Exercise 1
E.11.5, Robert Parish Co purchased a new machine for its
assembly process on August 1, 2004. The cost of this
machine was $ 117,900. The company estimated that the
machine would have a trade in value of $ 12,900 at the
end of its service life. Its life is estimated at 5 years and
its working hours are estimated at 21,000 hours. Year
end is December 31.
Instructions :
Compute the depreciation under the following methods.
Each of the following should be considered unrelated.
a. Straight line depreciation for 2004
b. Activity method for 2004, assuming that machine usage
was 800 hours.
c. Sum of the years’ digits for 2005.
d. Double declining balance for 2005.
Answer of Exercise 1
(a) ($ 117,900 – $ 12,900) : 5 = $ 21,000/thn,
$ 21,000 x 5/12 = $ 8,750
2004 Depreciation :
Straight line = $ 8,750
(b) ($ 117,900 – $ 12,900) : 21,000 = $ 5.00/hr
2004 Depreciation :
Machine Usage = 800 x $ 5.00 = $ 4,000
(c.)Machine
Total
Year
1
5/15 x $ 105,000 = $ 35,000
2
4/15 x $ 105,000 = $ 28,000
Allocated to
2004
2005
$ 14,583
$ 20,417
______
$ 11,667
$ 14,583
$ 32,084
2005 Depreciation : Sum of the year’s digits
= $ 32,084
*
$ 35,000 x 5/12 = $ 14,583
** $ 35,000 x 7/12 = $ 20,417
*** $ 28,000 x 5/12 = $ 11,667
Answer of Exercise 1
(d) 2004 : 40 % x ($ 117,900) x 5/12 = $ 19,650
2005 : 40% x ($ 117,900 – $ 19,650) = $ 39,300
Atau
1st full year (40% x $ 117,900) = $ 47,160
2nd full year [40% x ($ 117,900 – $ 47,160)] = $ 28,296
2004 Depreciation : 5/12 x $ 47,160 = $ 19,650
2005 Depreciation : 7/12 x $ 47,160 = $ 27,510
5/12 x $ 28,296 = $ 11,790
$ 39,300
Exercise 2
E.11.11, Machinery purchased for $ 60,000 by Joe
Montana Co, in 2000 was originally estimated to
have a life of 8 years with a salvage value of $
4,000 at the end of that time. Depreciation has
been entered for 5 years on this basis. In 2005, it
is determined that the total estimated life
(including 2005) should be 10 years with a salvage
value of $ 4,500 at the end of that time. Assume
straight line depreciation.
Instructions :
a.Prepare the entry to correct the prior years’
depreciation, if necessary.
b.Prepare the entry to record depreciation for 2005.
Answer of Exercise 2
(a) Tidak dibutuhkan jurnal koreksi karena perubahan
estimasi merupakan periode berjalan
(b) Revisi annual charge
Book value per 1/1/2005 [$ 60,000 - ($ 7,000 x 5)] = $ 25,000
Remaining useful life, 5 years (10 years – 5 years)
Revisi salvage value, $ 4,500
($ 25,000 – $ 4,500)  5 = $ 4,100
Depreciation Expense—Equipment
4,100
Accumulated Depreciation—Equipment
4,100
Exercise 3
P.11.9, Olsson Company uses specials strapping equipment in its
packaging business. The equipment was purchased in January 2004 for
$ 8,000,000 and had an estimated useful life of 8 years with no
salvage value. At December 31, 2005, new technology was introduced
that would accelerate the obsolescence of Olsson’s equipment.
Olsson’s controller estimates that expected future net cash flows on
the equipment will be $ 5,300,000 and that the fair value of the
equipment is $ 4,400,000. Olsson intends to continue using the
equipment, but it is estimated that the remaining useful life is 4 years.
Olsson uses straight line depreciation.
Instructions :
a.Prepare the journal entry (if any) to record the impairment at
December 31, 2005.
b.Prepare any journal entries for the equipment at December 31, 2006.
The fair value of the equipment at December 31, 2006, is estimated to
be $ 4,600,000.
c.Repeat the requirements for (a) and (b), assuming that Olsson intends
to dispose of the equipment and that it has not been disposed of as of
December 31, 2006.
Answer of Exercise 3
(a) Carrying value of asset: $ 8,000,000 – $ 2,000,000 = $ 6,000,000.
Future cash flows ($ 5,300,000) < Carrying value ($ 6,000,000)
Impairment entry:
Loss on Impairment
Accumulated Depreciation
1,600,000*
1,600,000
*($ 6,000,000 – $ 4,400,000 = $ 1,600,000)
(b) Depreciation Expense
Accumulated Depreciation
1,100,000**
1,100,000
**($ 4,400,000  4 = $ 1,100,000)
(c) No depreciation is recorded on impaired assets to be disposed of.
Recovery of impairment losses are recorded.
Accumulated Depreciation
Recovery of Impairment Loss
200,000
200,000