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What is the depreciation expense for an asset operated for 2,100 hours when the depreciation per hour is $2.20?
What is the depreciation expense for an asset operated for 2,100 hours when the depreciation per hour is $2.20?
How is the depreciable cost calculated for an asset worth $180,000 with a residual value of $10,000?
How is the depreciable cost calculated for an asset worth $180,000 with a residual value of $10,000?
What is the depreciation rate per hour if the depreciable cost is $170,000 and the estimated useful life is 40,000 hours?
What is the depreciation rate per hour if the depreciable cost is $170,000 and the estimated useful life is 40,000 hours?
What is the double-declining-balance rate for equipment that has a straight-line percentage of 20%?
What is the double-declining-balance rate for equipment that has a straight-line percentage of 20%?
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After one year, what is the depreciation expense for an asset costing $24,000 with a double-declining balance rate of 40%?
After one year, what is the depreciation expense for an asset costing $24,000 with a double-declining balance rate of 40%?
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For an equipment that operates for 5,200 hours at a depreciation per hour of $4.25, what will be the total depreciation expense for the second year?
For an equipment that operates for 5,200 hours at a depreciation per hour of $4.25, what will be the total depreciation expense for the second year?
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Which method provides for equal depreciation expense for each unit produced?
Which method provides for equal depreciation expense for each unit produced?
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What is the total depreciation expense after operating 3,600 hours in the first year for equipment with a depreciation rate of $4.25 per hour?
What is the total depreciation expense after operating 3,600 hours in the first year for equipment with a depreciation rate of $4.25 per hour?
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What is the appropriate accounting treatment when a trademark is deemed impaired?
What is the appropriate accounting treatment when a trademark is deemed impaired?
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Which statement is true regarding the nature of goodwill?
Which statement is true regarding the nature of goodwill?
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How is the impairment of goodwill reported on the income statement?
How is the impairment of goodwill reported on the income statement?
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In what circumstances is goodwill recognized on the balance sheet?
In what circumstances is goodwill recognized on the balance sheet?
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What happens to goodwill in the event of an impairment evaluation revealing a loss?
What happens to goodwill in the event of an impairment evaluation revealing a loss?
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Which metric helps in determining whether goodwill is impaired?
Which metric helps in determining whether goodwill is impaired?
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What is the treatment of patents in terms of amortization?
What is the treatment of patents in terms of amortization?
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What is the annual depreciation expense for equipment costing $6,000 with no residual value using the straight-line method at a rate of 10%?
What is the annual depreciation expense for equipment costing $6,000 with no residual value using the straight-line method at a rate of 10%?
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If the accumulated depreciation for equipment was $4,750 at the end of 2014 and the equipment was sold in 2015 for $2,250, what is the total carrying amount before the sale?
If the accumulated depreciation for equipment was $4,750 at the end of 2014 and the equipment was sold in 2015 for $2,250, what is the total carrying amount before the sale?
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What is the impact on the financial statements if the equipment purchased for $10,000 is sold for $1,000, assuming there is a loss of $1,250?
What is the impact on the financial statements if the equipment purchased for $10,000 is sold for $1,000, assuming there is a loss of $1,250?
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If equipment initially purchased for $91,000 is sold at $78,000 after two years, what is the total depreciation accumulated by that time?
If equipment initially purchased for $91,000 is sold at $78,000 after two years, what is the total depreciation accumulated by that time?
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What is the calculation for gain or loss when equipment is sold for $78,000 after two years, considering the depreciation accounted?
What is the calculation for gain or loss when equipment is sold for $78,000 after two years, considering the depreciation accounted?
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What is the amortization rate per tonne for mining rights purchased at $400,000 for a mineral deposit of 1,000,000 tonnes?
What is the amortization rate per tonne for mining rights purchased at $400,000 for a mineral deposit of 1,000,000 tonnes?
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When is the updating journal entry for depreciation usually recorded following the previously stated practices?
When is the updating journal entry for depreciation usually recorded following the previously stated practices?
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If equipment with an original cost of $10,000 is depreciated straight-line at a rate of 10% and sold for $2,800 after eight years, what is the recognized gain?
If equipment with an original cost of $10,000 is depreciated straight-line at a rate of 10% and sold for $2,800 after eight years, what is the recognized gain?
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How is the process of transferring the cost of natural resources to an expense account described?
How is the process of transferring the cost of natural resources to an expense account described?
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What is the correct formula to calculate revised annual depreciation when new estimates are determined?
What is the correct formula to calculate revised annual depreciation when new estimates are determined?
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What is the carrying amount at the end of the 20th year if an asset's cost is $500,000, with a residual value of $120,000 and a useful life of 40 years?
What is the carrying amount at the end of the 20th year if an asset's cost is $500,000, with a residual value of $120,000 and a useful life of 40 years?
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Under the revised estimates, what would be the new annual depreciation if the remaining life is 25 years and the residual value is $150,000 after 20 years?
Under the revised estimates, what would be the new annual depreciation if the remaining life is 25 years and the residual value is $150,000 after 20 years?
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Which method of depreciation is required by the Income Tax Act for companies?
Which method of depreciation is required by the Income Tax Act for companies?
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What is ignored when calculating Capital Cost Allowance (CCA) rates for depreciation for tax purposes?
What is ignored when calculating Capital Cost Allowance (CCA) rates for depreciation for tax purposes?
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When is only 50% of the normal CCA rate allowed for asset depreciation?
When is only 50% of the normal CCA rate allowed for asset depreciation?
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What happens to the depreciation expense recorded in earlier years when new estimates are determined?
What happens to the depreciation expense recorded in earlier years when new estimates are determined?
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If a piece of equipment costs $25,000 and is fully depreciated, what is its carrying amount just before disposal?
If a piece of equipment costs $25,000 and is fully depreciated, what is its carrying amount just before disposal?
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How do you calculate the annual depreciation for a warehouse originally estimated at $500,000 cost and a $120,000 residual value over 40 years?
How do you calculate the annual depreciation for a warehouse originally estimated at $500,000 cost and a $120,000 residual value over 40 years?
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In the context of depreciation, which of the following reflects the term 'Capital Cost Allowance'?
In the context of depreciation, which of the following reflects the term 'Capital Cost Allowance'?
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What is the double-declining-balance rate for an asset with a useful life of 10 years?
What is the double-declining-balance rate for an asset with a useful life of 10 years?
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What is the first year's double-declining-balance depreciation for an asset valued at $125,000 acquired on April 24?
What is the first year's double-declining-balance depreciation for an asset valued at $125,000 acquired on April 24?
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How do you determine if an asset has suffered an impairment?
How do you determine if an asset has suffered an impairment?
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What journal entry is made for an impairment loss of $138,000 on a building?
What journal entry is made for an impairment loss of $138,000 on a building?
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What would be the carrying amount of a building purchased for $1,200,000 after three years of depreciation at $40,000 per year?
What would be the carrying amount of a building purchased for $1,200,000 after three years of depreciation at $40,000 per year?
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In the year 2014, what was the annual depreciation expense of equipment costing $545,000 with a residual value of $55,000 over a useful life of 25 years?
In the year 2014, what was the annual depreciation expense of equipment costing $545,000 with a residual value of $55,000 over a useful life of 25 years?
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What is the market value of equipment at the end of 2014 if its appraised value is $300,000?
What is the market value of equipment at the end of 2014 if its appraised value is $300,000?
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Which statement best describes abnormal wear and tear in relation to asset impairment?
Which statement best describes abnormal wear and tear in relation to asset impairment?
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If an asset’s carrying amount is $1,080,000 and its market value is reassessed at $942,000, what is the impairment loss?
If an asset’s carrying amount is $1,080,000 and its market value is reassessed at $942,000, what is the impairment loss?
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Study Notes
Chapter 6: Property, Plant, and Equipment and Other Long-Term Assets
- This chapter covers the accounting for property, plant, and equipment (PP&E) and other long-term assets.
- Learning objectives include defining, classifying, and accounting for PP&E costs.
- Calculating depreciation using straight-line, units-of-production, and double-declining-balance methods.
- Journalizing entries for the disposal of PP&E.
- Calculating depletion and journalizing entries for natural resources.
- Describing the accounting for intangible assets and goodwill.
- Reporting depreciation, amortization, and impairment losses in the income statement and preparing a balance sheet that includes PP&E and other long-term assets.
Nature of Property, Plant, and Equipment
- PP&E are long-term, relatively permanent assets like equipment, machinery, buildings, and land.
- Other terms for PP&E are tangible capital assets or fixed assets.
- Key characteristics of PP&E include physical existence (tangible), ownership and use by the company in normal operations, non-sale status as part of normal operations, and expected use for more than one year.
Costs of Acquiring Property, Plant, and Equipment
- Costs of acquiring PP&E include purchase price, sales taxes, permits, sales commissions, modifying for use (e.g., installation, assembly, testing), interest on borrowed money for financing construction/purchase, insurance during construction/transit, and repairs to existing buildings or equipment.
- Costs not included are vandalism, mistakes in installation, uninsured theft, or damage during unpacking or installation—these costs are expenses.
Lump-Sum Purchases
- A lump-sum purchase, also called a basket purchase, involves buying multiple assets for one price.
- The total purchase price needs to be allocated to individual assets based on their fair values (if known).
- If fair values aren't known, the proportion of the total purchase price for each asset based on its relative fair value is used to allocate the costs.
Capital and Revenue Expenditures
- Revenue expenditures benefit only the current period. Examples: normal and ordinary repairs and maintenance
- Capital expenditures improve the asset or extend its useful life. Examples: additions and improvements.
Depreciation
- Depreciation (or amortization) is the periodic recording of PP&E cost as an expense.
- Depreciable assets are all PP&E except land.
- Depreciation factors include initial cost, estimated useful life, and estimated residual value.
- Methods: straight-line, units-of-production, & double-declining-balance
- Accumulated depreciation is a contra-asset account.
- Depreciation does not measure market value decline or reflect cash for replacement.
Depreciation Methods
- Straight-Line: Equal depreciation expense each year over the asset's useful life. Annual Depreciation = (Cost - Residual Value) / Useful Life
- Units-of-Production: Depreciation expense varies based on the asset's production or usage. Depreciation per Unit = (Cost - Residual Value) / Total Units of Production.
- Double-Declining-Balance: Higher depreciation expense in the early years of the asset's life. Double the straight-line rate; apply the rate to the carrying amount.
Depreciation for Partial Years
- If an asset is acquired or disposed of during the year, calculate depreciation for the portion of the year the asset was in use.
- This usually means treating the purchase or disposal date as the first day of the month.
Impairment of Long-Term Assets
- Impairment occurs when the carrying amount of an asset exceeds its market value.
- Impairment loss results from factors like obsolescence, unusual wear and tear, or market value decline.
- The loss is recognized on the income statement.
- Reporting is usually by class; it may be possible to apply a single amount to a note.
Revised Depreciation
- When estimates for residual value or useful life change, revise depreciation for future periods; earlier years' depreciation is not affected.
Depreciation for Income Tax Purposes
- Companies often use a declining-balance method, with a pre-determined maximum rate dependent on the asset type for tax purposes, for accelerated depreciation.
- Residual value is usually ignored for tax depreciation.
- The year is considered mid-point for certain assets
Intangible Assets
- Intangible assets have no physical substance but provide long-term economic benefits like patents, copyrights, trademarks, and computer software.
- They're amortized over their useful life (or are occasionally reviewed and written down for impaired value).
Goodwill
- Goodwill arises when a company buys another company for more than the fair market value of its net assets.
- It's not amortized; it is periodically reviewed for impairment.
Return on Assets
- Return on assets (ROA) measures the revenue-generating efficiency of assets.
- ROA = (Net Income / Average Total Assets)
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