Southern Copper Corporation (PCU) acquired mining equipment for $100,000 cash on January 1, 2009 The equipment had an expected useful life of four years and zero salvage value PCU calculates depreciation using the straight line method over the remaining expected useful life in all cases On December...

Southern Copper Corporation (PCU) acquired mining equipment for $100,000 cash on January 1, 2009. The equipment had

Question:

Southern Copper (PCU) acquired mining equipment for $100,000 cash on January 1, 2009. The equipment had an expected useful life of four years and zero . PCU calculates depreciation using the straight-line method over the remaining expected useful life in all cases. On December 31, 2009, after recognizing depreciation for the year, PCU learns that new equipment now offered on the market makes the purchased equipment partially obsolete. The market value of PCU’s equipment on December 31, 2009, reflecting this obsolescence, is $60,000. The expected useful life does not change. On December 31, 2010, the market value of the equipment is $48,000. PCU sells the equipment on January 1, 2012, for $26,000.

Required
Ignore income taxes.
a. Assume for this part that PCU accounts for the equipment using acquisition cost adjusted for depreciation and impairment losses. Using the analytical framework discussed in the chapter, indicate the effects of the following events on the and income statement.
(1) Acquisition of the equipment for cash on January 1, 2009.
(2) Depreciation for 2009.
(3) Impairment loss for 2009.
(4) Depreciation for 2010.
(5) Depreciation for 2011.
(6) Sale of the equipment on January 1, 2012.
b. Assume that PCU accounts for the equipment using current fair market values adjusted for depreciation and impairment losses (with changes in fair market values recognized in net income). Using the analytical framework discussed in the chapter, indicate the effect of the following events on the and income statement.
(1) Acquisition of the equipment for cash on January 1, 2009.
(2) Depreciation for 2009.
(3) Impairment loss for 2009.
(4) Depreciation for 2010.
(5) Recognition of unrealized holding gain or loss for 2010.
(6) Depreciation for 2011.
(7) Recognition of unrealized holding gain or loss for 2011.
(8) Sale of the equipment on January 1, 2012.
c. After the equipment is sold, why is retained earnings on January 1, 2012, equal to a negative $74,000 in both cases despite having shown a different pattern of expenses, gains, and losses over time?

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