1.
Depreciation:
Depreciation refers to the reduction in the monetary value of a fixed asset due to its wear and tear or obsolescence. It is a method of distributing the cost of the fixed assets over its estimated useful life. The following is the formula to calculate the depreciation.
Factors of computing depreciation:
For determining the depreciation cost of any asset, three factors are taken into consideration for computing the depreciation, they are;
- 1. Cost of the
depreciable fixed asset - 2. Estimated useful life of the fixed asset
- 3. Salvage value at the end of its useful life
Straight-line method:
Under the straight-line method of depreciation, the same amount of depreciation is allocated every year over the estimated useful life of an asset.
Sum-of- the-years’ digits method:
Sum-of-the years’ digits method determines the depreciation expense by multiplying the depreciable base and declining fraction.
To Identify: The type of change.
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To Prepare: The
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To Describe: Any other steps that should be taken to appropriately report the situation.
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INTERMEDIATE ACCT VOL.2>CUSTOM<
- P11.2 (LO 1, 2) (Deprec. for partial periods - SL, Act., SYD, and Declining - Balance) The cost of equip. purchased by Charleston, Inc. on June 1, 2020, is $89,000. It is estimated that the machine will have a $5,000 salvage value at the end of it's service life. It's service life is estimated at 7 years, it's total working hours are estimated at 42,000, and it's total production is estimated at 525,000 units. During 2020, the machine was operated 6,000 hours and produced 55,000 units. During 2021, the machine was operated 5,500 hours and produced 48,000 units. Instructions: Compute deprec. expense on the machine for the year ending Dec. 31, 2020, and the year ending Dec. 31, 2021, using the following methods. a. Straight-line. b. Units-of-output. c. Working hours. d. Sum-of-the-years'-digits. e. Declining-balance (twice the straight-line rate).arrow_forwardProblem 7-51 (LO 7-5) Kwan acquired a warehouse for business purposes on August 30, 2002. The building cost $420,000. Kwan took $227,600 of depreciation on the building, and then sold it for $500,000 on July 1, 2021. Required: What is the adjusted basis for the warehouse? What amount of the gain or loss is realized on the sale of the warehouse? What amount of the gain or loss is unrecaptured? At what rate is the unrecaptured gain or loss taxed? What amount of the gain or loss qualifies as a § 1231 gain or loss?arrow_forwardIntermediate Accounting ll ch 16 5. On January 1, 2021, Ameen Company purchased major pieces of manufacturing equipment for a total of $48 million. Ameen uses straight-line depreciation for financial statement reporting and MACRS for income tax reporting. At December 31, 2023, the book value of the equipment was $42 million and its tax basis was $32 million. At December 31, 2024, the book value of the equipment was $40 million and its tax basis was $25 million. There were no other temporary differences and no permanent differences. Pretax accounting income for 2024 was $30 million. Required: Prepare the appropriate journal entry to record Ameen’s 2024 income taxes. Assume an income tax rate of 25%. What is Ameen’s 2024 net income?arrow_forward
- Q.5 R&R, Inc., purchased a new machine on September 1, 2009, at a cost of $180,000. The machine’s estimated useful life at the time of the purchase was five years, and its residual value was $10,000. Instructions Prepare a complete depreciation schedule, beginning with calendar year 2009, under each of the methods listed below (assume that the half-year convention is used): Straight-line. 200 percent declining-balance. 150 percent declining-balance (not switching to straight-line).arrow_forwardE11.11B (L0 1,2) (Depreciation—Change in Estimate) Machinery purchased for $100,000 by Deer Co. in 2016 was originallyestimated to have a life of 10 years with a salvage value of $20,000 at the end of that time. Depreciation has been entered for5 years on this basis. In 2021, it is determined that the total estimated life should be 9 years with a salvage value of $6,000 at the endof that time. Assume straight-line depreciation.Instructions(a) Prepare the entry to correct the prior years’ depreciation, if necessary.(b) Prepare the entry to record depreciation for 2021.arrow_forwardV4. 3. Vaden Company purchased a patent from Williams Co. for $260,000 on January 1, 2016 when there was 15 years remaining in the legal life of the patent. Vaden estimates that the useful life of the patent will be 10 years from the date of acquisition. Expenditures of $25,000 for successful litigation in defense of the patent were paid on January 1, 2022. Required: a. Compute the carrying value of the patent at December 31, 2022. b. At the beginning of 2023, new market research indicates that the fair value of the patent is $90,000. Estimated future cash flows from the patent are $94,000 on January 1, 2023. Determine if the patent is impaired and, if so, prepare the journal entry necessary.arrow_forward
- Question 3What is the proper solution for this problem? B. On August 1, 2021, the board of directors of LL Co. voted to approve the disposal of one of its B division.The sale is expected to occur in June of next year. The B division's revenue and expenses for the period from January 1 to July 31 amounted to P14,000,000 and P10,000,000, respectively. For the period from August 1 to December 31, B Division's revenue amounted to P5,000,000 while expenses totaled P4,500,000. The carrying amount of B Division's net assets on December 31, 2021 was P21,000,000 and the fair value less cost of disposal was P25,000,000. The sale contract requires the company to pay termination cost of affected employees in the amount of P1,200,000 to be paid on September 30, 2022. The income tax rate is 30%. Required:25 – 27. Determine the income (loss) net of tax from discontinued operation.arrow_forwardPA7. LO 4.3Using the following information: make the December 31 adjusting journal entry for depreciation determine the net book value (NBV) of the asset on December 31 Cost of asset, $250,000 Accumulated depreciation, beginning of year, $80,000 Current year depreciation, $25,000arrow_forwardP9.3(a. Compute the original cost of machine ; and depreciation expense on Dec 31,2020) (b) (c)arrow_forward
- Question 8 Link Co. purchased machinery that cost $3,000,000 on January 4, 2019. The entire cost was recorded as an expense. The machinery has a nine-year life and a $200,000 residual value. The error was discovered on December 20, 2021. Ignore income tax considerations.Link's income statement for the year ended December 31, 2021, should show the cumulative effect of this error in the amount of $2,333,333. $2,066,667. $0. $2,377,778.arrow_forwardHw.27. Entity A entered into a sale and repurchase agreement for its head office on 1 January 2022, selling the office to Bank B for $78,560,000. On the same date, the head office had a fair value of $97,800,000. Entity A will continue to use the head office for the next 2 years and has the option to buy back the property for $93,765,779, based on an effective interest rate of 9.25% per year over the next 2 years. Property prices are expected to increase over the next 2 years. REQUIRED: Measure the net amount to be shown in the Statement of Profit or Loss for the year ended 31 December 2022. 1. $7,938,979 Expense 2. $19,240,000 Expense 3. $0 4. $7,266,800 Expense 5. None of them.arrow_forwardhrk.4 Orange Music purchased the rights to all Fixing Benjamin's music on January 1st, 2022, for $1 million cash. On December 31st, 2022, a change in consumer tastes over the year led to the determination that future sales of Fixing Benjamin’s discography would be significantly lower than expected. One accountant estimated that music sales for the years 2023, 2024, and 2025 would be $300,000, $200,000, and $100,000, respectively, and mentioned that the appropriate discount rate for Orange Music is 7%. Record all journal entries of Orange Music for the year 2022.arrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning