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E11-4 (Depreciation ComputationsFive Methods) Wenner Furnace Corp. purchased machinery for $279,000 on May 1, 2012.

It is estimated that it will have a useful life of 10 years, salvage value of $15,000, production of 240,000 units, and working hours of 25,000. During 2013, Wenner Corp. uses the machinery for 2,650 hours, and the machinery produces 25,500 units. Instructions From the information given, compute the depreciation charge for 2013 under each of the following methods. (Round to the nearest dollar.) (a) Straight-line. $279,000 - $15,000 = $264,000 / 10 yrs. = $26,400 (b) Units-of-output. $264,000 / 240,000 units = $1.10 x 25,500 units = $28,050 (c) Working hours. $264,000 / 25,000 hrs. = $10.56/hr. x 2,650 hrs. = $27,984 (d) Sum-of-the-years-digits. 10+9+8+7+6+4+4+3+2+1 = 55 10/55 x $264,000 x 1/3 = $ 16,000 9/55 x $264,000 x 2/3 = $28,800 Total for 2013 = $16,000 + $28,800 = $44,800 (e) Double-declining-balance. $279,000 x 20% x 1/3 = $18,600 ($279,000 (20% x $279,000) x 20% x 2/3 = $29,760 Total for 2013 = $18,600 + $29,760 = $48,360 E11-9 (Composite Depreciation) Presented below is information related to Morrow Manufacturing Corporation. Machine A B C D E Instructions Cost $40,500 33,600 36,000 19,000 23,500 Estimated Salvage Value $5,500 4,800 3,600 1,500 2,500 Estimated Life (in years) 10 9 8 7 6

(a) Compute the rate of depreciation per year to be applied to the machines under the composite method. Asset Cost A B C D E $40,500 33,600 36,000 19,000 23,500 $152,600 Estimated Salvage $5,500 4,800 3,600 1,500 2,500 $17,900 Depreciable Cost $35,000 28,800 32,400 17,500 21,000 $134,700 Life 10 9 8 7 6 Estimated Depreciation $3,500 3,200 4,050 2,500 3,500 $16,750

Composite life = $134,700 / $16,750 = 8.04 yrs. Composite rate = $16,750 / $152,600 = 11% (b) Prepare the adjusting entry necessary at the end of the year to record depreciation for the year. Depreciation Expense 16,750 Accumulated Depreciation-Equipment 16,750 (c) Prepare the entry to record the sale of Machine D for cash of $5,000. It was used for 6 years, and depreciation was entered under the composite method. Cash 5,000 Accumulated Depreciation-Equipment 14,000 Equipment 19,000

E11-11 (DepreciationChange in Estimate) Machinery purchased for $52,000 by Carver Co. in 2008 was originally estimated to have a life of 8 years with a salvage value of $4,000 at the end of that time. Depreciation has been entered for 5 years on this basis. In 2013, it is determined that the total estimated life should be 10 years with a salvage value of $4,500 at the end of that time. Assume straight-line depreciation. Instructions (a) Prepare the entry to correct the prior years depreciation, if necessary. No correcting entry necessary because changes in estimate handled in the current and prospective periods. (b) Prepare the entry to record depreciation for 2013.

Revised annual charge Book value as of 1/1/2013 ($52,000 ($6,000 x 5) = $22,000 Remaining useful life, 5 years (10 years 5 years) Revised salvage value, $4,500 ($22,000 - $4,500 / 5 = $3,500 Depreciation Expense 3,500 Accumulated Depreciation-Equipment

3,500

E11-17 (Impairment) Assume the same information as E11-16, except that Pujols intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $20,000. Cost Accumulated depreciation to date Expected future net cash flows Fair value Instructions (a) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2012. Loss on impairment 3,620,000 Accumulated Depreciation Equipment Computation: Cost Accumulated Depreciation Carrying amount Less: Fair value Add: Cost of disposal Loss on impairment $9,000,000 1,000,000 7,000,000 4,400,000

3,620,000

$9,000,000 (1,000,000) 8,000,000 4,400,000 20,000 $3,620,000

(b) Prepare the journal entry (if any) to record depreciation expense for 2013. No entry necessary because depreciation is not taken on assets intended to be sold. (c) The asset was not sold by December 31, 2013. The fair value of the equipment on that date is $5,100,000. Prepare the journal entry (if any) necessary to record this increase in fair value. It is expected that the cost of disposal is still $20,000. Accumulated Depreciation-Equipment Recovery of Loss on Impairment 700,000 700,000

Computation Fair value Less: Cost of disposal

$5,100,000 20,000 5,080,000 Carrying amount (9,000,000-1,000,000-3,620,000) 4,380,000 Recovery impairment loss $ 700,000

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