F3 M5

Question 1

straight line depreciation

Answer 1

cost - salvage value/estimated useful life

*watch out for partial yrs

Question 2

sum of years digits depreciation

Answer 2

(cost - salvage value) * (remaining life of asset/sum of years digits)

Question 3

sum of years digits calculation

Answer 3

n * (n+1)/2

Question 4

units of production rate per unit or hour

Answer 4

cost - salvage value/estimated units or hours

Question 5

units of production depreciation

Answer 5

rate per unit or hour * number of units produced (or hours worked)

Question 6

declining balance depreciation

Answer 6

2 * (1/n) * (cost - accumulated depreciation)

*no salvage value for DB

Question 7

journal entry to write-off depreciated asset

Answer 7

Dr. Accumulated depreciation
Cr. Old asset at full cost

Question 8

journal entry for total and permanent impairment

Answer 8

Dr. Accumulated depreciation
Dr. Loss due to impairment
Cr. Asset at full cost

Question 9

disclosures for depreciation and depletion

Answer 9

1) depreciation expense for the period
2) balance of major classes of depreciable assets by nature or function
3) accumulated depreciation allowances by classes or in total
4) methods used, by major classes, in computing depreciation

Question 10

purchase cost for depletion

Answer 10

1) purchase price
2) cost to prepare land for removal of resources
3) drilling costs
4) intangible development costs
5) prepare asset for harvest

Question 11

depletion base

Answer 11

cost to purchase property
+ development costs to prepare land for extraction
+ any estimated restoration costs
- residual value of land after resources extracted

Question 12

percentage depletion

Answer 12

1) based on percentage of sales
2) allowed by Congress as tax deduction for risky business
3) % depletion can exceed cost depletion
4) limited to 50% of net income from depletion property computed before % depletion allowance

Question 13

total depletion

Answer 13

unit depletion rate * number of units extracted

Question 14

unit depletion rate

Answer 14

depletion base/estimated recoverable units

Question 15

recognition of depletion

Answer 15

if all units extracted that have not been sold, depletion allocated between COGS and ending inventory

Question 16

amt of depletion included in COGS

Answer 16

unit depletion rate * number of units sold

-depletion applicable to units extracted but not sold allocated to inventory as direct materials

Question 17

when an impairment loss needs to be recognized

Answer 17

when the sum of undiscounted expected (future) cash flows is less than the carrying amt

Question 18

calculation of impairment loss

Answer 18

1) sum of undiscounted expected (future) cash flows - carrying amt
2) if positive, no impairment
3) if negative, impairment
4) if asset held for use: FV or PV future net cash flows - net carrying value
5) write down asset, depreciate new cost, restoration not permitted
6) if asset held to dispose: FV or PV future net cash flows - net carrying value + cost of disposal
7) write asset down, no depreciation taken, restoration permitted

Question 19

reporting impairment loss

Answer 19

-reported as component of income from continuing operations
-recognized be reducing carrying value to fair value
-restoration of previously recognized impairment losses prohibited under U.S. GAAP unless asset held for disposal

Question 20

what happens when a permanent impairment occurs?

Answer 20

book value is reduced and a loss incurred. Loss is credited to accumulated depreciation and current year depreciation added too.