Bakersfield College

ACG 2021

1)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.

2.            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                                                  NUMBER

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.

3. 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.

4. 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?

Use the following to answer questions:

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.

5. 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.

6. 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.

7. 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.

8. 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.

Use the following to answer questions:

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.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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:

Required:

1. 1. 1. Compute the composite depreciation rate.
      2. Compute the average service life.
      3. Compute 2016 depreciation.

Use the following to answer questions:

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:

14. 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.

15. 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.

16. 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.

                                                                                                                                    $24,000

17. The table below contains data on depreciation for equipment.

Required: Fill in the missing data in the table.

18. The table below contains data on depreciation for machinery.

Required: Fill in the missing data in the table.

19. In 2016, the internal auditors of KJI Manufacturing discovered the following material errors made in prior years:
    1. 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.

20. 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. 1. 1. Compute the depletion rate and the units-of-production depreciation rate.
      2. Compute depletion and depreciation for 2016 and 2017.

21. 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.

22. 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?