11 Depreciation, Impairments, and Depletion BRIEF EXERCISES 11
BRIEF EXERCISES
(Unless otherwise instructed, round all answers to the nearest dollar.)
BE11-1 (L01) Fernandez Corporation purchased a truck at the beginning of 2017 for $50,000. The truck is estimated to have a salvage value of $2,000 and a useful life of 160,000 miles. It was driven 23,000 miles in 2017 and 31,000 miles in 2018. Compute depreciation expense for 2017 and 2018.
BE11-2 (L01) Lockard Company purchased machinery on January 1, 2017, for $80,000. The machinery is estimated to have a salvage value of $8,000 after a useful life of 8 years. (a) Compute 2017 depreciation expense using the straight-line method.
(b) Compute 2017 depreciation expense using the straight-line method assuming the machinery was purchased on September 1, 2017.
BE11-3 (L01) Use the information for Lockard Company given in BE11-2. (a) Compute 2017 depreciation expense using the sum-of-the-years’-digits method. (b) Compute 2017 depreciation expense using the sum-of-the-years’-digits method, assuming the machinery was purchased on April 1, 2017.
BE11-4 (L01) Use the information for Lockard Company given in BE11-2. (a) Compute 2017 depreciation expense using the double-declining-balance method. (b) Compute 2017 depreciation expense using the double-declining-balance method, assuming the machinery was purchased on October 1, 2017.
BE11-5 (L01) Cominsky Company purchased a machine on July 1, 2018, for $28,000. Cominsky paid $200 in title fees and county property tax of $125 on the machine. In addition, Cominsky paid $500 shipping charges for delivery, and $475 was paid to a local contractor to build and wire a platform for the machine on the plant floor. The machine has an estimated useful life of 6 years with a salvage value of $3,000. Determine the depreciation base of Cominsky’s new machine. Cominsky uses straightline depreciation.
BE11-6 (L02) Dickinson Inc. owns the following assets.
Asset Cost Salvage Estimated Useful Life
A $70,000 $7,000 10 years
B 50,000 5,000 5 years
C 82,000 4,000 12 years
Compute the composite depreciation rate and the composite life of Dickinson’s assets.
BE11-7 (L02) Holt Company purchased a computer for $8,000 on January 1, 2016. Straight-line depreciation is used, based on a 5-year life and a $1,000 salvage value. In 2018, the estimates are revised. Holt now feels the computer will be used until December 31, 2019, when it can be sold for $500. Compute the 2018 depreciation.
BE11-8 (L03) Jurassic Company owns equipment that cost $900,000 and has accumulated depreciation of $380,000. The expected future net cash flows from the use of the asset are expected to be $500,000. The fair value of the equipment is $400,000.
Prepare the journal entry, if any, to record the impairment loss.
BE11-9 (L04) Everly Corporation acquires a coal mine at a cost of $400,000. Intangible development costs total $100,000. After extraction has occurred, Everly must restore the property (estimated fair value of the obligation is $80,000), after which it can be sold for $160,000. Everly estimates that 4,000 tons of coal can be extracted. If 700 tons are extracted the first year, prepare the journal entry to record depletion.
BE11-10 (L05) In its 2014 annual report, Campbell Soup Company reports beginning-of-the-year total assets of $8,113 million, end-of-the-year total assets of $8,323 million, total sales of $8,268 million, and net income of $807 million. (a) Compute
Campbell’s asset turnover. (b) Compute Campbell’s profit margin on sales. (c) Compute Campbell’s return on assets using
(1) asset turnover and profit margin and (2) net income. (Round to two decimal places.)
*BE11-11 (L06) Francis Corporation purchased an asset at a cost of $50,000 on March 1, 2017. The asset has a useful life of 8 years and a salvage value of $4,000. For tax purposes, the MACRS class life is 5 years. Compute tax depreciation for each year 2017–2022.
