1. (Depreciation—SYD, Act., SL, and DDB) The following data relate to the Machinery account of Eshkol, Inc. at December 31, 2020.

	Machinery
	A		B		C		D
Original cost	$46,000		$51,000		$80,000		$80,000
Year purchased	2015		2016		2017		2019
Useful life	10 years		15,000 hours		15 years		10 years
Salvage value	$ 3,100		$ 3,000		$ 5,000		$ 5,000
Depreciation method	Sum-of-the-years’-digits		Activity		Straight-line		Double-declining-balance
Accum. depr. through 2020*	$31,200		$35,200		$15,000		$16,000
*In the year an asset is purchased, Eshkol, Inc. does not record any depreciation expense on the asset. In the year an asset is retired or traded in, Eshkol, Inc. takes a full year’s depreciation on the asset.

The following transactions occurred during 2021.

a. On May 5, Machine A was sold for $13,000 cash. The company’s bookkeeper recorded this retirement in the following manner in the cash receipts journal.

Cash	13,000
Machinery (Machine A)	13,000

b. On December 31, it was determined that Machine B had been used 2,100 hours during 2021.

c. On December 31, before computing depreciation expense on Machine C, the management of Eshkol, Inc. decided the useful life remaining from January 1, 2021, was 10 years.

d. On December 31, it was discovered that a machine purchased in 2020 had been expensed completely in that year. This machine cost $28,000 and has a useful life of 10 years and no salvage value. Management has decided to use the double-declining-balance method for this machine, which can be referred to as “Machine E.”

Instructions

Prepare the necessary correcting entries for the year 2021. Record the appropriate depreciation expense on the above-mentioned machines. No entry is necessary for Machine D.

2. (Goodwill, Impairment) On March 31, 2020, Rodeo Company paid $6,000,000 to acquire all the common stock of Drive Incorporated, which became a division of Rodeo. Drive reported the following balance sheet at the time of the acquisition: Current assets $2,400,000 Current liabilities $ 500,000 Noncurrent assets 3,200,000 Long-term liabilities 300,000 Total assets $5,600,000 Stockholders’ equity 4,800,000 Total liabilities and equity $5,600,000 It was determined at the date of the purchase that the fair value of the identifiable net assets of Drive was $4,500,000. Additional balance sheet information: Current assets $1,600,000 Noncurrent assets (including goodwill recognized in purchase) 3,800,000 Current liabilities (600,000) Long-term liabilities (400,000) Net assets $4,400,000 Finally, it is determined that the fair value of the Drive Division is $4,300,000.

Instructions

1. Compute the amount of goodwill recognized, if any, on March 31, 2020.
2. Determine the impairment loss, if any, to be recorded on December 31, 2020.
3. Assume that fair value of the Drive Division is $4,000,000 instead of $4,300,000. Determine the impairment loss, if any, to be recorded on December 31, 2020.
4. Prepare the journal entry to record the impairment loss, if any, and indicate where the loss would be reported in the income statement.

Answer rating: 100% (QA)

1 Journal entry Accumulated depreciation 555460003100 3900 Machinery A 4600013000 33000 Accumulated ... View the full answer