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Exam 11: Property, Plant, and Equipment and Intangible Assets: Utilization and Disposition

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Question 31

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Nature Power Company uses the composite method and straight-line depreciation for its power plant equipment. Its Apple River plant, which began generating electricity January 1, 2018, had the following equipment: Required: 1. Compute the composite depreciation rate. 2. Compute the average service life. 3. Compute 2018 depreciation.

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1. Composite depreciation rat...

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Question 32

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Wilson Inc. owns equipment for which it paid $70 million. At the end of 2018, it had accumulated depreciation on the equipment of $12 million. Due to adverse economic conditions, Wilson's management determined that it should assess whether an impairment loss should be recognized for the equipment. The estimated undiscounted future cash flows to be provided by the equipment total $60 million, and the equipment's fair value at that point is $50 million. Under these circumstances, Wilson:

A) Would record no impairment loss on the equipment.
B) Would record an $8 million impairment loss on the equipment.
C) Would record a $20 million impairment loss on the equipment.
D) None of these answer choices are correct.

E) A) and B)
F) None of the above

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Question 33

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Losses on the cash sales of property, plant, and equipment:

The three factors in cost allocation of a depreciable asset are service life, allocation base, and allocation method.

Alou Corporation reported the following information at year-end: Based on the above information, what is the total amount of impairment loss that Alou should record at year end?

Gonzaga Company has used the double-declining-balance method for depreciation since it started business in 2014. At the beginning of 2018, the company decided to change to the straight-line method. Depreciation as reported and what it would have been reported if the company had always used straight-line is listed below: Required: What journal entry, if any, should Gonzaga make to record the effect of the accounting change (ignore income taxes)? Explain.

In 2017, Dooling Corporation acquired Oxford Inc. for $250 million, of which $50 million was attributed to goodwill. At the end of 2018, Dooling's accountants derive the following information for a required goodwill impairment test: -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.

In testing for recoverability of property, plant, and equipment, an impairment loss is required if the:

If an intangible asset has a legal life of eight years but contractually the usefulness is limited to six years, a company will amortize the cost over:

At the end of its 2018 fiscal year, a triggering event caused Janero Corporation to perform an impairment test for one of its manufacturing facilities. The following information is available: The manufacturing facility is:

Zvinakis Mining Company paid $200,000 for the rights to mine lead in southeast Missouri. The cost to drill and erect a mine shaft was $2,400,000, and equipment to process the lead ore before shipment to the smelter was $1,800,000. The mine is expected to yield 2,000,000 tons of ore during the five years it is expected to be operating. The equipment has an estimated residual value of $150,000 when mining is concluded. The mine started operations on April 30, 2018. In 2018, 300,000 tons of ore were extracted, and in 2019, 700,000 tons were mined. Required: 1. Compute the depletion rate and the units-of-production depreciation rate. 2. Compute depletion and depreciation for 2018 and 2019.

Which of the following types of subsequent expenditures normally is capitalized?

Murgatroyd Co. purchased equipment on January 1, 2016, for $500,000, estimating a four-year useful life and no residual value. In 2016 and 2017, Murgatroyd depreciated the asset using the sum-of-years'-digits method. In 2018, Murgatroyd changed to straight-line depreciation for this equipment. What depreciation would Murgatroyd record for the year 2018 on this equipment?

Weaver Textiles Inc. has used the straight-line method to depreciate its equipment since it started business in 2014. At the beginning of 2018, the company decided to change to the double-declining-balance (DDB) method. Depreciation as reported and as it would have been reported if the company had always used DDB is listed below: Required: What journal entry, if any, should Weaver make to record the effect of the accounting change (ignore income taxes)? Explain.

Accounting for a change in the estimated service life of equipment:

The process of allocating the cost of natural resources over their useful life is known as:

On September 30, 2018, Bricker Enterprises purchased a machine for $200,000. The estimated service life is 10 years with a $20,000 residual value. Bricker records partial-year depreciation based on the number of months in service. -Depreciation for 2019, using the double-declining balance method, would be:

(Note: The following problem requires students to determine the amount of goodwill in a business acquisition, a Chapter 10 topic.) In 2016, 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, 2018. Management has provided the following information: $\begin{array}{lr}\text { Fair value of Penlight } & \$ 115 \text { million } \\\text { Fair value of Penlight's net assets (excluding goodwill) } & 107 \text { million } \\\text { Book value of Penlight's net assets (including goodwill) } & 125 \text { million }\end{array}$ 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 2018, if any. 3. If an impairment loss is required, prepare the journal entry to record the loss.

The allocation base for an asset is:

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Prior period adjustment