Chapter 4 EOC assignment

The present market value of the asset is included in the balance sheet under the assets side and depreciation is charged on the income statement.. Straight – line method: straight-line d

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Financial Accounting 1 – ACC2001

CHAPTER ASSIGNMENT (Chapter 4)

Questions

Complex  Moderate  Simple How many

questions that

List the question

that you are not

List the brief

List the exercises

that you are not

Problems & Critical Thinking

Complex  Moderate  Simple 

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problems that

you did answer?

List the problems

that you are not

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FINANCIAL ACCOUNTING: TOOLS FOR DECISION-MAKING, 7th Canadian Edition (Kimmel P.D et al., 2017)

QUESTION

Q1: Capital expenditures comprise major purchases that will be used in the future

Operating expenditures (expenses) represent day-to-day costs that are necessary to keep a

business running

Asset retirement cost is the offsetting asset that is created when an asset retirement

obligation (ARO) is recognized The asset retirement cost increases the carrying amount of the fixed asset for which the ARO was created

Q3:

Title: In a finance lease agreement, ownership of the property is transferred to the lessee at the

end of the lease term But, in operating lease agreement, the ownership of the property is retainedduring and after the lease term by the lessor

Balloon/residual amount: In finance lease agreement, there is a balloon/residual option for the

lessee to purchase the property or equipment at a specific price But, under an operating lease, the lessee does not have this option The balloon/residual on a finance lease is set using ATO asset guidelines

Running costs & administration: Under an operating lease all running costs (servicing,

registration, tyres, insurance etc) are included in the lease within the designated term and usage

km with one set monthly repayment amount Under a finance lease these are generally not included meaning there can be greater administration and price fluctuation for the lessee

Account treatment: Operating lease are treated as expenses (ie off balance sheet items) where

as a finance lease is included as an asset for the lessee

Edit: the tax treatment for leases will change in 2019, with operating leases appearing on the

balance sheets as liabilities

Accounting for an operating lease is relatively straightforward Lease payments are considered operating expenses and are expensed on the income statement The firm does not own the asset and, therefore, it does not show up on the balance sheet and the firm does not assess any

depreciation for the asset

In contrast, a capital lease involves the transfer of ownership rights of the asset to the lessee The lease is considered a loan (debt financing), and interest payments are expensed on the income statement The present market value of the asset is included in the balance sheet under the assets side and depreciation is charged on the income statement On the other side, the loan amount, which is the net present value of all future payments, is included under liabilities

Q4:

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Straight – line method: straight-line depreciation results in the same amount of expense each year

on the income statement

Diminishing-balance results in higher expenses, and therefore lower net income, in the early years of the asset’s useful life It also results in lower expenses and higher net income in later years

The units-of-production method vary each year depending on the actual usage of the asset

Over the entire useful life, total depreciation is the same regardless of the method of

depreciation While each depreciation method may allocate the cost of the asset differently each year, over the life of the asset, all methods allocate the same total amount of asset cost (the depreciable amount) to depreciation expense

Just as depreciation expense has an inverse relationship with net income, it also has an inverse relationship with the change in the carrying amount

Q5: Because To use Diminishing-Balance Method, we do the following:

Determine the straight-line depreciation rate by taking 100% and dividing it by the useful life in years

But depreciable amount (the asset’s cost less residual )value  Determine the straight-line depreciation can’t rate by taking 100%

Q6: Beacause The units-of-production method involves calculations that are quite similar to the

straight-line method, but it allocates the depreciable base over the units of output rather than years of use It is logical to use this approach in those situations where the life is best measured

by identifiable units of machine “consumption.”

Q10: Accounting for the disposal of property and equipment is relatively straightforward.

First, to establish account balances that are appropriate at the date of sale, depreciation is

recorded for the period of use during the current year In this way, the expense is matched with any revenues earned in the current period

Second, the amount received from the sale is recorded while the book value of the asset (both its cost and accumulated depreciation) is removed If the owner receives less for the asset than this book value, a loss is recognized for the difference, which decreases reported net income If more

is received than book value, the excess is recorded as a gain so that net income increases

Q11: The gain or loss on the sale of an asset used in a business is the difference between the

amount of cash that a company receives, and the asset's book value (carrying value) at the time

Q12: The plant asset and related accumulated depreciation should continue to be reported on the

balance sheet without further depreciation or adjustment until the asset is retired

Q13: Tangible and intangible assets have similar characteristics, in that they arepurchased for

use in the operations and not for resale, have usefulnessbeyond one fiscal year and are

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depreciated or amortized, with theexception of land and indefinite life intangible assets Tangibleandintangible assets are also similar in that their cost includes all of thenecessary outlays that are made to get the asset ready for its intendeduse

They differ in their physical substance in that intangible assets haveno physical substance

Q14: If an intangible asset has a finite useful life, then amortize it over that useful life The

amount to be amortized is its recorded cost, less any residual value However, intangible assets are usually not considered to have any residual value, so the full amount of the asset is typically amortized If there is any pattern of economic benefits to be gained from the intangible asset, then adopt an amortization method that approximates that pattern If not, the customary approach

is to amortize it using the straight-line method

Q17: Pesowski use Intangible Assets with Finite Lives inclue copyright A copyright is granted

by the Canadian Intellectual Property Offi ce, giving the owner the exclusive right to reproduce and sell an artistic or published work Generally, a copyright’s useful life is signifi cantly shorter than its legal life, and the copyright is therefore amortized over its useful life The cost of the copyright consists of the cost of acquiring and defending it The cost may be quite low and be composed of only the cost to acquire and register the copyright, or it may amount to a great deal more if a copyright infringement suit is involved

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Useful life = 4 years  Straight line depreciation rate = 1/4 = 25% per year

Depreciation rate for double declining balance method : 25% x 2= 50% per year

Carrying value (Dec 31)

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Depreciation Expense

Accum Depreciation

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The depreciable amount = ($144,000 - $4,000) : 5 = $28,000

Depreciation expense = $28,000 x 9 /12 = $21,000

Debit depreciation expense 21,000

Credit accumulated depreciation 21,000

Debit accumulated depreciation 77,000

Debit loss on disposal 25,000

Debit accumulated Depreciation 40,000

Debit loss on Disposal of Plant Assets 2,000

Debit Amortization Expense 180,000 : 5 x (9/12) = 27,000

Credit Accumulated Amortization 27,000

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BE9-15:

Property, plant, and equipment

Less: Accumulated depreciation 218 541

Furniture, machinery, and equipment 2,339

Less: Accumulated depreciation 887 1,452

Total property, plant, and equipment 2,059

Intangible assets

Finite-life intangible assets 246

Less: Accumulated amortization 57 189

Indefinite-life intangible assets 318

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Rate Depreciation Carrying amount

Depreciation expense per unit = ($172,000 - $ 16,000)/ 10,000 hours = $15,60

Units Used Expense Per Unit Depreciation Expense

b)All three methods result in the same amount depreciation expense and net income

The choice of depreciation method will have no impact on cash flow

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Depreciation = = 29,100

E9-6:

(a) Calculate the depreciation expense for each of the first three years under (1) the straight-line method, and (2) the double-diminishing-balance method assuming the table was purchased early in the first month of the first year

 Straight line method:

Depreciable amount = 17.000 – 1.000 = 16.000

Depreciation expense= 16.000/ 4 = 4.000

- Year 1: depreciation expense = 4.000

 Double diminishing balance method:

Depreciation rate = 100% / 4 = 25%

- Year 1: depreciation expense = 17.000 x (25%x2) = 8.500

Carrying ammount at first year = 17.000 – 8.500 = 8.500

Carrying amount at second year = 8.500 – 4.25 = 4.250

(b) Assuming Rahim sold the table for $5,800 at the end of the third year, calculate the gain or loss on disposal under each depreciation method

 Straight line method:

Gain(loss) = 5.800 – (17.000 – (4.000x3)) = 800  Gain

 Double dimishing balance method:

Gain(loss) = 5.800 – (17.000 – 8.500 – 4.250 – 2.125) = 3.675  Gain

(c) Determine the impact on net income (total depreciation of the table plus any loss on disposal

or less any gain on disposal) of each method over the entire three-year period

 Impact on net income:

- Straight line method = (4.000x3) – 800 = 11.200

- Double dimishing balance method = (8.500 + 4.250 + 2.125) – 3.675 = 11.200

E9-7:

Debit cash 18,000

Debit accumulated Depreciation – Vehicles [($62,000 - $6,000) : 4 ] x 3= 42,000

Debit loss on Diposal $18,000 – ($62,000 - $42,000) = 2,000

Credit vehicles 62,000

Debit depreciation Expense ($10,980 : 3 x 8/12) = 2,440

Credit accumulated Depreciation – Equipment 2,440

Debit cash 500

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Debit accumulated Depreciation – Equipment [($10,980 : 3) x 2] : $2,440 = 9,760

Debit loss on Diposal [$500 – ($10,980 - $9,760)] 720

Credit equipment 10,980

Debit depreciation Expense ($150,000 : 10) 15,000

Credit accumulated Depreciatio – Equipment 15,000

Debit accumulated Depreciation – Equipment [($150,000 : 10) x 10] = 150,000

Debit amortization Expense 120,000 : 6 =20,000

Credit accumulated Amortization – Copyrights 20,000

Debit amortization Expense ($540,000 : 9) x 10/12 = 50,000

Credit accumulated Amortization – Fanchises 50,000

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Debit research expense 150000

Credit cash 150000

Debit development cost 50000

Credit cash 50000

Debit amortization expense 8000

Credit accumulated amortzation – patents 8000

Debit impairment Loss 30000

Itangible assets

Accumulated

depreciation-buildings

Statement of financial position

Property, plant and equipment

Accumulated depreciation—

fxtures and equipment

Statement of financial position

Accumulated depreciation—

leasehold improvements Statement of financial position Property, plant and equipment

Amortization expense Income statement Operating expense

Buildings Statement of financial

position

Depreciation expense Income statement Operating expense

Fixtures and equipment Statement of financial

position Property, plant and equipment

Leasehold improvements Statement of financial

position Property, plant and equipment

Operating leases Income statement Operating expense

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Reversal of impairment loss Income statement

Sofware (intangible assets) Statement of financial

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PROBLEMS

P9-3A:

(a) cost of the machine = $360,000 + $2,000 + $8,000 = $370,000

(b)

(1) the straight-line method

The depreciable amount = $370,000 – $80,000 = $290,000

Annual depreciation = $290,000 ÷ 5 = $58,000

Total depreciation = $290,000

(2) the double-diminishing-balance method

Useful life = 5 years  Straight line depreciation rate = 1/5= 20% per year

(3) the units-of-production method

The depreciable amount = $290,000

The depreciation = $290,000/ 6,200 = $46.77 per unit

Double-declining balance method of depreciation causes net income to be lower in the early

years of the asset’s life

P9-4A:

(1) the straight-line method

The depreciable amount = $244,000 – $4,000= $240,000

Annual depreciation = $240,000 ÷ 4 = $60,000

Total depreciation = $240,000

(2) the double-diminishing-balance method

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(3) the units-of-production method

The depreciable amount = $240,000

The depreciation = $240,000 / 80,000= $3 per unit

1.the straight-line method: total depreciation expense = accumulated depreciation

2.the double-diminishing-balance method: total depreciation expense < accumulated

depreciation

3.the units-of-production method: total depreciation expense < accumulated depreciation

(c) The estimates were used in determining the depreciation amounts in part a are: Salvage value

and useful life

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Debit Amortization Expense $130,000 x 20% x 5/12 = $10,833

Credit Accumulated Amortization $10,833

Debit loss on disposal 7,600

Credit Gain on disposal 12,400

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The depreciable amount = 130,000 – 10,000 = 120,000

The depreciation rate (straight-line method) per year = 120,000 / 5 = 24,000

2016:

2017:

2018:

c) Depreciation expense to 30,November,2018: $2880

Credit Gain of asset disposal $18320

2.(Equipment book’s value - Accumulated Depreciation) = 41,680

Debit Cash $80,000

Debit Accumulated Depreciation $88,320

Credit equipment $130,000

Credit Gain of asset disposal $38320

3.(Equipment book’s value - Accumulated Depreciation) = 41,680

Debit Accumulated Depreciation $88,320

Dedit Loss of asset disposal $41,680

Credit equipment $130,000

Tiêu đề	Chapter 4 EOC Assignment
Tác giả	Dr. Nguyen Huu Cuong
Trường học	Financial Accounting 1 – ACC2001
Chuyên ngành	Financial Accounting
Thể loại	chapter assignment
Năm xuất bản	2020

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Số trang	30
Dung lượng	5,49 MB