A Client Has Asked You to Review the Following Situations

question 135

Essay

A client has asked you to review the following situations related to long-term assets:
a.Ana,an inexperienced accountant,has calculated depreciation expense of $14,000 for the year ended December 31,2009,on an asset that was acquired on March 1,2009.The asset cost $150,000,has an estimated salvage value of $10,000 and a 10-year estimated useful life.Ana used the straight-line method to depreciate the asset.
b.Ana also calculated depreciation expense of $2,000 on a patent that has a historical cost of $5,000 and a 5-year estimated useful life.The patent has been used all year.
c.A client asked Ana if he could use the double-declining balance method to depreciate assets for the external financial statements.Ana said,"No," because she is pretty sure that the double-declining balance method applies only to tax reporting.
d.Ana determined that the cost of equipment purchased in January was $18,000.The equipment had an invoice price of $11,000,$1,500 of shipping charges,$1,000 of installation costs,and $1,500 of testing,moving,and handling costs.During the first month the equipment was owned,it used $2,000 of power and required a $1,000 tune-up to keep it running.Ana entered $18,000 as the original cost of the equipment.
e.Ana calculated a $4,000 gain on an asset that was sold on the last day of the year.The asset had an original cost of $120,000,an estimated useful life of 8 years and a $10,000 salvage value.The asset was depreciated using the straight-line method and had been owned for 6 full years.The asset was sold for $30,000 cash.
Required: For each of these items,decide if the accounting treatment described is correct or not.
If the treatment is correct,write "Correct".If the current treatment is incorrect,provide the correct answer.

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Definitions:

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Securities Commission

A regulatory agency responsible for enforcing the laws regarding securities and protecting investors by regulating the securities industry.

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