Question 1

Atlas Trucking incurred the following costs during 2013:
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...

Question 2

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 the...

Question 3

Because the book value of the net assets ($125 million) exceeds fair value ($115 million) an impairment loss is indicated.

Accepted Answer

The answer of Because the book value of the net...

Question 4

2013 amortization: $3,000,000 ÷ 10 = $300,000 x 9/12 = $225,000
2.

Accepted Answer

The answer of 2013 amortization: $3,000,000 ÷ 10 = $300,000...

Question 5

An impairment loss is indicated because the estimated undiscounted sum of future cash flows of $27 million is less than the book value of $32.1 million.
The amount of the loss to be reported is calculated using the estimated fair value rather than the undiscounted future cash flows:

Accepted Answer

The answer of An impairment loss is indicated because the...

Question 6

Calculation of revised annual amortization:

Accepted Answer

The answer of Calculation of revised annual amortization:...

Question 7

An impairment loss is indicated because the estimated undiscounted sum of future cash flows of $110 million is less than the book value of $121 million.
The amount of the loss to be reported is calculated using the estimated fair value rather than the undiscounted future cash flows:

Accepted Answer

The answer of An impairment loss is indicated because the...

Question 8

The loss would appear in the income statement along with other operating expenses.
3.

Accepted Answer

The answer of The loss would appear in the income...

Question 9

Notsofast Inc. acquired land for $500,000 on July 1, 2012. It erroneously recorded the full amount as an expense. Explain what Notsofast must do when it discovers the error in 2013.

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

Question 10

Entry to record the impairment loss:

Accepted Answer

The answer of Entry to record the impairment loss:...

Question 11

On June 30, 2011, Mobley Corporation acquired a patent for $4 million. The patent was estimated to have an eight-year life and no residual value. Mobley uses the straight-line method of amortization for intangible assets. At the beginning of January 2013, Mobley successfully defended its patent against infringement. Litigation costs totaled $650,000.

Required:

1. Calculate patent amortization for 2011 and 2012.
2. Prepare the journal entry to record the 2013 litigation costs.
3. Calculate amortization for 2013.
4. Repeat requirements 2 and 3 assuming that Mobley prepares its financial statements according to International Financial Reporting Standards.

Accepted Answer

The answer of On June 30, 2011, Mobley Corporation acquired...

Question 12

Depreciation for 2013: $350,000 ÷ 7 = $50,000 x 6/12 = $25,000
2.

Accepted Answer

The answer of Depreciation for 2013: $350,000 ÷ 7 =...

Question 13

In 2011, 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 a required goodwill impairment test at the end of its fiscal year ended December 31, 2013. 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 2013, if any.
3. If an impairment loss is required, prepare the journal entry to record the loss.

Accepted Answer

The answer of In 2011, Quasar Ltd. acquired all of...

Question 14

2011 amortization: $4,000,000 ÷ 8 = $500,000 x 6/12 = $250,000
2012 amortization: $4,000,000 ÷ 8 = $500,000
2.

Accepted Answer

The answer of 2011 amortization: $4,000,000 ÷ 8 = $500,000...

Question 15

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.

Accepted Answer

The answer of Assume the same facts as above, except...

Question 16

An impairment loss is indicated because the estimated undiscounted sum of future cash flows of $30 million is less than the book value of $32.1 million.
The amount of the loss to be reported is calculated using the estimated fair value rather than the undiscounted future cash flows:

Accepted Answer

The answer of An impairment loss is indicated because the...

Question 17

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 18

Impairment loss is the difference between book value and the recoverable amount. The recoverable amount is $94 million, the higher of the present value of estimated future cash flows ($94 million) and the fair value less costs to sell ($90 million).

Accepted Answer

The answer of Impairment loss is the difference between book...

Question 19

Kentfield Corporation has $260 million of goodwill on its book from the 2010 acquisition of Seaford Shipping. At the end of its 2013 fiscal year, management has provided the following information for a required goodwill impairment test ($ in millions):  Required:
Assuming that Seaford is considered a reporting unit for U.S. GAAP and a cash-generating unit for IFRS, determine the amount of goodwill impairment loss that Kentfield should recognize according to U.S. GAAP and International Financial Reporting Standards.

Accepted Answer

The answer of Kentfield Corporation has $260 million of goodwill...

Question 20

On March 30, 2013, Calvin Exploration purchased a drilling machine for $840,000. The estimated useful life of the machine is 10 years and no residual value is anticipated. An important component of the machine is the drill housing component that will need to be replaced in five years. The $200,000 cost of the drill housing component is included in the $840,000 cost of the machine. Calvin uses the straight-line depreciation method for all machinery. The company's fiscal year ends on December 31.
Required:
1. Calculate depreciation on the drilling machine for 2013 and 2014 applying the typical U.S. GAAP treatment.
2. Repeat requirement 1 applying IFRS.

Accepted Answer

The answer of On March 30, 2013, Calvin Exploration purchased...

Quiz 11: Property, Plant, and Equipment and Intangible Assets: Utilization and Impairment

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

Because the book value of the net assets ($125 million) exceeds fair value ($115 million) an impairment loss is indicated.

2013 amortization: $3,000,000 ÷ 10 = $300,000 x 9/12 = $225,000 2.

An impairment loss is indicated because the estimated undiscounted sum of future cash flows of $27 million is less than the book value of $32.1 million. The amount of the loss to be reported is calculated using the estimated fair value rather than the undiscounted future cash flows:

Calculation of revised annual amortization:

An impairment loss is indicated because the estimated undiscounted sum of future cash flows of $110 million is less than the book value of $121 million. The amount of the loss to be reported is calculated using the estimated fair value rather than the undiscounted future cash flows:

The loss would appear in the income statement along with other operating expenses. 3.

Notsofast Inc. acquired land for $500,000 on July 1, 2012. It erroneously recorded the full amount as an expense. Explain what Notsofast must do when it discovers the error in 2013.

Entry to record the impairment loss:

Depreciation for 2013: $350,000 ÷ 7 = $50,000 x 6/12 = $25,000 2.

2011 amortization: $4,000,000 ÷ 8 = $500,000 x 6/12 = $250,000 2012 amortization: $4,000,000 ÷ 8 = $500,000 2.

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.

An impairment loss is indicated because the estimated undiscounted sum of future cash flows of $30 million is less than the book value of $32.1 million. The amount of the loss to be reported is calculated using the estimated fair value rather than the undiscounted future cash flows:

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

Impairment loss is the difference between book value and the recoverable amount. The recoverable amount is $94 million, the higher of the present value of estimated future cash flows ($94 million) and the fair value less costs to sell ($90 million).