Plant Assets, Natural Resources, and intangibles

Exchanging plant assets Micron Precision, Inc. purchased a computer for \(2,500, debiting Computer Equipment. During 2016 and 2017, Micron Precision, Inc. recorded total depreciation of \)1,600 on the computer. On January 1, 2018, Micron Precision, Inc. traded in the computer for a new one, paying \(2,100 cash. The fair market value of the new computer is \)3,900. Journalize Micron Precision, Inc.’s exchange of computers. Assume the exchange had commercial substance.

Exchanging plant assets White Corporation purchased equipment for \(22,000. White recorded total depreciation of \)19,000 on the equipment. On January 1, 2018, White traded in the equipment for new equipment, paying \(23,200 cash. The fair market value of the new equipment is \)25,100. Journalize White Corporation’s exchange of equipment. Assume the exchange had commercial substance.

Determining the cost of assets Lawson Furniture purchased land, paying \(65,000 cash and signing a \)250,000 note payable. In addition, Lawson paid delinquent property tax of \(5,000, title insurance costing \)4,000, and \(9,000 to level the land and remove an unwanted building. The company then constructed an office building at a cost of \)400,000. It also paid \(54,000 for a fence around the property, \)12,000 for a sign near the entrance, and $8,000 for special lighting of the grounds. Requirements 

1. Determine the cost of land, land improvements, and building.
2. Which of these assets will Lawson depreciate?

Making a lump-sum purchase of assets Maplewood Properties bought three lots in a subdivision for a lump-sum price. An independent appraiser valued the lots as follows:

Maplewood paid \)355,000 in cash. Record the purchase in the journal, identifying each lot’s cost in a separate Land account. Round decimals to two places, and use the computed percentages throughout.

Handling acquisition of patent, amortization, and change in useful life Melbourn Printers (MP) manufactures printers. Assume that MP recently paid $200,000 for a patent on a new laser printer. Although it gives legal protection for 20 years, the patent is expected to provide a competitive advantage for only eight years

 Requirements

 1. Assuming the straight-line method of amortization, make journal entries to record

 (a) The purchase of the patent and

 (b) Amortization for the first full year. 

2. After using the patent for four years, MP learns at an industry trade show that another company is designing a more efficient printer. On the basis of this new information, MP decides, starting with Year 5, to amortize the remaining cost of the patent over two remaining years, giving the patent a total useful life of six years. Record amortization for Year 5.

Determining asset cost and recording partial-year depreciation, straight-line Discount Parking, near an airport, incurred the following costs to acquire land, make land improvements, and construct and furnish a small building:

 a. Purchase price of three acres of land $ 80,000

 b. Delinquent real estate taxes on the land to be paid by Discount Parking 6,300 

c. Additional dirt and earthmoving 9,000 

d. Title insurance on the land acquisition 3,200 

e. Fence around the boundary of the property 9,600

 f. Building permits for the building 1,000

 g. Architect’s fee for the design of the building 20,700 

h. Signs near the front of the property 9,300 

i. Materials used to construct the building 215,000

 j. Labor to construct the building 175,000 

k. Interest cost on the construction loan for the building 9,400 

l. Parking lots on the property 28,500 

m. Lights for the parking lots 11,200 

n. Salary of construction supervisor (80% to building; 20% to parking lot and concrete walks) 50,000 

o. Furniture 11,200

 p. Transportation of furniture from seller to the building 2,200 

q. Additional fencing 6,600 

Discount Parking depreciates land improvements over 15 years, buildings over 40 years, and furniture over 10 years, all on a straight-line basis with zero residual value’s

Requirements

 1. Set up columns for Land, Land Improvements, Building, and Furniture. Show how to account for each cost by listing the cost under the correct account. Determine the total cost of each asset. 

2. All construction was complete and the assets were placed in service on October 1. Record partial-year depreciation expense for the year ended December 31. Round to the nearest dollar

Determining asset cost, preparing depreciation schedules (3 methods), and identifying depreciation results that meet management objectives 

On January 3, 2018, Rapid Delivery Service purchased a truck at a cost of \(100,000. Before placing the truck in service, Rapid spent \)3,000 painting it, \(600 replacing tires, and \)10,400 overhauling the engine. The truck should remain in service for five years and have a residual value of $12,000. The truck’s annual mileage is expected to be 32,000 miles in each of the first four years and 8,000 miles in the fifth year—136,000 miles in total. In deciding which depreciation method to use, Andy Sargeant, the general manager, requests a depreciation schedule for each of the depreciation methods (straight-line, units-of-production, and double-declining-balance). 

Requirements 

1. Prepare a depreciation schedule for each depreciation method, showing asset cost, depreciation expense, accumulated depreciation, and asset book value. 

2. Rapid prepares financial statements using the depreciation method that reports the highest net income in the early years of asset use. Consider the first year that Rapid uses the truck. Identify the depreciation method that meets the company’s objectives.

A Recording lump-sum asset purchases, depreciation, and disposals Ellie Johnson Associates surveys American eating habits. The company’s accounts include Land, Buildings, Office Equipment, and Communication Equipment, with a separate Accumulated Depreciation account for each depreciable asset. During 2018, Ellie Johnson Associates completed the following transactions:

Record the transactions in the journal of Ellie Johnson Associate

Accounting for intangibles 

Midland States Telecom provides communication services in Iowa, Nebraska, the Dakotas, and Montana. Midland States Telecom purchased goodwill as part of the acquisition of Sheldon Wireless Enterprises, which had the following figures: 

Book value of assets \( 900,000 

Market value of assets 1,400,000 

Market value of liabilities 530,000 

Requirements

 1. Journalize the entry to record Midland States Telecom’s purchase of Sheldon Wireless for \)440,000 cash plus a $660,000 note payable.

 2. What special asset does Midland States Telecom’s acquisition of Sheldon Wireless identify? How should Midland States Telecom account for this asset after acquiring Sheldon Wireless? Explain in detail.

Question: Accounting for natural resources Conseco Oil, Inc. has an account titled Oil and Gas Properties. Conseco paid \(6,600,000 for oil reserves holding an estimated 1,000,000 barrels of oil. Assume the company paid \)570,000 for additional geological tests of the property and $450,000 to prepare for drilling. During the first year, Conseco removed and sold 72,000 barrels of oil. Record all of Conseco’s transactions, including depletion for the first year.

Journalizing partial-year depreciation and asset disposals and exchanges.

 During 2018, Mora Corporation completed the following transactions:

 Jan. 1 Traded in old office equipment with book value of \(55,000 (cost of \)127,000 and accumulated depreciation of \(72,000) for new equipment. Mora also paid \)70,000 in cash. Fair value of new equipment is \(133,000. Assume the exchange had commercial substance.

 Apr. 1 Sold equipment that cost \)18,000 (accumulated depreciation of \(8,000 through December 31 of the preceding year). Mora received \)6,100 cash from the sale of the equipment. Depreciation is computed on a straightline basis. The equipment has a five-year useful life and a residual value of \(0. Dec. 31 Recorded depreciation as follows:

 Office equipment is depreciated using the double-declining-balance method over four years with a \)9,000 residual value.

Record the transactions in the journal of Mora Corporation.

Question: P9-36B Determining asset cost and recording partial-year depreciation 

Safe Parking, near an airport, incurred the following costs to acquire land, make land improvements, and construct and furnish a small building:

Safe Parking depreciates land improvements over 15 years, buildings over 40 years, and furniture over 10 years, all on a straight-line basis with zero residual value.

Requirements 

1. Set up columns for Land, Land Improvements, Building, and Furniture. Show how to account for each cost by listing the cost under the correct account. Determine the total cost of each asset. 

2. All construction was complete and the assets were placed in service on September 1. Record partial-year depreciation expense for the year ended December 31. Round to the nearest dollar.

Question: Determining asset cost, preparing depreciation schedules (3 methods), and identifying depreciation results that meet management objectives

On January 3, 2018, Speedy Delivery Service purchased a truck at a cost of \(67,000. Before placing the truck in service, Speedy spent \)3,000 painting it, \(1,200 replacing tires, and \)3,500 overhauling the engine. The truck should remain in service for five years and have a residual value of $5,100. The truck’s annual mileage is expected to be 20,000 miles in each of the first four years and 12,800 miles in the fifth year—92,800 miles in total. In deciding which depreciation method to use, Alec Rivera, the general manager, requests a depreciation schedule for each of the depreciation methods (straight-line, units-of-production, and double-declining-balance).

Requirements 

1. Prepare a depreciation schedule for each depreciation method, showing asset cost, depreciation expense, accumulated depreciation, and asset book value. 

2. Speedy prepares financial statements using the depreciation method that reports the highest net income in the early years of asset use. Consider the first year that Speedy uses the truck. Identify the depreciation method that meets the company’s objectives.

Whitney Plumb Associates surveys American eating habits. The company’s accounts include Land, Buildings, Office Equipment, and Communication Equipment, with a separate Accumulated Depreciation account for each asset. During 2018, Whitney Plumb completed the following transactions:

Jan. 1 Purchased office equipment, \(117,000. Paid \)77,000 cash and financed the remainder with a note payable.

Apr. 1 Acquired land and communication equipment in a lump-sum purchase. Total cost was \(350,000 paid in cash. An independent appraisal valued the land at \)275,625 and the communication equipment at \(91,875.

Sep. 1 Sold a building that cost \)520,000 (accumulated depreciation of \(285,000 through December 31 of the preceding year). Whitney Plumb received \)390,000 cash from the sale of the building. Depreciation is computed on a straight-line basis. The building has a 40-year useful life and a residual value of \(25,000.

Dec. 31 Recorded depreciation as follows:

Communication equipment is depreciated by the straight-line method over a five-year life with zero residual value. Office equipment is depreciated using the double-declining-balance method over five years with a \)2,000 residual value. 

Record the transactions in the journal of Whitney Plumb Associates.

Whitney Plumb Associates surveys American eating habits. The company’s accounts include Land, Buildings, Office Equipment, and Communication Equipment, with a separate Accumulated Depreciation account for each asset. During 2018, Whitney Plumb completed the following transactions:

Jan. 1 Purchased office equipment, \(117,000. Paid \)77,000 cash and financed the remainder with a note payable.

Apr. 1 Acquired land and communication equipment in a lump-sum purchase. Total cost was \(350,000 paid in cash. An independent appraisal valued the land at \)275,625 and the communication equipment at \(91,875.

Sep. 1 Sold a building that cost \)520,000 (accumulated depreciation of \(285,000 through December 31 of the preceding year). Whitney Plumb received \)390,000 cash from the sale of the building. Depreciation is computed on a straight-line basis. The building has a 40-year useful life and a residual value of \(25,000.

Dec. 31 Recorded depreciation as follows:

Communication equipment is depreciated by the straight-line method over a five-year life with zero residual value. Office equipment is depreciated using the double-declining-balance method over five years with a \)2,000 residual value. 

Record the transactions in the journal of Whitney Plumb Associates.

Whitney Plumb Associates surveys American eating habits. The company’s accounts include Land, Buildings, Office Equipment, and Communication Equipment, witha separate Accumulated Depreciation account for each asset. During 2018, WhitneyPlumb completed the following transactions:

Jan. 1 Purchased office equipment, \(117,000. Paid \)77,000 cash and financedthe remainder with a note payable.

Apr. 1 Acquired land and communication equipment in a lump-sumpurchase. Total cost was \(350,000 paid in cash. An independentappraisal valued the land at \)275,625 and the communication equipmentat \(91,875.

Sep. 1 Sold a building that cost \)520,000 (accumulated depreciation of \(285,000through December 31 of the preceding year). Whitney Plumb received\)390,000 cash from the sale of the building. Depreciation is computed ona straight-line basis. The building has a 40-year useful life and a residualvalue of \(25,000.

Dec. 31 Recorded depreciation as follows:

Communication equipment is depreciated by the straight-line methodover a five-year life with zero residual value.Office equipment is depreciated using the double-declining-balancemethod over five years with a \)2,000 residual value.

Record the transactions in the journal of Whitney Plumb Associates. 

Donahue Oil Incorporated has an account titled Oil and Gas Properties. Donahue paid \(6,400,000 for oil reserves holding an estimated 400,000 barrels of oil. Assume the company paid \)510,000 for additional geological tests of the property and $470,000 to prepare for drilling. During the first year, Donahue removed and sold 75,000 barrels of oil. Record all of Donahue’s transactions, including depletion for the first year.

Donahue Oil Incorporated has an account titled Oil and Gas Properties. Donahue paid \(6,400,000 for oil reserves holding an estimated 400,000 barrels of oil. Assumethe company paid \)510,000 for additional geological tests of the property and$470,000 to prepare for drilling. During the first year, Donahue removed and sold75,000 barrels of oil. Record all of Donahue’s transactions, including depletion for thefirst year.

Core Telecom provides communication services in Iowa, Nebraska, the Dakotas, and Montana. Core purchased goodwill as part of the acquisition of Surety Wireless Company, which had the following figures:

                                          Book value of assets           \( 700,000

                                          Market value of assets         1,000,000

                                          Market value of liabilities        510,000

Requirements

1. Journalize the entry to record Core’s purchase of Surety Wireless for \)280,000 cash plus a $420,000 note payable.

2. What special asset does Core’s acquisition of Surety Wireless identify? How should Core Telecom account for this asset after acquiring Surety Wireless? Explain in detail.

Core Telecom provides communication services in Iowa, Nebraska, the Dakotas, and Montana. Core purchased goodwill as part of the acquisition of Surety Wireless Company,which had the following figures:

Book value of assets \( 700,000

Market value of assets 1,000,000

Market value of liabilities 510,000

Requirements

1. Journalize the entry to record Core’s purchase of Surety Wireless for \)280,000 cashplus a $420,000 note payable.

2. What special asset does Core’s acquisition of Surety Wireless identify? How shouldCore Telecom account for this asset after acquiring Surety Wireless? Explain in detail

During 2018, Lora Company completed the following transactions:

Jan. 1 Traded in old office equipment with book value of \(55,000 (cost of \)129,000 and accumulated depreciation of \(74,000) for new equipment. Lora also paid \)55,000 in cash. Fair value of new equipment is \(116,000. Assume the exchange had commercial substance.

Apr. 1 Sold equipment that cost \)12,000 (accumulated depreciation of \(1,000 through December 31 of the preceding year). Lora received \)7,100 cash from the sale of the equipment. Depreciation is computed on a straightline basis. The equipment has a five-year useful life and a residual value of \(0.

Dec. 31 Recorded depreciation as follows:

Office equipment is depreciated using the double-declining-balance method over four years with a \)7,000 residual value.

Record the transactions in the journal of Lora Company.

During 2018, Lora Company completed the following transactions:

Jan. 1 Traded in old office equipment with book value of \(55,000 (cost of\)129,000 and accumulated depreciation of \(74,000) for new equipment.Lora also paid \)55,000 in cash. Fair value of new equipment is \(116,000.Assume the exchange had commercial substance.

Apr. 1 Sold equipment that cost \)12,000 (accumulated depreciation of \(1,000through December 31 of the preceding year). Lora received \)7,100 cashfrom the sale of the equipment. Depreciation is computed on a straightlinebasis. The equipment has a five-year useful life and a residual valueof \(0.

Dec. 31 Recorded depreciation as follows:

Office equipment is depreciated using the double-declining-balancemethod over four years with a \)7,000 residual value.

Record the transactions in the journal of Lora Company.

Top Quality Appliance—Long Beach has just purchased a franchise from Top Quality Appliance (TQA). TQA is a manufacturer of kitchen appliances. TQA marketsits products via retail stores that are operated as franchises. As a TQA franchisee,Top Quality Appliance—Long Beach will receive many benefits, including havingthe exclusive right to sell TQA brand appliances in Long Beach. TQA applianceshave an excellent reputation and the TQA name and logo are readily recognized byconsumers. TQA also manages national television advertising campaigns that benefit the franchisees. In exchange for these benefits, Top Quality Appliance—Long Beachwill pay an annual franchise fee to TQA based on a percentage of sales. The annualfranchise fee is a separate cost and in addition to the purchase of the franchise.

In addition to purchasing the franchise, Top Quality Appliance—Long Beach will alsopurchase land with an existing building to use for its retail store, store fixtures, and officeequipment. The business will purchase appliances from TQA and resell them in its store,primarily to local building contractors for installation in new homes.Following is the chart of accounts for Top Quality Appliance—Long Beach. As a newbusiness, all beginning balances are \(0.

Top Quality Appliance—Long Beach

Chart of Accounts

Cash Common Stock

Petty Cash Retained Earnings

Accounts Receivable Dividends

Allowance for Bad Debts Sales Revenue

Merchandise Inventory Interest Revenue

Office Supplies Cost of Goods Sold

Prepaid Insurance Franchise Fee Expense

Interest Receivable Salaries Expense

Notes Receivable Utilities Expense

Land Insurance Expense

Building Supplies Expense

Accumulated Depreciation—Building Bad Debt Expense

Store Fixtures Bank Expense

Accumulated Depreciation—Store Fixtures Credit Card Expense

Office Equipment Depreciation Expense—

Building

Accumulated Depreciation—Office Equipment Depreciation Expense—Store 

Fixtures

Franchise Depreciation Expense—Office 

Equipment

Accounts Payable Amortization Expense—

Franchise

Interest Payable Interest Expense

Notes Payable Cash Short and Over

Top Quality Appliance—Long Beach completed the following transactions during 2018,its first year of operations:

a. Received \)500,000 cash and issued common stock. Opened a new checkingaccount at Long Beach National Bank and deposited the cash received from thestockholders.

b. Paid \(50,000 cash for a TQA franchise.

c. Paid \)200,000 cash and issued a \(400,000, 10-year, 5% notes payable for land withan existing building. The assets had the following market values: Land, \)100,000;Building, \(500,000.

d. Paid \)75,000 for store fixtures.

e. Paid \(45,000 for office equipment.

f. Paid \)600 for office supplies.

g. Paid \(3,600 for a two-year insurance policy.

h. Purchased appliances from TQA (merchandise inventory) on account for \)425,000.

i. Established a petty cash fund for \(150.

j. Sold appliances on account to B&B Contractors for \)215,000, terms n/30 (cost, \(86,000).

k. Sold appliances to Davis Contracting for \)150,000 (cost, \(65,000), receiving a6-month, 8% note.

l. Recorded credit card sales of \)80,000 (cost, \(35,000), net of processor fee of 2%.

m. Received payment in full from B&B Contractors.

n. Purchased appliances from TQA on account for \)650,000.

o. Made payment on account to TQA, \(300,000.

p. Sold appliances for cash to LB Home Builders for \)350,000 (cost, \(175,000).

q. Received payment in full on the maturity date from Davis Contracting for the note.

r. Sold appliances to Leard Contracting for \)265,000 (cost, \(130,000), receiving a9-month, 8% note.

s. Made payment on account to TQA, \)500,000.

t. Sold appliances on account to various businesses for \(985,000, terms n/30(cost, \)395,000).

u. Collected \(715,000 cash on account.

v. Paid cash for expenses: Salaries, \)180,000; Utilities, \(12,650

w. Replenished the petty cash fund when the fund had \)62 in cash and petty cashtickets for \(85 for office supplies.

x. Paid dividends, \)5,000.

y. Paid the franchise fee to TQA of 5% of total sales of \(2,045,000.

Requirements

1. Record the transactions in the general journal. Omit explanations.

2. Post to the general ledger.

3. It is a common business practice to reconcile the bank accounts on a monthlybasis. However, in this problem, the reconciliation of the company’s checkingaccount will be done at the end of the year, based on an annual summary.

Reconcile the bank account by comparing the following annual summarystatement from Long Beach National Bank to the Cash account in the generalledger. Record journal entries as needed and post to the general ledger. Usetransaction z as the posting reference.

Beginning Balance, January 1, 2018 \) 0

Deposits and other credits:

\( 500,000

78,400

215,000

350,000

715,000

Interest Revenue 1,565 1,859,965

Checks and other debits:

EFT to Bank Checks(1) 125

Checks: 50,000

200,000

45,000

75,000

150

3,600

600

300,000

500,000

192,650

Bank service charge 2,340 (1,369,465)

Ending balance, December 31, 2018 \) 490,500

Bank Checks is a company that prints business checks (considered a bankexpense) for Top Quality Appliance—Long Beach

4. In preparation for preparing the adjusting entries, complete depreciation schedulesfor the first five years for the depreciable plant assets, assuming the assets werepurchased on January 2, 2018:

a. Building, straight-line, 30 years, \(50,000 residual value.

b. Store Fixtures, straight-line, 15 years, no residual value.

c. Office Equipment, double-declining-balance, 5 years, \)5,000 residual value.

5. Record adjusting entries for the year ended December 31, 2018:

a. One year of the prepaid insurance has expired.

b. Management estimates that 5% of Accounts Receivable will be uncollectible.

c. An inventory of office supplies indicates $475 of supplies have been used.

d. Calculate the interest earned on the outstanding Leard Contracting notereceivable. Assume the note was received on October 31. Round to the nearestdollar.

e. Record depreciation expense for the year.

f. Record amortization expense for the year on the franchise, which has a10-year life.

g. Calculate the interest owed on the note payable. Assume the note was issued onJanuary 1.

6. Post adjusting entries and prepare an adjusted trial balance.

7. Prepare a multi-step income statement and statement of retained earnings forthe year ended December 31, 2018. Prepare a classified balance sheet as ofDecember 31, 2018. Assume Interest Receivable is a current asset and InterestPayable is a current liability.

8. Evaluate the company’s success for the first year of operations by calculating thefollowing ratios. Round to two decimal places. Comment on the results.

a. Liquidity:

i. Current ratio

ii. Acid-test ratio

iii. Cash ratio

b. Efficiency:

i. Accounts receivable turnover

ii. Day’s sales in receivables

iii. Asset turnover

iv. Rate of return on total assets

This problem continues the Canyon Canoe Company situation from Chapter 8. Amber and Zack Wilson are continuing to review business practices. Currently, they are reviewing the company’s property, plant, and equipment and have gathered the following information:

*SL = Straight@line; DDB = Double@declining@balance

Requirements

1. Calculate the amount of monthly depreciation expense for the computer and office furniture for 2019.

2. For each asset, determine the book value as of December 31, 2018. Then, calculate the depreciation expense for the first six months of 2019 and the book value as of June 30, 2019.

3. Prepare a partial balance sheet showing Property, Plant, and Equipment as of June 30, 2019.

This problem continues the Canyon Canoe Company situation from Chapter 8. Amber and Zack Wilson are continuing to review business practices. Currently, theyare reviewing the company’s property, plant, and equipment and have gathered thefollowing information:

*SL = Straight@line; DDB = Double@declining@balance

Requirements

1. Calculate the amount of monthly depreciation expense for the computer andoffice furniture for 2019.

2. For each asset, determine the book value as of December 31, 2018. Then, calculatethe depreciation expense for the first six months of 2019 and the book valueas of June 30, 2019.

3. Prepare a partial balance sheet showing Property, Plant, and Equipment as ofJune 30, 2019.

Western Bank & Trust purchased land and a building for the lump sum of $3,000,000. To get the maximum tax deduction, Western allocated 90% of the purchase price to the building and only 10% to the land. A more realistic allocation would have been 70% to the building and 30% to the land.

Requirements

1. Explain the tax advantage of allocating too much to the building and too little to the land.

2. Was Western’s allocation ethical? If so, state why. If not, why not? Identify who was harmed.

Jim Reed manages a fleet of utility trucks for a rural county government. He’s been in his job for 30 years, and he knows where the angles are. He makes sure that when new trucks are purchased, the residual value is set as low as possible. Then, when they become fully depreciated, they are sold off by the county at residual value. Jim makes sure his buddies in the construction business are first in line for the bargain sales, and they make sure he gets a little something back. Recently, a new county commissioner was elected with vows to cut expenses for the taxpayers. Unlike other commissioners, this man has a business degree, and he is coming to visit Jim tomorrow.

Requirements

1. When a business sells a fully depreciated asset for its residual value, is a gain or loss recognized?

2. How do businesses determine what residual values to use for their various assets? Are there “hard and fast” rules for residual values?

3. How would an organization prevent the kind of fraud depicted here?

Question: Western Bank & Trust purchased land and a building for the lump sum of $3,000,000. To get the maximum tax deduction, Western allocated 90% of the purchase price to the building and only 10% to the land. A more realistic allocation would have been 70% to the building and 30% to the land.

Requirements

1. Explain the tax advantage of allocating too much to the building and too little to the land.

2. Was Western’s allocation ethical? If so, state why. If not, why not? Identify who was harmed.

Question: Jim Reed manages a fleet of utility trucks for a rural county government. He’s been in his job for 30 years, and he knows where the angles are. He makes sure that when new trucks are purchased, the residual value is set as low as possible. Then, when they become fully depreciated, they are sold off by the county at residual value. Jim makes sure his buddies in the construction business are first in line for the bargain sales, and they make sure he gets a little something back. Recently, a new county commissioner was elected with vows to cut expenses for the taxpayers. Unlike other commissioners, this man has a business degree, and he is coming to visit Jim tomorrow.

Requirements

1. When a business sells a fully depreciated asset for its residual value, is a gain or loss recognized?

2. How do businesses determine what residual values to use for their various assets? Are there “hard and fast” rules for residual values?

3. How would an organization prevent the kind of fraud depicted here?

In 150 words or fewer, explain the different methods that can be used to calculate depreciation. Your explanation should include how to calculate depreciation expense using each method.

Question: In 150 words or fewer, explain the different methods that can be used to calculate depreciation. Your explanation should include how to calculate depreciation expense using each method.