In January 2018, Wine Company purchased equipment at a cost on P2,500,000. The equipment has a residual value of P500,000, a useful life of 8 years and is depreciated by the straight line method. Two years later, it became apparent that this equipment suffered permanent impairment in value. In January 2020, management determined the recoverable amount of the equipment to be only P875,000 with a 2-year remaining useful life and residual value of P125,000.

In January 2018, Wine Company purchased equipment at a cost on P2,500,000. The equipment has a residual value of P500,000, a useful life of 8 years and is depreciated by the straight line method. Two years later, it became apparent that this equipment suffered permanent impairment in value. In January 2020, management determined the recoverable amount of the equipment to be only P875,000 with a 2-year remaining useful life and residual value of P125,000.

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 8MC: On July 1, 2018, Mundo Corporation purchased factory equipment for 50,000. Residual value was...

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On January 1, 2014, Klinefelter Company purchased a building for 520,000. The building had an estimated life of 20 years and an estimated residual value of 20,000. The company has been depreciating the building using straight-line depreciation. At the beginning of 2020, the following independent situations occur: a. The company estimates that the building has a remaining life of 10 years (for a total of 16 years). b. The company changes to the sum-of-the-years-digits method. c. The company discovers that it had ignored the estimated residual value in the computation of the annual depreciation each year. Required: For each of the independent situations, prepare all journal entries related to the building for 2020. Ignore income taxes.
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Hathaway Company purchased a copying machine for 8,700 on October 1, 2019. The machines residual value was 500 and its expected service life was 5 years. Hathaway computes depreciation expense to the nearest whole month. Required: 1. Compute depredation expense (rounded to the nearest dollar) for 2019 and 2020 using the: a. straight-line method b. sum-of-the-years-digits method c. double-declining-balance method 2. Next Level Which method produces the highest book value at the end of 2020? 3. Next Level Which method produces the highest charge to income in 2020? 4. Next Level Over the life of the asset, which method produces the greatest amount of depreciation expense?
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On January 1, 2018, Kefauver Company purchased a piece of equipment for $375,000. The equipment had a useful life of 10 years and a residual value of $10,000. The company initially starts recording depreciation on a straight-line method. The following independent situations occur at the beginning of 2020: The life of the equipment was originally estimated to be 10 years but due to the wear and tear on the machine they changed it to a remaining life of 7 years. а. b. It was discovered that when initially recorded on the books the residual value had been ignored. Required: Prepare all journal entries related to the equipment for 2020 for each of the independent situations, ignoring income taxes.
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