[kbito]

Can anyone show me for FAR Sim 37 how we got a decrease in accumulated depreciation of 11,500 on buildings destroyed by fire?

The following pertains to Blake Corporation’s property, plant, and equipment for 20X1:

Account balances on January 1, 20X1:

Debit

---

Credit

---

Land $ 150,000

Building 1,200,000

Accumulated depreciation $263,100

Machinery and equipment 900,000

Accumulated depreciation 250,000

Automotive equipment 115,000

Accumulated depreciation 84,600

Depreciation:

• Building: $56,214

• Machinery and equipment: $103,775

• Automotive equipment: $21,000

• Leasehold improvements: $16,800

The salvage value of the depreciable assets is immaterial. Depreciation is calculated to the nearest month.

Transactions during 20X1 and other information are as follows:

• On January 2, 20X1, Blake purchased a new car for $10,000 cash and trade-in of a 2-year-old car with a cost of $9,000 and a book value of $2,700. The new car has a cash price of $12,000. The market value of the trade-in is not known.

• On April 1, 20X1, a machine purchased for $23,000 on April 1, 5 years previous to 20X1, was destroyed by fire. Blake recovered $15,500 from its insurance company.

• On May 1, 20X1, costs of $168,000 were incurred to improve leased office premises. The leasehold improvements have a useful life of 8 years. The related lease, which terminates on December 31, 20X7, is renewable for an additional 6-year term. The decision to renew will be made in 20X7 based on office space needs at that time.

• On July 1, 20X1, machinery and equipment were purchased at a total invoice cost of $280,000. Additional costs of $5,000 for freight and $25,000 for installation were incurred.

Blake determined that the automotive equipment comprising the $115,000 balance on January 1, 20X1, would have been depreciated at a total amount of $18,000 for the year ending December 31, 20X1.

For each asset classification complete the schedules showing the accumulated depreciation and amortization that would appear on Blake’s balance sheet on December 31, 20X1. If an item listed should not be part of the calculation, enter “0” (zero).

CALCULATION: Machine destroyed by fire (5 x 10% x $23,000)=$(11,500). Where exactly did the “5” and the “10%” come from?

Aud-61, 7/13
BEC-72,80
REG-68, 8/10
FAR-78

[kbito]

Sorry, it might have been for FAR SIM #38

Aud-61, 7/13
BEC-72,80
REG-68, 8/10
FAR-78

[slgavin7]

It is backing out the AD of the destroyed asset. The AD for the asset would be calculated as the cost ($23K) times the years depreciated (5, since it was purchased 5 years ago), times the depreciation rate (which we can only assume to be 10%).

However, I am not seeing from the question where you'd get the 10% (eg S/L depreciation with a 10 year useful life).

[wombataholic]

Bump. I've looked this sim over and over and have no idea where the 10% came from.

AUD - 91
BEC - 85
FAR - 91
REG - 92

CPA, CFE
Passed all 4 CPA exam sections with Ninja Notes/MCQ/Audio

Licensed CPA
Passed each section on the first try with Ninja Notes/MCQ/Audio

[Author]

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