Problem 11–10 (concluded)
b. This is a change in accounting principle that is accounted for as a change in
estimate.
SYD
2014 depreciation $ 60,000 ($330,000 × 10/55)
Depreciation to date, SYD (above)
126,000 Undepreciated cost as of 1/1/2018
A disclosure note reports the effect of the change on net income and earnings
per share along with clear justification for changing depreciation methods.
c. This is a change in accounting principle accounted for as a change in
estimate.
Because the change will be effective only for assets placed in service after the
date of change, depreciation schedules do not require revision because the change
Problem 11–11
Requirement 1
Analysis:
Correct Incorrect
(Should Have Been Recorded) (As Recorded)
500,000
2017 Expense 356,250 [3]
[1] $1,900,000 × 25% (2 times the straight-line rate of 12.5%)
During the two-year period, depreciation expense was overstated by
To correct incorrect accounts
Retained earnings…………………………………………. 56,250
Problem 11–11 (concluded)
Requirement 2
This is a change in accounting principle accounted for as a change in estimate.
No entry is needed to record the change.
2018 journal entry:
A change in depreciation method is considered a change in accounting
estimate resulting from a change in accounting principle. Accordingly, the Collins
Asset’s cost (after correction) $1,900,000
Problem 11–12
Requirement 1
Plant and equipment:
Depreciation to date:
Patent:
Amortization to date:
Requirement 2
Property, plant, and equipment and finite-life intangible assets are tested for
Requirement 3
Goodwill should be tested for impairment on an annual basis and in
between annual test dates if events or circumstances indicate that the fair value of
Requirement 4
Plant and equipment:
Recoverability test:
An impairment loss is indicated because the book value of the assets, $105
million, is greater than the $80 undiscounted sum of future cash flows.
Measurement:
The amount of the impairment loss is determined as follows:
Book value $105 million
Patent:
Recoverability test:
Problem 11–12 (concluded)
Goodwill:
Recoverability test:
An impairment loss is indicated because the book value of the assets of the
Measurement:
The amount of the impairment loss is determined as follows:
Determination of implied fair value of goodwill:
Fair value of Ellison Technology $450 million
Measurement of impairment loss:
Problem 11–13
Requirement 1
Hecala’s cost of the mineral mine is $13,721,871, determined as follows:
Mining site $10,000,000
†$600,000 × 30% = $180,000
Requirement 2
Depletion:
Depreciation of machinery:
Depreciation of structures:
Problem 11–13 (continued)
Requirement 3
2018 accretion expense:
Requirement 4
Depletion of natural resources and depreciation of assets used in the extraction
Requirement 5
A change in the service life of plant and equipment and finite-life intangible
assets is accounted for as a change in an estimate. The change is accounted for
2019 Depletion:
Original cost $13,721,871
Revised estimate of tons