1. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 9 Reporting and Interpreting Long-Lived Tangible and Intangible Assets

2. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Learning Objective 1 Define, classify, and explain the nature of long-lived assets.

3. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Tangible Physical Substance Intangible No Physical Substance Will not be used up within the next year Actively Used in Operations Definition and Classification of Long-Lived Assets

4. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Tangible Physical Substance Will not be used up within the next year Land Assets subject to depreciation Buildings and equipment Furniture and fixtures Examples Actively Used in Operations Defining and Classifying Long-Lived Assets

5. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Actively Used in Operations Tangible Physical Substance Intangible No Physical Substance Will not be used up within the next year Value represented by rights that produce benefits. Intangibles with a limited life, such as patents and copyrights, are subject to amortization. Intangibles with an unlimited (or indefinite) life, such as goodwill and trademarks, are not amortized. Defining and Classifying Long-Lived Assets

6. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Learning Objective 2 Apply the cost principle to the acquisition of long- lived assets.

7. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Acquisition cost includes the purchase price and all expenditures needed to prepare the asset for its intended use. Acquisition cost does not include financing charges. Recording costs as assets is called capitalizing the costs. Acquisition cost includes the purchase price and all expenditures needed to prepare the asset for its intended use. Acquisition cost does not include financing charges. Recording costs as assets is called capitalizing the costs. Acquisition of Tangible Assets

8. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Purchase/construction cost Legal fees Appraisal fees Architectural fees Purchase/construction cost Legal fees Appraisal fees Architectural fees Acquisition Cost Buildings

9. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Purchase/construction cost Sales taxes Transportation costs Installation costs Purchase/construction cost Sales taxes Transportation costs Installation costs Acquisition Cost Equipment

10. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Purchase cost Legal fees Surveying fees Broker’s commissions Purchase cost Legal fees Surveying fees Broker’s commissions Land is not depreciable. Acquisition Cost Land

11. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Asset cost includes: All materials and labor traceable to the construction. A reasonable amount of overhead. Interest on debt incurred during the construction. Self- Constructed Tangible Assets

12. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin On January 1, Jones purchased land and building for $400,000 cash. The appraised values are building, $325,000, and land, $175,000. How much of the $400,000 purchase price will be charged to the building and land accounts? On January 1, Jones purchased land and building for $400,000 cash. The appraised values are building, $325,000, and land, $175,000. How much of the $400,000 purchase price will be charged to the building and land accounts? The total cost of a combined purchase of land and building is allocated in proportion to their relative market values. Acquisition Cost Basket Purchase

13. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Acquisition Cost Basket Purchase

14. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Cedar Fair purchased a new ride for $26,000,000 less a $1,000,000 discount. Cedar Fair paid $125,000 for transportation and $625,000 for installation of the ride. Prepare the journal entry for the acquisition assuming Cedar Fair paid cash for the new ride. Acquisition Cash Purchase

15. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Cedar Fair purchased a new ride for $26,000,000 less a $1,000,000 discount. Cedar Fair paid $125,000 for transportation and $625,000 for installation of the ride. Prepare the journal entry for the acquisition assuming Cedar Fair paid cash for the new ride. $26,000,000 - $1,000,000 + $125,000 + $625,000 Acquisition Cash Purchase

16. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Cedar Fair purchased on credit a new ride for $26,000,000 less a $1,000,000 discount. Cedar Fair paid $125,000 cash for transportation and $625,000 cash for installation of the ride. Prepare the journal entry for the acquisition assuming Cedar Fair issued a note payable for the new ride. Acquisition Credit Purchase

17. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin $26,000,000 - $1,000,000 + $125,000 + $625,000 Cedar Fair purchased on credit a new ride for $26,000,000 less a $1,000,000 discount. Cedar Fair paid $125,000 cash for transportation and $625,000 cash for installation of the ride. Prepare the journal entry for the acquisition assuming Cedar Fair issued a note payable for the new ride. Acquisition Credit Purchase

18. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Maintenance Costs Incurred During Time of Use

19. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Depreciation is a cost allocation process that systematically and rationally matches acquisition costs of operational assets with periods benefited by their use. Cost Allocation (Unused) Balance Sheet (Used) Income Statement Expense Acquisition Cost Depreciation Expense

20. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Depreciation Expense Income Statement Balance Sheet Accumulated Depreciation Depreciation for the current year Total of depreciation to date on an asset Depreciation Expense

21. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Book Values Book value = Market value / Depreciation on a Balance Sheet

22. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Depreciation calculations require three amounts for each asset:  Acquisition cost.  Estimated useful life.  Estimated residual value. Depreciation calculations require three amounts for each asset:  Acquisition cost.  Estimated useful life.  Estimated residual value. Depreciation Calculations

23. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Learning Objective 3 Apply various depreciation methods as future economic benefits are used up over time.

24. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin  Straight-line  Units-of-production  Accelerated Method: Declining balance  Straight-line  Units-of-production  Accelerated Method: Declining balance Depreciation Methods

25. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin At the beginning of the year, Cedar Fair purchased a new Go-Cart Ride for $62,500 cash. The ride has an estimated useful life of 3 years and an estimated residual value of $2,500. Cost - Residual Value Life in Years Depreciation Expense per Year = SL Straight-Line Method

26. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Depreciation Expense per Year = Depreciation Expense per Year = $20,000 $62,500 - $2,500 3 years Cost - Residual Value Life in Years Depreciation Expense per Year = SL Straight-Line Method

27. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Residual Value Over 80 percent of companies use the straight-line method for some or all of their assets disclosed in financial reports. SL Straight-Line Method

28. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Depreciation Rate = Cost - Residual Value Estimated Total Production Step 1: Step 2: Depreciation Expense = Depreciation Rate × Number of Units Produced for the Year Units-of-Production Method

29. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin At the beginning of the year, Cedar Fair purchased a new Go-Cart ride for $62,500 cash. The ride has a 100,000 mile useful life and an estimated residual value of $2,500. If the ride is used 30,000 miles in the first year, what is the amount of depreciation expense? Units-of-Production Method

30. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin $62,500 - $2,500 100,000 miles = $.60 per mile Depreciation Rate = Step 1: Step 2: $.60 per mile × 30,000 miles = $18,000 Depreciation Expense = Units-of-Production Method

31. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Units-of-Production Method

32. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Residual Value Units-of-Production Method

33. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin DepreciationRepair Expense Early YearsHighLow Later YearsLowHigh The declining-balance method matches higher depreciation expense with higher revenues in the early years of an asset’s useful life when the asset is more efficient. Declining-Balance Method

34. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Double-Declining-Balance Method Annual Depreciation Expense Net Book Value () Useful Life in Years 2 = × Cost – Accumulated Depreciation Declining balance rate of 2 is double-declining-balance (DDB) rate. Annual computation ignores residual value.

35. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin At the beginning of the year, Cedar Fair purchased a new Go-Cart Ride for $62,500 cash. The ride has an estimated useful life of 3 years and an estimated residual value of $2,500. Calculate the depreciation expense for the first two years. Double-Declining-Balance Method

36. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Annual Depreciation expense Net Book Value () Useful Life in Years 2 = × () $62,500 × 3 years 2 = $41,667 () ($62,500 – $41,667) × 3 years 2 = $13,889 Year 1 Depreciation: Year 2 Depreciation: Double-Declining-Balance Method

37. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin () ($62,500 – $55,556) × 3 years 2 = $4,629 Below residual value Double-Declining-Balance Method

38. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Depreciation expense is limited to the amount that reduces book value to the estimated residual value. Double-Declining-Balance Method

39. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin For tax purposes, most corporations use the Modified Accelerated Cost Recovery System (MACRS). MACRS depreciation provides for rapid write-off of an asset’s cost in order to stimulate new investment. For tax purposes, most corporations use the Modified Accelerated Cost Recovery System (MACRS). MACRS depreciation provides for rapid write-off of an asset’s cost in order to stimulate new investment. Tax Depreciation

40. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Learning Objective 4 Explain the effect of asset impairment on the financial statements.

41. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Impairment is the loss of a significant portion of the utility of an asset through...  Casualty.  Obsolescence.  Lack of demand for the asset’s services. A loss should be recognized when an asset suffers a permanent impairment. Asset Impairment Losses

42. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Learning Objective 5 Analyze the disposal of long-lived assets.

43. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin  Update depreciation to the date of disposal. Writing off accumulated depreciation (debit). Writing off the asset cost (credit).  Record the disposal by: Recording cash received (debit) or paid (credit). Recording a gain (credit) or loss (debit). Disposal of Tangible Assets

44. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin If Cash > BV, record a gain (credit). If Cash < BV, record a loss (debit). If Cash = BV, no gain or loss. Disposal of Tangible Assets

45. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Cedar Fair sold a hotel for $3,000,000 cash at the end of its 16 th year of use. The hotel originally cost $20,000,000, and was depreciated using the straight-line method with zero residual value and a useful life of 20 years. Disposal of Tangible Assets

46. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin The amount of depreciation per year is: a.$0. b.$500,000. c.$1,000,000. d.$2,000,000. The amount of depreciation per year is: a.$0. b.$500,000. c.$1,000,000. d.$2,000,000. Disposal of Tangible Assets

47. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin The amount of depreciation per year is: a.$0. b.$500,000. c.$1,000,000. d.$2,000,000. The amount of depreciation per year is: a.$0. b.$500,000. c.$1,000,000. d.$2,000,000. Annual Depreciation: ($20,000,000 - $0) ÷ 20 Years = $1,000,000 per year Disposal of Tangible Assets

48. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin The equipment’s book value at date of sale is: a.$4,000,000. b.$3,000,000. c.$17,000,000. d.$16,500,000. The equipment’s book value at date of sale is: a.$4,000,000. b.$3,000,000. c.$17,000,000. d.$16,500,000. Disposal of Tangible Assets

49. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin The equipment’s book value at date of sale is: a.$4,000,000. b.$3,000,000. c.$17,000,000. d.$16,500,000. The equipment’s book value at date of sale is: a.$4,000,000. b.$3,000,000. c.$17,000,000. d.$16,500,000. Accumulated Depreciation = (16 yrs. × $1,000,000) = $16,000,000 BV = Cost - Accumulated Depreciation BV = $20,000,000 - $16,000,000 = $4,000,000 Disposal of Tangible Assets

50. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin The equipment’s sale resulted in: a.a loss of $1,000,000. b.a gain of $3,000,000. c.a gain of $1,000,000. d.a loss of $5,000,000. The equipment’s sale resulted in: a.a loss of $1,000,000. b.a gain of $3,000,000. c.a gain of $1,000,000. d.a loss of $5,000,000. Disposal of Tangible Assets

51. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin The equipment’s sale resulted in: a.a loss of $1,000,000. b.a gain of $3,000,000. c.a gain of $1,000,000. d.a loss of $5,000,000. The equipment’s sale resulted in: a.a loss of $1,000,000. b.a gain of $3,000,000. c.a gain of $1,000,000. d.a loss of $5,000,000. Loss = Cash Received - Book Value Loss = $3,000,000 - $4,000,000 = $1,000,000 Disposal of Tangible Assets

52. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Prepare the journal entry to record Cedar Fair’s sale of the hotel. Disposal of Tangible Assets

53. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Disposal of Tangible Assets Prepare the journal entry to record Cedar Fair’s sale of the hotel.

54. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Learning Objective 6 Analyze the acquisition, use, and disposal of long-lived intangible assets.

55. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Noncurrent assets without physical substance. Useful life is often difficult to determine. Usually acquired for operational use. Often provide exclusive rights or privileges. Intangible Assets

56. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Trademarks Copyrights Patents Licensing Rights Technology Franchises Goodwill Record at current cash equivalent cost, including purchase price, legal fees, and filing fees. Intangible Assets

57. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Amortize intangible assets with limited lives over the shorter of their economic lives or legal lives, subject to rules specified by GAAP. Use straight-line method. Research and development costs are normally expensed as incurred. Amortize intangible assets with limited lives over the shorter of their economic lives or legal lives, subject to rules specified by GAAP. Use straight-line method. Research and development costs are normally expensed as incurred. Intangible Assets

58. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin A symbol, design, or logo associated with a business. Purchased trademarks are recorded at cost. Internally developed trademarks have no recorded asset cost. Intangible Assets Trademarks

59. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Exclusive right granted by the federal government to protect artistic or intellectual properties. Amortize cost over the period benefited. Legal life is life of creator plus 70 years. Intangible Assets Copyrights

60. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Exclusive right granted by federal government to sell or manufacture an invention. Cost is purchase price plus legal cost to defend. Amortize cost over the shorter of useful life or 20 years. Intangible Assets Patents

61. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Limited permissions to use a product or service according to specific terms and conditions. Limited permissions to use a product or service according to specific terms and conditions. You may be using computer software that is made available to you through a campus licensing agreement. Intangible Assets Licensing Rights

62. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin A category of intangible assets that includes a company’s website and any computer programs written by its employees. Intangible Assets Technology

63. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Legally protected right to sell products or provide services purchased by franchisee from franchisor. Purchase price is an intangible asset that is amortized. Intangible Assets Franchises

64. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Occurs when one company buys another company. The amount by which the purchase price exceeds the fair market value of net assets acquired. Only purchased goodwill is an intangible asset. Goodwill Intangible Assets Goodwill

65. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Not amortized. Subject to assessment for impairment value and may be written down. Goodwill Intangible Assets Goodwill

66. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Eddy Company paid $1,000,000 to purchase all of James Company’s assets and assumed liabilities of $200,000. The acquired assets were appraised at a fair value of $900,000. Intangible Assets Goodwill

67. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin What amount of goodwill should be recorded on Eddy Company books? a.$100,000 b.$200,000 c.$300,000 d.$400,000 What amount of goodwill should be recorded on Eddy Company books? a.$100,000 b.$200,000 c.$300,000 d.$400,000 Intangible Assets Goodwill

68. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin What amount of goodwill should be recorded on Eddy Company books? a.$100,000 b.$200,000 c.$300,000 d.$400,000 What amount of goodwill should be recorded on Eddy Company books? a.$100,000 b.$200,000 c.$300,000 d.$400,000 Intangible Assets Goodwill

69. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Summary of Accounting Rules for Long-Lived Assets

70. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Learning Objective 7 Interpret the fixed asset turnover ratio.

71. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin How much is enough? Insufficient capacity results in lost sales. Costly excess capacity reduces profits. Management Decisions

72. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Fixed Asset Turnover Net Sales Revenue Average Net Fixed Assets = This ratio measures the sales dollars generated by each dollar invested in fixed assets. For the year 2005, Cedar Fair had $568,700 of revenue. End-of-year fixed assets were $967,300 and beginning-of-year fixed assets were $947,000. (All numbers in millions.) Turnover Analysis

73. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Turnover Analysis Fixed Asset Turnover $568,700 ($967,300 + $947,000) ÷ 2 == 0.59 Fixed Asset Turnover Net Sales Revenue Average Net Fixed Assets =

74. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Learning Objective 8 Describe the factors to consider when comparing across companies.

75. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Accelerated depreciation, in the early years of an asset’s useful life, results in higher depreciation expense, lower net income, and lower book value than would result using straight-line depreciation. Selling an asset with a low book value, resulting from accelerated depreciation, might result in a gain. Selling the same asset with a higher book value, resulting from straight-line depreciation, might result in a loss. Accelerated depreciation, in the early years of an asset’s useful life, results in higher depreciation expense, lower net income, and lower book value than would result using straight-line depreciation. Selling an asset with a low book value, resulting from accelerated depreciation, might result in a gain. Selling the same asset with a higher book value, resulting from straight-line depreciation, might result in a loss. The Impact of Depreciation Differences

76. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 9 Supplement A Natural Resources

77. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Total depletion cost Inventory for sale Unsold Inventory Cost of goods sold Natural Resources Depletion is the process of allocating a natural resource’s cost over the period of its extraction. Depletion is similar in concept to depreciation. Depletion that is computed for a period is first added to inventory and then expensed when the inventory is sold.

78. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 9 Supplement B Changes in Depreciation

79. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin estimate So depreciation is an estimate. Predicted salvage value Predicted useful life Over the life of an asset, new information may come to light that indicates the original estimates need to be revised. Changes in Depreciation

80. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Cedar Fair purchased equipment that cost $60,000,000 with an estimated useful life of 20 years and and an estimated salvage value of $3,000,000. During year 5, Cedar Fair changed the estimated useful life to 25 years and lowered the estimated salvage value to $2,400,000. Calculate depreciation expense for year 5 and thereafter using the straight-line method. Cedar Fair purchased equipment that cost $60,000,000 with an estimated useful life of 20 years and and an estimated salvage value of $3,000,000. During year 5, Cedar Fair changed the estimated useful life to 25 years and lowered the estimated salvage value to $2,400,000. Calculate depreciation expense for year 5 and thereafter using the straight-line method. Changes in Depreciation

81. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin When our estimates change, the new depreciation is: Book value at date of change Salvage value at date of change Remaining useful life at date of change – Changes in Depreciation

82. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin When a plant asset is acquired during the year, depreciation is calculated for the fraction of the year the asset is owned. June 30 Partial Year Calculations

83. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin End of Chapter 9