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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
Q

Qualification, for a new office building qualify for capitalization of interest?

A

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

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26
Q

How should fixed asset be replaced?

A

it should be recorded at it’s purchase price and plus incidents costs necessary to make the asset ready for intended use

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27
Q

Should rearrangement expenditure benefits future periods should be capitalized?

A

it should be capitalized and the building modification costs improve future service potential

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28
Q

Calc the accumulated depreciation PPE equipment retirement?

A

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

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29
Q

calc, the net accumulated depreciation using sum of the years digits method?

A

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

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30
Q

calc the depreciation expense for the equipment year 2?

A

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

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31
Q

Calc, the depreciation expense for year 4 asset B using the sum of the years digits method?

A

Cost 55,000
Salvage10,000

5+4+3+2+1 = 15

= 45,000 * 2/15 = 6000 depreciation expense for year 4

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32
Q

Calc, the depreciation exp for year 1 using the double decline method?

A

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

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33
Q

The cost incurred in connection with the machine purchased for use in a company manufacturing operations would be capitalized?

A

Both the insurance on machine while in transit and testing and preparation of machine for use

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34
Q

Calc, the depreciation expense on machine

A

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

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35
Q

Calc the depreciation base used by the owners?

A

Used Equipment 135,000 - Salvage value 15,000

= 120,000 depreciated base

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36
Q

Lowest reported net income in the early life of a depreciated asset ?

A

The sum of the years digits depreciation method has the lowest reported NI in the early life depreciation asset

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37
Q

Calc, the accumulated Depreciation ?

A

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

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38
Q

Calc, the building CV in the balance sheet?

A

Cost 840,000
Years 20 years lease

= 42,000

Cost 840,000 - 42,000 = 798.000 CV for the building

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39
Q

How are PPE are conventionally presented in the balance sheet?

A

Historical cost less depreciated portion thereof

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40
Q

When should long lived assets be tested for recoverability?

A

When events or changes in circumstances indicate that is Carrying amount may not be recoverable

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41
Q

If Long Lived Asset satisfies the criteria for classification as held for sale?

A

it’s not depreciated

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42
Q

How are Disposal group long lived asset held for sale reported?

A

A&L of the disposal group are reported separately in the balance sheet

43
Q

When held for sale is reclassified as held and used how is the asset measured
?

A

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
Q

can building be reclassfied as current asset instead of non current?

A

Yes the asset can be held for sale and will be reported on the BS as held for sale

45
Q

Where are impairment loss of noncurrent assets reported?

A

recognized in earnings

FV minus cost to sale

46
Q

Calc, the gain or loss being reported of the van in its income statement for the year?

A

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
Q

Calc the accumulated depreciation for equipment?

A

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
Q

calc the gain or loss on involuntary conversion equal disposal on the income statement?

A

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
Q

Which depreciation method will result in lowest reported net income in the early life of a depreciation asset?

A

sum of the year digits depreciation method will result

50
Q

Calc the depreciation expense using the double decline method?

A

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
Q

Calc the amount that should be capitalized for machine?

A

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
Q

are interest and advertising included in general and administrative expense?

A

neither interest or adversting are included in G&A expense

53
Q

Calc, the amount of amortization expense that should be recorded?

A

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
Q

Are trademark recorded as indefinite or finite useful life?

A

indefinite useful life that means this asset isn’t amortized

55
Q

calc the amount the patent should be amortized?

A

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
Q

What are the reporting basis to classify assets?

A

12 months

57
Q

calc the amount the patent should be capitalized?

A

Patent license 40,000
successful right of patent 50,000

                                         90,000
58
Q

Calc, the capitalized costs of the machinary?

A

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
Q

What is a permanent differences?

A

Permanent differences NOT taxable or deductible in the amounts in the future

Tax penalties paid to tax authorities

60
Q

What is temporary differences?

A

basically items that are taxable and the deductible amounts

Ex - Prepaid insurance
Warranty payable

61
Q

Calc the deferred tax asset and the valuation allowance?

A

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
Q

The following that would result in deferred tax asset for the current year?

A

expenses that are recognized in financial income this year and deductible next year results in future deductible amount

63
Q

When an asset is classified as held for sale has been reclassified as held and used. the asset is measured at the

A

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
Q

Which of the following should be expensed as incurred by the franchisee for a franchise with an estimated useful life of 10 years?

A

the periodic payments would to the franchisor would be considered revenue based on the franchisee’s

65
Q

Calc, the depletion of its cost of goods sold for the mineral mine?

A

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
Q

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?

A

the company should capitalize the taxes by adding them to the property’s adjustment basis

67
Q

Calc, the Carrying amount of the machine reported in the balance sheet?

A

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
Q

calc the insurance expense and the prepaid insurance?

A

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
Q

Calc, the trademark intial asset recognition criteria?

A

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
Q

What impact does the tax rate have on understatement of accumulated depreciation?

A

The tax rate doesn’t have an affect on the understatement of accumulated depreciation

71
Q

Calc, the interest capitalized for the PP&E?

A

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
Q

Calc, interest rate capitalized interest on the construction?

A

6,000,000 / 14,000,000 x .08 = 3.44%

8,000,000 / 14,000,000 x .09 = 5.14%

= 8.57%

73
Q

calc, the realize cash receipts from bond insurance?

A

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
Q

Calc, the amount received from bond insurance ?

A

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
Q

Calc, the depreciation expense for the equipment ?

A

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
Q

Calc, the interest capitalized on the project equals weighted average accumulated expenditure AAE?

A

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
Q

calc, the gain or loss on the disposal of machine?

A

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
Q

Calc, the asset carrying amount as of december 31, year 4?

A

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
Q

Calc, the cost of the land account?

A

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
Q

Calc, the cost of depreciation expense using the double decline method for Year 2?

A

Cost 240,000 x (100% / 10 years)

192,000 x 0.8 = 192,000 x 20% = 38,400 depreciation expense

81
Q

Calc, the cost of the building?

A

Building 150,000
Total 250,000 = 60%

200,000 x 60% = 120,000 cost of the building

82
Q

To determine whether to recognize the impairment of a depreciable fixed asset, a company must compare the

A

Carrying amount of the asset and the undiscounted future cash flows expected to be generated by the asset

83
Q

Calc, the accumulated depreciation of the quarry report for the machine?

A

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
Q

Calc, the accumulated depreciation property, plant, equipment retirements for year 2?

A

Depreciation Expense 55,000 - 30,000 = 25,000

85
Q

Calc, intangible asset franchise net of related amortization Dec 31, Year1?

A

Purchased a franchise 60,000 / 5 years = 12,000

60,000 - 12,000 = 48,000 amortization for the franchises

86
Q

Calc, capitalized interest on the construction?

A

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
Q

Calc, the accumulated depreciation for the machinary? using the

A

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
Q

Calc, depreciation expense for equipment?

A

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
Q

Is the straight line and productive output apart of the original cost of the asset under the depreciation method?

A

Straight Line and productive outputs are both NO

90
Q

Calc, the sum of the digits (SYD) method for Year 4 for Asset B?

A

Cost - 55,000
Salvage 10,000

= 45,000 (1+2+3+4+5) * 2 / 15
= 6,000

91
Q

Calc, the carrying amount of the machine in the balance sheet at the end of its second year?

A

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
Q

Calc, interest cost should be capitalized?

A

Interest incurred during the building is used as the interest cost 40,000

93
Q

Calc, the depreciation expense for the machine using the straight line method?

A

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
Q

Calc, the interest costs capitalize during the current year?

A

1,000,000 x0.08 = 80,000

95
Q

Straight line depreciation method?

A

Group depreciation and Composite Depreciation (YES)

96
Q

Calc, the depreciation expense for year 4 using the sum of the year digits?

A

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
Q

Depreciation computed on the original cost less estimated salvage value under the

A

Productive Output “Yes”
Double declining balance “No”

98
Q

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

A

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
Q

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

A

Cash proceeds received

100
Q

Calc, the land ?

A

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
Q

when is the straight line method most appropriate to use?

A

an assets service potential declines with the passage of time

102
Q

when is the units of production most appropriate to use?

A

when an assets potential declines with use

103
Q
A

Financial Accounting Reporting (24 decks)

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