Chapter 11 Property, Plant, and Equipment and Intangible
Assets: Utilization and Impairment
EXERCISES
Exercise 11-1
1. Straight-line:
2. Sum-of-the-years’ digits:
3. Double-declining balance:
4. One hundred fifty percent declining balance:
5. Units-of-production:
$240,000 – 20,000
Exercise 11-2
1. Straight-line:
$240,000 – 20,000
2. Sum-of-the-years’ digits:
Sum-of-the-digits is {[8 (8 + 1)]/2} = 36
3. Double-declining balance:
Straight-line rate is 8% (1 ÷ 8 years) x 2 = 25% DDB rate
4. One hundred fifty percent declining balance:
Straight-line rate is 12.5% (1 ÷ 8 years) x 1.5 = 18.75% rate
Alternate Exercises and Problems 11–3
Exercise 11-2 (concluded)
5. Units-of-production:
$220,000 – 20,000
Exercise 11-3
Requirement 1
$2,000,000
Depletion per ton = = $2.00 per ton
Requirement 2
Depletion is part of product cost and is included in the cost of the inventory of
11–4 Intermediate Accounting, 8/e
Exercise 11-4
Requirement 1
a. To record the purchase of a patent.
June 30, 2014
Patent ……………………………………………………………………. 1,000,000
December 31, 2014
Amortization expense ($1,000,000 ÷ 5 years x 1/2) …………. 100,000
b. To record the purchase of a franchise.
2016
Alternate Exercises and Problems 11–5
Exercise 11-4 (concluded)
Year-end adjusting entries
Patent: To record amortization on the patent.
December 31, 2016
Calculation of annual amortization after the estimate change:
($ in thousands)
$1,000 Cost
Franchise: To record amortization of franchise.
December 31, 2016
Requirement 2
Intangible assets:
Patent $600,000 [1]
11–6 Intermediate Accounting, 8/e
Exercise 11-5
Depreciation expense (determined below) …………………….. 48,889
Calculation of annual depreciation after the estimate change:
$640,000 Cost
$60,000 Previous annual depreciation ($600,000 ÷ 10 years)
Alternate Exercises and Problems 11–7
Exercise 11-6
Analysis:
Correct Incorrect
(Should Have Been Recorded) (As Recorded)
2013 Machine 200,000 Expense 200,000
Cash 200,000 Cash 200,000
To correct incorrect accounts
11–8 Intermediate Accounting, 8/e
PROBLEMS
Problem 11-1
1. Depreciation for 2014 and 2015.
December 31, 2014
December 31, 2015
2. The year 2016 expenditure.
January 4, 2016
3. Depreciation for the year 2016.
December 31, 2016
Calculation of annual depreciation after the estimate change:
$ 60,000 Cost
Alternate Exercises and Problems 11–9
Problem 11-2
Requirement 1
Machine 651:
$150,000 – 10,000
= $14,000 per year x 3 years = $42,000
Requirement 2
Building:
Useful life of the building:
$300,000
11–10 Intermediate Accounting, 8/e
Problem 11-2 (concluded)
To record depreciation on the building.
Depreciation expense [($1,250,000 – 50,000) ÷ 20 years] …… 60,000
Accumulated depreciation – building …………………….. 60,000
Equipment:
Machine 652 (determined above) $40,000
Alternate Exercises and Problems 11–11
Problem 11-3
Requirement 1
Plant and equipment:
Depreciation to date:
$120 million 8 years = $15 million per year x 3 years = $45 million
Developed technology:
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 the reporting
Requirement 4
Plant and equipment:
An impairment loss is indicated because the book value of the assets, $75
11–12 Intermediate Accounting, 8/e
Problem 11-3 (concluded)
Developed technology:
An impairment loss is indicated because the book value of the asset, $30 million,
is greater than the $15 undiscounted sum of future cash flows. The amount of the
impairment loss is determined as follows:
Book value $30 million
Goodwill:
An impairment loss is indicated because the book value of the assets of the
reporting unit, $310 million, is greater than the $300 million fair value of the reporting
unit. The amount of the impairment loss is determined as follows:
Determination of implied fair value of goodwill: