Post on 11-Jan-2016
Review for Mid-Term II
Professor Paul R. St. John, CPA – Fullerton CollegeLesson Module ReviewTuesday, November 1, 2011
Certain Long-Lived Assets (PP&E) are regularly reduced in value by debiting
Depreciation Expense and crediting
Accumulated Depreciation as follows:
Depreciation Expense $10,000Accumulated Depreciation-Building $10,000
To record annual depreciation on building
After 10 years the balance sheet may look as follows:
Building [original cost] $450,000Less Accumulated Depreciation (100,000)
Net Book Value - Building $350,0002
Pa
ul R
. S
t.Jo
hn
, C
PA
Inv
es
tme
nts
: P
P&
E
Certain Intangible Assets are regularly reduced in value by debiting
Amortization Expense and creditingAccumulated Amortization as follows:
Amortization Expense $1,000Accumulated Amortization-Patents $1,000
To record annual amortization on 20 year patent.After 19 years the balance sheet may look as follows:Patent Costs (legal and filing cost) $20,000Less Accumulated Amortization 19,000
Net Book Value – Patent Cost $1,000Some companies credit the asset instead of the contra-
asset.
3
Pa
ul R
. S
t.Jo
hn
, C
PA
Inv
es
tme
nts
: P
P&
E
Building and Equipment are
4
Pa
ul R
. S
t.Jo
hn
, C
PA
Inv
es
tme
nt:
PP
&E
Deplete
d
Depre
ciated
Apprecia
ted
Amortize
d
Pasteuriz
ed
0%
97%
3%0%0%
1. Depleted2. Depreciated3. Appreciated4. Amortized5. Pasteurized
Intangibles are
5
Pa
ul R
. S
t.Jo
hn
, C
PA
Inv
es
tme
nt:
PP
&E
Goodwill
& Fix...
Patents
& Natu
...
Customer L
ists..
.
Breeding Cattl...
0% 3%
97%
0%
1. Goodwill & Fixtures2. Patents & Natural Gas
Wells3. Customer Lists &
Trademarks4. Breeding Cattle &
Copyrights
Original Cost less Accumulated Depreciation is the
6
Pa
ul R
. S
t.Jo
hn
, C
PA
Inv
es
tme
nt:
PP
&E
Depre
ciable Co...
Fair M
arket V
a...
Salvag
e Value
Book Value
0%
100%
0%0%
1. Depreciable Cost2. Fair Market Value3. Salvage Value4. Book Value
Original Cost less Salvage Value is the
7
Pa
ul R
. S
t.Jo
hn
, C
PA
Inv
es
tme
nt:
PP
&E
Depre
ciable Co...
Fair M
arket V
a...
Salvag
e Value
Book Value
100%
0%0%0%
1. Depreciable Cost2. Fair Market Value3. Salvage Value4. Book Value
Intangibles are
8
Pa
ul R
. S
t.Jo
hn
, C
PA
Inv
es
tme
nt:
PP
&E
Deplete
d
Depre
ciated
Apprecia
ted
Amortize
d
Pasteuriz
ed
0% 0%7%
89%
4%
1. Depleted2. Depreciated3. Appreciated4. Amortized5. Pasteurized
Journalize this Sale of PP&EThe GL shows as of 3/31/2011:• Forklift $30,000• Accumulated Depreciation – Forklift $13,000Salvage Value is $3,000Depreciation updated through 3/31/2011It is sold for $19,000 cash on 4/1/20114/1/11 Journal Entry Debit CreditCash $19,000Accmulated Depr. – Frklft 13,000 Gain/Loss of Disposition of PP&E $2,000 Forklift 30,000
9
Pa
ul R
. S
t.Jo
hn
, C
PA
Inv
es
tme
nt:
PP
&E
Acquisition of PPE includes the cost of the
Pa
ul R
. S
t.Jo
hn
, C
PA
10
1 2 3 4 5 6
0% 0%
100%
0%0%0%
1. Asset2. Shipping & insurance during
shipping3. Installation4. Initial testing5. Sales tax6. All of the above
An Operating Lease is reported on the
Pa
ul R
. S
t.Jo
hn
, C
PA
11
1 2 3
0% 0%0%
1. Income Statement2. Income Statement and Notes3. Balance Sheet, Income Statement,
and Notes
A Capital Lease is reported on the
Pa
ul R
. S
t.Jo
hn
, C
PA
12
1 2 3
0% 0%0%
1. Income Statement2. Income Statement and Notes3. Balance Sheet, Income Statement,
and Notes
Salvage value equals book value
Pa
ul R
. S
t.Jo
hn
, C
PA
13
1 2 3 4
0% 0%0%0%
1. On the acquisition date2. The date of disposition3. When fully depreciated4. Never
In Double Declining Balance when is the salvage value taken into account?
Pa
ul R
. S
t.Jo
hn
, C
PA
14
1 2 3 4
0% 0%0%0%
1. Up front2. Near the end of the depreciable life3. At disposition4. Ignored completely
GL shows Forklift $30,000, Accumulated Depreciation – Forklift $6,000 In addition the Salvage Value is $2,000 and the estimated useful life is 7 years. What is the depreciable value?
Pa
ul R
. S
t.Jo
hn
, C
PA
15
1 2 3 4 5
0% 0% 0%0%0%
1. $30,0002. $28,0003. $24,0004. $22,0005. $20,000
GL shows Forklift $30,000, Accumulated Depreciation – Forklift $6,000 In addition the Salvage Value is $2,000 and the estimated useful life is 7 years. What is the book value?
Pa
ul R
. S
t.Jo
hn
, C
PA
16
1 2 3 4 5
0% 0% 0%0%0%
1. $30,0002. $28,0003. $24,0004. $22,0005. $20,000
The GL shows Forklift $30,000, Accumulated Depreciation $6,000 In addition the Salvage Value is $2,000, SL depreciation is used and the estimated useful life is 7 years. After one more year’s depreciation, what will the book value be?
Pa
ul R
. S
t.Jo
hn
, C
PA
17
1 2 3 4 5
0% 0% 0%0%0%
1. $30,0002. $28,0003. $24,0004. $22,0005. $20,000
The GL shows Forklift $30,000, Accumulated Depreciation $16,000 In addition the Salvage Value is $3,000. What is the Gain/Loss on Disposition of PP&E if it is sold for $10,000?
Pa
ul R
. S
t.Jo
hn
, C
PA
18
1 2 3 4
0% 0%0%0%
1. $4,000 credit2. $4,000 debit3. $7,000 credit4. $7,000 debit
The GL shows Forklift $30,000, Accumulated Depreciation $16,000 In addition the Salvage Value is $3,000. What is the Gain/Loss on Disposition of PP&E if it is sold for $15,000?
Pa
ul R
. S
t.Jo
hn
, C
PA
19
1 2 3 4
0% 0%0%0%
1. $1,000 credit2. $1,000 debit3. $4,000 credit4. $4,000 debit
Research and Development Costs are to be
Pa
ul R
. S
t.Jo
hn
, C
PA
20
1 2 3
0% 0%0%
1. Capitalized per usGAAP2. Capitalized per iGAAP3. Expensed per usGAAP, but iGAAP
allows the Capitalization of the Development costs only