Financial Accounting: Tools for Business Decision Making, 8th Edition
8th Edition
ISBN: 9781118953808
Author: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso
Publisher: WILEY
expand_more
expand_more
format_list_bulleted
Question
Chapter 9, Problem 26Q
To determine
Useful life of an asset: The useful life of an asset represents the time period, that the company estimates the asset to be operationally efficient, to be able to generate revenue.
To explain: the implications for comparing the results from two different useful life estimated to depreciate the plant assets, by two companies.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
You are auditing the financial records of a company and are reviewing the depreciation computations. Included in the assets are two buildings and numerous machines in each building. One of the buildings is used to manufacture components of toys and the other for assembly and packing, using the manufactured components as well as others purchased from suppliers. You see that the company uses straight-line depreciation over 40 years for the buildings and 20 years for the machinery. You decide to ask the CFO about these calculations, and he replies, “We use 40 years for the buildings because it is close to the 39 we use for tax. And our best guess is that we will replace the machines twice while we use the building. And the method is easy to use and most companies use it, don’t they? Or have things changed that much since I was in college?” You feel as if you have annoyed the CFO with your questions, so you decide to leave. As you walk back to your office, you recall from earlier in the…
You are auditing the financial records of a company and are reviewing the depreciation computations. Included in the assets are two buildings and numerous machines in each building. One of the buildings is used to manufacture components of toys and the other for assembly and packing, using the manufactured components as well as others purchased from suppliers. You see that the company uses straight-line depreciation over 40 years for the buildings and 20 years for the machinery. You decide to ask the CFO about these calculations, and he replies, “We use 40 years for the buildings because it is close to the 39 we use for tax. And our best guess is that we will replace the machines twice while we use the building. And the method is easy to use and most companies use it, don’t they? Or have things changed that much since I was in college?” You feel as if you have annoyed the CFO with your questions, so you decide to leave. As you walk back to your office, you recall from earlier in the…
On a given day, two companies with the same accounting year end buy identical machinery for the same price. They both use the straight–line method of depreciation, but whilst Company X assumes the asset will have a 5-year useful life, Company Y assumes a 7-year life. Which of the following statements is true?
a) For each company, the depreciation charge in the first Income Statement prepared will equal the asset’s depreciation provision in the Statement of Financial Position.
b) The depreciation charge in the first Income Statement prepared will be the same for both companies.
c) In the first year, the depreciation charged by Company X will be less than that charged by Company Y.
d) The purchase of the asset will reduce total non-current assets in the Statements of Financial Position of both companies.
Chapter 9 Solutions
Financial Accounting: Tools for Business Decision Making, 8th Edition
Ch. 9 - Prob. 1QCh. 9 - Prob. 2QCh. 9 - Prob. 3QCh. 9 - Prob. 4QCh. 9 - Prob. 5QCh. 9 - Prob. 6QCh. 9 - Prob. 7QCh. 9 - Prob. 8QCh. 9 - Prob. 9QCh. 9 - In the fourth year of an assets 5-year useful...
Ch. 9 - Prob. 11QCh. 9 - Prob. 12QCh. 9 - Prob. 13QCh. 9 - Prob. 14QCh. 9 - Prob. 15QCh. 9 - Prob. 16QCh. 9 - Prob. 17QCh. 9 - Prob. 18QCh. 9 - Prob. 19QCh. 9 - Prob. 20QCh. 9 - Prob. 21QCh. 9 - Prob. 22QCh. 9 - Give an example of an industry that would be...Ch. 9 - Prob. 24QCh. 9 - Prob. 25QCh. 9 - Prob. 26QCh. 9 - Prob. 27QCh. 9 - Prob. 9.1BECh. 9 - Prob. 9.2BECh. 9 - Prob. 9.3BECh. 9 - Prob. 9.4BECh. 9 - Prob. 9.5BECh. 9 - Prob. 9.6BECh. 9 - Prob. 9.7BECh. 9 - Prob. 9.8BECh. 9 - Prob. 9.9BECh. 9 - Prob. 9.10BECh. 9 - Prob. 9.11BECh. 9 - Prob. 9.12BECh. 9 - Prob. 9.13BECh. 9 - Prob. 9.14BECh. 9 - Prob. 9.1DIECh. 9 - Prob. 9.2ADIECh. 9 - Prob. 9.2BDIECh. 9 - Prob. 9.3DIECh. 9 - Match the statement with the term most directly...Ch. 9 - Prob. 9.5DIECh. 9 - Prob. 9.1ECh. 9 - Prob. 9.2ECh. 9 - Prob. 9.3ECh. 9 - Prob. 9.4ECh. 9 - Prob. 9.5ECh. 9 - Prob. 9.6ECh. 9 - Prob. 9.7ECh. 9 - Prob. 9.8ECh. 9 - Prob. 9.9ECh. 9 - Prob. 9.10ECh. 9 - Prob. 9.11ECh. 9 - Prob. 9.12ECh. 9 - Prob. 9.13ECh. 9 - Prob. 9.14ECh. 9 - Prob. 9.15ECh. 9 - Prob. 9.16ECh. 9 - Prob. 9.17ECh. 9 - Prob. 9.18ECh. 9 - Prob. 9.19ECh. 9 - Prob. 9.20ECh. 9 - Prob. 9.1APCh. 9 - Prob. 9.2APCh. 9 - Prob. 9.3APCh. 9 - Prob. 9.4APCh. 9 - Prob. 9.5APCh. 9 - Prob. 9.6APCh. 9 - Prob. 9.7APCh. 9 - Prob. 9.8APCh. 9 - Prob. 9.9APCh. 9 - Prob. 9.1CACRCh. 9 - Prob. 9.2CACRCh. 9 - Prob. 9.1EYCTCh. 9 - Prob. 9.2EYCTCh. 9 - Prob. 9.3EYCTCh. 9 - Prob. 9.4EYCTCh. 9 - Prob. 9.6EYCTCh. 9 - Prob. 9.7EYCTCh. 9 - Prob. 9.8EYCTCh. 9 - Prob. 9.9EYCTCh. 9 - Prob. 9.10EYCTCh. 9 - CONSIDERING PEOPLE, PLANET, AND PROFIT The March...Ch. 9 - Prob. 9.1IFRSCh. 9 - Prob. 9.2IFRSCh. 9 - Prob. 9.3IFRSCh. 9 - Prob. 9.4IFRS
Knowledge Booster
Similar questions
- Kulot Company has an equipment costing $700,000 with an estimated residual value of $70,000 and an estimated useful life of six years. After using and depreciating the asset for the past two years, the company upgraded the machine parts and the cost of upgrading amounted to $120,000. Assuming that the upgrading costs improved the quality of the asset's output, what is the revised depreciation expense for the third year using the straight-line method?arrow_forwardAT & T company was depreciating its antennas over 20 years. The total cost of the antennas accounted for 20 million dollars. It was recently discovered that the antennas useful life is only seven years due to new technological development. With reference to the above scenario answer the following questions. What is the accounting implication in this situation and why? What promulgated Accounting Standards should be followed? Provide your rationale. How and why should this discovery be recorded in the financial statements of the company? Explain your response. If the company issues quarterly financial statements and the discovery is made in the third quarter, should this impact be shown prospectively or retroactively and in what specific time period? Explain your response. As the accountant, what could you recommend to management and why?arrow_forwardThe following information applies to the questions displayed below.] Ramirez Company installs a computerized manufacturing machine in its factory at the beginning of the year at a cost of $86,200. The machine's useful life is estimated at 10 years, or 396,000 units of product, with a $7,000 salvage value. During its second year, the machine produces 33,600 units of product. Determine the machine’s second-year depreciation and year end book value under the straight-line method.arrow_forward
- You are auditing the financial records of a company, and you are aware that it has grown quickly in the last few years by acquiring other companies. You look up the disclosure in last year’s annual report which states, “The company amortizes its intangibles over periods ranging from 3 to 15 years.” As you review the company’s records, you find that the company made an acquisition of a “high-tech” company 3 years ago and has not recognized any impairment on the related goodwill. In the last 6 years, the company has made five other acquisitions and has not recognized any impairment related to them. Included in the acquisitions are several patents that are amortized over 9 years and some intangibles with indefinite lives. Required: From financial reporting and ethical perspectives, discuss the issues raised by this situation.arrow_forwardConsider two hypothetical companies: A and B. At the beginning of year 1, each company buys anidentical piece of equipment for £2,100. The two companies have the same assumptions about theequipment useful life, estimated residual value, and productive capacity. The annual production ofeach company is the same. However, each company uses a different method of depreciation. Asdisclosed in each company’s notes to the financial statements, each company’s depreciation method,assumptions, and production are as follows:Estimated residual value: £100Estimated useful life: 5 yearsDepreciation methods:Company A: straight-line methodCompany B: accelerated method (assume that 50% of the depreciable amount is depreciated in year1, and the remaining balance is depreciated equally during the subsequent years) Critically discuss the differences in the timing of the recognition of the depreciation expense foreach method. Under what circumstances do you think a manager could choose to use the…arrow_forwardConsider two hypothetical companies: A and B. At the beginning of year 1, each company buys anidentical piece of equipment for £2,100. The two companies have the same assumptions about theequipment useful life, estimated residual value, and productive capacity. The annual production ofeach company is the same. However, each company uses a different method of depreciation. Asdisclosed in each company’s notes to the financial statements, each company’s depreciation method,assumptions, and production are as follows:Estimated residual value: £100Estimated useful life: 5 yearsDepreciation methods:Company A: straight-line methodCompany B: accelerated method (assume that 50% of the depreciable amount is depreciated in year1, and the remaining balance is depreciated equally during the subsequent years) a) Calculate, for each company, the beginning and ending net book value, the annual depreciationexpense, and accumulated year-end depreciation for the equipment throughout its useful lifearrow_forward
- Assume Little King Sandwiches depreciates a building over 40 years and University Hero depreciates a similar building over 20 years, and both companies use the straight-line depreciation method. Explain the difficulties in comparing the income statements and balance sheets of the two companies.arrow_forwardJIG Company has an equipment costing $1,000,000 with an estimated residual value of $100,000 and an estimated useful life of 10 years. After using and depreciating the asset for the past four years, the company upgraded the machine parts and the cost of upgrading amounted to $200,000. Assuming that the upgrading costs improved the quality of the asset's output, what is the revised depreciation expense for the 5th year using the sum of the year's digit method?arrow_forwardCOD Company finds its records are incomplete concerning a piece of equipment used in its plant. According to the company records, the equipment has an estimated useful life of 10 years and an estimated salvage value of $24,000. It has recorded $12,000 in depreciation each year using the straight-line method. If the accumulated depreciation account shows a balance of $72,000, what is the original cost of the equipment and how many years remain to be depreciated?arrow_forward
- A company used straight-line depreciation for an item of equipment that cost $12,000, had a salvage value of $2,000 and a five-year useful life. After depreciating the asset for three complete years, the salvage value was reduced to $1,200 but its total useful life remained the same. Determine the amount of depreciation to be charged against the equipment during each of the remaining years of its useful life:arrow_forwardc) In practice, would you expect the depreciation expense for a non-current asset to be overestimated or underestimated? Explain why this is the case. d) Oak Ltd purchased a machine for £40,000. At the end of its useful life of four years, the amount received on sale was £4,000. When the asset was purchased,the business received two estimates of the likely residual value of the asset. These were: (a) £8,000 and (b) zero. Show the annual depreciation expenses over the four years and the total depreciation expenses for the asset under each of the two estimates. The straight-line method should be used to calculate the annual depreciation expenses.arrow_forwardThe XYZ Corporation is investing in a $100,000 piece of machinery with 5-year useful life and $20,000 residual value. a) Using the straight-line method, how much depreciation occurs in year 1? b) Using the double-declining method, how much depreciation occurs in year 1?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
