Topic: Depreciation
136.
Various depreciation methods-first year
On September 5, 2015, Apollo purchased equipment costing $40,000, with an estimated
life of 6 years and an estimated salvage value of $4,000.
Compute the depreciation expense Apollo would recognize on this equipment in 2015,
assuming:
Topic: Depreciation
137.
Various depreciation methods-first year
On March 24, 2015 Tastee Ice Cream Co. purchased equipment costing $140,000, with an
estimated life of 5 years and an estimated salvage value of $20,000.
Compute the depreciation expense Tastee would recognize on this equipment in 2015,
assuming:
138.
Various depreciation methods—two years
On September 6, 2014, East River Tug Co. purchased a new tugboat for $400,000. The
estimated life of the boat was 20 years, with an estimated residual value of $40,000.
Compute the depreciation on this tugboat in 2014 and 2015 using the following methods.
Apply the half-year convention. (If necessary, round to the nearest dollar.)
139.
Declining balance depreciation
On July 6, 2014, Grayson purchased new machinery with an estimated useful life of 10
years. The cost of the equipment was $80,000, with a residual value of $8,000.
Compute the depreciation on this machinery in 2014 and 2015 using each of the following
methods.
140.
Depreciation; gains and losses in financial statements
In 2013, Amalfi, Inc. purchased equipment with an estimated 10-year life for $42,600. The
residual value was estimated at $9,900. Amalfi uses straight-line depreciation and applies
the half-year convention.
On April 18, 2015, Amalfi closed one of its plants and sold this equipment for $33,600.
Under these assumptions, compute the following for this equipment:
141.
Trade-ins
Dietz owned a delivery van with a book value of $2,000. It traded this old van in on a new
one which cost $16,000. The dealer allowed Dietz a trade-in allowance of $3,500 on the
old van, and Dietz paid the remainder in cash.
Compute the following:
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142.
Depreciation and disposal—a comprehensive problem
Domino, Inc. uses straight-line depreciation with a half-year convention in its financial
statements. On March 10, 2010, Domino acquired a computer system at a cost of $98,800.
Estimated useful life is six years, with residual value of $5,200.
(a) Complete the following schedule, showing depreciation expense Domino expects to
recognize each year in the financial statements.
(b) Assume Domino sells the computer system on October 3, 2013, for $26,650.
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143.
Four events pertaining to plant assets are described below.
(a) Computed depreciation for use in the annual income tax return (a different method is
used in the financial statements).
(b) Made a year-end adjusting entry to record depreciation expense for financial reporting
purposes.
(c) Sold old equipment for cash at a price below its book value, but above its income tax
basis.
(d) Traded an old automobile in on a new one. The dealer granted a trade-in allowance on
the old vehicle that was substantially above its book value and its tax basis. However, the
trade-in allowance amounted to only a small portion of the price of the new car; most of
the purchase price was paid in cash.
Indicate the immediate effects of each of these events upon the financial measurements
in the four column headings listed below. Use the code letters, I for increase, D for
decrease, and NE for no effect.
Note: Indicate only the immediate effects of each transaction. Do not attempt to anticipate
how changes in taxable income will affect future cash flows.
144.
Gains and losses in financial statements and tax returns
Explain why the amount of gain or loss resulting from the sale of a depreciable asset
usually differs between the seller’s financial statements and income tax return. In which of
these accounting reports is the gain usually larger (or the loss smaller)? Explain your
reasoning.
145.
Computation of goodwill
The income of Greystone, Inc., during the last several years has averaged $765,000
annually. The company is now being offered for sale as a going concern. The value of
Greystone’s net identifiable assets (total assets minus all liabilities) at the present time is
$4,675,000.
One of several corporations interested in buying Greystone, offers to pay an amount equal
to the value of the net identifiable assets and to assume all liabilities. In addition, this
prospective buyer is willing to pay for goodwill an amount equal to net earnings in excess
of 10% on net assets, expected to continue four years.
You are to use the above information as a basis for computing the price that the investing
corporation will offer for Greystone, Inc. $________________.
146.
Computation of goodwill
Chopin Corporation has net assets (total assets minus total liabilities) valued at $880,000
and has earned an average net income of $132,000 per year for the past several years.
Sands Company is negotiating the purchase of the company and has agreed to pay an
amount equal to the value of the net identifiable assets, assume the liabilities, and pay a
sum for goodwill equal to the earnings in excess of 12% on net assets, expected to
continue for five years. What is the amount for goodwill Sands is including in its offer?
$_______________.
147.
Goodwill-financial reporting considerations
Cabot Corporation’s balance sheet at December 31, 2015, includes an asset entitled
goodwill in the amount of $900,000.
(a) Briefly explain what is meant by the term goodwill.
(b) Under what circumstances is goodwill recorded in the accounting records? Include in
your Answer a specific situation in which Cabot would have recorded the goodwill
mentioned above.
148.
Research and development-financial reporting
Alert Industries has spent $5 billion over the last three years in developing a new drug
labeled BJ13. FDA approval is expected by the end of the month, at which time the drug
will be available for sale. None of Alert’s competitors has a product similar to BJ13, and
the medical community is anxiously awaiting availability of this drug. Although BJ13
promises to be a “wonder drug” with huge financial success, Alert’s income statements for
the last few years have shown substantial losses and Alert’s balance sheet does not
include product BJ13 among the assets of the business.
Explain why one of Alert’s seemingly most valuable assets apparently has been omitted
from the balance sheet, and why Alert’s income statements for the past few years
reported substantial losses.
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149.
Caan purchased the Stokes Mine for $60 million. The mine was estimated to contain 6
million tons of anthracite coal and to have a residual value of $12 million. During the first
year of mining operations of the Stokes Mine, 800,000 tons of anthracite were mined of
which 600,000 tons was sold.