Concept explainers
It refers to the reduction in the monetary value of fixed tangible assets over its useful life due to its wear and tear or, obsolescence. In other words, it is the method of distributing the cost of tangible fixed assets over its estimated useful life.
Depletion:
It refers to the process of proportionately distributing the cost of the extracting natural resources such as coal, mines, and petroleum from the earth to the number of units extracted.
Under this method of depreciation, the depreciation expense is calculated on the basis of units produced in a year. This method is suitable when a company has fluctuating productive rate. The formula to calculate the depreciation expense under this method is as follows:
To calculate: The amount of depletion of the timber tract and depreciation of logging roads.
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INTERMEDIATE ACCOUNTING(LL)-W/2 ACCESS
- UWorld ROGER mos6 as BARRAD Multiple Choice O O X Company had been depreciating a machine with an original cost of $125,000 and a salvage value of $15,000 over its estimated useful life of 10 years using straight line depreciation. At the beginning of the seventh year, X Company determined that the machine will actually remain in use for a total of 12 years and will have a salvage value of $5,000 How much depreciation will X Company recognize in the seventh year? O $9,167 $7,333 $9,000 CPA Review O $10,000 Soved Help Save & Exitarrow_forwardRequired information Exercise 11-1 (Algo) Depreciation methods [LO11-2] [The following information applies to the questions displayed below.] On January 1, 2024, the Excel Delivery Company purchased a delivery van for $35,850. At the end of its five-year service life, it is estimated that the van will be worth $3,000. During the five-year period, the company expects to drive the van 109,500 miles. Required: Calculate annual depreciation for the five-year life of the van using each of the following methods. Exercise 11-1 (Algo) Part 3 3. Units of production using miles driven as a measure of output, and the following actual mileage: Note: Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount. Depreciation Year Miles 2024 23,900 $ 2025 25,900 2026 16,900 2027 29,500 7,170 7,770 5,070 8,850 2028 15,300 Total $ 28,860arrow_forwardBrief Exercise 11-15 (Algo) Change in principle; change in depreciation method [LO11-6] At the beginning of 2022, Robotics Incorporated acquired a manufacturing facility for $131 million $10.1 million of the purchase price was allocated to the building. Depreciation for 2022 and 2023 was calculated using the straight-line method, a 20-year useful life, and a $2.1 million residual value. In 2024, the company switched to the double-declining-balance depreciation method What is depreciation on the building for 2024? Note: Do not round intermediate calculations. Enter your answer in whole dollars rounded to the nearest whole number. Depreciationarrow_forward
- Natural Resource Depletion and Depreciation of Related Plant Assets P5. Bychowski Company purchased land containing an estimated 10 million tons of ore for a cost of $3,300,000. The land without the ore is estimated to be worth $600,000. The company expects that all the usable ore can be mined in 10 years. Buildings costing $300,000 with an estimated useful life of 20 years were erected on the site. Equipment costing $360,000 with an estimated useful life of 10 years was installed. Because of the remote location, neither the buildings nor the equipment has an estimated residual value. During its first year of operation, the company mined and sold 450,000 tons of ore. REQUIRED 1. Compute the depletion charge per ton. 2. Compute the depletion expense that Bychowski should record for the year. 3. Determine the depreciation expense for the year for the buildings, making it pro- portional to the depletion. 4. Determine the depreciation expense for the year for the equipment under two alter-…arrow_forwardCurrent Attempt in Progress X Your answer is incorrect. Metlock Company purchased equipment for $285,600 on October 1, 2025. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $12,000. Estimated production is 48,000 units and estimated working hours are 19,000. During 2025, Metlock uses the equipment for 530 hours and the equipment produces 1,100 units. Compute depreciation expense under each of the following methods. Metlock is on a calendar-year basis ending December 31. (Round rate per hour and rate per unit to 2 decimal places, e.g. 5.35 and final answers to O decimal places, e.g. 45,892.) (a) (b) (c) Straight-line method for 2025 (e) Activity method (units of output) for 2025 Activity method (working hours) for 2025 (d) Sum-of-the-years'-digits method for 2027 Double-declining-balance method for 2026 $ ta tA LA 8531 5.69 7615 51187 66797arrow_forwardView Policies Current Attempt in Progress Teal Mountain Inc. purchased a tractor trailer for $152000. Teal Mountain uses the units-of-activity method for depreciating its trucks and expects to drive the truck 1000000 miles over its 12-year useful life. Salvage value is estimated to be $16000. If the truck is driven 76000 miles in its first year, how much depreciation expense should Teal Mountain record? O $11721. O $10336. O $11552. O $9589. Save for Later Attempts: 0 of 1 used Submit Answerarrow_forward
- PROBLEM 9.8A Depreciation and Disposal of Plant and Intangible Assets O LO9-2, L LO9-3, O LO9-5 During the current year, Rothchild, Inc., purchased two assets that are described as follows. Heavy Equipment Purchase price, $275,000. Expected to be used for 10 years, with a residual value at the end of that time of $50,000. Expenditures required to recondition the equipment and prepare it for use, $75,000. Patent Purchase price, $75,000. Expected to be used for five years, with no value at the end of that time. Rothchild depreciates heavy equipment by the declining-balance method at 150 percent of the straight-line rate. It amortizes intangible assets by the straight-line method. At the end of two years, because of changes in Rothchild's core business, it sold the patent to another company for $35,000. Instructions a. Compute the amount of depreciation expense on the heavy equipment for each of the first three years of the asset's life. b. Compute the amount of amortization on the patent…arrow_forwardExercise 9.11 (Algo) Depletion of Natural Resources (LO9-7) Salter Mining Company purchased the Northern Tier Mine for $88 million cash. The mine was estimated to contain 1.45 million tons of ore and to have a residual value of $1.4 million. During the first year of mining operations at the Northern Tier Mine, 95,000 tons of ore were mined, of which 18,000 tons were sold. a. Prepare a journal entry to record depletion during the year. b. Show how the Northern Tier Mine, and its accumulated depletion, would appear in Salter Mining Company's balance sheet after the first year of operations.arrow_forwardD Problem 1: Depreciation & Impairment (15 pts) Flagg Corp purchase and placed into service $3.3 million worth of virology testing equipment on March 31, 2021. The equipment is expected to last 6 years and/or 2 million batches, and have a salvage value of $600,000. Calculate the depreciation expense for 2021, 2022, and 2023 for the following methods: 1.1: (2 pts) Straight-line. 1.2: (3 pts) Sum of the year's digits. 1.3: (3 pts) Triple times declining balance. 1.4: (3 pts) Units of production (assume 650k, 850k and 600k batches in years 2021, 2022, and 2023). (go out to six decimals on the cost per unit) 1.5: (4 pts) Assume Flagg Corp used the straight-line method. On January 1, 2024, Flagg Corp determined the equipment would generated net free cash flows (undiscounted) of $350,000, $300,000 and $250,000 in each of the next 3 years and nothing thereafter. Further, Flagg Corp uses an internal interest rate of 19%. If necessary, record the impairment journal entry as of January 1. 2024.arrow_forward
- Required information Problem 10-6A (Algo) Disposal of plant assets LO C1, P1, P2 [The following information applies to the questions displayed below.] Onslow Company purchased a used machine for $192,000 cash on January 2. On January 3, Onslow paid $8,000 to wire electricity to the machine. Onslow paid an additional $1,600 on January 4 to secure the machine for operation. The machine will be used for six years and have a $23,040 salvage value. Straight-line depreciation is used. On December 31, at the end of its fifth year in operations, it is disposed of. Problem 10-6A (Algo) Part 1 Required: 1. Prepare journal entries to record the machine's purchase and the costs to ready it for use. Cash is paid for all costs incurred. View transaction list Journal entry worksheetarrow_forwardRequired information Problem 10-6A (Algo) Disposal of plant assets LO C1, P1, P2 [The following information applies to the questions displayed below.] Onslow Company purchased a used machine for $192,000 cash on January 2. On January 3, Onslow paid $8,000 to wire electricity to the machine. Onslow paid an additional $1,600 on January 4 to secure the machine for operation. The machine will be used for six years and have a $23,040 salvage value. Straight-line depreciation is used. On December 31, at the end of its fifth year in operations, it is disposed of. Problem 10-6A (Algo) Part 2 2. Prepare journal entries to record depreciation of the machine at December 31. View transaction list Journal entry worksheetarrow_forwardRequired information Problem 10-6A (Algo) Disposal of plant assets LO C1, P1, P2 [The following information applies to the questions displayed below.] Onslow Company purchased a used machine for $192,000 cash on January 2. On January 3, Onslow paid $8,000 to wire electricity to the machine. Onslow paid an additional $1,600 on January 4 to secure the machine for operation. The machine will be used for six years and have a $23,040 salvage value. Straight-line depreciation is used. On December 31, at the end of its fifth year in operations, it is disposed of. Problem 10-6A (Algo) Part 3 . Prepare journal entries to record the machine's disposal under each separate situation: (a) it is sold for $20,000 cash and (b) it is old for $80,000 cash. View transaction list Journal entry worksheetarrow_forward
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