Communication Case 11–2
• LO11–1
At a recent luncheon, you were seated next to Mr. Hopkins, the president of a local company that manufactures bicycle parts. He heard that you were a CPA and made the following comments to you:
Why is it that I am forced to recognize depreciation expense in my company’s income statement when I know that I could sell many of my assets for more than I paid for them? I thought that the purpose of the
At the conclusion of the luncheon, you promised to send him a short explanation of the rationale for current depreciation practices.
Required:
Prepare a letter to Mr. Hopkins. Explain the accounting concept of depreciation and include a brief example in your explanation showing that over the life of the asset the change in value approach to depreciation and the allocation of cost approach will result in the same total effect on income.
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Chapter 11 Solutions
Intermediate Accounting, 10 Ed
- 4G+ 1:10 PM M 0.6KB/s ill 63 00:51:32 Remaining Multiple Choice Accumulated depreciation, as used in accounting, represents: An expense on the income statement. O Earnings retained in the business that will be used to purchase another operational asset when the related asset becomes fully depreciated. The portion of asset cost written off as an expense since the acquisition date. Funds set aside to replace assets. 64 of 75arrow_forward4G 10:12 O O 6 01:58:17 Remaining Multiple Choice B, Inc. owns a residential property it acquired for P3,000,000. It transferred ownership thereto to its supervisory employee for P2,400,000 when its fair value was P4,500,000. What is the monetary value of the benefit? P600,000 P1,500,000 P2,100,000 P2,400,000 16 of 60 IIarrow_forward4G+ 12:47 PM 0.4KB/s ill 68 וח 01:14:08 Remaining Multiple Choice Which statement is incorrect with respect to depreciation? Depreciation is not recognized if the fair value of an asset exceeds carrying amount. Depreciation ceases at the earlier between the date the asset is classified as held for sale and the date the asset is derecognized. The depreciation method shall reflect the pattern in which the asset's economic benefits are consumed by the entity. Depreciation of an asset begins when it is available for use or when it is in the location and condition necessary for the intended use. 45 of 75arrow_forward
- 4G 4G 10:14 O O O A e 0.00 01:56:17 Remaining Multiple Choice X Corporation acquired a residential lot worth P1,500,000 for its supervisor and constructed upon it a house at a cost of P3,000,000. Ownership of the house and lot was turned over to the supervisor upon completion of the construction. 60% of the value of the house and lot will be deducted from the supervisor's salary over a period of 5 years. What is the monetary value of the fringe benefit? P1,800,000 P2,700,000 P3,000,000 P4,500,000 51 of 60arrow_forwardExercise 8-16 Disposal of assets LO P2 Diaz Company owns a machine that cost $126,800 and has accumulated depreciation of $93.000. Prepare the entry to record the disposal of the machine on January 1 in each seperate situation. 1. The machine needed extensive repairs and was not worth repairing. Diaz disposed of the machine, receiving nothing in return. 2. Diaz sold the machine for $17,500 cash. 3. Diaz sold the machine for $33,800 cash. 4. Diaz sold the machine for $41,800 cash. View transaction list Journal entry worksheet 1 2 3 Record the disposal of the machine receiving nothing in return. Note: Enter debits before credits. Date General Journal Debit Credit Jan 01 Record entry Clear entry View general journalarrow_forwardExercise 11.16 DEPRECIATION CHARGES * The management of Carlsberg Ltd has been analysing the financial reports provided by the accountant, who has been with the firm for a number of years. Management has expressed its concern over deprecia- tion charges being made in relation to the company's equipment. In particular, it believes that the depreci- ation charges are not high enough in relation to the factory machines because new technology applied in that area is rapidly making the machines obsolete. Management's concern is that the machines will have to be replaced in the near future and, with the low depreciation charges, the fund will not be sufficient to pay for the replacement machines. Discuss.arrow_forward
- 4G H 10:47 O 6 e 4G E 10:13 O O 3 01:57:11 Remaining Multiple Choice MK collected P3,000,000 from the fire insurance company that insured his buliding which had a tax basis of P2,300,000 when the fire occurred. During the same period, he also collected P500,000 crop insurance proceeds pertaining to his crops destroyed by frost. Compute for the total item of gross income. P500,000 P700,000 P1,200,000 P3,000,000 37 of 60 IIarrow_forwardExerclse 8-16 Disposal of assets LO P2 Diaz Company owns a machine that cost $126,800 and has accumulated depreciation of $93,000. Prepare the entry to record the disposal of the machine on January 1 in each seperate situation. 1. The machine needed extensive repairs and was not worth repairing. Diaz disposed of the machine, receiving nothing in return. 2 Diaz sold the machine for $17,500 cash. 3. Diaz sold the machine for $33,800 cash. 4. Diaz sold the machine for $41,800 cash. X Answer is not complete. No Date General Journal Debit Credit Jan 01 Accumulated depreciation-Machine 93,000 O Jan 01 Cash 17,500 Accumulated depreciation-Machine 93.000 Loss on sale of machine 16,300 Machine 126.800 O 3 Jan 01 Cash 33,800 O Accumulated depreciation-Machine 93.000 4 Jan 01 Machine 126,800 Xarrow_forwardProblem 8-19 Capital Gains and Casualty Gains and Losses (LO 8.9) An office machine used by Josie in her accounting business was completely destroyed by fire. The adjusted basis of the machine was $8,000 (original basis of $14,000 less accumulated depreciation of $6,000). The machine was not insured. Calculate the amount and nature of Josie's gain or loss as a result of this casualty. (Assume this is the taxpayer's only casualty gain or loss.) Amount of gain or loss: $ Ordinary lossarrow_forward
- A 8 C D 1 Asset Disposal-sale of asset--Intro-Ziebold Corporation 2 3 Three transactions from 2024 for Ziebold Corporation are described below. 4 Optional: Use the Gain-Loss Calculations template if it's useful. 5 Required: 6 Using the information provided here, record the following journal entries: 1. Apr 12 Ziebold Corporation sold a machine that cost $104,000 and had accumulated depreciation of $65,000, for $43,500. 7 2. Dec 31 --Recorded the adjusting entry for a patent acquired for $1,000,000, with an estimated useful life of 16 years. 8 9 3. Dec 31-Recorded the adjusting entry for copper ore mined during the year. Zebold had purchased 900,000 tons of copper are for $6,400,000. During the year, Ziebold mined 80,000 tons of the ore. (Round per unit amounts to the nearest penny, 2 decimal places, and round dollar amounts to the nearest dollar, zero decimal places.) 13 14 15 16 17 18 19 ★ 20 Journal Note: Start each entry on a starred row. Note: Use the gray-shaded cell for each…arrow_forwardExercise 11.18 BUILDING COSTS ** Chua Ltd has acquired a new building. Which of the following items should be included in the cost of the building? (a) Stamp duty (b) Real estate agent's fees (c) Architect's fees for drawings for internal adjustments to the building to be made before use (d) Interest on the bank loan to acquire the building, and an application fee to the bank to get the loan, which is secured on the building (e) Cost of changing the name on the building (f) Cost of changing the parking bays (g) Cost of refurbishing the lobby to the building to attract customers and make it more user friendlyarrow_forwardExercise 8-17 (Algo) Disposal of assets LO P2 Diaz Company owns a machine that cost $126,900 and has accumulated depreciation of $92,800. Prepare the entry to record the disposal of the machine on January 1 in each separate situation. 1. The machine needed extensive repairs and was not worth repairing. Diaz disposed of the machine, receiving nothing in return.2. Diaz sold the machine for $15,800 cash.3. Diaz sold the machine for $34,100 cash.4. Diaz sold the machine for $41,800 cash.arrow_forward
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