Assume Southern Copper Corporation (SCCO) acquired mining equipment for $100,000 cash on January 1, 2016. The equipment

Question:

Assume Southern Copper Corporation (SCCO) acquired mining equipment for $100,000 cash on January 1, 2016. The equipment had an expected useful life of four years and zero salvage value. SCCO calculates depreciation using the straight-line method over the remaining expected useful life in all cases. On December 31, 2016, after recognizing depreciation for the year, SCCO learns that new equipment now offered on the market makes the purchased equipment partially obsolete. The market value of the equipment on December 31, 2016, reflecting this obsolescence, is $60,000. The expected useful life does not change. On December 31, 2017, the market value of the equipment is $48,000. SCCO sells the equipment on January 1, 2019, for $26,000.

REQUIRED
Ignore income taxes.
a. Assume for this part that SCCO accounts for the equipment using historical cost adjusted for depreciation and impairment losses. Using the analytical framework discussed in the chapter, indicate the effects of the following events on the balance sheet and income statement.
(1) Acquisition of the equipment for cash on January 1, 2016
(2) Depreciation for 2016
(3) Impairment loss for 2016
(4) Depreciation for 2017
(5) Depreciation for 2018
(6) Sale of the equipment on January 1, 2019
b. Assume that SCCO accounts for the equipment using current fair market values adjusted fordepreciation 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 balance sheet and income statement.
(1) Acquisition of the equipment for cash on January 1, 2016
(2) Depreciation for 2016
(3) Impairment loss for 2016
(4) Depreciation for 2017
(5) Recognition of unrealized holding gain or loss for 2017
(6) Depreciation for 2018
(7) Recognition of unrealized holding gain or loss for 2018
(8) Sale of the equipment on January 1, 2019
c. After the equipment is sold, why is retained earnings on January 1, 2019, equal to a negative $74,000 in both cases despite having shown a different pattern of expenses, gains, and losses over time?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...

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