Chapter 11 Property, Plant, and Equipment and Intangible Assets:
Utilization and Impairment
98. Listed below are five terms followed by a list of phrases that describe or characterize each of
the terms. Match each phrase with the number for the correct term.
TERM
PHRASE
NUMBER
1. Rearrangements
Estimate of recoverable cost at end of an
asset’s life.
____
2. Additions
Should be capitalized since they provide future
benefits.
____
3. Impairment
Capitalize unless unsuccessful.
____
4. Residual value
Considered if indicated that book value may
not be recoverable.
____
5. Cost of defending intangible
rights
Should be expensed unless they are material
and provide a future benefit.
____
life.
2. Additions
Should be capitalized since they provide future
benefits.
3. Impairment
Capitalize unless unsuccessful.
not be recoverable.
5. Cost of defending intangible
rights
Should be expensed unless they are material
and provide a future benefit.
Chapter 11 Property, Plant, and Equipment and Intangible Assets:
Utilization and Impairment
99. Listed below are 10 terms followed by a list of phrases that describe or characterize the terms.
Match each phrase with the number for the correct term.
TERM
PHRASE
1. Improvements
Can be expressed in units of time or in units of
activity.
2. Service life
The amount the company expects to receive for the
asset at the end of its life.
3. Amortization
Cost allocation for an intangible asset.
4. Straight-line method
The replacement of a major component of plant and
equipment asset.
5. Double-declining
balance
Allocates an equal amount of depreciable base to each
period.
6. Activity-based method
Adding a new major component to existing plant and
equipment.
7. Residual value
The difference between cost and residual value.
8. Depletion
Multiplies book value by twice the straight-line rate.
9. Additions
Cost allocation for natural resources.
10. Allocation base
Estimates service life in terms of a measure of
activity.
1. Improvements
Can be expressed in units of time or in units of activity.
2. Service life
The amount the company expects to receive for the
asset at the end of its life.
3. Amortization
Cost allocation for an intangible asset.
4. Straight-line method
The replacement of a major component of plant and
equipment asset.
5. Double-declining
balance
Allocates an equal amount of depreciable base to each
period.
6. Activity-based method
Adding a new major component to existing plant and
equipment.
7. Residual value
The difference between cost and residual value.
8. Depletion
Multiplies book value by twice the straight-line rate.
9. Additions
Cost allocation for natural resources.
10. Allocation base
Estimates service life in terms of a measure of activity.
Chapter 11 Property, Plant, and Equipment and Intangible Assets:
Utilization and Impairment
Problems
100. Ellen’s Antiques reported the following in its December 31, 2016, balance sheet:
Equipment $4,000,000
Accumulated depreciation—equipment $3,150,000
In a disclosure note, Ellen’s indicates that it uses straight-line depreciation over eight years and
estimates salvage value at 10% of cost.
Required: Compute the average age of Ellen’s equipment at 12/31/2015.
101. Comet Cleaning Co. reported the following on its December 31, 2016, balance sheet:
Equipment (at cost) $3,000,000
In a disclosure note, Comet indicates that it uses straight-line depreciation over six years and
estimates salvage value as 10% of cost. Comet’s equipment averages 4.5 years at December
31, 2016.
Required:
What is the book value of Comet’s equipment at December 31, 2016?
Chapter 11 Property, Plant, and Equipment and Intangible Assets:
Utilization and Impairment
Use the following to answer questions 102–105:
On January 1, 2016, Hobart Mfg. Co. purchased a drill press at a cost of $36,000. The drill press is
expected to last 10 years and has a residual value of $6,000. During its 10-year life, the equipment is
expected to produce 500,000 units of product. In 2016 and 2017, 25,000 and 84,000 units,
respectively, were produced.
102. Required:
Compute depreciation for 2016 and 2017 and the book value of the drill press at December 31,
2016 and 2017, assuming the straight-line method is used.
103. Required:
Compute depreciation for 2016 and 2017 and the book value of the drill press at December 31,
2016 and 2017, assuming the double-declining-balance method is used.
Chapter 11 Property, Plant, and Equipment and Intangible Assets:
Utilization and Impairment
104. Required:
Compute depreciation for 2016 and 2017 and the book value of the drill press at December 31,
2016 and 2017, assuming the sum-of-the-years’-digits method is used.
105. Required:
Compute depreciation for 2016 and 2017 and the book value of the drill press at December 31,
2016 and 2017, assuming the units-of-production method is used.
Chapter 11 Property, Plant, and Equipment and Intangible Assets:
Utilization and Impairment
Use the following to answer questions 106–109:
On January 1, 2016, Morrow Inc. purchased a spooler at a cost of $40,000. The equipment is expected
to last eight years and have a residual value of $4,000. During its eight-year life, the equipment is
expected to produce 250,000 units of product. In 2016 and 2017, 42,000 and 76,000 units respectively
were produced.
106. Required:
Compute depreciation for 2016 and 2017 and the book value of the spooler at December 31,
2016 and 2017, assuming the straight-line method is used.
107. Required:
Compute depreciation for 2016 and 2017 and the book value of the spooler at December 31,
2016 and 2017, assuming the double-declining-balance method is used.
Chapter 11 Property, Plant, and Equipment and Intangible Assets:
Utilization and Impairment
108. Required:
Compute depreciation for 2016 and 2017 and the book value of the spooler at December 31,
2016 and 2017, assuming the sum-of-the-years’-digits method is used.
109. Required:
Compute depreciation for 2016 and 2017 and the book value of the spooler at December 31,
2016 and 2017, assuming the units-of-production is used.
Chapter 11 Property, Plant, and Equipment and Intangible Assets:
Utilization and Impairment
110. 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,
2016, had the following equipment:
Estimated
Residual
Equipment
Life (Years)
Cost
Value
Turbines
25
$4,500,000
$500,000
Steam pipes
15
3,000,000
300,000
Furnace
20
6,000,000
0
Required:
1. Compute the composite depreciation rate.
2. Compute the average service life.
3. Compute 2016 depreciation.
Equipment
Value
Life (yrs)
Line Deprec.
Turbines
$4,500,000
$500,000
$4,000,000
Steam pipes
300,000
Furnace
0
$13,500,000
$12,700,000
Use the following to answer questions 111 and 112:
On April 1, 2016, Parks Co. purchased machinery at a cost of $42,000. The machinery is expected to
last 10 years and to have a residual value of $6,000.
Required:
111. Compute depreciation for 2016 and 2017 and the book value of the machinery at December
31, 2016 and 2017, assuming the sum-of-the-years’-digits method is used.
Chapter 11 Property, Plant, and Equipment and Intangible Assets:
Utilization and Impairment
112. Compute depreciation for 2016 and 2017 and the book value of the machinery at December
31, 2016 and 2017, assuming double-declining balance method is used.
113. On September 30, 2016, Sternberg Company sold office equipment for $12,000. The
equipment was purchased on March 31, 2013, for $24,000. The asset was being depreciated
over a five-year life using the straight-line method, with depreciation based on months in
service. No residual value was anticipated.
Required:
Prepare the journal entries to record 2016 depreciation and the sale of the equipment.
Chapter 11 Property, Plant, and Equipment and Intangible Assets:
Utilization and Impairment
3,600
3,600
24,000
114. The table below contains data on depreciation for equipment.
Required: Fill in the missing data in the table.
Acquisition Date
1/1/14
1/1/14
1/1/14
1/1/15
1/1/15
Cost
$100,000
$100,000
$330,000
Accumulated
Depreciation12/31/16
$90,000
Depreciation 2015
$10,000
$27,000
$200,000
Depreciation 2016
$10,000
$18,000
$80,000
Book value, 12/31/15
$140,000
$37,000
$300,000
Book value, 12/31/16
$70,000
Estimated service life
6
4
5
5
Estimated salvage value
0
$10,000
0
Depreciation method
Straight-
line
Sum-of–
Years-Digits
Double-declining
balance
Acquisition Date
1/1/14
1/1/14
1/1/14
1/1/14
1/1/14
Cost
$100,000
$100,000
$330,000
12/31/16
$90,000
Depreciation 2015
$10,000
$27,000
$200,000
Depreciation 2016
$10,000
$18,000
$80,000
Book value, 12/31/15
$140,000
$37,000
$300,000
Book value, 12/31/16
$70,000
Estimated service life
6
4
5
5
Estimated salvage value
0
$10,000
0
Chapter 11 Property, Plant, and Equipment and Intangible Assets:
Utilization and Impairment
115. The table below contains data on depreciation for machinery.
Required: Fill in the missing data in the table.
Acquisition Date
1/1/14
1/1/14
6/30/14
Cost
$250,000
$320,000
Accumulated Depreciation,
12/31/16
$120,000
Depreciation 2015
$40,000
$90,000
Depreciation 2016
$32,000
$70,000
Book value, 12/31/15
$160,000
$240,000
$180,000
Book value, 12/31/16
Estimated service life
5
Estimated salvage value
0
0
$20,000
Depreciation method
Straight-line
Acquisition Date
1/1/14
1/1/14
6/30/14
Cost
$250,000
$320,000
$320,000
12/31/16
$120,000
Depreciation 2015
$40,000
$90,000
Depreciation 2016
$32,000
$70,000
Book value, 12/31/15
$160,000
$240,000
$180,000
Book value, 12/31/16
Estimated service life
5
Estimated salvage value
0
0
$20,000
Chapter 11 Property, Plant, and Equipment and Intangible Assets:
Utilization and Impairment
116. In 2016, the internal auditors of KJI Manufacturing discovered the following material errors
made in prior years:
1. Equipment was purchased on June 30, 2014, for $100,000. The purchase was incorrectly
recorded as a debit to repair and maintenance expense. The equipment has a useful life of
five years and no residual value.
2. On March 31, 2015, $50,000 was paid to a contractor to landscape the area around a
manufacturing plant including the installation of a sprinkler system. The expenditure was
debited to the Land account. The landscaping is expected to have a 20-year useful life and
no residual value.
KJI uses the straight-line method of depreciation for all depreciable assets.
Required:
1. Prepare the journal entries at December 31, 2016, to correct the errors (ignore income
taxes).
2. Prepare the journal entries to record 2016 depreciation for any assets recorded in
requirement 1.
Chapter 11 Property, Plant, and Equipment and Intangible Assets:
Utilization and Impairment
117. 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, 2016. In 2016, 300,000 tons of ore were extracted, and in 2017, 700,000 tons were mined.
Required:
1. Compute the depletion rate and the units–of-production depreciation rate.
2. Compute depletion and depreciation for 2016 and 2017.
Answer:
118. On February 20, 2016, Genoa Mining Company incurred costs of $3,600,000 to acquire and
prepare to extract an estimated 4,000,000 tons of mineral deposits. In 2016, 450,000 tons of
ore were mined. At the beginning of 2017, Genoa geologists estimated that 3,900,000 tons of
ore still remained. In 2017, 700,000 tons of ore were mined.
Required:
Compute depletion for 2016 and 2017.
Chapter 11 Property, Plant, and Equipment and Intangible Assets:
Utilization and Impairment
119. On September 30, 2016, Morgan, Inc. acquired all of the outstanding common stock of
Pathways, Inc., for $100 million. In addition to tangible assets, Morgan recorded the following
assets as a result of the acquisition:
Patent $6 million
Developed technology 3 million
In-process research & development 2 million
Goodwill 7 million
Morgan’s policy is to amortize intangible assets using the straight-line method, no residual
value, and a six-year useful life.
Required:
What is the total amount of expenses that would appear in Morgan’s income statement for the
year ended December 31, 2016, related to these items?
Chapter 11 Property, Plant, and Equipment and Intangible Assets:
Utilization and Impairment
120. Meca Concrete purchased a mixer on January 1, 2014, at a cost of $45,000. Straight-line
depreciation for 2014 and 2015 was based on an estimated eight-year life and $3,000
estimated residual value. In 2016, Meca revised its estimate and now believes the mixer will
have a total service life of only six years, and that the residual value will be only $2,000.
Required:
Compute depreciation for 2016 and 2017.
121. Eckland Manufacturing Co. purchased equipment on January 1, 2014, at a cost of $90,000.
Straight-line depreciation for 2014 and 2015 was based on an estimated eight-year life and
$2,000 estimated residual value. In 2016, Eckland revised its estimate and now believes the
equipment will have a total service life of only six years, while the residual value remains the
same.
Required:
Chapter 11 Property, Plant, and Equipment and Intangible Assets:
Utilization and Impairment
Compute depreciation for 2016 and 2017.
122. Weaver Textiles Inc. has used the straight-line method to depreciate its equipment since it
started business in 2012. At the beginning of 2016, 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:
Year
Straight-Line
DDB
2012
$22,500
$45,000
2013
25,000
40,000
2014
28,000
38,000
2015
28,000
32,000
Required:
What journal entry, if any, should Weaver make to record the effect of the accounting change
(ignore income taxes)? Explain.