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AirBoss of America Financial Statements What types of fixed assets does AirBoss have and what are the useful lives? How much goodwill did AirBoss report

AirBoss of America Financial Statements

  • What types of fixed assets does AirBoss have and what are the useful lives?

  • How much goodwill did AirBoss report in 2019 and how much was reported in 2020? What is goodwill and why did it increase?

  • How are intangible assets amortized according to AirBoss? What was the net carrying amount of intangible assets in 2020? What is an example of an intangible asset that has an indefinite life and how is it amortized?

  • Accounting for property, plant, and equipment, intangible assets, and goodwill requires many estimates and the exercise of judgement by a companys management. Refer to note 2; on what basis does AirBoss uses estimates and judgements?

  • Suppose AirBoss made different estimates in its financial statements in particular as it relates to long lived assets. How would the financial statements be affected? What difference would it make if different estimates were made? Consider the stakeholders when answering.

Part II:

  • Trouble Water Corporation paid $270,000 to purchase equipment for use in its manufacturing operations. In addition, Trouble Water Corporation incurred the following expenditures relating to the equipment:

$1,500 freight to have the equipment shipped to its manufacturing facility

$750 insurance while the equipment was in transit

$3,200 for special steel and concrete reinforcements used to house the equipment in the factory

$1,200 for a one-year insurance policy on the equipment after it has been installed

$300 to test the equipment before it is placed in service

$400 for maintenance costs during the first year of service

Required:

Calculate the cost of the equipment that would be capitalize on the balance sheet.

  • Small Valley Ltd. purchased machinery on January 2, 2015, at a total cost of $85,000. The machinery's estimated useful life is 8 years or 60,000 hours, and its residual value is $5,000. The tax rate for CCA is 30%. During 2015 and 2016, the machinery was used 7,000 and 7,500 hours, respectively.

Required:

  • Compute depreciation under straight-line, units-of-production, and declining-balance methods for 2015 and 2016.

  • If managements objective in 2015 is to maximize income which method would you prefer? If it was income smoothing which method would you prefer?

  • It was decided in 2015 that Small Valley would use the straight-line method of depreciation. In December 30, 2016 Small Valley sold the equipment for $55,000 cash. Prepare ALL journal entries relating to the equipment and disposal in 2016. (Hint depreciation should be taken prior to recording the sale)

  • It was decided in 2015 that Small Valley would use the deminishing balance method of depreciation. In December 30, 2016 Small Valley sold the equipment for $55,000 cash. Prepare ALL journal entries relating to the equipment and disposal in 2016.

  • Looking at your answers in part c) and d) explain why there was a difference in the gain or loss recorded from the sale of the equipment.

  • After a meeting with upper management Mr. Robot Ltd. (Mr. Robot) concluded they would need a new super computer to reduce their production time and cost of the company's current production process. On January 2016 they purchased a new super computer for $150,000. The computer was estimated to have a six-year useful life and a residual value of $15,000. In February 2020, Mr. Robot paid $98,000 to overhaul the entire computer system. The overhaul upgraded to the latest technology and extended its useful life by an additional two years. In May 2020, the computer broke down and required servicing to get it to operate properly. The servicing cost $10,000. Mr. Robot's year-end is December 31. The estimated residual value remained $15,000, unchanged throughout the period.

Required:

  • Provide the journal entry to record the purchase of the equipment in January 2016.
  • How would you account for the overhaul done in February 2020? Explain your reasoning.
  • How would you account for the servicing done in May 2020? Explain.
  • What effect would the events in (b) and (c) have on Mr. Robot's depreciation expense?
  • What would be the depreciation expense in each year of the equipment's life, assuming that Mr. Robot uses straight-line depreciation?

  • Innovative Inc. has a piece of equipment with a carrying amount of $175,000. Technology has changed, indicating that the machine may be impaired. A new machine with updated technology could be purchased for $350,000. A used machine of similar vintage is listed on-line for $160,000. The expected future cash flows from continuing to use the asset are $148,000. The estimated value if the company sold the asset less commission costs is $155,000.

Required:

  • What is the recoverable amount?
  • What is the amount of impairment?

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