the level of…
A: Cost behaviour defines the changes in cost based on level of activity or production.some cost have…
Q: If a company invested $2,000,000 in a stock, and that stock declared bankruptcy in year 3. How would…
A: Bankruptcy: Bankruptcy is the term used by organizations when they are unable to meet their…
Q: Journal entry worksheet < 1 Record the closing entry. Note: Enter debits before credits. Transaction…
A: Closing Journal Entries The type of journal entries that relates to transferring of balances of…
Q: Applying Factory Overhead. Hatch Company estimates that total factory overhead costs will be $36,000…
A: Factory overheads are the aggregate of indirect materials, labor, and other costs that cannot be…
Q: Problem 31-7 (IAA) On January 1, 2018, Epitome Company acquired the following property, plant and…
A: Revaluation is the process of recording non-current assets of the business entity with respect to…
Q: Helix Company produces several products in its factory, including a karate robe. The company uses a…
A: A budget is a tool to estimate future cost revenue and expenses. After developing a budget, the…
Q: Required information (The following information applies to the questions displayed below) The…
A: The financial statements of the business include the income statement, statement of retained…
Q: Question 09 William Jackson, the CEO of RPL, has requested that the tests of controls only be…
A: Test of Control in Audit The methods an auditor uses to assess the efficacy of a firm's internal…
Q: SDJ, Inc., has net working capital of $2,060, current liabilities of $5,550, and inventory of…
A: Current ratio and quick ratio are the liquidity ratios which are determined by the entity for the…
Q: 10 The actual manufacturing overhead incurred at Gutekunst Corporation during March was $53,000,…
A: Cost of goods sold after closing out to manufacturing overhead account=Cost of goods sold prior to…
Q: Conn Man's Shops, a national clothing chain, had sales of $370 million last year. The business has a…
A: The company makes sales to earn profit and the company needs funds to cope with the increase in…
Q: Merchandise Inventory
A: Journal entries are the building blocks of financial statements. They let you prepare income…
Q: A draw bench for precision forming and strengthening of carbon steel tubing has a cost of…
A: Business organization are required to charge the depreciation expense so as to shown the assets…
Q: Clarks Inc., a shoe retailer, sells boots in different styles. In early November the company starts…
A: A performance obligation is a kind of promise made by the company to transfer goods and services to…
Q: a. Find Zimmer's ROI. b. Find Zimmer's residual income.
A: RETURN ON INVESTMENT Return on investment is the Ratio between Net Operating Income & Average…
Q: t-to-cost method to measure the completion of its performance obligations. Data relating to the…
A: A Construction Contract is a contract specifically negotiated for the construction of an asset or…
Q: Bluefield has decided to use an ABC costing system and has identified the following detailed…
A: I'm assuming that your demand is only requirement #1. Because requirement #2 is not completely…
Q: Cash and cash equivalents Advertising Trade receivables Gross revenue Trade and other payables…
A: A balance sheet is a representation of an individual's personal or corporation's financial balances…
Q: the money used in each transactions
A: This is the follow-up question and it has been asked to include and use the money of the…
Q: A company provided the following information: Administrative salaries Raw material purchases Sales…
A: Cost of goods manufactured means the cost incurred on the production or the making of the goods. It…
Q: The following accounts have normal balances. Cash $ 11,000 5,500 1,600 1,200 17,000 4,000 20,800…
A: A trial balance's main function is to confirm that the entries in a firm's accounting system are…
Q: following information applies questions displayed low.] Calvin reviewed his canceled checks and…
A: Introduction Types of Organizations to make Deductible contributions: Not for Profit Organizations…
Q: Laura has 2 dependent children and earns a gross yearly salary of $81,022. She will also make the…
A: Withholding tax is an amount that is directly deducted from the employee's earnings by the employer…
Q: Required information [The following information applies to the questions displayed below.] Martinez…
A: All indirect expenses which are incurred by the business entities throughout the production process…
Q: Logan Future Factory is producing its cost of sales budget. Direct materials are budgeted to be 50%…
A: Cost of Sales: The total cost incurred by the organization till the final sales are completed is…
Q: Blum Services has the following unadjusted balances at year-end. Cash 12,900 Prepaid insurance…
A: Adjusted trial balance is prepared after including all the additional adjustments that are necessary…
Q: Reynolds Computer Service offers data processing services to retail clothing stores. The following…
A: Journal Entry :- The act of logging any transaction, whether or not it is an economic one, is known…
Q: The information necessary for preparing the December 31, 2024, year-end adjusting entries for Vito's…
A: Adjusting Entry: An adjustment entry is created to accurately divide the income and expense sums for…
Q: How much are total expenses for January? $2362360 $2735240 $2341120 None of the answer choices are…
A: Retained earnings are the cumulative net earnings of a company. It should be noted that retained…
Q: Pharoah Company sells goods to Coronado Company during 2023. It offers Coronado the following…
A: Rebate = $98,000×6% = $5,880
Q: Brandon, Inc. sells Unity Candles for $140 each. Operating results for October, November, and…
A: Operating Income: The income that any business organization generates from the normal operations of…
Q: A Accounts Payable AA Losses due to fire B Accounts Receivable BB Merchandise Inventory E…
A: When goods are purchased by a company, the vendor charges sales tax at a specific percentage of the…
Q: Emilio Co. had the following information relating to its accounts receivable: Accounts receivable,…
A: The allowance for doubtful accounts is created to record estimated bad debt expense for the period.…
Q: After spending $10,200 on client-development, you have just been offered a big production contract…
A: Net Present Value=(Present Value of Cash Inflows-Present Value of Cash Outflows)
Q: 60) Beginning inventory is $30,000. Purchases of inventory during the year are $50,000. Cost of…
A: Ending Inventory = Beginning Inventory + Purchases - Cost of Goods Sold
Q: Kohler Corporation reports the following components of stockholders’ equity at December 31 of the…
A: Journal Entry is the primary step to record the transaction in the books of accounts. The…
Q: of P. Lucas for the year ended 30 September 2007. Stocks of raw materials, at cost Work in progress…
A: Manufacturing Account. Direct Material Closing Stock Opening Stock Raw Material…
Q: the Excel, or spreadsheet, approach to recording financial transactions, which of the following is…
A: Accounting equation is one of the fundamental concept being used in business. Three elements of…
Q: What is your net dollar sales projection for this year? Net sales
A: In business, revenues and expenses are forecasted in order to make suitable plans and policies.…
The management of Petro Garcia Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence. This equipment has a cost of $900,000 with
What
Calculation of Loss on impairment.
| Cost | $900,000 |
| Accumulated depreciation | $400,000 |
| Carrying amount | $500,000 |
| Fair value | $230,000 |
| Loss on impairment | $270,000 |
Step by step
Solved in 2 steps
- 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.At the end of 2020, Magenta Manufacturing Company discovered that construction cost had been capitalized as a cost of the factory building in 2015 when it should have been treated as a cost of production equipment installation costs. As a result of the misclassification, the depreciation through 2018 was understated by 110,000, and depreciation for 2019 was understated by 90,000. What would be the consequences of correcting for the misclassification of the property cost? a. The taxpayer uses the FIFO inventory method, and 25% of goods produced during the period were included in the ending inventory. b. The taxpayer uses the LIFO inventory method, and no new LIFO layer was added during 2019.The management of Petro Garcia Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence. This equipment has a cost of $900,000 with depreciation to date of $400,000 as of December 31, 2020. On December 31, 2020, management projected its future net cash flows from this equipment to be $300,000 and its fair value to be $230,000. The company intends to use this equipment in the future. Where should the gain or loss (if any) on the write-down be reported in the income statement?
- The management of Petro Garcia Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence. This equipment has a cost of $900,000 with depreciation to date of $400,000 as of December 31, 2020. On December 31, 2020, management projected its future net cash flows from this equipment to be $300,000 and its fair value to be $230,000. The company intends to use this equipment in the future. At December 31, 2021, the equipment’s fair value increased to $260,000. Prepare the journal entry (if any) to record this increase in fair value.The management of Petro Garcia Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence. This equipment has a cost of $900,000 with depreciation to date of $400,000 as of December 31, 2020. On December 31, 2020, management projected its future net cash flows from this equipment to be $300,000 and its fair value to be $230,000. The company intends to use this equipment in the future. Prepare the journal entry (if any) to record the impairment at December 31, 2020.The management of Petro Garcia Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence. This equipment has a cost of $900,000 with depreciation to date of $400,000 as of December 31, 2020. On December 31, 2020, management projected its future net cash flows from this equipment to be $300,000 and its fair value to be $230,000. The company intends to use this equipment in the future. Instructions a. Prepare the journal entry (if any) to record the impairment at December 31, 2020. b. Where should the gain or loss (if any) on the write-down be reported in the income statement? c. At December 31, 2021, the equipment’s fair value increased to $260,000. Prepare the journal entry (if any) to record this increase in fair value. d. What accounting issues did management face in accounting for this 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 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, 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 impairment. 3. If…
- A company owns a patent for which it paid $75 million. At the end of 2024, it had accumulated amortization on the patent of $15 million. Due to adverse economic conditions, the company's management determined that it should assess whether an impairment loss should be recognized for the patent. The estimated undiscounted future cash flows to be provided by the patent total $40 million, and the patent's fair value at that point is $30 million. Under these circumstances, the company would reporOn July 1, 2020, Zelensky Company, a calendar-year company, purchased a machine for a cash price of P800,000, with an estimated useful life of 10 years and estimated residual value of P70,000. The company uses double declining balance method. It is the company’s policy to depreciate its assets to the nearest month.During 2022, P131,500 was spent on an upgrade to the machine in order to improve its efficiency and increase the inflow of economic benefits over the machine’s remaining life. In addition, management decided to change to the straight-line method of depreciation, maintaining its residual value of P70,000. What is the revised depreciation expense for the year ended December 31, 2022?On January 1, 2020, due to the unexpected advances in technology, Claro Co. realized that its machinery has been impaired. The unit was purchased on January 1, 2016 for P20,000,000. The entity initially estimated that the asset has a useful life of 20 years with no residual value. On that date, the fair value of the asset was P10,000,000. The cash inflows and outflows to be derived from the asset from its continuing use are as follows: End of year Cash inflow Cash outflow 2020 7,500,000 3,500,000 2021 6,000,000 3,000,000 2022 4,000,000 2,000,000 2023 3,000,000 1,500,000 2024 2,500,000 1,000,000 Should the entity decide to continue to use the asset, remaining life will be 5 years. The discount rate used by the entity is 10%. How much is the impairment loss to be recognized on January 1, 2020?
