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Depreciation and Amortization Problem Set

1. Bay, Inc. purchased a new machine for $50,000 on March 28, 2004. The useful life was expected to be eight years and then they would sell it to the junk yard for $2,000. The machine was sold for $34,000 on October 2, 2008. Assume no depreciation in the year of purchase and a full year of depreciation in the year of sale. Assuming they use straight-line depreciation, what is the gain to be recorded at the time of sale?

2. DJ Corporation purchased a machine for $36,000, has an annual depreciation of $3,600. The machine has a book value on December 31, 2008 of $25,200. On May 1, 2009, the fair value of the machine is $23,500 and is exchanged for a similar machine with a fair value of $28,500 and the proper amount of cash is paid. What are the two journal entries need on May 1, 2009. (Hint: one is to update depreciation!)

3. The Mayfield Company purchased a tooling machine in 2000 for $30,000. The machine was being depreciated using the straight-line method over an estimated useful life of 20 years. At the beginning of 2010, when the machine had been in use for 10 years, the company paid $5,000 to overhaul the machine. As a result of this improvement, the company estimated that the useful life of the machine would be extended 5 years. What should be the depreciation expense recorded for this machine in 2010?

4. Solo Inc. bought a machine on January 1, 2000 for $100,000. The machines book value on July 1, 2010 is $52,750. Also on July 1, 2010 it is determined that the machines future cash flows totaled $50,000 and its fair value is $35,000. If no active market exists for the machine and the company does not plan to dispose of it, what should Solo, Inc. record as an impairment loss on July 1, 2010, if any?

5. In January 2010, the Julie Mine Company purchased a mineral mine for $3,400,000 with removable ore estimated at 4,000,000 tons. The property has an estimated value of $200,000 after the ore has been extracted. The company incurred $800,000 of development costs preparing the mine for production. During 2010, 400,000 tons were removed and 375,000 tons were sold. What is the amount of depletion expense that Julie Mine should record for 2010?

6. Aristotle Company acquired a machine on January 1, 2010 at a cost of $32,000. The machine has an estimated salvage value of $2,000 at the end of its 4-year useful life. The machine is estimated to be useful for a total of 10,000 hours. In 2010 the machine hours were 1,200 hours and in 2011 the machine hours were 1,400 hours. Fill in the following chart.

Depreciation Method Depr. Expense 2010 Depr. Expense 2011 Book Value December 31, 2011
Double Declining Balance
Activity Method

7. Gruber Corporation purchased a patent from Proper Corporation on January 1, 2009, at a cost of $72,000. The useful life of the patent was estimated to be 10 years. Proper Corporation's unamortized cost was $75,000. In Gruber's 2009 income statement, the amortization expense would be what? Assume Gruber Corporation owns no other intangibles.

8. On March 31, 2009 AFJ, Inc. paid $6,000,000 to acquire Jacob Corporation. Jacob Corporation's March 31, 2009 balance sheet reports $6,100,000 of assets and liabilities of $2,500,000. All of the assets on Jacob's books approximate fair value except for land, which has a fair value that is $400,000 greater than its book value. What is the excess of cost over fair value of identifiable net assets of Acquired subsidiary that AFJ, Inc. should record as a result of this purchase?

Solution Preview

1. Under straight-line depreciation, the machine is depreciated from its cost to its salvage by the same amount every year. Therefore,

Cost $50,000
Salvage value 2,000
Depreciable ...

Solution Summary

This solution illustrates how to solve various depreciation and amortization problems, including depreciating an asset using various methods, computing the gain on an asset, recording the exchange of an asset, computing impairment loss, computing depletion expense, and Goodwill .