Reference no: EM132473983
Point 1: Bisor Company has a December 31 year end and uses straight-line depreciation for all property, plant, and equipment. On July 1, 2015, the company purchased equipment for $500,000. The equipment had an expected useful life of 10 years and no residual value. The company uses the nearest month method for partial year depreciation.
Point 2: On December 31, 2016, after recording annual depreciation, Bisor reviewed its equipment for possible impairment. Bisor determined that the equipment has a recoverable amount of $325,000. It is not known if the recoverable amount will increase or decrease in the future.
Instructions
Question (a) Prepare journal entries to record the purchase of the asset on July 1, 2015, and to record depreciation expense on December 31, 2015, and December 31, 2016.
Question (b) Determine if there is an impairment loss at December 31, 2016, and if there is, prepare a journal entry to record it.
Question (c) Calculate depreciation expense for 2017 and the carrying amount of the equipment at December 31, 2017. Calculate revised depreciation.
Lindy Weink, the new controller of Lafrenitre Company, has reviewed the expected useful lives and residual values of selected depreciable assets at December 31, 2017. (Depreciation for 2017 has not been recorded yet.) Her findings are as follows:
Total Useful Life in Years Residual Value
Type of Asset Date Acquired Cost Current Proposed Current Proposed
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Building
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Jan. I, 2002
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$800,000
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20
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30
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$40,000
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$60,500
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Equipment
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Jan. 1, 2015
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125,000
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5
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4
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5,000
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4,000
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After discussion, management agrees to accept Lindy's proposed changes. All assets are depreciated by the straight-line method. Lafreniere Company has a December 31 year end.
Instructions
Question (a) For each asset, calculate the annual depreciation expense using the original estimated useful life and residual value.
Question (b) Calculate the carrying amount of each asset as at January 1, 2017.
Question (c) For each asset, calculate the revised annual depreciation expense and the carrying amount at December 31, 2017.
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