Question 1
Sunland Company purchased a depreciable asset for $588000 on April 1, 2015. The estimated salvage
value is $57000, and the estimated total useful life is 5 years. The straight-line method is used for
depreciation. What is the balance in accumulated depreciation on May 1, 2018 when the asset is sold?
$288450
$246450
$291450
$327450
[($588000 – $57000) ÷ 5] × 3 1/12 = $327450.
Question 2
Kingbird Company purchased a new plant asset on April 1, 2017, at a cost of $846,090. It was
estimated to have a service life of 20 years and a salvage value of $71,400. Kingbird’s accounting
period is the calendar year.
Compute the depreciation for this asset for 2017 and 2018 using the sum-of-the-years'-digits
method. (Round answers to 0 decimal places, e.g. 45,892.)
$
Depreciation for 2017
55,335
Depreciation for 2018
71,013
20 (20 + 1)
2
$
= 210
9/12 x 20/210 x ($846,090 – $71,400) = $55,335 for 2017
3/12 x 20/210 x ($846,090 – $71,400) = $18,445
+ 9/12 x 19/210 x ($846,090 – $71,400) =
52,568
$71,013 for 2018
Compute the depreciation for this asset for 2017 and 2018 using the double-declining-balance
method. (Round answers to 0 decimal places, e.g. 45,892.)
$
Depreciation for 2017
63,457
Depreciation for 2018
78,263
100%
20
$
= 5%; 5% x 2 = 10%
9/12 x 10% x $846,090
= $63,457 for 2017
10% x ($846,090 – $63,457) = $78,263 for 2018
Question 3
Swifty Corporation purchased equipment in January of 2008 for $405000. The equipment was being
depreciated on the straight-line method over an estimated useful life of 20 years, with no salvage
value. At the beginning of 2018, when the equipment had been in use for 10 years, the company paid
$54000 to overhaul the equipment. As a result of this improvement, the company estimated that the
useful life of the equipment would be extended an additional 5 years. What should be the depreciation
expense recorded for this equipment in 2018?
$13275
$10125
$20250
$17100
[($405000 – 0) ÷ 20] × 10 = $202500
[($405000 – $202500) + $54000] ÷ [(20 – 10) + 5] = $17100.
Question 4
Presented below is information related to equipment owned by Monty Company at December 31,
2017.
Cost
$9,090,000
Accumulated depreciation to date
1,010,000
Expected future net cash flows
7,070,000
Fair value
4,848,000
Assume that Monty will continue to use this asset in the future. As of December 31, 2017, the
equipment has a remaining useful life of 4 years.
Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2017. (If no
entry is required, select "No entry" for the account titles and enter 0 for the amounts.
Credit account titles are automatically indented when amount is entered. Do not indent
manually.)
Date
Account Titles and Explanation
Dec. 31
Loss on Impair
Debit
Credit
3,232,000
Accumulated D
3,232,000
Cost
$9,090,000
Less: Accumulated depreciation
1,010,000
Carrying amount
8,080,000
Fair value
4,848,000
Loss on impairment
$3,232,000
Prepare the journal entry to record depreciation expense for 2018. (If no entry is required, select
"No entry" for the account titles and enter 0 for the amounts. Credit account titles are
automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation
Depreciation E
Debit
Credit
1,212,000
Accumulated D
New carrying amount
Useful life
1,212,000
$4,848,000
÷ 4 years
Depreciation per year $1,212,000
The fair value of the equipment at December 31, 2018, is $5,151,000. Prepare the journal entry (if
any) necessary to record this increase in fair value. (If no entry is required, select "No entry" for
the account titles and enter 0 for the amounts. Credit account titles are automatically
indented when amount is entered. Do not indent manually.)
Date
Dec. 31
Account Titles and Explanation
No Entry
No Entry
Debit
Credit
0
0
Question 5
Indigo Mining Company purchased land on February 1, 2017, at a cost of $1,252,100. It estimated
that a total of 57,000 tons of mineral was available for mining. After it has removed all the natural
resources, the company will be required to restore the property to its previous state because of strict
environmental protection laws. It estimates the fair value of this restoration obligation at $108,900. It
believes it will be able to sell the property afterwards for $121,000. It incurred developmental costs of
$242,000 before it was able to do any mining. In 2017, resources removed totaled 28,500 tons. The
company sold 20,900 tons.
Compute the following information for 2017.
$
(a) Per unit mineral cost
26
(b) Total material cost of December 31, 2017, inventory
197,600
(c) Total material cost in cost of goods sold at December 31, 2017
543,400
$
$
Depletion base: = $1,252,100 + $108,900 – $121,000 + $242,000 = $1,482,000
Depletion rate: = $1,482,000 ÷ 57,000
(a) Per unit mineral cost:
(b) 12/31/17 inventory:
= $26/ton
$26 /ton
= $26 x 7,600 tons = $197,600
(c) Cost of goods sold 2017: = $26 x 20,900 tons = $543,400
Question 6
Spiro Corp. uses the sum-of-the-years' digits method to depreciate equipment purchased in Janaury
2015 for $20,000. The estimated salvage value of the equipment is $2,000, and the estimated useful
life is four years.
What should Spiro report as the asset's carrying amount as of December 31, 2017?
$1,800
$4,500
$2,000
$3,800
$3,800 is correct. The carrying amount (book value) of a depreciable asset is its original cost less
accumulated depreciation. Under sum-of-the-years' digits method of calculating depreciation expense
(and, therefore, accumulated depreciation), the net depreciable cost (original cost less estimated
salvage value) is multiplied by a factor consisting of: Numerator = the number of years the current
year is from the end of the life of the assetDenominator = the sum of numbers (digits) for each year
in the life of the assetFor Spiro, the net depreciable cost is $20,000-$2,000 = $18,000. Since the
equipment has an estimated useful life of four years, the sum of the digits for each year would be 1 +
2 + 3 + 4 = 10, the denominator for calculating each year's depreciation. Depreciation for the four
years would be:
Year
Depreciable
cost
Factor
Annual
depreciation
Accumulated
depreciation
Carrying
value
2003 $18,000
x 4/10 = $7,200
7,200
$20,000-
7,200
2004 18,000
x 3/10 = 5,400
12,600
20,000-
12,600 = 7,400
2005 18,000
x 2/10 = 3,600
16,200
20,000-
16,200 = 3,800
2006 18,000
x 1/10 = 1,800
18,000
20,000-
18,000 = 2,000
Total 18,000
x
10/10
18,000
= 18,000
= $12,800
= 2,000