The management of Sprague Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence. This equipment was purchased in 1 January 2018 at a cost of $900,000, with an estimated useful life of 5 years, depreciated with sum of years digit method. On December 31, 2019, management projected the present value of future net cash flows from this equipment to be $300,000 and its fair value less cost of disposal to be $280,000. The company intends to use this equipment in the future. The remaining useful life of the equipment is 3 years. Instructions (a) Prepare the journal entry (if any) to record the depreciation and impairment at December 31, 2019. (b) Prepare the journal entry to record depreciation expense for 2020 (c) At December 31, 2020, the equipment's recoverable amount is $270,000. Prepare the journal entry, (if any),

The management of Sprague Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence. This equipment was purchased in 1 January 2018 at a cost of $900,000, with an estimated useful life of 5 years, depreciated with sum of years digit method. On December 31, 2019, management projected the present value of future net cash flows from this equipment to be $300,000 and its fair value less cost of disposal to be $280,000. The company intends to use this equipment in the future. The remaining useful life of the equipment is 3 years. Instructions (a) Prepare the journal entry (if any) to record the depreciation and impairment at December 31, 2019. (b) Prepare the journal entry to record depreciation expense for 2020 (c) At December 31, 2020, the equipment's recoverable amount is $270,000. Prepare the journal entry, (if any),

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

Chapter11: Depreciation, Depletion, Impairment, And Disposal

Section: Chapter Questions

Problem 13P

See similar textbooks

Similar questions

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.
Kam Company purchased a machine on January 2, 2019, for 20,000. The machine had an expected life of 8 years and a residual value of 300. The double-declining-balance method of depreciation is used. Required: 1. Compute the depreciation expense for each year of the assets life and book value at the end of each year. 2. Assuming that the company has a policy of always changing to the straight-line method at the midpoint of the assets life, compute the depreciation expense for each year of the assets life. 3. Assuming that the company always changes to the straight-line method at the beginning of the year when the annual straight-line amount exceeds the double-declining-balance amount, compute the depreciation expense for each year of the assets life.
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. 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. 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 Bonita 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 $981,000 with depreciation to date of $436,000 as of December 31, 2025. On December 31, 2025, management projected its future net cash flows from this equipment to be $327,000 and its fair value to be $250,700. The company intends to use this equipment in the future. (a) Prepare the journal entry (if any) to record the impairment at December 31, 2025. (If no entry is required, select "No entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. List debit entry before credit entry.) Date Dec. 31 Account Titles and Explanation eTextbook and Media List of Accounts Debit Credit
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, 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…
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…
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?
On January 1, 2020, due to the unexpected advances in technology, Bubio 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?
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?