Please answer the following questions:
Question #1 (5 marks)
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 (10 marks)
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
|
0
|
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.