PP&E Acquisition
This specific type of long-lived asset has an indefinite life and can be impaired, but it is not depreciated.
What is land?
This depreciation method is the most simplest, commonly used method that records depreciation evenly over the course of its service life.
What is straight-line?
A company estimates it will pay 570,000 to restore land post-exploration in two years at a market rate of 6%.
What account will the company credit to recognize this future cost?
What is Asset Retirement Liability?
Rather than accruing an expense, a company is allowed to use this account to record the activity for depletion of crude oil from an oil deposit.
What is inventory?
This is the term for the allocation of the cost of natural resources, such as an oil deposit.
What is depletion?
This accelerated form of depreciation is acceptable under U.S. GAAP and uses a decreasing fraction of the depreciable base.
What is Sum-of-the-Years’-Digits?
On January 1, 2025, a company estimates it will pay 570,000 to restore land post-exploration in two years at a market rate of 6%.
What is the account and amount the company will use to account for the adjustment at December 31, 2025?
What is Accretion Expense 30,437.88
Dr Accretion Expense 30,437.88
Dr Asset Retirement Liability 30,437.88
(PV of ARO = 507,729.97 * .06)
Unlike errors, these types of accounting changes do not result in the restatement of prior years' financial statements.
What are changes in accounting estimates?
This is the account used to record the cost allocation of a patent over its useful life.
What is amortization?
49er Company paid $2,000,000 for a mineral mine and expects to extract 500,000 tons of ore. In the first year of operations, they actually extracted 150,000 tons.
Using the Units of Production method, what is the amount of depletion recorded for the first year?
What is 600,000?
(4 per ton depletion rate × 150,000 tons)
($2,000,000/500,000 tons = $4/ton)
A company estimates it will pay 570,000 to restore land post-exploration in two years at a market rate of 6%.
The company actually paid 590,000 at the end of year 2. What is the journal entry?
What is
Dr Asset Retirement Liability 570,000
Dr Loss on ARO 20,000
Cr Cash 590,000
On April 1, 2025, 49er Company acquires equipment by issuing a 120,000 zero−interest−bearing note due in three years. The market rate of interest is 10%
Provide the journal entry for the acquisition on April 1, 2025
What is
Dr Equipment 90,157.78 (PV)
Dr Discount on Notes Payable 29,842.22 (Difference)
Cr Notes Payable 120,000
This term refers to a transaction that triggers immediate accounting recognition, though it is not defined solely by immediate cash payment or receipt.
What is commercial substance?
49er Company purchased equipment for 400,000 on January 1, 2025, with a 4−year service life and a 40,000 residual value, using the Double-Declining Balance method.
What is the Depreciation Expense the company will record for the year ending December 31, 2025?
What is 200,000?
(400,000 × 50% rate [1/4*2])
49er Company issues an $80,000 note in exchange for land on October 1, 2025. The note bears 5% interest (paid annually) and is due in two years.
What is the amount 49er Company should record for Interest Expense on its December 31, 2025, adjusting entry?
What is 1,000? (80,000 × 5% × 3/12 months)
On July 1, 2025, 49er Company acquires equipment by issuing a 120,000 zero−interest−bearing note due in three years. The market rate of interest is 10%
Provide the adjusting journal entry for December 31, 2025
What is
Dr Interest Expense 4,507.89
Cr Discount on Notes Payable 4,507.89
(90,157.78 * .10 * 6/12)
49er Company acquired a competitor for 30,000,000. They received 5,000,000 in current assets, 20,000,000 in fixed assets (fair value), and assumed 3,000,000 of the competitor's liabilities.
What amount will 49er Company record as Goodwill for this transaction?
What is 8,000,000?
(30M price - [$5M + $20M - $3M net assets])
49er Company purchased equipment for 400,000 on January 1, 2025, with a 4−year service life and a 40,000 residual value, using the Double-Declining Balance method.
What is the Depreciation Expense the company will record for the year ending December 31, 2028?
What is 10,000?
2025 - 200,000
2026 - 100,000
2027 - 50,000
Accumulated depreciation 350,000, BV 50,000
Calculate the ARO for land restoration on an oil mine in 5 years with an estimated cost of $450,000 at the market rate of 7.5%
What is $313,451.38
On October 1, 2025, 49er Company issues a $200,000 note in exchange for land. The note bears 8% interest (paid annually), which is the market rate, and is due in three years.
What will the journal entry be to record interest payment on September 30, 2026?
What is
Dr Interest Expense 12,000 (200,000*.08*9/12)
Dr Interest Payable 4,000 (200,000*.08*3/12)
Cr Cash 16,000 (200,000*.08)