I. ABC Co. is engaged in a lawsuit and a loss is probable and reasonably estimab
ID: 2562920 • Letter: I
Question
I. ABC Co. is engaged in a lawsuit and a loss is probable and reasonably estimable within a range of $200,000 to $400,000. Under U.S. GAAP, the amount of loss that should be recorded is: a. $400,000. b. $300,000. c. $200,000. d. None of the above.
II. James Co. purchased equipment on October 7, 20X4 for $100,000. The equipment has an estimated salvage value of $4,000 and the estimated units of output that the equipment will provide is 10,000 units. The company uses the units of output depreciation method. During 20X4, 500 units were produced. During 20X5, 1,100 units were produced. What was the book value of the equipment as of December 31, 20X5?
a. $84,640. b. $89,440. c. $95,200. d. $80,640
III. James Co. purchased equipment on October 7, 20X4 for $100,000. The equipment has an estimated salvage value of $4,000 and the estimated units of output that the equipment will provide is 10,000 units. The company uses the units of output depreciation method. During 20X4, 500 units were produced. During 20X5, 1,100 units were produced. What was the book value of the equipment as of December 31, 20X5?
a. $84,640. b. $89,440. c. $95,200. d. $80,640
Explanation / Answer
I. C.$ 200,000 is correct.
A contingent liability which is probable and estimable must be recognized. If all amounts within a range of values are equally likely, then the lowest amount in the range is the measurement
amount. so a contingent liability of $200,000 should have been recorded.
II. a. $84,640
III. a $ 84,640.
Same as above question.
Depreciation under units of output depreciation method Formula = Cost of Asset - Salvage value / No.of Units output =$100,000 - $4,000/ 10,000 units = $ 9.6 per unit Purchase cost of Equipment 100,000 Depreciation for 2014 - 500 units @ $ 9.6 4,800 Book Value of Equipment as of December 31, 2014 95,200 Depreciation for 2015 - 1100 units @ $ 9.6 10,560 Book Value of Equipment as of December 31, 2015 84,640