Assignment #6
Question #1
1 Grover Inc wishes to use the revaluation model for this property:
Before Revaluation
Building Gross Value 120,000
Building Accumulated Depreciation 40,000
Net carrying value 80,000
The fair value for the property is $100,000. What amount would be booked to the 'accumulated depreciation' account if Grover chooses to use the proportional method to record the revaluation?
A) $0
B) $10,000 debit
C) $10,000 credit
D) $20,000 credit
2. What impairment, if any, exists on these product lines?
Product A Product B
Original cost $7,222,000 $12,536,000
Accumulated depreciation 2,500,000 4,200,000
Fair value 5,062,000 8,916,000
Costs to sell 90,000 340,000
Value in use 4,375,000 8,100,000
A) Product A Product B $0 $0
B) Product A Product B $347,000 0
C) Product A Product B 0 236,000
D) Product A Product B 347,000 236,000
3 The following information is available about George Inc's discontinued operations:
Profit attributable to discontinued operations (before taxes) $1,500,000
Net gain on disposal 200,000
Income taxes attributable to discontinued operations 100,000
What amount will be presented on George's statement of comprehensive income?
A) $1,400,000
B) $1,500,000
C) $1,600,000
D) $1,700,000
4 Based on the following information, what is the impairment booked at December 31, 2012?
Cost $750,000
Accumulated depreciation 300,000
Value in use (sum of discounted cash flows) 300,000
Fair value 200,000
Disposal costs 15,000
A) $150,000
B) $185,000
C) $300,000
D) $450,000
5 Smith Inc wishes to use the revaluation model for this property:
Before Revaluation
Building Gross Value 120,000
Building Accumulated Depreciation 40,000
Net carrying value 80,000
The fair value for the property is $150,000. What amount would be booked to the 'accumulated depreciation' account if Smith chooses to use the proportional method to record the revaluation?
A) $0
B) $35,000 debit
C) $35,000 credit
D) $70,000 credit
Question 2
Due to increased competition from low-cost foreign manufacturers, Genevive's Toy Company is experiencing significant declines in sales. The company produces its toys from an assembly line. The equipment in this assembly line has not been previously revalued or impaired. For the year ending December 31, 2010, the controller gathered the following information relating to the assembly line equipment, which is considered to be a cash generating unit:
Original cost $6,379,000
Accumulated depreciation 2,400,000
Fair value 3,247,000
Costs to sell 145,000
Risk adjusted cost of capital 6%
Incremental cash flows for
-2011 $1,100,000
-2012 1,000,000
-2013 800,000
-2014 900,000
-2015 and thereafter
Requirement:
Determine whether the assembly line is impaired, and if so, the amount of the impairment. If there is an impairment, prepare the adjusting journal entry.