Q1. On March 20, 2006, Foley Co. purchased machinery for $400,000. Salvage value was estimated to be $50,000. The machinery will be depreciated over 5 years and is expected to produce 10,000 units. Calculate depreciation expense for the first 2 years on this machinery using each of the following methods:
a. Straight line
b. Activity method assuming that 1,000 units were produced in 2006 and 2,300 units were produced in 2007.
c. Double-declining balance
d. Sum-of-the-years'-digits
Q2. Klein Co. purchased machinery on January 2, 2001, for $440,000. The straight-line method is used and useful life is estimated to be 10 years, with a $40,000 salvage value. At the beginning of 2007 Klein spent $96,000 to overhaul the machinery. After the overhaul, Klein estimated that the useful life would be extended 4 years (14 years total), and the salvage value would be $20,000. The depreciation expense for 2007 should be:
Q3. Mousey Company purchased a depreciable asset for $1,000,000 on May 1, 2005. The estimated salvage value is $100,000, and the estimated useful life is 10 years. The straight-line method is used for depreciation. On June 1, 2009 the asset is sold.
a. What is the balance in accumulated depreciation on when the asset is sold?
b. Record the appropriate journal entry on June 1, 2009 assuming the asset is sold for $500,000.
Q4. Geiger Co. bought an asset that had a 4 year life for $100,000. At the end of the 2nd year, Geiger Co. sold it for $60,000. This resulted in a gain of $5,000. If the company used straight-line depreciation, what was the accumulated depreciation for this asset?
Q5. Peppers Corporation owns machinery with a book value of $190,000. It is estimated that the machinery will generate future cash flows of $200,000. The machinery has a fair value of $140,000. Peppers should recognize a loss on impairment of:
Q6. On January 1, 2007, Newton Company purchased a machine costing $150,000. The machine is in the MACRS 5-year recovery class for tax purposes and has an estimated $30,000 salvage value at the end of its economic life. Assuming the company uses the general MACRS approach, the amount of MACRS deduction for tax purposes for the year 2007 is: