E11-16 (Impairment) Presented below is information related to equipment owned by Pujols

Company at December 31, 2012.

Cost $9,000,000
Accumulated depreciation to date 1,000,000
Expected future net cash fl ows 7,000,000
Fair value 4,400,000
Assume that Pujols will continue to use this asset in the future. As of December 31, 2012, the
equipment has
a remaining useful life of 4 years.
Instructions
(a) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2012.
(b) Prepare the journal entry to record depreciation expense for 2013.
(c) The fair value of the equipment at December 31, 2013, is $5,100,000. Prepare the journal
entry (if
any) necessary to record this increase in fair value.
E11-17 (Impairment) Assume the same information as E11-16, except that Pujols intends to
dispose of the
equipment in the coming year. It is expected that the cost of disposal will be $20,000.
Instructions
(a) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2012.
(b) Prepare the journal entry (if any) to record depreciation expense for 2013.
(c) The asset was not sold by December 31, 2013. The fair value of the equipment on that date is
$5,100,000. Prepare the journal entry (if any) necessary to record this increase in fair value. It is
expected that the cost of disposal is still $20,000.
E11-18 (Impairment) The management of Sprague Inc. was discussing whether certain
equipment should be written off as a charge to current operations because of obsolescence. This
equipment has a cost of $900,000 with depreciation to date of $400,000 as of December 31,
2012. On December 31, 2012, management projected its future net cash flows from this
equipment to be $300,000 and its fair value to be $280,000. The company intends to use this
equipment in the future.
Instructions
(a) Prepare the journal entry (if any) to record the impairment at December 31, 2012.
(b) Where should the gain or loss (if any) on the write-down be reported in the income
statement?
(c) At December 31, 2013, the equipments fair value increased to $300,000. Prepare the journal
entry (if
any) to record this increase in fair value.
(d) What accounting issues did management face in accounting for this impairment?

E11-19 (Depletion ComputationsTimber)

Hernandez Timber Company owns 9,000 acres of timberland purchased in 2001 at a cost of
$1,400 per acre. At the time of purchase, the land without the timber was valued at $400 per acre.
In 2002, Hernandez built fire lanes and roads, with a life of 30 years, at a cost of $87,000. Every
year, Hernandez sprays to prevent disease at a cost of $3,000 per year and spends $7,000 to
maintain the fire lanes and roads. During 2003, Hernandez selectively logged and sold 700,000
board feet of timber, of the estimated 3,000,000 board feet. In 2004, Hernandez planted new
seedlings to replace the trees cut at a cost of $100,000.
Instructions
(a) Determine the depreciation expense and the cost of timber sold related to depletion for 2003.
(b) Hernandez has not logged since 2003. If Hernandez logged and sold 900,000 board feet of
timber in 2014, when the timber cruise (appraiser) estimated 5,000,000 board feet, determine the
cost of timber sold related to depletion for 2014.
E11-20 (Depletion ComputationsOil)
Federer Drilling Company has leased property on which oil has been discovered. Wells on this
property produced 18,000 barrels of oil during the past year that sold at an average sales price of
$65 per barrel. Total oil resources of this property are estimated to be 250,000 barrels. The lease
provided for an outright payment of $600,000 to the lessor (owner) before drilling could be
commenced and an annual rental of $31,500. A premium of 5% of the sales price of every barrel
of oil removed is to be paid annually to the lessor. In addition, Federer (lessee) is to clean up all
the waste and debris from drilling and to bear the costs of reconditioning the land for farming
when the wells are abandoned. The estimated fair value, at the time of the lease, of this clean-up
and reconditioning is $30,000.
Instructions
From the provisions of the lease agreement, compute the cost per barrel for the past year,
exclusive of operating costs, to Federer Drilling Company.
E11-21 (Depletion ComputationsTimber)
Jonas Lumber Company owns a 7,000-acre tract of timber purchased in 2005 at a cost of $1,300
per acre. At the time of purchase, the land was estimated to have a value of $300 per acre without
the timber. Jonas Lumber Company has not logged this tract since it was purchased. In 2012,
Jonas had the timber cruised. The cruise (appraiser) estimated that each acre contained
8,000 board feet of timber. In 2012, Jonas built 10 miles of roads at a cost of $8,400 per mile.
After the roads were completed, Jonas logged and sold 3,500 trees containing 880,000 board
feet.
Instructions
(a) Determine the cost of timber sold related to depletion for 2012.
(b) If Jonas depreciates the logging roads on the basis of timber cut, determine the depreciation
expense for 2012.
(c) If Jonas plants five seedlings at a cost of $4 per seedling for each tree cut, how should Jonas
treat the reforestation?

E11-22 (Depletion ComputationsMining) Henrik Mining Company purchased land on

February 1, 2012, at a cost of $1,250,000. It estimated that a total of 60,000 tons of mineral was
available for mining. After it has removed all the natural resources, the company will be required
to restore the property to its previous state because of strict environmental protection laws. It
estimates the fair value of this restoration obligation at $90,000. It believes it will be able to sell
the property afterwards for $100,000. It incurred developmental costs of $200,000 before it was
able to do any mining. In 2012, resources removed totaled 30,000 tons. The company sold
24,000 tons.
Instructions
Compute the following information for 2012.
(a) Per unit mineral cost.
(b) Total material cost of December 31, 2012, inventory.
(c) Total materials cost in cost of goods sold at December 31, 2012.