Financial Accounting
3rd Edition
ISBN: 9780133791129
Author: Jane L. Reimers
Publisher: Pearson Higher Ed
expand_more
expand_more
format_list_bulleted
Videos
Question
Chapter 6, Problem 38EA
To determine
State the effect of given decline in value would have on Airlines B’s net income for the year.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
One of MIME IMMITATE Co.’s machines has been impaired. Repairs and maintenance costs on the machine have been increasing over the past years making the machine a bottleneck in MIME’s production. At year-end, management made a decision to sell the machine very soon. Information on the machine is shown below:
Carrying amount ₱400,000
Fair value less costs of disposal 200,000
Value in use 240,000
How much is the impairment loss?
a. 0 b. 160,000 c. 40,000 d. 200,000
AT & 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 rationale.
How and why should this discovery be recorded in the financial statements of the company?
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?
As the accountant, what could you recommend to management and why?
AT & 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?
Chapter 6 Solutions
Financial Accounting
Ch. 6 - For each of the following costs, indicate whether...Ch. 6 - Prob. 2YTCh. 6 - For each of the following, give the term for...Ch. 6 - On January 1, 2010, Access Company purchased a new...Ch. 6 - Prob. 5YTCh. 6 - An asset costs 50,000, has an estimated salvage...Ch. 6 - Prob. 7YTCh. 6 - Prob. 8YTCh. 6 - Prob. 1QCh. 6 - What is the difference between capitalizing and...
Ch. 6 - Prob. 3QCh. 6 - What does amortization mean?Ch. 6 - Prob. 5QCh. 6 - Prob. 6QCh. 6 - Prob. 7QCh. 6 - Prob. 8QCh. 6 - What is the residual value, or salvage value, of...Ch. 6 - What is the difference between depreciation...Ch. 6 - Prob. 11QCh. 6 - Explain the difference between the three...Ch. 6 - Prob. 13QCh. 6 - Prob. 14QCh. 6 - Prob. 15QCh. 6 - What types of costs related to long-term...Ch. 6 - How is a gain or loss on the disposal of an asset...Ch. 6 - How does goodwill arise?Ch. 6 - Prob. 19QCh. 6 - Prob. 20QCh. 6 - Prob. 21QCh. 6 - Prob. 1MCQCh. 6 - Prob. 2MCQCh. 6 - Prob. 3MCQCh. 6 - Prob. 4MCQCh. 6 - Prob. 5MCQCh. 6 - Prob. 6MCQCh. 6 - Prob. 7MCQCh. 6 - Prob. 8MCQCh. 6 - Prob. 9MCQCh. 6 - Prob. 10MCQCh. 6 - Prob. 1SEACh. 6 - Prob. 2SEACh. 6 - Prob. 3SEACh. 6 - Prob. 4SEACh. 6 - Prob. 5SEACh. 6 - Calculate depreciation expense: double-declining...Ch. 6 - Prob. 7SEACh. 6 - Prob. 8SEACh. 6 - Mining Expedition Company purchased a coal mine on...Ch. 6 - Unique Quality Recourses purchased a patent for...Ch. 6 - Analyze revenue and capital expenditures. (LO 4)....Ch. 6 - On January 1, 2010, the Premium Beer Corporation...Ch. 6 - Prob. 13SEACh. 6 - Prob. 14SEACh. 6 - Prob. 15SEBCh. 6 - Prob. 16SEBCh. 6 - Prob. 17SEBCh. 6 - Prob. 18SEBCh. 6 - Prob. 19SEBCh. 6 - Calculate depreciation expense: double-declining...Ch. 6 - Prob. 21SEBCh. 6 - Prob. 22SEBCh. 6 - Prob. 23SEBCh. 6 - Prob. 24SEBCh. 6 - Prob. 25SEBCh. 6 - Prob. 26SEBCh. 6 - Prob. 27SEBCh. 6 - Prob. 28SEBCh. 6 - Prob. 29EACh. 6 - Prob. 30EACh. 6 - Prob. 31EACh. 6 - Prob. 32EACh. 6 - Calculate depreciation under alternative methods....Ch. 6 - Soda Pop Bottling Company bought equipment for...Ch. 6 - Prob. 35EACh. 6 - Prob. 36EACh. 6 - Prob. 37EACh. 6 - Prob. 38EACh. 6 - Prob. 39EACh. 6 - Prob. 40EACh. 6 - Prob. 41EACh. 6 - Prob. 42EACh. 6 - Prob. 43EACh. 6 - Prob. 44EACh. 6 - Prob. 45EACh. 6 - Big Peach Athletics sold assets with an original...Ch. 6 - Prob. 47EACh. 6 - Prob. 48EACh. 6 - Prob. 49EBCh. 6 - Prob. 50EBCh. 6 - Prob. 51EBCh. 6 - Prob. 52EBCh. 6 - Calculate depreciation under alternative methods....Ch. 6 - Pristine Carpet Cleaner bought a new steamer for...Ch. 6 - Prob. 55EBCh. 6 - Prob. 56EBCh. 6 - Prob. 57EBCh. 6 - Prob. 58EBCh. 6 - Prob. 59EBCh. 6 - Prob. 60EBCh. 6 - Prob. 61EBCh. 6 - Prob. 62EBCh. 6 - Prob. 63EBCh. 6 - Prob. 64EBCh. 6 - Prob. 65EBCh. 6 - Prob. 66EBCh. 6 - Prob. 67EBCh. 6 - Prob. 68EBCh. 6 - Prob. 69PACh. 6 - Prob. 70PACh. 6 - Prob. 71PACh. 6 - Prob. 72PACh. 6 - Prob. 73PACh. 6 - Prob. 74PACh. 6 - Prob. 75PACh. 6 - Prob. 76PACh. 6 - Prob. 77PACh. 6 - Prob. 78PACh. 6 - Prob. 79PBCh. 6 - Prob. 80PBCh. 6 - Prob. 81PBCh. 6 - Prob. 82PBCh. 6 - Prob. 83PBCh. 6 - Prob. 84PBCh. 6 - Prob. 85PBCh. 6 - Elite Cleaners bought a new machine on January 1,...Ch. 6 - Prob. 87PBCh. 6 - Prob. 88PBCh. 6 - Prob. 1FSACh. 6 - Prob. 2FSACh. 6 - Prob. 1CTPCh. 6 - Prob. 2CTPCh. 6 - Prob. 3CTPCh. 6 - Prob. 1IECh. 6 - Prob. 2IECh. 6 - Prob. 3IE
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Finsbury Co has a cash generating unit (CGU) that suffers a large drop in income due to reduced demand for its products. An impairment review was carried out and the recoverable amount of the cash generating unit was determined at $100m. The assets of the CGU had the following carrying amounts immediately prior to the impairment: $m Goodwill 25 Intangibles 60 Property, plant and equipment 30 Inventory 15 Trade receivables 10 140 The inventory and receivables are considered to be included at their recoverable amounts. What is the carrying amount of the intangibles once the impairment loss has been allocated? A $45m В $50m C $55m D $60marrow_forwardThe demand for one of the major products for a company sustained large and continuing declines. As a result, the company performed an asset impairment test on the fixed assets that were associated with the product. The book value of those assets was $2,000,000. The company estimated the future undiscounted cash flows associated with those assets were $1,840,459. The fair value of those assets was $1,632,397. What amount of impairment should the company record? Provide your answer to the nearest whole dollar (i.e., No decimal places.)arrow_forward2.You are provided with the following information: The damage from the destruction of insured machinery that took place on 30/9/2020 was not recorded in the relevant accounts. The insurance company has undertaken to cover 70% of the residual value of the machines. The machines were purchased on 1/5/2018 instead of 198.000€ and the amount of the annual depreciation of the machines is 19.800€. A correction record is requested (a) if the error was found in the financial year (2020) and (b) if the error was found in the next financial year (2021), i.e. the error while the correction was made in 2020, the correction entry is made in 2021.arrow_forward
- Ivy company purchased land and a building on January 1, 2022. Management’s best estimate of the value of the land was $100000 and of the building $250000. However, management told the accounting department to record the land at 230000 and the building at $120000. The building is being depreciated on a straight-line basis over 20 years with no salvage value. Why do you suppose management requested this accounting treatment? Is it ethical?arrow_forwardHolt Developments Ltd. put an asset in service on January 1, 2021. Its cost was $432,000, its predicted service life was six years, and its expected residual value was $43,200. The company decided to use double-declining-balance depreciation. After consulting with the company’s auditors, management decided to change to straight-line depreciation in 2023, without changing either the original service life or residual value.Required:a. What is depreciation expense for 2023? b. Calculate the effect of this change on retained earnings.arrow_forwardKenya Company acquired a machine on January 1, 2013 for P8,000,000. The machine has a 10-year useful life, a P500,000 residual value, and is to be depreciated using the straight line method. By the end of 2014, the machine was damaged by a major accident occurring in the plant. The engineers and technicians could not repair this damage and therefore the machine's performance was expected to decline in the future and unlikely to be sold at the end of the useful life. Thus, the machine has a zero residual value. On December 31,2014, a test for recoverability revealed that the expected net future undiscounted cash flows related to the continued use and eventual disposal of the machine totaled P7,000,000. The fair value on December 31, 2014 is P6,600,000 while the discounted net future cash flows amount to P6,300,000. What is the depreciation expense that should be recognized for the year ended December 31, 2014? O P825,000 O P812,500 O Answer not given O P787,500 O P750,000arrow_forward
- Requirements a. Prepare the journal entry required to record the impairment loss. b. Assuming that Lewad's uses the straight-line method with no residual value, prepare the journal entry to record the revised depreciation expense for the first year immediately following the impairment. c. Assume that 2 years following the impairment write-down, the fair value of the asset falls to $729,000. The sum of the undiscounted future cash flows is $755,000. What is the carrying value of the asset at this time? Prepare any journal entry necessary to reflect the change in fair value Print Done - xarrow_forwardCullumber Ltd. purchased equipment on January 1, 2015 at a cost of $188,390. The equipment has an estimated useful life of 10 years and a residual value of $9,860. Cullumber realized that there was a declining demand for the product being produced by the equipment. Given this indicator of possible impairment, management determined that the recoverable amount of the asset on December 31, 2018 was $111,830. The company uses the straight-line method of depreciation. Record the impairment loss, if any, on December 31, 2018. Date Account Titles and Explanation Debit Credit Dec. 31arrow_forwardWolverine Airlines, a Michigan based low-cost airline flies charter flights to vacation destinations in Nebraska, Iowa, and Cancun, Mexico. During 2020, due to the corona virus pandemic, the airline grounded most of its aircrafts and canceled almost all its booked flights for the summer. Bluebird decided that an impairment test was appropriate. The Chief Accountant has prepared the following information for the assets of the airline ($ in millions) Cost of Aircraft Fleet $800 Estimated undiscounted sum $180 of future cash flows Estimated fair value of aircraft $300 fleet Accumulated depreciation $200 Required: Determine the amount of the impairment loss Bluebird Airlines should recognize, if any. Prepare the journal entry to record the loss, if any. Repeat requirement 1 assuming that the estimated undiscounted sum of future cash flows is $650 million instead of $180.arrow_forward
- Pangahoy Corporation’s facility was heavily washout by flood. The disaster destroyed almost of its inventory and some of its PPE. Pangahoy decides to derecognized a machine used in manufacturing designer parts on July 31, 2019 since it was nonfunctional already. The machine was acquired on September 1, 2016. Straight-line depreciation method was used. The asset had an estimated salvage value of P50,000 and a five-year life. On April 30, 2018, the balance in the accumulated depreciation is P82,500. The machine was scrapped and the company did not receive a single consideration.How much would be the loss on derecognition to be recognize?arrow_forward(Error and Change in Estimate—Depreciation) Joy Cunningham Co. purchased a machine on January 1, 2015, for $550,000. At that time, it was estimated that the machine would have a 10-year life and no salvage value. On December 31, 2018, the firm’s accountant found that the entry for depreciation expense had been omitted in 2016. In addition, management has informed the accountant that the company plans to switch to straight-line depreciation, starting with the year 2018. At present, the company uses the sum-of-the-years’-digits method for depreciating equipment.InstructionsPrepare the general journal entries that should be made at December 31, 2018, to record these events. (Ignore tax effects.)arrow_forwardIn 2015, Winnebago Industries recorded an impairment loss of $462,000 on its corporate plane. Assume that the plane originally cost the company $2,350,000 and had accumulated depreciation of $1,598,000 at the time of the impairment charge. What was the plane’s fair value at the end of 2015? Show you calculation.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
Asset impairment explained; Author: The Finance Storyteller;https://www.youtube.com/watch?v=lWMDdtHF4ZU;License: Standard Youtube License