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