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Chapter 11: Q12Q (page 583)
If Remmers, Inc. uses the composite method and its composite rate is 7.5% per year, what entry should it make when plant assets that originally cost \(50,000 and have been used for 10 years are sold for \)14,000?
No gain or loss is recognized under the composite method.
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Describe cost depletion and percentage depletion. Why is the percentage depletion method permitted?
Use the information for Lockard Company given in BE11-2. (a) Compute 2017 depreciation expense using the double-declining-balance method. (b) Compute 2017 depreciation expense using the double-declining-balance method, assuming the machinery was purchased on October 1, 2017.
Jurassic Company owns machinery that cost \(900,000 and has accumulated depreciation of \)380,000. The present value of expected future net cash flows from the use of the asset are expected to be \(500,000. The fair value less cost of disposal of the equipment is \)400,000. Prepare the journal entry, if any, to record the impairment loss.
Brazil Group purchases a vehicle at a cost of \(50,000 on January 2, 2017. Individual components of the vehicle and useful lives are as follows.
Cost | Useful Lives | |
Tires | \) 6,000 | 2 years |
Transmission | 10,000 | 5 years |
Trucks | 34,000 | 10 years |
Instructions
(Assume no residual (salvage) value.)
(Depreciation Basic Concepts) Burnitz Manufacturing Company was organized on January 1, 2017. In 2017, it has used in its reports to management the straight-line method of depreciating its plant assets.
On November 8, you are having a conference with Burnitz’s officers to discuss the depreciation method to be used for income tax and stockholder reporting. James Bryant, president of Burnitz, has suggested the use of a new method, which he feels is more suitable than the straight-line method for the needs of the company during the period of rapid expansion of production and capacity that he foresees. Following is an example in which the proposed method is applied to a fixed asset with an original cost of \(248,000, an estimated useful life of 5 years, and a salvage value of approximately \)8,000.
Year | Year of life used | Fraction rate | Depreciation expense | Accumulated depreciation at the end of year | Book value at the end of Year |
1 | 1 | 1/15 | \(16,000 | \) 16,000 | $232,000 |
2 | 2 | 2/15 | 32,000 | 48,000 | 200,000 |
3 | 3 | 3/15 | 48,000 | 96,000 | 152,000 |
4 | 4 | 4/15 | 64,000 | 160,000 | 88,000 |
5 | 5 | 5/15 | 80,000 | 240,000 | 8,000 |
The president favors the new method because he has heard that:
Instructions
(2) Assume that the Internal Revenue Service accepts the proposed depreciation method in this case. If the proposed method were used for stockholder and tax reporting purposes, how would it affect the availability of cash flows generated by operations?
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