E11-4 (Depreciation Computations—Five 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 = 5510/55 x $264,000 x 1/3 = $ 16,0009/55 x $264,000 x 2/3 = $28,800Total 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 = $29,760Total for 2013 = $18,600 + $29,760 = $48,360

E11-9 (Composite Depreciation) Presented below is information related to Morrow Manufacturing Corporation.

Machine Cost Estimated Salvage Value Estimated Life (in years)

A $40,500 $5,500 10

B 33,600 4,800 9

C 36,000 3,600 8

D 19,000 1,500 7

E 23,500 2,500 6

Instructions

(a) Compute the rate of depreciation per year to be applied to the machines under the composite method.

Asset Cost Estimated Salvage Depreciable Cost Life Estimated Depreciation

A $40,500 $5,500 $35,000 10 $3,500

B 33,600 4,800 28,800 9 3,200

C 36,000 3,600 32,400 8 4,050

D 19,000 1,500 17,500 7 2,500

E 23,500 2,500 21,000 6 3,500

$152,600 $17,900 $134,700 $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 16,750Accumulated 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 5,000Accumulated Depreciation-Equipment 14,000Equipment 19,000

E11-11 (Depreciation—Change 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 chargeBook value as of 1/1/2013 ($52,000 – ($6,000 x 5) = $22,000Remaining useful life, 5 years (10 years – 5 years)Revised salvage value, $4,500($22,000 - $4,500 / 5 = $3,500

Depreciation Expense 3,500Accumulated 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 $9,000,000

Accumulated depreciation to date 1,000,000

Expected future net cash flows 7,000,000

Fair value 4,400,000

Instructions

(a) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2012.

Loss on impairment 3,620,000Accumulated Depreciation Equipment 3,620,000

Computation:Cost $9,000,000Accumulated Depreciation (1,000,000)Carrying amount 8,000,000Less: Fair value 4,400,000Add: Cost of disposal 20,000Loss on impairment $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 700,000Recovery of Loss on Impairment 700,000

ComputationFair value $5,100,000Less: Cost of disposal 20,000

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