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Exam 11: Operational Assets: Utilization and Impairment

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Question 31

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Required: Compute depreciation for 2009 and 2010 and the book value of the drill press at December 31, 2009 and 2010, assuming the units-of-production method is used.

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2009 depreciation: $...

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Question 32

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Short Corporation purchased Hathaway, Inc. for $52,000,000. The fair value of all Hathaway's identifiable tangible and intangible assets was $48,000,000. Short will amortize any goodwill over the maximum number of years allowed. What is the annual amortization of goodwill for this acquisition?

A) $100,000.
B) $400,000.
C) $200,000.
D) 0.Goodwill is not amortized.

E) A) and B)
F) A) and C)

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Question 33

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In the table below, data on depreciation for machinery are shown. Some data are missing. Required: Fill in the missing data in the table. $\begin{array} { | l | c | c | c | } \hline \text { Acquisition Date } & 1 / 1 / 07 & 1 / 1 / 07 & 6 / 30 / 07 \\\hline \text { Cost } & \$ 250,000 & & \$ 320,000 \\\hline \begin{array} { l } \text { Accumulated } \\\text { Depreciation, 12/31/09 }\end{array} & & \$ 120,000 & \\\hline \text { Depreciation 2008 } & \$ 40,000 & & \$ 90,000 \\\hline \text { Depreciation 2009 } & \$ 32,000 & & \$ 70,000 \\\hline \text { Book value, 12/31/08 } & \$ 160,000 & \$ 240,000 & \$ 180,000 \\\hline \text { Book value, 12/31/09 } & & & \\\hline \text { Estimated service life } & & & 5 \\\hline \text { Estimated salvage value } & 0 & 0 & \$ 20,000 \\\hline \text { Depreciation method } & & \text { Straight-line } & \\\hline\end{array}$

Required: Determine the amount, if any, of the impairment loss that El Dorado must recognize on these assets.

Using the sum-of-the-years'-digits method, depreciation for 2010 and book value at December 31, 2010 would be:

Prego would report depreciation in 2009 of:

Canliss Mining uses the replacement method to determine depreciation on its office equipment. During 2007, its first year of operations, office equipment was purchased at a cost of $14,000. Useful life of the equipment averages 4 years and no salvage value is anticipated. In 2009, equipment costing $5,000 was sold for $600 and replaced with new equipment costing $6,000. Canliss would record 2009 depreciation of:

Gains on the cash sales of fixed assets:

Using the double-declining balance method, depreciation for 2010 would be:

Changes in the estimates involved in depreciation, depletion, and amortization require retroactive restatement of financial statements.

Briefly discuss the factors that determine the service life of a depreciable asset.

Depreciation for 2010, using double-declining balance, would be:

Using the straight-line method, depreciation for 2009 would be:

Gulf Consulting Co. reported the following on its December 31, 2009, balance sheet: Equipment (at cost) ..$700,000 In a disclosure note, Gulf indicates that it uses straight-line depreciation over five years and estimates salvage value as 10% of cost. Gulf's equipment averages 3.5 years at December 31, 2009. What is the book value of Gulf's equipment at December 31, 2009?

The three factors in cost allocation of a depreciable asset are service life, allocation base, and allocation method.

Jung Inc. owns a patent for which it paid $66 million. At the end of 2009, it had accumulated amortization on the patent of $16 million. Due to adverse economic conditions, Jung's management determined that it should assess whether an impairment should be recognized for the patent. The estimated undiscounted future cash flows to be provided by the patent total $43 million, and the patent's fair value at that point is $35 million. Under these circumstances, Lester:

Using the straight-line method, the book value at December 31, 2009 would be:

Nanki Corporation purchased equipment on 1/1/07 for $650,000. In 2007 and 2008, Nanki depreciated the asset on a straight-line basis with an estimated useful life of 8 years and a $10,000 residual value. In 2009, due to changes in technology, Nanki revised the useful life to a total of six years with no residual value. What depreciation would Nanki record for the year 2009 on this equipment?

Tangible operational assets must be tested for impairment at least once a year.

On September 30, 2009, 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: Morgan's policy is to amortize intangible assets using the straight-line method, no residual value, and a 6-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, 2009, related to these items.