Question 1

Notsofast Inc. acquired land for $500,000 on 7/1/08. It erroneously recorded the full amount as an expense. Explain what Notsofast must do when it discovers the error in 2009.

Accepted Answer

The answer of Notsofast Inc. acquired land for $500,000 on...

Question 2

In its 2007 annual report to shareholders, Martin Marietta Materials, Inc. included the following in its financial statement footnotes:
NOTE F: PROPERTY, PLANT AND EQUIPMENT, NET
Finally, the company stated the following among its accounting policies: "Depletion of mineral deposits is calculated over proven and probable reserves by the units-of-production method."
Required:
Compute the percentage of proven and probable reserves of mineral deposits depleted in 2007.

Accepted Answer

The answer of In its 2007 annual report to shareholders,...

Question 3

Assume the same facts as above, except that the fair value of Oxford (the reporting unit) is $225 million.
Required: Determine the amount, if any, of the goodwill impairment loss that Dooling must recognize on these assets.

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Question 4

Required:
Determine the amount, if any, of the impairment loss that El Dorado must recognize on these assets.

Accepted Answer

The answer of Required:
Determine the amount, if any, of the...

Question 5

Gonzaga Company has used the double-declining-balance method for depreciation since it started business in 2005. At the beginning of 2009, the company decided to change to the straight-line method. Depreciation as reported and what it would have been reported if the company had always used straight-line is listed below:
Required:
What journal entry, if any, should Gonzaga make to record the effect of the accounting change (ignore income taxes)? Explain.
 $\begin{array}{rrr}\text { Year }& \text { Straight-Line } & \text { DDB } \
2005 & \$ 32,000 & \$ 55,000 \
2006 & 35,000 & 50,000 \
2007 & 39,000 & 58,000 \
2008 & 39,000 & 48,000
\end{array}$

Accepted Answer

The answer of Gonzaga Company has used the double-declining-balance method...

Question 6

Required:
Assume that the undiscounted sum of future cash flows is $18.2 million, instead of $16.5 million. Determine the amount, if any, of the impairment loss that El Dorado must recognize on these assets.

Accepted Answer

The answer of Required:
Assume that the undiscounted sum of future...

Question 7

In 2007, Quasar LTD. acquired all of the common stock of Penlight Laser for $124 million. The fair value of Penlight's identifiable tangible and intangible assets totaled $205 million, and the fair value of liabilities assumed by Quasar was $95 million. Quasar performed the required goodwill impairment test at the end of its fiscal year ended December 31, 2009. Management has provided the following information:
Required:
1. Determine the amount of goodwill that resulted from the Penlight acquisition.
2. Determine the amount of goodwill impairment loss that Quasar should recognize at the end of 2009, if any.
3. If an impairment loss is required, prepare the journal entry to record the loss.
 $\begin{array}{lr}
\text { Fair value of Penlight } & \text { \$115 million } \
\text { Fair value of Penlight's net assets (excluding goodwill) } & 107 \text { million } \
\text { Book value of Penlight's net assets (including goodwill) } & 125 \text { million }
\end{array}$

Accepted Answer

The answer of In 2007, Quasar LTD. acquired all of...

Question 8

On February 20, 2009, Genoa Mining Company incurred costs of $3,600,000 to acquire and prepare to extract an estimated 4,000,000 tons of mineral deposits. 450,000 tons of ore were mined in 2009. At the beginning of 2010, Genoa geologists estimated that 3,900,000 tons of ore still remained. 700,000 tons of ore were mined in 2010.
Required:
Compute depletion for 2009 and 2010.

Accepted Answer

The answer of On February 20, 2009, Genoa Mining Company...

Question 9

On September 30, 2009, Morgan, Inc. acquired all of the outstanding common stock of Pathways, Inc. for $100 million. In addition to tangible assets, Morgan recorded the following assets as a result of the acquisition:
Morgan's policy is to amortize intangible assets using the straight-line method, no residual value, and a 6-year useful life.
Required:
What is the total amount of expenses that would appear in Morgan's income statement for the year ended December 31, 2009, related to these items.

Accepted Answer

The answer of On September 30, 2009, Morgan, Inc. acquired...

Question 10

Eckland Manufacturing Co. purchased equipment on January 1, 2007, at a cost of $90,000. Depreciation for 2007 and 2008 was based on an estimated eight-year life and $2,000 estimated residual value. In 2009, Eckland revised its estimate and now believes the equipment will have a total service life of only six years, while the residual value remains the same.
Required:
Compute depreciation for 2009 and 2010.

Accepted Answer

The answer of Eckland Manufacturing Co. purchased equipment on January...

Question 11

Briefly explain the following statement. Depreciation is a process of cost allocation, not valuation.

Accepted Answer

The answer of Briefly explain the following statement. Depreciation is...

Question 12

Meca Concrete purchased a mixer on January 1, 2007, at a cost of $45,000. Straight-line depreciation for 2007 and 2008 was based on an estimated 8-year life and $3,000 estimated residual value. In 2009, Meca revised its estimate and now believes the mixer will have a total service life of only six years, and that the residual value will be only $2,000.
Required:
Compute depreciation for 2009 and 2010.

Accepted Answer

The answer of Meca Concrete purchased a mixer on January...

Question 13

Zvinakis Mining Company paid $200,000 for the rights to mine lead in Southeast Missouri. The cost to drill and erect a mine shaft was $2,400,000 and equipment to process the lead ore before shipment to the smelter was $1,800,000. The mine is expected to yield 2,000,000 tons of ore during the five years it is expected to be operating. The equipment is salvageable and is expected to be worth $150,000 when mining is concluded. The mine started operations on April 30, 2009. In 2009, 300,000 tons of ore were extracted and in 2010, 700,000 tons were mined.
Required:
1. Compute the depletion rate and the units-of-production depreciation rate.
2. Compute depletion and depreciation for 2009 and 2010.

Accepted Answer

The answer of Zvinakis Mining Company paid $200,000 for the...

Question 14

In the table below, data on depreciation for equipment are shown. Some data are missing.
Required: Fill in the missing data in the table.

Accepted Answer

The answer of In the table below, data on depreciation...

Question 15

In the table below, data on depreciation for machinery are shown. Some data are missing.
Required: Fill in the missing data in the table.
 $$\begin{array} { | l | c | c | c | } 
\hline \text { Acquisition Date } & 1 / 1 / 07 & 1 / 1 / 07 & 6 / 30 / 07 \
\hline \text { Cost } & \$ 250,000 & & \$ 320,000 \
\hline \begin{array} { l } 
\text { Accumulated } \
\text { Depreciation, 12/31/09 }
\end{array} & & \$ 120,000 & \
\hline \text { Depreciation 2008 } & \$ 40,000 & & \$ 90,000 \
\hline \text { Depreciation 2009 } & \$ 32,000 & & \$ 70,000 \
\hline \text { Book value, 12/31/08 } & \$ 160,000 & \$ 240,000 & \$ 180,000 \
\hline \text { Book value, 12/31/09 } & & & \
\hline \text { Estimated service life } & & & 5 \
\hline \text { Estimated salvage value } & 0 & 0 & \$ 20,000 \
\hline \text { Depreciation method } & & \text { Straight-line } & \
\hline
\end{array}$$

Accepted Answer

The answer of In the table below, data on depreciation...

Question 16

Weaver Textiles Inc. has used the straight-line method to depreciate its equipment since it started business in 2005. At the beginning of 2009, the company decided to change to the double-declining-balance (DDB). method. Depreciation as reported and as it would have been reported if the company had always used DDB is listed below:
Required:
What journal entry, if any, should Weaver make to record the effect of the accounting change (ignore income taxes)? Explain.
 $\begin{array}{rrr}\text { Year }& \text { Straight-Line } & \text { DDB } \
2005 & \$ 22,000 & \$ 45,000 \
2006 & 25,000 & 40,000 \
2007 & 28,000 & 38,000 \
2008 & 28,000 & 32,000
\end{array}$

Accepted Answer

The answer of Weaver Textiles Inc. has used the straight-line...

Question 17

Briefly discuss the factors that determine the service life of a depreciable asset.

Accepted Answer

The answer of Briefly discuss the factors that determine the...

Question 18

Required: Determine the amount, if any, of the goodwill impairment loss that Dooling must recognize on these assets.

Accepted Answer

The answer of Required: Determine the amount, if any, of...

Question 19

In December of 2009, XL Computer's internal auditors discovered that office equipment costing $800,000 was charged to expense in 2007. The asset had an expected life of 10 years with no residual value. XL would have recorded a half year of depreciation in 2007.
Required:
Prepare the necessary correcting entry that would be made in 2009 (ignore income taxes), and the entry to record depreciation for 2009.

Accepted Answer

The answer of In December of 2009, XL Computer's internal...

Question 20

Atlas Trucking incurred the following costs during 2009:
1. Spent $15,000 on a major overhaul for a tractor-trailer rig. The overhaul is expected to increase the service life of the rig by three years.
2. Repaired the air conditioning system for $3,000.
3. Rearranged and reconfigured the maintenance, loading, and unloading facilities at a cost of $75,000. The rearrangement is expected to result in substantial cost savings and increased efficiency over the next several years.
Required:
Prepare journal entries to record the above costs.

Accepted Answer

The answer of Atlas Trucking incurred the following costs during...

Quiz 11: Operational Assets: Utilization and Impairment

Notsofast Inc. acquired land for $500,000 on 7/1/08. It erroneously recorded the full amount as an expense. Explain what Notsofast must do when it discovers the error in 2009.

Assume the same facts as above, except that the fair value of Oxford (the reporting unit) is $225 million. Required: Determine the amount, if any, of the goodwill impairment loss that Dooling must recognize on these assets.

Required: Determine the amount, if any, of the impairment loss that El Dorado must recognize on these assets.

Required: Assume that the undiscounted sum of future cash flows is $18.2 million, instead of $16.5 million. Determine the amount, if any, of the impairment loss that El Dorado must recognize on these assets.

Briefly explain the following statement. Depreciation is a process of cost allocation, not valuation.

In the table below, data on depreciation for equipment are shown. Some data are missing. Required: Fill in the missing data in the table.

Briefly discuss the factors that determine the service life of a depreciable asset.

Required: Determine the amount, if any, of the goodwill impairment loss that Dooling must recognize on these assets.