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Exam 7: Long-Term Assets

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Question 61

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Chubbyville purchases a delivery van for $23,500.Chubbyville estimates a four-year service life and a residual value of $2,500.During the four-year period,the company expects to drive the van 105,000 miles.Calculate annual depreciation for the four-year life of the van using each of the following methods.Round all amounts to the nearest dollar. 1.Straight line. 2.Double-declining-balance. 3.Activity-based.Actual miles driven each year were 24,000 miles in Year 1;26,000 miles in Year 2;22,000 miles in Year 3;and 25,000 miles in Year 4.Note that actual total miles of 97,000 fall short of expectations by 8,000 miles.

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Question 62

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Impairment occurs when the future cash flows generated for a long-term asset fall below its fair value.

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Question 63

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A copyright is an exclusive right of protection given to the creator of a published work such as a song,film,painting,photograph,book,or computer software.

Holiday Laboratories purchased a high speed industrial centrifuge at a cost of $420,000.Shipping costs totaled $15,000.Foundation work to house the centrifuge cost $8,000.An additional water line had to be run to the equipment at a cost of $3,000.Labor and testing costs totaled $6,000.Materials used up in testing cost $3,000.What is the total cost of the equipment? How much of this amount should be expensed immediately?

Using the double-declining balance method,the book value at December 31,2016 would be:

Straight-line depreciation assumes that the benefits we derive from the use of an asset are the same each year.

Nanki Corporation purchased equipment at the beginning of 2015 for $650,000.In 2015 and 2016,Nanki depreciated the asset on a straight-line basis with an estimated useful life of 8 years and a $10,000 residual value.In 2017,due to changes in technology,Nanki revised the useful life to a total of six years (four more years) with zero residual value.What depreciation expense would Nanki record for the year 2017 on this equipment?

Using the double-declining balance method,depreciation expense for 2016 would be: