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Horngren's Financial & Managerial Accounting, The Managerial Chapters, Student Value Edition (6th Edition)
6th Edition
ISBN: 9780134491844
Author: Tracie L. Miller-Nobles, Brenda L. Mattison, Ella Mae Matsumura
Publisher: PEARSON
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Question
Chapter 9, Problem 11RQ
To determine
To explain: the treatment for depreciation expense in case of changes made to estimated useful life or estimated residual value of a plant asset.
Expert Solution & Answer
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Students have asked these similar questions
Zanzibar Limited entered into a lease agreement on July 1 2016 to lease some
highly customized hydraulic equipment to Kaizen Limited. The fair value of the
equipment as at that date was $700,000. The terms of the lease agreement were:
Lease term
Equipment economic life
Annual rental payment, in arrears
(commencing June 30th 2017)
Equipment residual value
Guaranteed residual value by Zanzibar
Incremental borrowing rate
5 years
6 years
$160,000
$100,000
$60,000
8%
Interest rate implicit in the lease
6%
Note: the lease is cancellable but only with Zanzibar's permission
At the end of the lease term, the equipment is to be returned to Zanzibar Limited.
On July 1, 2016, Zanzibar incurred $12,000 in legal fees for setting up the lease. The
annual rental payment includes $10,000 to reimburse the lessor for maintenance
fees incurred on behalf of the lessee.
Requirements:
a) Discuss the nature of the lease using the appropriate criteria. Justify your
answer using calculations where applicable
b)…
Repsola is a drilling company that operates an offshore Oilfield in Feeland. Five years
ago, Feeland had a major oil discovery and granted licenses to drill oil to reputable,
experienced drilling companies. The licensing agreement requires the company to
remove the oil rig at the end of production and restore the seabed. Ninety percent of
the eventual costs of undertaking the work relate to the removal of the oil rig and
restoration of damage caused by building it and ten percent arise through the
extraction of the oil. At the Statement of Financial Position (SOFP) date (December 31
2025), the rig has been constructed but no oil has been extracted
On January 1st 2023, Repsola obtained the license to construct an oil rig at a cost of
$500 million. Two years later the oil rig was completed. The rig is expected to be
removed in 20 years from the date of acquisition. The estimated eventual cost is 100
million. The company's cost of capital is 10% and its year end is December 31st. Repsola…
(a) A property lease includes a requirement that the premises are to be repainted
every five years and the future cost is estimated at $100,000. The lessee prefers to
spread the cost over the five years by charging $$20,000 against profits each year.
Thereby creating a provision of $100,000 in five years' time and affecting profits
equally each year.
Requirement:
Was it correct for the lessee to provide for this cost? Explain your decision
(b) A retail store has a policy of refunding purchases by dissatisfied customers, even
though it is under no legal obligation. Its policy of making refunds is generally
known.
Requirements:
Should a provision be made at year end
Chapter 9 Solutions
Horngren's Financial & Managerial Accounting, The Managerial Chapters, Student Value Edition (6th Edition)
Ch. 9 - Prob. 1QCCh. 9 - Prob. 2QCCh. 9 - Which method almost always produces the most...Ch. 9 - A Celty Airline jet costs 28,000,000 and is...Ch. 9 - A copy machine costs 45,000 when new and has...Ch. 9 - Suppose Print and Photo Center in the preceding...Ch. 9 - Prob. 7QCCh. 9 - Prob. 8QCCh. 9 - Liberty Corporation reported beginning and ending...Ch. 9 - A truck costs 50,000 when new and has accumulated...
Ch. 9 - Prob. 1RQCh. 9 - Prob. 2RQCh. 9 - Prob. 3RQCh. 9 - Prob. 4RQCh. 9 - Prob. 5RQCh. 9 - What is the difference between a capital...Ch. 9 - Prob. 7RQCh. 9 - Prob. 8RQCh. 9 - How does a business decide which depreciation...Ch. 9 - Prob. 10RQCh. 9 - Prob. 11RQCh. 9 - Prob. 12RQCh. 9 - Prob. 13RQCh. 9 - How is gain o r loss determined when disposing of...Ch. 9 - Prob. 15RQCh. 9 - Prob. 16RQCh. 9 - Prob. 17RQCh. 9 - Prob. 18RQCh. 9 - Prob. 19RQCh. 9 - What does it mean if an exchange of plant assets...Ch. 9 - Prob. 9.1SECh. 9 - Prob. 9.2SECh. 9 - Prob. 9.3SECh. 9 - Prob. 9.4SECh. 9 - Prob. 9.5SECh. 9 - Prob. 9.6SECh. 9 - Prob. 9.7SECh. 9 - S9-8 Discarding an asset
On October 31, 2018,...Ch. 9 - Prob. 9.9SECh. 9 - Prob. 9.10SECh. 9 - Prob. 9.11SECh. 9 - Prob. 9.12SECh. 9 - Prob. 9.13SECh. 9 - Prob. 9.14SECh. 9 - S9A-15 Exchanging plant assets
Micron Precision,...Ch. 9 - S9A-16 Exchanging plant assets
White Corporation...Ch. 9 - Prob. 9.17ECh. 9 - E9-18 Making a lump-sum purchase of...Ch. 9 - Prob. 9.19ECh. 9 - E9-20 Computing depreciation—three methods
Crispy...Ch. 9 - E9-21 Changing an asset’s useful life and residual...Ch. 9 - E9-22 Recording partial-year depreciation and sale...Ch. 9 - Prob. 9.23ECh. 9 - Prob. 9.24ECh. 9 - Prob. 9.25ECh. 9 - Prob. 9.26ECh. 9 - Prob. 9.27ECh. 9 - Prob. 9.28ECh. 9 - Prob. 9.29ECh. 9 - Prob. 9.30APCh. 9 - P9-31A Determining asset cost, preparing...Ch. 9 - Prob. 9.32APCh. 9 - Prob. 9.33APCh. 9 - Prob. 9.34APCh. 9 - Prob. 9.35APCh. 9 - Prob. 9.36BPCh. 9 - Prob. 9.37BPCh. 9 - Prob. 9.38BPCh. 9 - Prob. 9.39BPCh. 9 - Prob. 9.40BPCh. 9 - Prob. 9.41BPCh. 9 - Prob. 43CPCh. 9 - Prob. 9.1TICh. 9 - Western Bank Trust purchased land and a building...Ch. 9 - Prob. 9.1FCCh. 9 - Prob. 9.1FSCCh. 9 - In 150 words or fewer, explain the different...
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