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Financial Accounting Reporting > PPP&E > Flashcards

PPP&E Flashcards

1
Q

When there is impairment that was previously recognized impairment loss do we calc it or record 0?

A

Zero since it can’t be reversed

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2
Q

Proper Accounting treatment for freight and interest costs related to machinery purchase?

A

Cost needs to be capitalized bc which shows the location and the intend of use. Also, the freight in cost should also be capitalized since it associated with the machinery. Interest needs be booked as an expense

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3
Q

Calc the amount that the land needed to be capitalized?

A

To calc the cost that land needs to be capitalized

   Plot of the land   100,000 
          Property          50,000 Scraps from material  10,000

= 140,000 capitalized land

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4
Q

Calc, the amount that should be recorded for the building?

A

Cash 750,000
Mortgage. 250,000
1,000,000
tax rate 60%

= 600,000 record the building

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5
Q

What are the general entries when an asset is depreciated?

A

Debit Depreciation expense
Credit Accumulated dep

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6
Q

Calc the interest cost that needs to be capitalized during the current year?

A

To calc the interest cost you need to calc

1,000,000 x 8% interest rate = 80,000

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7
Q

calc the depletion expense of the financial accounting purpose for year 1?

A

2,800,000 purchase price / 800,000 estimated recoverable tons = 3.50

10,000 tons x 6 months = 60,000 x 3.50 = 210,000 depletion expense

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8
Q

Calc the depletion amount per ton for the current year?

A

Step 1

Start off with insurance insurance premium of 60,000 / 3 years = 20,000.
60,000 - 20,000 = 40,000

Step 2 Figure out the amount that needs to be credited

40,000 x (1-30%) = 28,000

Step 3 Retained Earnings 400,000 + 28,000 = 428,000

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9
Q

Calc the related loss for the purchase commitment as of Dec 31st?

A

Step 1

Min annual guarantee purchase 200,000
Years entered 3

600,000
purchase units 80,000

remains liable for purchase 520,000
per unit cost 0.1
Loss related to purchase commitment 52,000

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10
Q

Are there any salvage value used for depreciation expense?

A

No salvage value is used don’t get tricked to use it

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11
Q

Using the Relative Sales Value calc the costs that needs to be allocated to the class A lots?

A

Step 1 - Calc the total for each lot including a,b,c

a 24,000 x 100 2,400,000
b 16,000 x 100 1,600,000
c 10,000 x 200 2,000,000

		             6,000,000
		
		                0.400
		
	purchased land 	1,200,000
	additional costs 	   300,000
               1,500,000 x 0.40 = 600,000
		
	Amount of cost that should be 600,000
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12
Q

When land purchased and the building there was sold and removed by the buyer so that the construction on the plant could begin?

A

When the building is sold since it was apart of the land that would be deducted from the cost of the land

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13
Q

Calc, the cost of land & Building?

A

Cost of land

purchase of land 60,000
legal fees 2000
sales of scrap 3000
demolition 5,000

cost of land 64,000

Cost of Building

Cost of construction of building 350,000
architures fees 8,000

Cost of Building 358,000

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14
Q

Calc the cost of capitalize in the land account?

A

Purchase plot of land 100,000
cost of raze the building. 50,000
sale from scraps 10,000

Land should be capitalized for 140,000

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15
Q

When the general improvement to leased property should be capitalized as leasehold improvements then the

A

Ex the useful life of the landscaping is 15 years and remaining term of the lease is 8 years

Here the useful life extends the landscaping and the remaining term of the lease

15 years useful life
8 years term if the lease
7 years

120,000 landscaping cost
x 7 years / 8 years = 105,000

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16
Q

Forumla to calc the cost of land

A

Purchase price
+ Legal fees
+ Title insurance
+ recording fees
+ subsequent assumption
encumbrance on the property such as mortgage or tax liens

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17
Q

When improvements to leased property should be capitalized as leasehold improvement, which would be used?

A

Which ever is shorter would be used

estimated useful life of the office 10 years
remaining term of the nonrenewable lease 15 years

It would office 10 years

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18
Q

Calc the leasehold improvements for year 2?

A

So here the cost of Sales office 47,000 + Warehouse 75,000 + Parking lot 18,000 = 140,000 / 10 years = 14,000

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19
Q

Taxes that are assessed for local benefits that tend to increase the value of the real property such as sidewalks, how are the accrued taxes treated?

A

by capitalized the taxes by adding them to the property adjusted basis

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20
Q

Why is Land Capitalized?

A

bc it can’t be depreciated it so you have to capitalize it

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21
Q

calc the cost that should be capitalized?

A

cost of equipment 185,000
removal cost +. 3,000
rearrangement cost + 12,000

                                200,000

remember when calc the capitalized cost add all items bring the condition and installion
necessary for its intended use

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22
Q

Calc the cost acquired cost of the equipment?

A

100,000 noninterest bearing note
24,868 discounted on notes
75,132 PV equal

75,132 PV equal
10,000 cash and signed
85,132 acquired cost of equipment

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23
Q

When is depreciation expense start?

A

when the asset is ready for it’s intended use by the entity

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24
Q

What amount should be reported as capitalized interest for year 8?

A

2,000,000 x .5 = 1,000,000

1,000,000 x 12% = 120,000

Total amount 102,000 would be the max amount used since 120,000 would be too large

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25
Qualification, for a new office building qualify for capitalization of interest?
1 - asset is being constructed for the entity's own use 2 - expenditure that is qualified asset has been made 3 - activities that are necessary to prepare the asset for its intended use 4 - interest cost is being incurred
26
How should fixed asset be replaced?
it should be recorded at it's purchase price and plus incidents costs necessary to make the asset ready for intended use
27
Should rearrangement expenditure benefits future periods should be capitalized?
it should be capitalized and the building modification costs improve future service potential
28
Calc the accumulated depreciation PPE equipment retirement?
First we already have the depreciation expense of 55,000 55,000 depreciation exp 30,000 accumulated depreciation = 25,000 400,000 - 370,000 = 30,000
29
calc, the net accumulated depreciation using sum of the years digits method?
Year 1 450,000 purchase machine - 50,000 salvage value = 400,000 x (4/10) = 160,000 Year 2 450,000 purchase machine - 50,000 salvage value = 400,000 x (3/10) = 120,000 Accumulated depreciation 280,000
30
calc the depreciation expense for the equipment year 2?
Step 1 - calc the depreciation periodic rate since we are calc the declining balance method 100% / 10 years = 10% x 2 = 20% Step 2 - Use the equipment cost and multiple the decline balance method to calc equipment cost 100,000 x 20% = 80,000 Step 3 - calc the 80,000 x 20% = 16,000 depreciation expense for year 2
31
Calc, the depreciation expense for year 4 asset B using the sum of the years digits method?
Cost 55,000 Salvage10,000 5+4+3+2+1 = 15 = 45,000 * 2/15 = 6000 depreciation expense for year 4
32
Calc, the depreciation exp for year 1 using the double decline method?
Step 1 calc the periodic depreciation expense 100% / 10 = 10% x 2 = 20% Step 2 - equipment cost 60,000 x 20% = 12,000 depreciation expense
33
The cost incurred in connection with the machine purchased for use in a company manufacturing operations would be capitalized?
Both the insurance on machine while in transit and testing and preparation of machine for use
34
Calc, the depreciation expense on machine
Year 1 88,000 x 5/15 = 29,333 Year 2 88,000 x 4/15 = 23,467 Year 3 88,000 x 3/12 = 17,600 Accumulated Depreciation 70,400 Book Value beginning 94,000 cost - 70,400 = 14,800
35
Calc the depreciation base used by the owners?
Used Equipment 135,000 - Salvage value 15,000 = 120,000 depreciated base
36
Lowest reported net income in the early life of a depreciated asset ?
The sum of the years digits depreciation method has the lowest reported NI in the early life depreciation asset
37
Calc, the accumulated Depreciation ?
Part 1 purchased machine 264,000 YEARS OLD ESTIMATED 8 DEPRECATION PER YEAR 33,000 DEPREICATION PER YEAR 33,000 YEARS 3 99,000 Part 2 Purchased machine 264,000 Salvage value 24,000 DEPRECIABLE BASE 240,000 ACCUMULATED DEPREICATION 99,000 141,000 YEARS REVISED ESTIMATED 3 DEPREICATION EXP 47,000 ACCUMULATED DEPRECATION 47,000 + 99,000 = 146,000
38
Calc, the building CV in the balance sheet?
Cost 840,000 Years 20 years lease = 42,000 Cost 840,000 - 42,000 = 798.000 CV for the building
39
How are PPE are conventionally presented in the balance sheet?
Historical cost less depreciated portion thereof
40
When should long lived assets be tested for recoverability?
When events or changes in circumstances indicate that is Carrying amount may not be recoverable
41
If Long Lived Asset satisfies the criteria for classification as held for sale?
it's not depreciated
42
How are Disposal group long lived asset held for sale reported?
A&L of the disposal group are reported separately in the balance sheet
43
When held for sale is reclassified as held and used how is the asset measured ?
the carrying amount before the asset was classified as held for sale, minus any depreciation has been recognized if the asset has been held for used the FV at the date of the decision not to sell
44
can building be reclassfied as current asset instead of non current?
Yes the asset can be held for sale and will be reported on the BS as held for sale
45
Where are impairment loss of noncurrent assets reported?
recognized in earnings FV minus cost to sale
46
Calc, the gain or loss being reported of the van in its income statement for the year?
to calc the gain and loss on on involuntary conversion we need know the difference between the CV and the proceeds CV - 2500 + capitalized cost 700 = 3200 3500 - 3200 = 300 gain disposal of the van in the income statement for the year
47
Calc the accumulated depreciation for equipment?
Year 1 - 50,000 x 40% = 20,000 Year 2 - 50,000 - 20,000 = 30,000 * 40% = 12,000 Year 3 - 50,000 - 20,000 - 12,000 / 3 = 6000 Y1 - 20,000 + Y2 - 12,000 + Y3 - 6000 = 38,000 accumulated depreciation for year 3
48
calc the gain or loss on involuntary conversion equal disposal on the income statement?
to calc the gain or loss of involuntary conversion equal to the difference between the proceeds and the Carrying amount Carrying Amount 2500 + capitalized cost 700 = 3200 3500 - 3200 = 300
49
Which depreciation method will result in lowest reported net income in the early life of a depreciation asset?
sum of the year digits depreciation method will result
50
Calc the depreciation expense using the double decline method?
Cost 100,000 Accumulated depreciation 64,000 36,000 double decline rate is 100% / 5 = 0.20 x 2 = 40% Step 3 is to multiple the Carrying Amount by the rate Step 4 Final Step 36,000 x 40% = 14,400 Annual depreciation expense
51
Calc the amount that should be capitalized for machine?
Remember when calc the machine anything capitalized remember that we add everything that Purchase of stapling attachment 84,000 Installation of attachment. 36,000 replacement parts for overhaul 26,000 labor and. overhead in connectio. 14,000 amount that should be capitalized 160,000
52
are interest and advertising included in general and administrative expense?
neither interest or adversting are included in G&A expense
53
Calc, the amount of amortization expense that should be recorded?
To calc the amortization expense we are using the straight line amortization method Paid 50,000 signed to sell the asset 10,000 40,000 years 10 Amortization Expense 4,000
54
Are trademark recorded as indefinite or finite useful life?
indefinite useful life that means this asset isn't amortized
55
calc the amount the patent should be amortized?
Note remember when you need to amortize the patent you use the useful life which is the shortest Cost of the patent 17,000 Useful life 10 Amortize over the shorter of its useful life or legal life 1700 July 1st 6 12 850 The patent should be reported for the patent 16,150
56
What are the reporting basis to classify assets?
12 months
57
calc the amount the patent should be capitalized?
Patent license 40,000 successful right of patent 50,000 90,000
58
Calc, the capitalized costs of the machinary?
For machinary anything that can increase the quality or quantity of a machine output needs to be capitalized Purchase collating staping attachment 84,000 Installation of attachment 36,000 Replacement parts for overhaul 26,000 Labor and overhead in with overhaul. 14,000 =. 160,000 All of these expenditure assit the quality and quantity of the machinary
59
What is a permanent differences?
Permanent differences NOT taxable or deductible in the amounts in the future Tax penalties paid to tax authorities
60
What is temporary differences?
basically items that are taxable and the deductible amounts Ex - Prepaid insurance Warranty payable
61
Calc the deferred tax asset and the valuation allowance?
First to calc the deferred tax asset. you need to Have the carrying forward which is 180,000 Next you need to multiple the tax rate x. 30% Deferred Tax Asset 54,000 Next we need to calc the valuation allowance To start off you need future realization 100,000 Next you need to multiple the tax rate x. 30% Valuation Allowance 24,000
62
The following that would result in deferred tax asset for the current year?
expenses that are recognized in financial income this year and deductible next year results in future deductible amount
63
When an asset is classified as held for sale has been reclassified as held and used. the asset is measured at the
When an asset is reclassified as held and used it is remeasured individually at the carrying mount before the asset was classified as held for used 2 the fair value at the date of the decision not to sell
64
Which of the following should be expensed as incurred by the franchisee for a franchise with an estimated useful life of 10 years?
the periodic payments would to the franchisor would be considered revenue based on the franchisee's
65
Calc, the depletion of its cost of goods sold for the mineral mine?
Purchase price is 3,600,000 minus Residual Value 360,000 Add: Development cost 1,080,000 = Depletion based 4,320,000 Divide estimated recoverable / 2,160,000 Depletion charge per ton 2.00 240,000 tons sold x 2 per ton = 480,000 depletion cost of goods sold
66
A company purchased real property in Year 1. In Year 3, the city where the property is located assessed taxes for sidewalks. How should company purchased treat the accrued taxes for this local improvement?
the company should capitalize the taxes by adding them to the property's adjustment basis
67
Calc, the Carrying amount of the machine reported in the balance sheet?
STEP 1 CALC THE DEPRECIATION EXPENSE FOR YEAR 1 COST 140,000 DOUBLE DECLINING 0.25 DEPREICATION EXPENSE 35,000 STEP 2 - CALC THE CARRYING AMOUNT Y1 COST 140,000 DEPREICATION EXPENSE 35,000 CARRYING AMOUNT 105,000 STEP 3 - CALC DEPRECIATION EXPENSE Y2 CARRYING AMOUNT Y1 105,000 DOUBLE DECLINING 0.250 DEPRECIATION EXPENSE YEAR 2 26,250 STEP 4 - CALC CARRYING AMOUNT Y2 COST 105,000.000 DEPRECIATION EXPENSE YEAR 2 26,250 CARRYING AMOUNT FOR Y2 78,750
68
calc the insurance expense and the prepaid insurance?
To start off Prepaid insurance 7200 / 36 12*3 = 36 = 200 per month prepayment accounts 200 + 300 unadjusted trail balance = 500 Step 2 unexpired amount is 7000 prepaid insurance
69
Calc, the trademark intial asset recognition criteria?
for the trademark We add the one time trademark purchase price 100,000 Nonrefundable 5000 Legal fees costs 10,500 = 115,500 recognized an asset in the amount
70
What impact does the tax rate have on understatement of accumulated depreciation?
The tax rate doesn't have an affect on the understatement of accumulated depreciation
71
Calc, the interest capitalized for the PP&E?
Purchased 120,000 x 12 months / 12 months = 120,000 Progress payment 150,000 x 4 /12 = 50,000 120,000 + 50,000 = 170,000 x 10% interest rate = 17,000
72
Calc, interest rate capitalized interest on the construction?
6,000,000 / 14,000,000 x .08 = 3.44% 8,000,000 / 14,000,000 x .09 = 5.14% = 8.57%
73
calc, the realize cash receipts from bond insurance?
200 issued x 1000 bonds = 200,000 200,000 x 1.03 = 206,000 200,000 x 9% x 2/12 (Jan - March) = 3,000 accured interest 206,000 bond proceeds + accrued interest 3,000 + 10,000 BIC
74
Calc, the amount received from bond insurance ?
Note whenver we are required to calc a bond insurance question we need to first calc the bond proceeding ,and accrued interest. this is the formula for all these type of problems whether it's premium or discount To start off calc the bond proceeding bonds 600 x 1000 face amount = 600,000 Step 3 is to calc the accrued interest 600,000 x 99 = 594,000 Step 4 600,000 x 10% x 3 /12 = 15,000 Final Step add the 594,000 + 15,000 = 609,000
75
Calc, the depreciation expense for the equipment ?
start off with periodic rate 100% / 10 years = 10% x 2 = 20% Assets historial cost 100,000 x 20% = 20,000 depreciation expense for Y1 step 2 calc the depreciation expense Y2 100,000 - depreciation expense Y1 = 80,000 x 20% depreciation rate including the double decline rate 16,000 depreciation expense Y2
76
Calc, the interest capitalized on the project equals weighted average accumulated expenditure AAE?
4/30/16 500,000 X 3 /12 = 125,000 AAE 5/31/16 800,000 - 500,000 = 300,000 x 2 /12 = 50,000 6/30/16 1,500,000 - 800,000 = 700,000 x 1 / 12 = 58,333 125,000 + 50,000 + 58,333 = 233,333 x 5% = 11,666
77
calc, the gain or loss on the disposal of machine?
90,000 depreciation x 0.5 years / 10 years is the useful life of the machine 90,000 x 0.5 years / 10 years = 4500 sold machine 5000 - 4500 = 500 gain
78
Calc, the asset carrying amount as of december 31, year 4?
equipment 20,000 salvage value 2,000 depre base 18,000 4 - 3 = 1 4+3+2+1 = 10 18,000 x 1 / 10 = 1800 depreciation for the last year + 2000 salvage value = 3,800
79
Calc, the cost of the land account?
Purchased land for 400,000 Cost of raze 50,000 Legal fee. 10,000 Title guarantee 12,000 proceeds from salvaged material (8,000) 464,000 land account
80
Calc, the cost of depreciation expense using the double decline method for Year 2?
Cost 240,000 x (100% / 10 years) 192,000 x 0.8 = 192,000 x 20% = 38,400 depreciation expense
81
Calc, the cost of the building?
Building 150,000 Total 250,000 = 60% 200,000 x 60% = 120,000 cost of the building
82
To determine whether to recognize the impairment of a depreciable fixed asset, a company must compare the
Carrying amount of the asset and the undiscounted future cash flows expected to be generated by the asset
83
Calc, the accumulated depreciation of the quarry report for the machine?
864,000 purchase price - the salvage value 72,000 = 792,000 Quarry manufacuring 300,000 / 1,800,000 units = 0.166 = 792,000 x 0.166 = 132,000 accumulated depreciation
84
Calc, the accumulated depreciation property, plant, equipment retirements for year 2?
Depreciation Expense 55,000 - 30,000 = 25,000
85
Calc, intangible asset franchise net of related amortization Dec 31, Year1?
Purchased a franchise 60,000 / 5 years = 12,000 60,000 - 12,000 = 48,000 amortization for the franchises
86
Calc, capitalized interest on the construction?
6,000,000 + 8,000,000 = 14,000,000 6,000,000 / 14,000,000 x .08% = 3.43% 8,000,000 / 14,000,000 x 0.09% = 5.14% 3.43% + 5.14% = 8.57%
87
Calc, the accumulated depreciation for the machinary? using the
170,000 cost 20,000 salvage value = 150,000 x 12 /15 = 120,000 the 12 is coming from the 5 4 3 2 1 So for year 3 we (5+4+3) = 12 and the 15 is the total of the sum (5+4+3+2+1) = 15
88
Calc, depreciation expense for equipment?
a change from the estimated useful life for the first 4 years 46,000 cost - 1,000 salvage value = 45,000 / 12 years = 3,750 depreciation Step 2 - calc the Carrying amount Carrying Amount 46,000 - (3,750 x 4) = 31,000 carrying amount Step 3 - carrying amount 31,000 - 1,000 salvage value = 30,000 / 10 years - 4 years = 6 30,000 / 6 years = 5,000 depreication expense
89
Is the straight line and productive output apart of the original cost of the asset under the depreciation method?
Straight Line and productive outputs are both NO
90
Calc, the sum of the digits (SYD) method for Year 4 for Asset B?
Cost - 55,000 Salvage 10,000 = 45,000 (1+2+3+4+5) * 2 / 15 = 6,000
91
Calc, the carrying amount of the machine in the balance sheet at the end of its second year?
Step 1 - is to calc the percentage with double decline balance To calc that we need the following things which is mentioned in the problem useful life 8 100% double decline 2 100% x 8 useful life x 2 = 25% Step 2 - calc the depreciation expense and carrying amount for year 1 purchase the equipment for 140,000 x 25% 35,000 depreciation expense 140,000 - 35,000 = 105,000 carrying amount for year 1 Step 3 - calc the dep expense & carrying amount for year 2 carrying amount 105,000 x 25% = 26,250 depreciation expense carrying amount 105,000 - 26,250 = 78,750 carrying amount
92
Calc, interest cost should be capitalized?
Interest incurred during the building is used as the interest cost 40,000
93
Calc, the depreciation expense for the machine using the straight line method?
48,000 machine purchased 12. useful life = 4000 x 5 (since we are looking for year 6 and one year is cut off so we multiply by 5) 20,000 accumulated depreciation 48,000 - 20,000 = 28,000 / 10 = 2800 depreciation expense for year 6
94
Calc, the interest costs capitalize during the current year?
1,000,000 x0.08 = 80,000
95
Straight line depreciation method?
Group depreciation and Composite Depreciation (YES)
96
Calc, the depreciation expense for year 4 using the sum of the year digits?
So remember to calc the depreciation expense using the sum of the year Cost - salvage value and the the useful life of the machine is 5 5 4 3 2 1 15 Year 1 - 88,000 x 5 / 15 = 29,333 Year 2 - 88,000 x 4/15 = 23,467 Year 3 - 88,000 x 3/15 = 17,600 = 70,400 accumuluted depreciation 94,000 - 70,400 = 23,600 - 8800 = 14,800 depreciation expense for Year 4
97
Depreciation computed on the original cost less estimated salvage value under the
Productive Output "Yes" Double declining balance "No"
98
If a old building is being actively marketed for sale and the company expects to complete the sale in 4 months how should this be reported
the old building will be valued as historical cost don't mistake it for current asset since the old building is reclassified as an asset held for sale it will still be presented on the balance sheet as current assets
99
A company used the composite depreciation method for its fleet of trucks, cars, and campers retired one its truck and received cash from a salvage. The net carrying amount of these asset accounts was decreased by the
Cash proceeds received
100
Calc, the land ?
Purchase 400,000 Cost raze old build. 50,000 legal fees record 10,000 Title guarantee 12,000 salvaged materials 8,000 400,000 + 50,000 + 10,000 + 12,000 - 8,000 = 464,000 land
101
when is the straight line method most appropriate to use?
an assets service potential declines with the passage of time
102
when is the units of production most appropriate to use?
when an assets potential declines with use
103

Financial Accounting Reporting (25 decks)

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