Chapter 11: Q12Q (page 583)
If Remmers, Inc. uses the composite method and its composite rate is 7.5% per year, what entry should it make when plant assets that originally cost \(50,000 and have been used for 10 years are sold for \)14,000?
No gain or loss is recognized under the composite method.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
(Depreciation Computation—Addition, Change in Estimate) In 1990, Herman Moore Company completed the construction of a building at a cost of \(2,000,000 and first occupied it in January 1991. It was estimated that the building will have a useful life of 40 years and a salvage value of \)60,000 at the end of that time.
Early in 2001, an addition to the building was constructed at a cost of \(500,000. At that time, it was estimated that the remaining life of the building would be, as originally estimated, an additional 30 years and that the addition would have a life of 30 years and a salvage value of \)20,000.
In 2019, it is determined that the probable life of the building and addition will extend to the end of 2050, or 20 years beyond the original estimate.
Instructions
(Composite Depreciation) Presented below is information related to LeBron James Manufacturing Corporation.
Asset | Cost | Estimated Salvage | Estimated Life (in years) |
A | \(40,500 | \)5,500 | 10 |
B | 33,600 | 4,800 | 9 |
C | 36,000 | 3,600 | 9 |
D | 19,000 | 1,500 | 7 |
E | 23,500 | 2,500 | 6 |
Instructions
Walkin Inc. is considering the write-down of its long-term plant because of a lack of profitability. Explain to the management of Walkin how to determine whether a write-down is permitted.
It has been suggested that plant and equipment could be replaced more quickly if depreciation rates for income tax and accounting purposes were substantially increased. As a result, business operations would receive the benefit of more modern and more efficient plant facilities. Discuss the merits of this proposition.
Companies following international accounting standards can revalue fixed assets above the assets’ historical costs. Such revaluations are allowed under various countries’ standards and the standards issued by the IASB. Liberty International, a real estate company headquartered in the United Kingdom (U.K.), follows U.K. standards. In a recent year, Liberty disclosed the following information on revaluations of its tangible fixed assets. The revaluation reserve measures the amount by which tangible fixed assets are recorded above historical cost and is reported in Liberty’s stockholders’ equity.
Liberty International Completed Investment Properties Completed investment properties are professionally valued on a market value basis by external valuers at the balance sheet date. Surpluses and deficits arising during the year are reflected in the revalution reserve. |
Liberty reported the following additional data. Amounts for Kimco Realty (which follows GAAP) in the same year are provided for comparison.
Liberty (pounds sterling, in thousands) | Kimco (dollars, in millions) | |
Total revenues | £ 741 | $ 517 |
Average total assets | 5,577 | 4,696 |
Net income | 125 | 297 |
Instructions
How do these companies compare on these performance measures?
What do you think about this solution?
We value your feedback to improve our textbook solutions.
