Depreciation Paper 7

1

Murgatroyd Co. purchased equipment on 1/1/09 for $500,000, estimating a four-year useful life and no residual value. In 2009 and 2010, Murgatroyd depreciated the asset using the sum-of-years’-digits method. In 2011, Murgatroyd changed to straight-line depreciation for this equipment. What depreciation would Murgatroyd record for the year 2011 on this equipment?






2

Broadway Ltd. purchased equipment on 1/1/09 for $800,000, estimating a five-year useful life and no residual value. In 2009 and 2010, Broadway depreciated the asset using the straight-line method. In 2011, Broadway changed to sum-of-years’-digits depreciation for this equipment. What depreciation would Broadway record for the year 2011 on this equipment?






3

On January 1, 2009, Al’s Sporting Goods purchased store fixtures at a cost of $180,000. The anticipated service life was 10 years with no residual value. Al’s has been using the double-declining balance method, but in 2011 adopted the straight-line method because the company believes it provides a better measure of income. Al’s has a December 31 year-end. The journal entry to record depreciation for 2011 is:






4

An asset should be written down if there has been an impairment of value that is:






5

Recognition of impairment for property, plant and equipment is required if book value exceeds:






6

The amount of impairment loss is the excess of book value over:






7

Accounting for impairment losses:






8

In testing for recoverability of property, plant and equipment, an impairment loss is required if the:






9

At the end of its 2011 fiscal year, a triggering event caused Janero Corporation to perform an impairment test for one of its manufacturing facilities. The following information is available:
Book value................................65 million
Estimated undiscounted future cash flows..60 million
Fair Value................................50 million
The manufacturing facility is:






10

Fryer Inc. owns equipment for which it paid $90 million. At the end of 2011, it had accumulated depreciation on the equipment of $27 million. Due to adverse economic conditions, Fryer’s management determined that it should assess whether an impairment should be recognized for the equipment. The estimated undiscounted future cash flows to be provided by the equipment total $60 million, and the equipment’s fair value at that point is $40 million. Under these circumstances, Fryer:






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