CHAPTER 11 IN-CLASS EXERCISE 11 (10 points) At the beginning of 2018, Robotics I
ID: 2586822 • Letter: C
Question
CHAPTER 11 IN-CLASS EXERCISE 11 (10 points) At the beginning of 2018, Robotics Inc. acquired a manufacturing facility for $12 million. $9 million of the purchase price was allocated to the building. Depreciation for 2018 and 2019 was calculated using the straight-line method, a 25-year useful life, and a S1 million residual value. In 2020, the estimates of useful life and residual value were changed to 20 years and $500,000, respectively. What is depreciation on the building for 2020? Part 2 3 points Collison and Ryder Company (C&R;) has been experiencing declining market conditions for its sportswear division. Management decided to test the assets of the division for possible impairment. The test revealed the following: book value of division's assets, $26.5 million; fair value of division's assets, $21 million; sum of estimated future cash flows generated from the division's assets, $24 million. What amount of impairment loss should C&R; recognize?Explanation / Answer
Part 1)
Depreciation per year (original) =[cost-residual value]/useful life
=[9,000,000-1,000,000]/25
= $ 320,000
Total accumulated depreciation for 2 years = 320000*2 = 640000
Book value at beginning of 2020 =cost -Accumulated depreciation
= 9,000,000-640,000
= $ 8,360,000
Remaining useful life =20-2 expired = 18
Depreciation for 2020 =[book value -residual value ]/remaining useful life
=[ 8,360,000-500,000]/18
= $ 436,666.67 per year
Part 2) Net realizable value : lower of fair value or future cash flow
= Lower of 21 or 24 million
= $ 21 million
Impairment loss :carrying value -net realizable value
= 26.5 -21
= $ 5.5 million
part c)Depreciation per year = [cost-residual value ]/useful life
= [80000 -5000]/5
= $ 15000
Depreciation for 2018 : 15000*6/12= 7500 [1 july 2018-31dec 2018]
2019 :15000
2020:15000
2021:15000
2022 :15000*3/12= 3750
Total accumulated depreciation = 7500+15000+15000+15000+3750= 56250
Date Account debit credit 31 march 2022 cash 17000 Accumulated depreciation-equipment 56250 Loss on sale of equipment 6750 Equipment 80000 [Being equipment (lathe)sold at a loss]