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Exam 11: Property, Plant, and Equipment and Intangible Assets: Utilization and Impairment

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Question 31

Multiple Choice

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The legal life of a patent is:

A) 40 years.
B) 20 years.
C) Life of the inventor plus 50 years.
D) Indefinite.

E) B) and C)
F) C) and D)

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Question 32

Multiple Choice

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Rice Industries owns a manufacturing plant in a foreign country. Political unrest in the country indicates that Rice should investigate for possible impairment. Below is information related to the plant's assets ($ in millions) : The amount of impairment loss that Rice should recognize according to U.S. GAAP and IFRS, respectively, is:

A) Option a
B) Option b
C) Option c
D) Option d

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

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Question 33

Multiple Choice

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An asset acquired January 1, 2013, for $15,000 with an estimated 10-year life and no residual value is being depreciated in an equipment group asset account that has an average service life of eight years. The asset is sold on December 31, 2014, for $6,000. The entry to record the sale would be:

An impairment loss is indicated because the estimated undiscounted sum of future cash flows of $27 million is less than the book value of $32.1 million. The amount of the loss to be reported is calculated using the estimated fair value rather than the undiscounted future cash flows:

Using the straight-line method, depreciation for 2013 and book value at December 31, 2013, would be:

Biological assets are valued at fair value less estimated costs to sell under International Financial Reporting Standards.

Calculation of revised annual amortization:

2011 amortization: $4,000,000 ÷ 8 = $500,000 x 6/12 = $250,000 2012 amortization: $4,000,000 ÷ 8 = $500,000 2.

Weaver Textiles Inc. has used the straight-line method to depreciate its equipment since it started business in 2009. At the beginning of 2013, the company decided to change to the double-declining-balance (DDB) method. Depreciation as reported and as it would have been reported if the company had always used DDB is listed below: Required: What journal entry, if any, should Weaver make to record the effect of the accounting change (ignore income taxes)? Explain.

Jennings Advertising Inc. reported the following in its December 31, 2013, balance sheet: In a disclosure note, Jennings indicates that it uses straight-line depreciation over 10 years and estimates salvage value at 10% of cost. What is the average age of the equipment owned by Jennings?

According to International Financial Reporting Standards, the level of testing for goodwill impairment is the:

Briefly explain the following statement. Depreciation is a process of cost allocation, not valuation.

On February 20, 2013, 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 2013, 450,000 tons of ore were mined. At the beginning of 2014, Genoa geologists estimated that 3,900,000 tons of ore still remained. In 2014, 700,000 tons of ore were mined. Required: Compute depletion for 2013 and 2014.

Using the double-declining balance method, the book value at December 31, 2014, would be:

Because the book value of the net assets ($125 million) exceeds fair value ($115 million) an impairment loss is indicated.

Accounting for a change in the estimated service life of equipment:

Broadway Ltd. purchased equipment on January 1, 2011, for $800,000, estimating a five-year useful life and no residual value. In 2011 and 2012, Broadway depreciated the asset using the straight-line method. In 2013, Broadway changed to sum-of-years'-digits depreciation for this equipment. What depreciation would Broadway record for the year 2013 on this equipment?

Any method of depreciation should be both systematic and rational.

Using the straight-line method, depreciation for 2013 would be:

Depreciation for 2013, using double-declining balance, would be: