Fixed Assets Paper 3

1

On January 1, year 1, Crater, Inc. purchased equipment having an estimated salvage value equal to 20% of its original cost at the end of a ten-year life. The equipment was sold December 31, year 5, for 50% of its original cost. If the equipment’s disposition resulted in a reported loss, which of the following depreciation methods did Crater use?






2

In which of the following situations is the units-of-production method of depreciation most appropriate?






3

A company using the composite depreciation method for its fleet of trucks, cars, and campers retired one of its trucks and received cash from a salvage company. The net carrying amount of these composite asset accounts would be decreased by the






4

During year 4, the management of West Inc. decided to dispose of some of its older equipment and machinery. By year-end, December 31, year 4, these assets had not been sold, although the company was negotiating their sale to another company. On the December 31, year 4 balance sheet of West Inc., this equipment and machinery should be reported at






5

At December 31, year 4, Matson Inc. was holding long-lived assets that it intended to sell. The assets do not constitute a separate component of the company. The company appropriately recognized a loss in year 4 related to these assets. On Matson’s income statement for the year ended December 31, year 4, this loss should be reported as a(n)






6

Taft Inc. recognized a loss in year 3 related to long-lived assets that it intended to sell. These assets were not sold during year 4, and the company estimated, at December 31, year 4, that the loss recognized in year 3 had been more than recovered. On the December 31, year 4 balance sheet, Taft should report these long-lived assets at their






7

Cranston Inc. reported an impairment loss of $150,000 on its income statement for the year ended December 31, year 3. This loss was related to long-lived assets which Cranston intended to use in its operations. On the company’s December 31, year 3 balance sheet, Cranston reported these long-lived assets at $920,000 and, as of December 31, year 3, Cranston estimated that these long-lived assets would be used for another five years. On December 31, year 4, Cranston determined that the fair values of its impaired long-lived assets had increased by $25,000 over their fair values at December 31, year 3. On the company’s December 31, year 4 balance sheet, what amount should be reported as the carrying amount for these long-lived assets? Assume straightline depreciation and no salvage value for the impaired assets.






8

Assets intended to be held and used for productive purposes may suffer from impairment in each of the following circumstances except






9

With regard to impaired assets, the FASB standards provide for
Recognition of loss upon impairment
Restoration of previously recognized impairment losses






10

Scarbrough Company had purchased equipment for $280,000 on January 1, year 1. The equipment had an eight-year useful life and a salvage value of $40,000. Scarbrough depreciated the equipment using the straight-line method. In August year 4, Scarbrough questioned the recoverability of the carrying amount of this equipment. At August 31, year 4, the expected net future cash inflows (undiscounted) related to the continued use and eventual disposal of the equipment total $175,000. The equipment’s fair value on August 31, year 4, is $150,000. After any loss on impairment has been recognized, what is the carrying value of Scarbrough’s equipment as of August 31, year 4?






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