Question number 1
Cheyenne Company purchased a machine on January 1, 2013, for $65,000. The estimated life is 8 years and the estimated salvage value is $5,000. The machine has an estimated service life of 48,000 hours. In 2013, 6,900 hours were used.
REQUIRED:
Compute the depreciation to be recorded for the year ending December 31, 2013 using the:
- Straight-line method
- Production hours method
- Sum-of-the years’ digits method
- Double-declining balance method
- Question number 2
Presented below is information related to equipment owned by Swiss Company at December 31, 2013:
|
Cost |
$9,000,000 |
|
Acc. depreciation to date |
1,000,000 |
|
Expected undiscounted future cash flows |
7,000,000 |
|
Fair Value |
4,800,000 |
Assume that Swiss Company will continue to use the asset in the future. As of
December 31, 2013, the equipment has a remaining useful life of 4 years and Swiss
uses the straight line method of depreciation.
REQUIRED:
- Prepare the journal entry to record the impairment at December 31, 2013.
- Prepare the journal entry to record depreciation expense for 2014.
- Prepare the journal entry (if any) necessary to record the increase in fair value to $5,100,000 as of December 31, 2014.
- Would your answer to (3) be different if Swiss intended to dispose of the equipment rather than use it in the future?
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