E11-4 (Depreciation Computations—Five Methods) Wenner Furnace Corp. purchased machinery for
$279,000 on May 1, 2012. It is estimated that it will have a useful life of 10 years, salvage value of
$15,000, production of 240,000 units, and working hours of 25,000. During 2013, Wenner Corp. uses
the machinery for 2,650 hours, and the machinery produces 25,500 units.
Instructions
From the information given, compute the depreciation charge for 2013 under each of the
following methods. (Round to the nearest dollar.)
(a) Straight-line.
$279,000 - $15,000 = $264,000 / 10 yrs. = $26,400
(b) Units-of-output.
$264,000 / 240,000 units = $1.10 x 25,500 units = $28,050
(c) Working hours.
$264,000 / 25,000 hrs. = $10.56/hr. x 2,650 hrs. = $27,984
(d) Sum-of-the-years’-digits.
10+9+8+7+6+4+4+3+2+1 = 55
10/55 x $264,000 x 1/3 = $ 16,000
9/55 x $264,000 x 2/3 = $28,800
Total for 2013 = $16,000 + $28,800 = $44,800
(e) Double-declining-balance.
$279,000 x 20% x 1/3 = $18,600
($279,000 – (20% x $279,000) x 20% x 2/3 = $29,760
Total for 2013 = $18,600 + $29,760 = $48,360
E11-9 (Composite Depreciation) Presented below is information related to Morrow Manufacturing
Corporation.
Machine
Cost
Estimated Salvage Value
Estimated Life (in years)
A
$40,500
$5,500
10
B
33,600
4,800
9
C
36,000
3,600
8
D
19,000
1,500
7
E
23,500
2,500
6
Instructions
(a) Compute the rate of depreciation per year to be applied to the machines under the
composite method.
Asset Cost
Estimated Salvage
Depreciable Cost
Life
Estimated Depreciation
A
$40,500
$5,500
$35,000
10
$3,500
B
33,600
4,800
28,800
9
3,200
C
36,000
3,600
32,400
8
4,050
D
19,000
1,500
17,500
7
2,500
E
23,500
2,500
21,000
6
3,500
$152,600
$17,900
$134,700
$16,750
Composite life = $134,700 / $16,750 = 8.04 yrs.
Composite rate = $16,750 / $152,600 = 11%
(b) Prepare the adjusting entry necessary at the end of the year to record depreciation for the
year.
Depreciation Expense
16,750
Accumulated Depreciation-Equipment
16,750
(c) Prepare the entry to record the sale of Machine D for cash of $5,000. It was used for 6
years, and depreciation was entered under the composite method.
Cash
5,000
Accumulated Depreciation-Equipment
14,000
Equipment
19,000
E11-11 (Depreciation—Change in Estimate) Machinery purchased for $52,000 by Carver Co. in 2008
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 2013, it is determined that the total estimated
life 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.
No correcting entry necessary because changes in estimate handled in the current and
prospective periods.
(b) Prepare the entry to record depreciation for 2013.
Revised annual charge
Book value as of 1/1/2013 ($52,000 – ($6,000 x 5) = $22,000
Remaining useful life, 5 years (10 years – 5 years)
Revised salvage value, $4,500
($22,000 - $4,500 / 5 = $3,500
Depreciation Expense
3,500
Accumulated Depreciation-Equipment
3,500
E11-17 (Impairment) Assume the same information as E11-16, except that Pujols intends to dispose of
the equipment in the coming year. It is expected that the cost of disposal will be $20,000.
Cost
$9,000,000
Accumulated depreciation to date
1,000,000
Expected future net cash flows
7,000,000
Fair value
4,400,000
Instructions
(a) Prepare the journal entry (if any) to record the impairment of the asset at December 31,
2012.
Loss on impairment
3,620,000
Accumulated Depreciation Equipment
Computation:
Cost
Accumulated Depreciation
Carrying amount
Less: Fair value
Add: Cost of disposal
Loss on impairment
3,620,000
$9,000,000
(1,000,000)
8,000,000
4,400,000
20,000
$3,620,000
(b) Prepare the journal entry (if any) to record depreciation expense for 2013.
No entry necessary because depreciation is not taken on assets intended to be sold.
(c) The asset was not sold by December 31, 2013. The fair value of the equipment on that
date is $5,100,000. Prepare the journal entry (if any) necessary to record this increase in
fair value. It is expected that the cost of disposal is still $20,000.
Accumulated Depreciation-Equipment
Recovery of Loss on Impairment
700,000
700,000
Computation
Fair value
Less: Cost of disposal
$5,100,000
20,000
5,080,000
Carrying amount (9,000,000-1,000,000-3,620,000) 4,380,000
Recovery impairment loss
$ 700,000