Part - 1

P11-2 (L01,2) (Depreciation for Partial PeriodsSL, Act., SYD, and Declining-Balance)

The cost of equipment purchased by Charleston, Inc., on June 1, 2017, is $89,000. It is estimated that the machine will have a $5,000 salvage value at the end of its service life. Its service life is estimated at 7 years, its total working hours are estimated at 42,000, and its total production is esti-mated at 525,000 units. During 2017, the machine was operated 6,000 hours and produced 55,000 units. During 2018, the machine was operated 5,500 hours and produced 48,000 units.

Instructions

Compute depreciation expense on the machine for the year ending December 31, 2017, and the year ending December 31, 2018, using the following methods.

(a) Straight-line.

(b) Units-of-output.

(c) Working hours.

(d) Sum-of-the-years'-digits.

(e) Declining-balance (twice the straight-line rate)

Part - 2

P11-6 (L04) (Depletion, Timber, and Unusual Loss)

Conan O'Brien Logging and Lumber Company owns 3,000 acres of tim-berland on the north side of Mount Leno, which was purchased in 2005 at a cost of $550 per acre. In 2017, O'Brien began selec-tively logging this timber tract. In May 2017, Mount Leno erupted, burying the timberland of O'Brien under a foot of ash. All of the timber on the O'Brien tract was downed. In addition, the logging roads, built at a cost of $150,000, were destroyed, as well as the logging equipment, with a net book value of $300,000.

At the time of the eruption, O'Brien had logged 20% of the estimated 500,000 board feet of timber. Prior to the eruption, O'Brien estimated the land to have a value of $200 per acre after the timber was harvested. O'Brien includes the logging roads in the depletion base.

O'Brien estimates it will take 3 years to salvage the downed timber at a cost of $700,000. The timber can be sold for pulp wood at an estimated price of $3 per board foot. The value of the land is unknown, but must be considered nominal due to future uncertainties.

Instructions

(a) Determine the depletion cost per board foot for the timber harvested prior to the eruption of Mount Leno.

(b) Prepare the journal entry to record the depletion prior to the eruption.

(c) If this tract represents approximately half of the timber holdings of O'Brien, determine the amount of the unusual loss due to the eruption of Mount Leno for the year ended December 31, 2017.

Part - 3

P11-9 (L03) (Impairment)

Roland Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2016 for $10,000,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2017, new technology was introduced that would accelerate the obsolescence of Roland's equipment. Roland's controller estimates that expected future net cash flows on the equipment will be $6,300,000 and that the fair value of the equipment is $5,600,000. Roland intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Roland uses straight-line depreciation.

Instructions:

(a) Prepare the journal entry (if any) to record the impairment at December 31, 2017.

(b) Pre any journal entries for the equipment at December 31, 2018. The fair value of the equipment at December 31, 2018, is estimated to be $5,900,000.

(c) Repeat the requirements for (a) and (b), assuming that Roland intends to dispose of the equipment and that it has not been disposed of as of December 31, 2018.