RCG Company, purchased machinery to be used in production for P6,500,000 on April 1, 2017. The machine had a 5-year life, P500,000 residual value, and was depreciated using the double declining balance method. On January 1, 2020 a test for impairment indicated that the undiscounted cash flows from the machine are less than its carrying value. The machine's value in use on January 1, 2020 is P1,100,000. 1. What is the loss on impairment?

RCG Company, purchased machinery to be used in production for P6,500,000 on April 1, 2017. The machine had a 5-year life, P500,000 residual value, and was depreciated using the double declining balance method. On January 1, 2020 a test for impairment indicated that the undiscounted cash flows from the machine are less than its carrying value. The machine's value in use on January 1, 2020 is P1,100,000. 1. What is the loss on impairment?

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter22: Accounting For Changes And Errors.

Section: Chapter Questions

Problem 13P: Gray Companys financial statements showed income before income taxes of 4,030,000 for the year ended...

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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.
On January 1, 2021, Bambi Ltd. purchased equipment for $728,000. The equipment was assumed to have an 8-year useful life and no residual value and was to be depreciated using the straight-line method. On January 1, 2023, Bambi's management became concernedthat the equipment may have become obsolete. Management calculated that the undiscounted future net cash flows from the equipment was $523,250, the discounted future net cash flows was $464,100, and the current fair value of the equipment less cost ofdisposal (of $1,800 ) was $455,000. (a)Assuming that Bambi is a private Canadian company following ASPE, identify which model should be used to test for impairment. b) Record the journal entry to record the impairment loss, if any. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List debit entry before credit entry.) Account Titles and…
On January 1, 2021, Bambi Ltd. purchased equipment for $728,000. The equipment was assumed to have an 8-year useful life and no residual value and was to be depreciated using the straight-line method. On January 1, 2023, Bambi's management became concernedthat the equipment may have become obsolete. Management calculated that the undiscounted future net cash flows from the equipment was $523,250, the discounted future net cash flows was $464,100, and the current fair value of the equipment less cost ofdisposal (of $1,800 ) was $455,000. c) Assuming that Bambi is a public Canadian company, identify which model should be used to test for impairment. d) Record the journal entry to record the impairment loss, if any. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List debit entry before credit entry.) Account Titles and Explanation Debit…
Mortal Company acquired a machine for P3,200,000 on August 31, 2017. The machine has a 5-year useful life, a P500,000 residual value, and was depreciated using the straight line method. On May 31, 2020, a test for recoverability revealed that the expected net future undiscounted cåsh inflows related to the continued use and eventual disposal of the machine amount to P1,500,000. The fair value less cost of disposal of the machine on May 31, 2020 is P1,350,000 with no residual value. What is the depreciation of the machine for June 2020?
Dexter Inc. acquired a machine on January 1, 2010 for $520,000. The machine had an expected life of 20 years and salvage value of $40,000. Dexter uses straight line depreciation. On July 1, 2020, the company reviewed the machine for impairment and determined that its undiscounted future net cash flows totaled $200,000 and its discounted future net cash flows totaled $154,000. If no active market exists for the machine and the company plans to continue operating it, what should Dexter record as an impairment loss on July 1, 2020? Compute the carrying value of the machine on July 1, 2020. Is the machine impaired? Explain the basis of your conclusion. Include numbers. Compute the amount of impairment loss recorded on July 1, 2020 (if any). Compute the carrying value of the machine on December 31, 2020, assuming no change in its service life and salvage value.
Madison Company purchased a machine on February 1, 2018, for $200,000. On December 31, 2021, when the book value of the machine is $90,000, Madison Company checks to see if the machine is impaired. Due to recent technological advances Madison Company expects the machine to generate future cash flows of $70,000. If Madison Company estimates the current fair market value of the machine is $55,000 on December 31, 2021, what amount of impairment loss (if any) should be recorded? $20,000 O $35.000 O $60,000 O $90,000 O The asset is not impaired.
In January 2012, Winn Corp. purchased equipment at a cost of $500,000. The equipment had an estimated salvage value of $100,000, an estimated 8-year useful life, and was being depreciated by the straight-line method. Two years later, it became apparent to Winn that this equipment suffered a permanent impairment of value. In January 2014, management of Winn Corp. determines the expected future net cash flows (undiscounted) from the use of the equipment and its eventual disposal to be $250,000 and a fair value of $225,000. What is the impairment loss for the equipment?
Please do not provide answer in image formate thank you. Mary Company acquired a machine for P320,000 on August 31, 2014. The machine has a five-year life, a P50,000 residual value and was depreciated using the straight-line method. On May 31, 2017, a test for recoverability reveals that the expected net future undiscounted cash inflows related to the continued use and eventual disposal of the machine total P150,000. The machine’s actual fair value on May 31, 2017 is P135,000 with no residual value. Assuming a loss on impairment is recognized on May 31, 2017, what is the depreciation expense for June 2017? A. 3,148 B. 4,500 C. 5,000 D. 6,352
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…
On January 1, 2014, Barbed Company purchased an equipment for P900,000, with an estimated useful life of 8 years. Straight-line method of depreciation is to be used with no salvage value. On January 1, 2017, the equipment was tested for impairment. The estimated selling price of the equipment is P550,000 and the estimated cost to sell is P30,000. The asset is expected to provide annual net cash inflows of P145,000 during the remaining useful life of the equipment and estimated a residual value of P35,000 at the end of its useful life. The appropriate pre-tax discount rate that reflects current market assessments of the time value of money is 12%. 26) How much is the recoverable value of the equipment on January 1, 2017? A 520,000 C. 550,000 . B. 542,570 D. 562,500 27) How much is the impairment loss to be recognized on January 1, 2017? A. 12,500 C. 19,930 B. 42,500 D. 0 28) How much is the depreciation expense for the year 2017? A. 108,514 C. 103,000 B. 101,514 D. 112,500
14. Sumptuous Company, a clothing manufacturer, purchased a sewing machine for 2,000,000 on July 1, 2014. The machine had a 10-year useful life, a 100,000 residual value, and was depreciated using the straight line method. On January 1, 2017, a test for impairment indicated that the undiscounted cash flows from the sewing machine are less than carrying amount. The fair value less cost of disposal of the machine on January 1, 2017 is 600,000. What amount of loss on impairment should be recognized?
On January 1, 2014, Barbed Company purchased an equipment for P900,000, with an estimated useful life of 8 years. Straight-line method of depreciation is to be used with no salvage value. On January 1, 2017, the equipment was tested for impairment. The estimated selling price of the equipment is P550,000 and the estimated cost to sell is P30,000. The asset is expected to provide annual net cash inflows of P145,000 during the remaining useful life of the equipment and estimated a residual value of P35,000 at the end of its useful life. The appropriate pre-tax discount rate that reflects current market assessments of the time value of money is 12%. 26) How much is the recoverable value of the equipment on January 1, 2017? A 520,000 C. 550,000. B. 542,570 D. 562,500 27) How much is the impairment loss to be recognized on January 1, 2017?