Fixed Assets and intangible assets test bank

Name Chapter 9--Fixed Assets and Intangible Assets Description Instructions

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Question 1

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Question Long-lived assets that are intangible in nature, used in the operations of the business, and not held for sale in the ordinary course of business are called fixed assets. Answer True False Add Question Here

Question 2

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Question The acquisition costs of property, plant, and equipment should include all normal, reasonable and necessary costs to get the asset in place and ready for use. Answer True False Add Question Here

Question 3

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Question When land is purchased to construct a new building, the cost of removing any structures on the land should be charged to the building account. Answer True False Add Question Here

Question 4

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Question Land acquired as a speculation is reported under Investments on the balance sheet. Answer True False Add Question Here

Question 5

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Question To a major resort, timeshare properties would be classified as property, plant and equipment. Answer True False Add Question Here

Question 6

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Question Standby equipment held for use in the event of a breakdown of regular equipment is reported as property, plant, and equipment on the balance sheet. Answer True False Add Question Here

Question 7

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Question The cost of repairing damage to a machine during installation is debited to a fixed asset account. Answer True False Add Question Here

Question 8

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Question During construction of a building, the cost of interest on a construction loan should be charged to an expense account. Answer True False Add Question Here

Question 9

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Question The cost of computer equipment does not include the consultant's fee to supervise installation of the equipment. Answer True False Add Question Here

Question 10

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Question When cities give land or buildings to a company to locate in the community, no entry is made since there is no cost to the company. Answer True False Add Question Here

Question 11

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Question Capital expenditures are costs of acquiring, constructing, adding, or replacing property, plant and equipment. Answer True

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Question 12

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Question The cost of new equipment is called a revenue expenditure because it will help generate revenues in the future. Answer True False Add Question Here

Question 13

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Question Expenditures that increase operating efficiency or capacity for the remaining useful life of a fixed asset are betterments. Answer True False Add Question Here

Question 14

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Question The cost of replacing an engine in a truck is an example of ordinary maintenance. Answer True False Add Question Here

Question 15

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Question A capital lease is accounted for as if the asset has been purchased. Answer True False Add Question Here

Question 16

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Question An operating lease is accounted for as if the lessee has purchased the asset. Answer True False Add Question Here

Question 17

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Question An intangible asset is one that has a physical existence. Answer True False Add Question Here

Question 18

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Question A capitalized asset will appear on the balance sheet as a long term asset. Answer True False Add Question Here

Question 19

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Question Long lived assets held for sale are classified as fixed assets. Answer True False Add Question Here

Question 20

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Question Functional depreciation occurs when a fixed asset is no longer able to provide services at the level for which it was intended. Answer True False Add Question Here

Question 21

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Question The normal balance of the accumulated depreciation account is debit. Answer True False Add Question Here

Question 22

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Question As a company depreciates a piece of equipment, it cash flow goes up. Answer True False Add Question Here

Question 23

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Question All property, plant, and equipment assets are depreciated over time. Answer True

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False Add Question Here

Question 24

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Question The book value of a fixed asset reported on the balance sheet represents its market value on that date. Answer True False Add Question Here

Question 25

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Question The depreciable cost of a building is the same as its acquisition cost. Answer True False Add Question Here

Question 26

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Question It is necessary for a company to use the same depreciation method for all of its depreciable assets. Answer True False Add Question Here

Question 27

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Question It is not necessary for a company to use the same depreciation method for financial statements and for determining income taxes. Answer True False Add Question Here

Question 28

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Question An estimate of the amount which an asset can be sold at the end of its useful life is called residual value. Answer True False Add Question Here

Question 29

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Question The units of production depreciation method matches expenses against revenue the best. Answer True False Add Question Here

Question 30

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Question Once the useful life of a depreciable asset has been estimated and the amount to be depreciated each year has been determined, the amounts can not be changed. Answer True False Add Question Here

Question 31

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Question Residual value is not incorporated in the initial calculations for double-declining-balance depreciation. Answer True False Add Question Here

Question 32

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Question The double-declining-balance method is an accelerated depreciation method. Answer True False Add Question Here

Question 33

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Question The double declining balance depreciation method calculates depreciation each year by taking twice the straight line rate times the book value of the asset at the beginning of each year. Answer True False Add Question Here

Question 34

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Question When minor errors occur in the estimates used in the determination of depreciation, the amounts recorded for depreciation expense in the past should be corrected. Answer True False Add Question Here

Question 35

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Question The amount of depreciation expense for the first full year of use of a fixed asset costing $95,000, with an estimated residual value of $5,000 and a useful life of 5 years, is $19,000 by the straight-line method. Answer True False Add Question Here

Question 36

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Question The amount of depreciation expense for a fixed asset costing $95,000, with an estimated residual value of $5,000 and a useful life of 5 years or 20,000 operating hours, is $21,375 by the units-of-production method during a period when the asset was used for 4,500 hours. Answer True False Add Question Here

Question 37

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Question The amount of the depreciation expense for the second full year of use of a fixed asset costing $100,000, with an estimated residual value of $5,000 and a useful life of 4 years, is $25,000 by the declining-balance method at twice the straight-line rate. Answer True False Add Question Here

Question 38

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Question When depreciation estimates are revised, all years of the asset’s life are affected. Answer True False Add Question Here

Question 39

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Question For income tax purposes most companies use an accelerated deprecation method called double declining balance. Answer True False Add Question Here

Question 40

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Question Assets may be grouped according to common traits and depreciated by using a single composite rate. Answer True False Add Question Here

Question 41

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Question Regardless of the depreciation method, the amount that will be depreciated during the life of the asset will be the same. Answer True False Add Question Here

Question 42

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Question Revising depreciation estimates does affect the amounts of depreciation expense recorded in past periods. Answer True False Add Question Here

Question 43

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Question Capital expenditures are costs that are charged to Stockholders' Equity accounts. Answer True False Add Question Here

Question 44

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Question Though a piece of equipment is still being used, the equipment should be removed from the accounts if it has been fully depreciated. Answer True False Add Question Here

Question 45

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Question If an asset has not been fully depreciated, depreciation should be recorded prior to removing it from service and the accounting records. Answer True False Add Question Here

Question 46

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Question When selling a piece of equipment for cash, a loss will result when the proceeds of the sale are less than the book value of the asset.

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Question 47

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Question When a property, plant, and equipment asset is sold for cash, any gain or loss on the asset sold should be recorded. Answer True False Add Question Here

Question 48

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Question Ordinary gains from the sale of fixed assets should be reported in the other income section of the income statement. Answer True False Add Question Here

Question 49

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Question A gain can be realized when a fixed asset is discarded. Answer True False Add Question Here

Question 50

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Question When old equipment is traded in for a new equipment, the difference between the list price and the trade in allowance is called boot. Answer True False Add Question Here

Question 51

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Question When a plant asset is traded for another of similar asset, losses on the asset traded are not recognized. Answer True False Add Question Here

Question 52

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Question When exchanging equipment, if the trade-in allowance is greater than the book value a loss results. Answer True False Add Question Here

Question 53

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Question Since gains are not recognized in the exchange of similar assets, the cost basis of the new asset is equal to the book value of the old asset plus boot. Answer True False Add Question Here

Question 54

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Question If a fixed asset with a book value of $10,000 is traded for a similar fixed asset, and a trade-in allowance of $15,000 is granted by the seller, the buyer would report a gain on disposal of fixed assets of $5,000. Answer True False Add Question Here

Question 55

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Question The entry to record the disposal of fixed assets will include a credit to accumulated depreciation. Answer True False Add Question Here

Question 56

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Question Both the initial cost of the asset and the accumulated depreciation will be taken off the books with the disposal of the asset. Answer True False Add Question Here

Question 57

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Question Minerals removed from the earth are classified as intangible assets. Answer True False Add Question Here True/False

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Question 58 Question The method used to calculate the depletion of a natural resource is the straight line method. Answer True False Add Question Here

Question 59

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Question Intangible assets differ from property, plant and equipment assets in that they lack physical substance. Answer True False Add Question Here

Question 60

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Question The transfer to expense of the cost of intangible assets attributed to the passage of time or decline in usefulness is called amortization. Answer True False Add Question Here

Question 61

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Question The cost of a patent with a remaining legal life of 10 years and an estimated useful life of 7 years is amortized over 10 years. Answer True False Add Question Here

Question 62

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Question Costs associated with normal research and development activities should be treated as intangible assets. Answer True False Add Question Here

Question 63

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Question Patents are exclusive rights to manufacture, use, or sell a particular product or process. Answer True False Add Question Here

Question 64

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Question When a major corporation develops its own trademark and over time it becomes very valuable, the trademark may not be shown on their balance sheet due lack of a material cost. Answer True False Add Question Here

Question 65

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Question When a company establishes an outstanding reputation and has a competitive advantage because of it, the company should record goodwill on its financial statements. Answer True False Add Question Here

Question 66

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Question The difference between the balance in a fixed asset account and its related accumulated depreciation account is the asset's book value. Answer True False Add Question Here

Question 67

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Question The-sum-of-the-years'-digits method is the only depreciation method that does not consider the plant asset's estimated residual value in the depreciation equation. Answer True False Add Question Here

Question 68

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Question The amount of depreciation expense for the first full year of use of a fixed asset costing $65,000, with an estimated residual value of $5,000 and a useful life of 5 years, is $20,000 by the sum-of-the-years’-digits method. Answer True False Add Question Here

Question 69

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Question When a seller allows a buyer an amount for old equipment that is traded in for new equipment of similar use, this amount is

known as boot. Answer

True False Add Question Here

Question 70

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Question An exchange is said to have commercial substance if future cash flows remain the same as a result of the exchange. Answer True False Add Question Here

Question 71

Matching

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Question Classify each of the following as: Answer Match Question Items C. A. B. B. B. C. A. A. -

A. B. C. D. E. F. G. H.

Overhauling an engine in a large truck. Exterior and interior painting Paving a new parking lot New landscaping Installing a new air conditioning system in an old building Resurfacing a pool in an apartment building Adding freon to an air conditioning system Fixing damage due to a car accident

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Answer Items A. Ordinary Maintenance and Repairs B. Asset Improvements C. Extraordinary Repairs

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Question 72

Matching

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Question Match the intangible assets with their proper classification Answer Match Question Items B. - A. Rights to sell this book and make a profit C. - B. McDonald’s Golden Arches A. - C. A new kitchen gadget that can be profited by only one company D. - D. Location of a company B. - E. I-Tunes Music D. - F. Reputation of a company C. - G. Nike Swoosh C. - H. Mickey Mouse

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Answer Items A. Patent B. Copyright C. Trademark D. Goodwill

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Question 73

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Question A characteristic of a fixed asset is that it is Answer intangible used in the operations of a business held for sale in the ordinary course of the business a long term investment Add Question Here

Question 74

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Question Land acquired so it can be resold in the future is listed in the balance sheet as a(n) Answer fixed asset current asset investment intangible asset Add Question Here

Question 75

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Question Which of the following should be included in the acquisition cost of a piece of equipment? Answer transportation costs installation costs testing costs prior to placing the equipment into production all are correct Add Question Here

Question 76

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Question Which of the following is included in the cost of constructing a building? Answer insurance costs during construction cost of paving parking lot cost of repairing vandalism damage during construction cost of removing the demolished building existing on the land when it was purchased Add Question Here

Question 77

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Question Which of the following is included in the cost of land? Answer cost of paving a parking lot brokerage commission outdoor parking lot lighting attached to the land

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fences on the land Add Question Here

Question 78

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Question Accumulated Depreciation Answer is used to show the amount of cost expiration of intangibles is the same as Depreciation Expense is a contra asset account is used to show the amount of cost expiration of natural resources Add Question Here

Question 79

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Question A building with an appraisal value of $147,000 is made available at an offer price of $152,000. The purchaser acquires the property for $35,000 in cash, a 90-day note payable for $45,000, and a mortgage amounting to $65,000. The cost basis recorded in the buyer's accounting records to recognize this purchase is Answer $147,000 $152,000 $145,000 $110,000 Add Question Here

Question 80

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Question A used machine with a purchase price of $77,000, requiring an overhaul costing $8,000, installation costs of $5,000, and special acquisition fees of $3,000, would have a cost basis of Answer $93,000 $90,000 $82,000 $85,000 Add Question Here

Question 81

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Question A new machine with a purchase price of $94,000, with transportation costs of $8,000, installation costs of $5,000, and special acquisition fees of $2,000, would have a cost basis of Answer $ 99,000 $107,000 $102,000 $109,000 Add Question Here

Question 82

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Question Expenditures that add to the utility of fixed assets for more than one accounting period are Answer committed expenditures revenue expenditures current expenditures capital expenditures Add Question Here

Question 83

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Question A capital expenditure results in a debit to Answer an expense account a stockholders’ equity account a liability account an asset account Add Question Here

Question 84

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Question Which of the following below is an example of a capital expenditure? Answer cleaning the carpet in the front room tune-up for a company truck replacing an engine in a company car replacing all burned-out light bulbs in the factory Add Question Here

Question 85

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Question In a lease contract, the party who legally owns the asset is the Answer lessee lessor operator banker Add Question Here

Question 86

Multiple Choice Question All leases are classified as either Answer capital leases or long-term leases capital leases or operating leases

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operating leases or current leases long-term leases or current leases Add Question Here

Question 87

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Question The journal entry for recording an operating lease payment would Answer be a memo entry only debit the fixed asset and credit Cash debit an expense and credit Cash debit a liability and credit Cash Add Question Here

Question 88

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Question When determining whether to record an asset as a fixed asset, what two criteria must be met? Answer Must be an investment and must be long lived. Must be long lived and must use the asset in a productive manner. Must be long lived and must be a tangible asset. Must be a tangible asset and must be an investment. Add Question Here

Question 89

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Question Factors contributing to a decline in the usefulness of a fixed asset may be divided into the following two categories Answer salvage and functional physical and functional residual and salvage functional and residual Add Question Here

Question 90

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Question A fixed asset's estimated value at the time it is to be retired from service is called Answer book value residual value market value carrying value Add Question Here

Question 91

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Question All of the following below are needed for the calculation of straight-line depreciation except Answer cost residual value estimated life units produced Add Question Here

Question 92

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Question The method of determining depreciation that yields successive reductions in the periodic depreciation charge over the estimated life of the asset is Answer units-of-production declining-balance straight-line time-valuation Add Question Here

Question 93

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Question When the amount of use of a fixed asset varies from year to year, the method of determining depreciation expense that best matches allocation of cost with revenue is Answer declining-balance straight-line units-of-production MACRS Add Question Here

Question 94

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Question A machine with a cost of $80,000 has an estimated residual value of $5,000 and an estimated life of 5 years or 15,000 hours. It is to be depreciated by the units-of-production method. What is the amount of depreciation for the second full year, during which the machine was used 5,000 hours? Answer $5,000 $25,000 $15,000 $26,667 Add Question Here

Question 95

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Question Equipment with a cost of $130,000 has an estimated residual value of $10,000 and an estimated life of 5 years or 12,000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the

equipment was used 3,300 hours? Answer

$24,000 $32,500 $33,000 $35,750 Add Question Here

Question 96

Multiple Choice

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Question A machine with a cost of $75,000 has an estimated residual value of $5,000 and an estimated life of 4 years or 18,000 hours. What is the amount of depreciation for the second full year, using the double declining-balance method? Answer $17,500 $37,500 $18,750 $16,667 Add Question Here

Question 97

Multiple Choice

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Question The most widely used depreciation method is Answer straight-line sum-of-the-years-digits declining-balance units-of-production Add Question Here

Question 98

Multiple Choice

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Question Equipment with a cost of $160,000, an estimated residual value of $40,000, and an estimated life of 15 years was depreciated by the straight-line method for 4 years. Due to obsolescence, it was determined that the useful life should be shortened by 3 years and the residual value changed to zero. The depreciation expense for the current and future years is Answer $11,636 $16,000 $11,000 $8,000 Add Question Here

Question 99

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Question The depreciation method that does not use residual value in calculating the first year's depreciation expense is Answer straight-line units-of-production double-declining-balance none of the above Add Question Here

Question 100

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Question If a fixed asset, such as a computer, were purchased on January 1st for $3,750 with an estimated life of 3 years and a salvage or residual value of $150, the journal entry for monthly expense under straight-line depreciation is: (Note: EOM indicates the last day of each month.) Answer EOM Depreciation Expense 100 Accumulated Depreciation 100 EOM Depreciation Expense 1,200 Accumulated Depreciation 1,200 EOM Accumulated Depreciation 1,200 Depreciation Expense 1,200 EOM Accumulated Depreciation 100 Depreciation Expense 100 Add Question Here

Question 101

Multiple Choice

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Question The proper journal entry to purchase a computer on account to be utilized within the business would be: Answer Jan 2 Office Supplies 1,350 Accounts Payable 1,350 Jan 2 Office Equipment 1,350 Accounts Payable 1,350 Jan 2 Office Supplies 1,350 Accounts Receivable 1,350 Jan 2 Office Equipment 1,350 Accounts Receivable 1,350 Add Question Here

Question 102

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Question Residual value is also known as all of the following except Answer scrap value trade in value salvage value net book value Add Question Here

Question 103

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Question The formula for depreciable cost is Answer initial cost + residual value initial cost - residual value initial cost - accumulated depreciation depreciable cost = initial cost Add Question Here

Question 104

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Question Expected useful life is Answer calculated when the asset is sold. estimated at the time that the asset is placed in service. determined each year that the depreciation calculation is made. none of the answers are correct. Add Question Here

Question 105

Multiple Choice

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Question The calculation for annual depreciation using the straight-line depreciation method is Answer initial cost / estimated useful life depreciable cost / estimated useful life depreciable cost * estimated useful life initial cost * estimated useful life Add Question Here

Question 106

Multiple Choice

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Question The calculation for annual depreciation using the units-of-production method is Answer (initial cost/estimated output) * the actual yearly output (depreciable cost / yearly output) * estimated output depreciable cost / yearly output (depreciable cost / estimated output) * the actual yearly output Add Question Here

Question 107

Multiple Choice

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Question Computer equipment was acquired at the beginning of the year at a cost of $65,000 that has an estimated residual value of $3,000 and an estimated useful life of 5 years. Determine the 2nd year’s depreciation using straight-line depreciation. Answer $26,000 $24,800 $12,400 $13,000 Add Question Here

Question 108

Multiple Choice

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Question Which of the following is true? Answer If using the double-declining-balance the total amount of depreciation expense during the life of the asset will be the highest. If using the units-of-production method, it is possible to depreciate more than the depreciable cost. If using the straight line method, the amount of depreciation expense during the first year is higher than that of the doubledeclining-balance. Regardless of the depreciation method, the amount of total depreciation expense during the life of the asset will be the same. Add Question Here

Question 109

Multiple Choice

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Question An asset was purchased for $120,000 and originally estimated to have a useful life of 10 years with a residual value of $10,000. After two years of straight line depreciation, it was determined that the remaining useful life of the asset was only 4 years with a residual value of $2,000. Calculate this year’s depreciation using the revised amounts and straight line method. Answer $25,000 $11,000 $24,000 $24,500 Add Question Here

Question 110

Multiple Choice

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Question A fixed asset with a cost of $52,000 and accumulated depreciation of $47,500 is traded for a similar asset priced at $60,000. Assuming a trade-in allowance of $5,000, the cost basis of the new asset is Answer $54,000 $59,500 $60,000 $60,500 Add Question Here

Question 111

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Question A fixed asset with a cost of $41,000 and accumulated depreciation of $36,000 is traded for a similar asset priced at $50,000. Assuming a trade-in allowance of $4,000, the cost basis of the new asset is Answer $54,000 $45,000 $51,000

$50,000 Add Question Here

Question 112

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Question A fixed asset with a cost of $41,000 and accumulated depreciation of $36,500 is traded for a similar asset priced at $60,000. Assuming a trade-in allowance of $3,000, the recognized loss on the trade is Answer $3,000 $4,500 $ 500 $1,500 Add Question Here

Question 113

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Question A fixed asset with a cost of $30,000 and accumulated depreciation of $28,500 is sold for $3,500. What is the amount of the gain or loss on disposal of the fixed asset? Answer $2,000 loss $1,500 loss $3,500 gain $2,000 gain Add Question Here

Question 114

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Question The Bacon Company acquired new machinery with a price of $15,200 by trading in similar old machinery and paying $12,700. The old machinery originally cost $9,000 and had accumulated depreciation of $5,000. In recording this transaction, Bacon Company should record Answer the new machinery at $16,700 the new machinery at $12,700 a gain of $1,500 a loss of $1,500 Add Question Here

Question 115

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Question When a company discards machinery that is fully depreciated, this transaction would be recorded with the following entry Answer debit Accumulated Depreciation; credit Machinery debit Machinery; credit Accumulated Depreciation debit Cash; credit Accumulated Depreciation debit Depreciation Expense; credit Accumulated Depreciation Add Question Here

Question 116

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Question When a company sells machinery at a price equal to its book value, this transaction would be recorded with an entry that would include the following: Answer debit Cash and Accumulated Depreciation; credit Machinery debit Machinery; credit Cash and Accumulated Depreciation debit Cash and Machinery; credit Accumulated Depreciation debit Cash and Depreciation Expense; credit Accumulated Depreciation Add Question Here

Question 117

Multiple Choice

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Question When a company exchanges machinery and receives a trade-in allowance greater than the book value, this transaction would be recorded with the following entry: Answer debit Machinery and Accumulated Depreciation; credit Machinery, Cash, and Gain on Disposal debit Machinery and Accumulated Depreciation; credit Machinery and Cash debit Cash and Machinery; credit Accumulated Depreciation debit Cash and Machinery; credit Accumulated Depreciation and Machinery Add Question Here

Question 118

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Question When a company exchanges machinery and receives a trade-in allowance less than the book value, this transaction would be recorded with the following entry: Answer debit Machinery and Accumulated Depreciation; credit Machinery and Cash debit Cash and Machinery; credit Accumulated Depreciation debit Cash and Machinery; credit Accumulated Depreciation and Machinery debit Machinery, Accumulated Depreciation, and Loss on Disposal; credit Machinery and Cash Add Question Here

Question 119

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Question On December 31, Strike Company has decided to discard one of its batting cages. The initial cost of the equipment was $215,000 with an accumulated depreciation of $185,000. Depreciation has been taken up to the end of the year. The following will be included in the entry to record the disposal. Answer Accumulated Depreciation Dr. $215,000 Loss on Disposal of Asset $185,000 Equipment Cr. $215,000 Gain on Disposal of Asset $30,000 Add Question Here Multiple Choice

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Question 120 Question On December 31, Strike Company has decided to sell one of its batting cages. The initial cost of the equipment was $215,000 with an accumulated depreciation of $185,000. Depreciation has been taken up to the end of the year. The company found a company that is willing to buy the equipment for $30,000. What is the amount of the gain or loss on this transaction? Answer Gain of $30,000 Loss of $30,000 No gain or loss Cannot be determined Add Question Here

Question 121

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Question On December 31, Strike Company has decided to sell one of its batting cages. The initial cost of the equipment was $215,000 with an accumulated depreciation of $185,000. Depreciation has been taken up to the end of the year. The company found a company that is willing to buy the equipment for $20,000. What is the amount of the gain or loss on this transaction? Answer Gain of $20,000 Loss of $10,000 No gain or loss Cannot be determined Add Question Here

Question 122

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Question On December 31, Strike Company has decided to sell one of its batting cages. The initial cost of the equipment was $215,000 with an accumulated depreciation of $185,000. Depreciation has been taken up to the end of the year. The company found a company that is willing to buy the equipment for $55,000. What is the amount of the gain or loss on this transaction? Answer Cannot be determined No gain or loss Gain of $25,000 Gain of $55,000 Add Question Here

Question 123

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Question On December 31, Strike Company has decided to trade-in one of its batting cages for another one that has a cost of $500,000. The seller of the batting cage is willing to allow a trade-in amount of $40,000. The initial cost of the old equipment was $225,000 with an accumulated depreciation of $195,000. Depreciation has been taken up to the end of the year. The difference will be paid in cash. What is the amount of the gain or loss on this transaction? Answer The gain will not be recognized and will be added to the price of the old equipment. The gain will not be recognized and will be added to the price of the new equipment The gain will not be recognized and will be subtracted from the price of the old equipment The gain will not be recognized and will be subtracted from the price of the new equipment. Add Question Here

Question 124

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Question On December 31, Strike Company has decided to trade-in one of its batting cages for another one that has a cost of $500,000. The seller of the batting cage is willing to allow a trade-in amount of $11,000. The initial cost of the old equipment was $215,000 with an accumulated depreciation of $185,000. Depreciation has been taken up to the end of the year. The difference will be paid in cash. What is the amount of the gain or loss on this transaction? Answer Loss of $11,000 Gain of $11,000 Loss of $19,000 No loss or gain will be recorded. Add Question Here

Question 125

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Question When a company replaces a component of property, plant and equipment, which statement below does not account for one of the steps to this process? Answer book value of the replaced component is written off to depreciation expense the asset cost of the replaced component is credited any cost to remove the old component is charged to expense the identifiable direct costs associated with the new component are capitalized Add Question Here

Question 126

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Question The accumulated depletion account is Answer an expense account an intangible asset account reported on the income statement as other expense reported on the balance sheet as a deduction from the cost of the mineral deposit Add Question Here

Question 127

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Question The process of transferring the cost of metal ores and other minerals removed from the earth to an expense account is called Answer depletion deferral amortization depreciation Add Question Here Multiple Choice

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Question 128 Question The Weber Company purchased a mining site for $500,000 on July 1, 2009. The company expects to mine ore for the next 10 years and anticipates that a total of 100,000 tons will be recovered. The estimated residual value of the property is $80,000. During 2009, the company extracted and sold 4,000 tons of ore. The depletion expense for 2009 is Answer $10,500 $43,200 $16,800 $20,000 Add Question Here

Question 129

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Question Expenditures for research and development are generally recorded as Answer current operating expenses assets and amortized over their estimated useful life assets and amortized over 40 years current assets Add Question Here

Question 130

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Question The term applied to the amount of cost to transfer to expense resulting from a decline in the utility of intangible assets is Answer amortization depletion depreciation allocation Add Question Here

Question 131

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Question Xtra Company purchased goodwill from Argus for $144,000. Argus had developed the goodwill over 6 years. How much would Xtra amortize the goodwill for its first year? Answer $8,640 $24,000 Goodwill is not amortized. Not enough information. Add Question Here

Question 132

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Question Which intangible assets are amortized over their useful life? Answer trademarks goodwill patents all of the above Add Question Here

Question 133

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Question The exclusive right to use a certain name or symbol is called a Answer franchise patent trademark copyright Add Question Here

Question 134

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Question Fixed assets are ordinarily presented in the balance sheet Answer at current market values at replacement costs at cost less accumulated depreciation in a separate section along with intangible assets Add Question Here

Question 135

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Question Machinery was purchased on January 1, 2009 for $51,000. The machinery has an estimated life of 7 years and an estimated salvage value of $9,000. Sum-of-the-years'-digits depreciation for 2010 would be Answer $10,929 $6,000 $10,500 $9,000 Add Question Here

Question 136

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Question What is the cost of the land, based upon the following data? Land purchase price Broker's commission Payment for the demolition and removal of existing building Cash received from the sale of materials salvaged from the demolished building

$178,000 15,000 5,000 2,000

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Answer

$196,000 Add Question Here

Question 137

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Question Comment on the validity of the following statements. "As an asset loses its ability to provide services, cash needs to be set aside to replace it. Depreciation accomplishes this goal." Answer Depreciation is the periodic transfer of the cost of an asset to expense. Depreciation is a noncash expense. Depreciation does not accumulate cash for replacements. Add Question Here

Question 138

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Question On April 15, Compton Co. paid $1,350 to upgrade a delivery truck and $45 for an oil change. Journalize the entries for the delivery truck and oil change expenditures. Answer April 15 Delivery Truck 1,350 Cash 1,350 15 Repairs and maintenance Exp Cash

45 45 Add Question Here

Question 139

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Question Computer equipment was acquired at the beginning of the year at a cost of $45,000 that has an estimated residual value of $3,000 and an estimated useful life of 4 years. Determine the (a) depreciable cost, (b) straight-line rate, and (c) annual straight-line depreciation. Answer (a) $42,000 (b) 25% (c) $10,500 Add Question Here

Question 140

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Question In using this method, a double-declining balance rate is determined by doubling the straight-line rate. Assume that an asset has a useful life of 25 years, determine the rate to be used if using the double-declining balance method. Answer 4% * 2 = 8% Add Question Here

Question 141

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Question Copy equipment was acquired at the beginning of the year at a cost of $56,000 that has an estimated residual value of $8,000 and an estimated useful life of 5 years. It is estimated that the machine has an estimated 1,000,000 copies. This year 240,000 copies were made. Determine the (a) depreciable cost, (b) depreciation rate, and (c) the units-of-production depreciation for the year. Answer (a) $48,000 (b) $0.048 per copy (c) $11,520 (240000*.048) Add Question Here

Question 142

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Question A machine costing $57,000 with a 6-year life and $3,000 residual value was purchased January 2, 2009. Compute the yearly depreciation expense using straight-line depreciation. Answer ($57,000 - $3,000) = $54,000 ÷ 6 years = $9,000 per year Add Question Here

Question 143

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Question A machine costing $85,000 with a 5-year life and $5,000 residual value was purchased January 2, 2009. Compute depreciation for each of the five years, using the declining-balance method at twice the straight-line rate. Answer (1) Year 1 $85,000 × .40 = $34,000 (2) Year 2 $51,000 × .40 = $20,400 (3) Year 3 $30,600 × .40 = $12,240 (4) Year 4 $18,360 × .40 = $7,344 (5) Year 5 $11,016 - 5,000 = $6,016 Add Question Here

Question 144

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Question Computer equipment was acquired at the beginning of the year at a cost of $63,000 that has an estimated residual value of $3,000 and an estimated useful life of 5 years. Determine the (a) depreciable cost (b) double-declining-balance rate, and (c) doubledeclining-balance depreciation for the first year. Answer (a) $60,000 (b) 40% (c) $25,200 ($63,000 * 40%) Add Question Here

Question 145

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Question An asset was purchased for $58,000 and originally estimated to have a useful life of 10 years with a residual value of $3,000. After two years of straight line depreciation, it was determined that the remaining useful life of the asset was only 2 years with a residual value of $2,000. Calculate this year’s depreciation using the revised amounts and straight line method. a) Determine the amount of the annual depreciation for the first two years. b) Determine the book value at the end of the 2nd year. c) Determine the depreciation expense for each of the remaining years after revision. Answer a) $5,500 b) $47,000 c) $22,500 Add Question Here

Question 146

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Question Equipment was acquired at the beginning of the year at a cost of $75,000. The equipment was depreciated using the straight-line method based upon an estimated useful life of 6 years and an estimated residual value of $7,500. a) b)

What was the depreciation for the first year? Assuming the equipment was sold at the end of the second year for $59,000, determine the gain or loss on sale of the equipment. Journalize the entry to record the sale.

c)

a) $11,250 b) $6,500 Gain c) Cash Accumulated Depreciation Equipment Gain on Sale of Asset

Answer

59,000 22,500 75,000 6,500 Add Question Here

Question 147

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Question On the first day of the fiscal year, a new walk-in cooler with a list price of $52,000 was acquired in exchange for an old cooler and $42,000 cash. The old cooler had a cost $24,000 and accumulated depreciation of $17,000. a) b)

Determine the cost of the new cooler for financial reporting purposes. Journalize the entry to record the exchange. a) List price Trade In NBV of old cooler. Unrealized gain Cost of new truck

Answer

$52,000 10,000 7,000 3,000 $49,000

b) Equipment (new) Accum. Depreciation Equipment Cash

49,000 17,000 24,000 42,000 Add Question Here

Question 148

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Question Solare Company acquired mineral rights for $60,000,000. The diamond deposit is estimated at 6,000,000 tons. During the current year, 2,300,000 were mined and sold. a. b. c. Answer

Determine the depletion rate. Determine the amount of depletion expense for the current year. Journalize the adjusting entry to recognize the depletion expense. a) b) c)

$10 per ton $23,000,000 Dec 31

Depletion Expense Accumulated Depletion Depletion of mineral deposit

23,000,000 23,000,000 Add Question Here

Question 149

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Question Falcon Company acquired an adjacent lot to construct a new warehouse, paying $30,000 and giving a short-term note for $370,000. Legal fees paid were $11,425, delinquent taxes assessed were $12,000, and fees paid to remove an old building from the land were $18,500. Materials salvaged from the demolition of the building were sold for $4,500. A contractor was paid $910,000 to construct a new warehouse. Determine the cost of the land to be reported on the balance sheet and show your work. Answer Initial cost of land ($30,000 + $370,000) $400,000 Plus: Legal fees 11,425 Delinquent taxes 12,000 41,925 Demolition of building 18,500 $441,925 Less: Salvage of materials 4,500 Cost of land $437,425 Add Question Here

Question 150

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Question Convert each of the following estimates of useful life to a straight-line depreciation rate, stated as a percentage, assuming that the residual value of the fixed asset is to be ignored: (1) (2) (3) (4) (5) (6) (7) Answer

2 years 8 years 10 years 20 years 25 years 40 years 50 years (1) 50% (1/2) (2) 12.5% (1/8) (3) 10% (1/10) (4) 5% (1/20) (5) 4% (1/25) (6) 2.5% (1/40) (7) 2% (1/50) Add Question Here

Question 151

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Question Prior to adjustment at the end of the year, the balance in Trucks is $250,900 and the balance in Accumulated DepreciationTrucks is $88,200. Details of the subsidiary ledger are as follows: Truck No. Cost Estimated Residual Estimated Useful Life Accumulated Depreciation at Miles Operated Beginning of Year Value During Year 1 $100,000 $13,000 300,000 -30,000

2 3 4

72,900 38,000 90,000

9,900 3,000 13,000

300,000 200,000 200,000

$60,000 8,050 20,150

25,000 45,000 40,000

Required: (1) Determine the depreciation rates per mile and the amount to be credited to the accumulated depreciation section of each of the subsidiary accounts for the miles operated during the current year. (2) Journalize the entry to record depreciation for the year. (1) Truck No.

Answer

Rate per Mile

1 2 3 4

Miles Operated

29.0 cents 21.0 17.5 38.5

Depreciation

30,000 25,000 45,000 40,000

$8,700 3,000* 7,875 15,400 34,975

Total

*Mileage depreciation of $5,250 (21 cents × 25,000) is limited to $3,000, which reduces the book value of the truck to $9,900, its residual value. (2)

Depreciation Expense—Trucks Accumulated Depreciation—Trucks

34,975 34,975 Add Question Here

Question 152

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Question Champion Company purchased and installed carpet in its new general offices on March 30 for a total cost of $18,000. The carpet is estimated to have a 15-year useful life and no residual value. a.

Prepare the journal entries necessary for recording the purchase of the new carpet.

b.

Record the December 31 adjusting entry for the partial-year depreciation expense for the carpet assuming that Champion Company uses the straight-line method. a.

Answer

b.

Mar. Dec.

30 31

Carpet Cash

18,000 18,000

Depreciation Expense Accumulated Depreciation Carpet depreciation [($18,000/15 years) × 9/12].

900 900

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Question 153

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Question Equipment acquired on January 2, 2009 at a cost of $273,500 has an estimated useful life of eight years and an estimated residual value of $35,500. Required: (1)

What was the annual amount of depreciation for the years 2009, 2010, and 2011, assuming the straight-line method of depreciation is used?

(2)

What was the book value of the equipment on January 1, 2012?

(3)

Assuming that the equipment was sold on January 2, 2012, for $170,500, journalize the entry to record the sale.

(4)

Assuming that the equipment had been sold on January 2, 2012, for $189,000 instead of $168,500, journalize the entry to record the sale.

Answer

(1)

2009 depreciation expense: $29,750 [($273,500 – $35,500)/8] 2010 depreciation expense: $29,750 2011 depreciation expense: $29,750

(2)

$184,250 [$273,500 – ($29,750 × 3)]

(3)

Cash Accumulated Depreciation—Equipment Loss on Disposal of Fixed Assets Equipment

170,500 89,250 13,750

Cash Accumulated Depreciation—Equipment Equipment Gain on Disposal of Fixed Assets

189,000 89,250

(4)

273,500

273,500 4,750 Add Question Here

Question 154

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Question Chasteen Company acquired mineral rights for $13,600,000. The mineral deposit is estimated at 80,000,000 tons. During the current year, 13,750,000 tons were mined and sold. Required: (1)

Determine the amount of depletion expense for the current year.

(2)

Journalize the adjusting entry to recognize the depletion expense.

Answer

(1) (2)

$13,600,000/80,000,000 tons = $0.17 depletion per ton 13,750,000 × $0.17 = $2,337,500 depletion expense Depletion Expense Accumulated Depletion Depletion of mineral deposit.

2,337,500 2,337,500 Add Question Here

Question 155

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Question Icon Company acquired patent rights on January 1, 2009 for $1,125,000. The patent has a useful life equal to its legal life of 15 years. On January 2, 2012, Icon successfully defended the patent in a lawsuit at a cost of $90,000.

Required: (1) Determine the patent amortization expense for the current year ended December 31, 2012. (2) Journalize the adjusting entry to recognize the amortization. (1)

Answer

($1,125,000/15) + ($90,000/12) = $82,500 total patent expense Amortization Expense—Patents Patents Amortized patent rights ($75,000 + $7,500).

(2)

82,500 82,500 Add Question Here

Question 156

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Question The following information was taken from a recent annual report of Harrison Company: 2010 $726 595 94 760 894

Land and buildings Machinery, equipment, and internal-use software Office furniture and equipment Other fixed assets related to leases Accumulated depreciation and amortization

2009 $361 470 81 569 644

Required: (1)

Compute the book value of the fixed assets for the 2010 and 2009 and explain the differences, if any.

(2)

Would you normally expect the book value of fixed assets to increase or decrease during the year?

Answer (1)

Property, Plant, and Equipment (in millions):

Land and buildings Machinery, equipment, and internal-use software Office furniture and equipment Other fixed assets related to leases Less accumulated depreciation Book value

Current Year

Preceding Year

$726 595 94 760 $2,175 894 $1,281

$361 470 81 569 $1,481 644 $837

A comparison of the book values of the current and preceding years indicates that they increased. A comparison of the total cost and accumulated depreciation reveals that Harrison purchased $694 million ($2,175 – $1,481) of additional fixed assets, which was offset by the additional depreciation expense of $250 million ($894 – $644) taken during the current year. (2)

The book value of fixed assets should normally increase during the year. Although additional depreciation expense will reduce the book value, most companies invest in new assets in an amount that is at least equal to the depreciation expense. However, during periods of economic downturn, companies purchase fewer fixed assets, and the book value of their fixed assets may decline. Add Question Here

Question 157

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Question The following are two independent situations. 1.

A tractor acquired on January 4 at a cost of $75,000 has an estimated useful life of 20 year. Assuming that it will have no residual value, determine the depreciation for the tractor for each of the first two years, using the sum-of-the-years-digits depreciation method. Round to the nearest dollar.

2.

A storage tank acquired at the beginning of fiscal year 2010 at a cost of $198,000, has an estimated residual value of $18,000 and an estimated useful life of eight years. Based on this information, determine the depreciation for the storage tank for each of the first two years using the sum-of-the-years-digits depreciation method. Round to the nearest dollar.

Answer

1.

First year: 20/210 × $75,000 = $7,143 Second year: 19/210 × $75,000 = $6,786

2.

2010: 8/36 × ($198,000 – $18,000) = $40,000 2011: 7/36 × ($198,000 – $18,000) = $35,000 Add Question Here

Question 158

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Question On October 1, Sebastian Company acquired new equipment with a fair market value of $458,000. Sebastian received a trade-in allowance of $92,000 on the old equipment of a similar type and paid cash of $366,000. The following information about the old equipment is obtained from the account in the equipment ledger: Cost, $336,000; accumulated depreciation on December 31, the end of the preceding fiscal year, $220,000; annual depreciation, $20,000. Assuming the exchange has commercial substance, journalize the entries to record: (a) the current depreciation of the old equipment to the date of trade-in and (b) the exchange transaction on October 1. Answer a. Depreciation Expense—Equipment 15,000 Accumulated Depreciation—Equipment 15,000 Equipment depreciation ($20,000 × 9/12). b.

Accumulated Depreciation—Equipment Equipment Loss on Exchange of Fixed Assets Equipment Cash

235,000 458,000 9,000 336,000 366,000 Add Question Here

Question 159

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Question On December 31, Bowman Company estimated that goodwill of $80,000 was impaired. In addition, a patent with an estimated useful economic life of 10 years was acquired for $252,000 on June 1. Required: (1) Journalize the adjusting entry on December 31 for the impaired goodwill.

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(2) Journalize the adjusting entry on December 31 for the amortization of the patent rights. Answer (1) Dec 31 Loss from impaired Goodwill Goodwill (2)

Dec 31

80,000 80,000

Amortization Expense - Patents Patents

14,700 14,700

Amortized patent rights = [($252,000/10) × (7/12)] = $14,700 Add Question Here

Question 160

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Question Identify each of the following expenditures as chargeable to (a) Land, (b) Land Improvements, (c) Buildings, (d) Machinery and Equipment, or (e) other account. (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) (18) (19) (20)

Cost of paving parking area for employees and customers. Insurance during construction of building. Interest incurred on loan during construction of building. Fee paid for installation of equipment. Special foundation for new equipment acquired. Insurance on new equipment while in transit. Freight charges on new equipment. Cost of repairing vandalism damage to equipment during installation. Sales tax on new equipment. Cost incurred in repairing damage resulting from installation of new equipment. Cost of land fill for building site. Cost of lubricating oil purchased for periodic oil changes for equipment. Parking lot lighting. Installing a fence around the parking lot. Repainting the trim on a building. Special assessment paid to city for extension of water main to property. Cost of razing and removing the old building on property acquired for a building site. Delinquent real estate taxes assumed by purchaser on property acquired for a building site. Attorney's fee for title search. Architect's fee for building plans and supervision of construction. (a) (b) (c) (d) (e)

Answer

11, 16, 17, 18, 19 1, 13, 14 2, 3, 20 4, 5, 6, 7, 9 8, 10, 12, 15 Add Question Here

Question 161

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Question Identify the following as a Fixed Asset (FA), or Intangible Asset (IA), or Natural Resource (NR), or Neither (N) (a) (b) (c) (d) (e) (f) (g)

computer patent oil reserve goodwill U. S. Treasury note land used for employee parking gold mine FA IA NR N

Answer

(a) (f) (b) (d) (c) (g) (e) Add Question Here

Question 162

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Question A number of major structural repairs completed at the beginning of the current fiscal year at a cost of $1,000,000 are expected to extend the life of a building 10 years beyond the original estimate. The original cost of the building was $6,552,000, and it has been depreciated by the straight-line method for 25 years. Estimated residual value is negligible and has been ignored. The related accumulated depreciation account after the depreciation adjustment at the end of the preceding fiscal year is $4,550,000. (a) (b) (c) (d) (e) (f)

What has the amount of annual depreciation been in past years? What was the original life estimate of the building? To what account should the $1,000,000 be debited? What is the book value of the building after the extraordinary repairs have been made? What is the expected remaining life of the building after the extraordinary repairs have been made? What is the amount of straight-line depreciation for the current year, assuming that the repairs were completed at the very beginning of the current year? Round to the nearest dollar. (a) (b) (c) (d) (e) (f)

Answer

$182,000 ($4,550,000 ÷ 25) 36 years ($6,552,000 ÷ $182,000) Accumulated Depreciation - Building $3,002,000 ($6,552,000 + $1,000,000 - $4,550,000) 21 years (36 - 25 + 10) $142,952 ($3,002,000 ÷ 21) Add Question Here

Question 163

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Question Journalize each of the following transactions: (a) (b) (c) Answer

A wing costing $1,250,000 was added to the building. A new mortgage was issued for the cost. Equipment was upgraded to increase its capacity to produce widgets. The upgrade cost of $13,000 was paid in cash. A major overhaul costing $7,000 on a machine increased the useful life by 2 years. The payment was made in cash. (a) (b) (c)

Building Mortgage Payable Equipment Cash Accumulated Depreciation-Machinery

1,250,000 1,250,000 13,000 13,000 7,000

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Cash

7,000 Add Question Here

Question 164

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Question XYZ Co. incurred the following costs related to the office building used in operating its sports supply company: a. b. c. d. e. f. g.

Replaced a broken window. Replaced the roof that had been on the building 23 years. Serviced all the air conditioners before summer started. Replaced the air conditioners with refrigerated air conditioners in the customer service areas. Added a warehouse to the back of the building. Repainted the interior walls. Installed window shutters on all windows.

Classify each of the costs as a capital expenditure or a revenue expenditure. For those costs identified as capital expenditures, classify each as an additional or replacement component. Answer a. Revenue expenditure b. Capital expenditure, replacement c. Revenue expenditure d. Capital expenditure, replacement e. Capital expenditure, additional f. Revenue expenditure g. Capital expenditure, additional Add Question Here

Question 165

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Question Equipment purchased at the beginning of the fiscal year for $360,000 is expected to have a useful life of 5 years, or 14,000 operating hours, and a residual value of $10,000. Compute the depreciation for the first and second years of use by each of the following methods: (a) (b) (c)

straight-line units-of-production (1,200 hours first year; 2,250 hours second year) declining-balance at twice the straight-line rate

(Round the answer to the nearest dollar.) Answer 1st Year (a) $70,000 ($360,000 - 10,000) = 350,000 ÷ 5 (b) $30,000 ($360,000 - 10,000) = ($350,000 ÷ 14,000 hours) = $25/hr × 1,200 (c) $144,000 ($360,000 × .40) (a) (b) (c)

2nd Year $70,000 ($360,000 - 10,000) = 350,000 ÷ 5 $56,250 ($360,000 - 10,000) = ($350,000 ÷ 14,000 hours) = $25/hr × 2,250 $86,400 ($360,000 - 144,000) = 216,000 × .40 Add Question Here

Question 166

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Question Machinery is purchased on July 1 of the current fiscal year for $240,000. It is expected to have a useful life of 4 years, or 25,000 operating hours, and a residual value of $15,000. Compute the depreciation for the last six months of the current fiscal year ending December 31 by each of the following methods: (a) (b) (c)

straight-line declining-balance at twice the straight-line rate units-of-production (used for 1,600 hours during the current year)

(Round the answer to the nearest dollar.) Answer (a) $28,125 = ($240,000 - 15,000) = 225,000 ÷ 4 = 56,250 × 6/12 (b) $60,000 = ($240,000 × .50) = $120,000 × 6/12 (c) $14,400 = ($240,000 - 15,000) = ($225,000 ÷ 25,000 hours) = $9.00 × 1,600 hours Add Question Here

Question 167

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Question Determine the depreciation, for the year of acquisition and for the following year, of a fixed asset acquired on October 1 for $500,000, with an estimated life of 5 years, and residual value of $50,000, using (a) the declining-balance method at twice the straightline rate and (b) the straight-line method. Assume a fiscal year ending December 31. Answer (a) Year of acquisition: $50,000 = (500,000 × .40) = 200,000 × 3/12) Following year: $180,000 = ($500,000 - 50,000) = 450,000 × .40 (b) Year of acquisition: $22,500 = ($500,000 - 50,000) = (450,000 ÷ 5) = 90,000 × 3/12 Following year: $90,000 = ($500,000 - 50,000) = 450,000 ÷ 5 Add Question Here

Question 168

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Question Equipment costing $80,000 with a useful life of 10 years and a residual value of $8,000 has been depreciated for 6 years by the straight-line method. Assume a fiscal year ending December 31. (a) (b) Answer

What is the book value at the end of the fifth year of use? If early in the seventh year it is estimated that the remaining useful life is 5 years (instead of 4) and the residual value is still $8,000, what is the amount of depreciation for the seventh year? (a) (b)

$36,800 ($80,000 - (80,000 - 8,000 = 72,000/10 = 7,200 × 6 = 43,200 )) $5,760 ($36,800 - 8,000) ÷ 5 Add Question Here

Question 169

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Question Golden Sales has bought $135,000 in fixed assets on January 1st associated with sales equipment. The residual value of these assets is estimated at $10,000 after they service their 4 year service life. Golden Sales managers want to evaluate the options of depreciation. (a) Compute the annual straight-line depreciation and the provide the sample depreciation journal entry to be posted at the end of each of the years.

(b) Write the journal entries for each year of the service life for these assets with 200% declining balance method. Answer (a) Acquisition cost Less residual value Depreciable value Divided by service life Annual depreciation Dec 31 (b)

Depreciation Expense Sales Equipment Accumulated Depreciation - Sales Equipment

$135,000 10,000 $125,000 4 years $31,250

31,250 31,250

1st year: Acquisition cost - $135,000 × 50% = $67,500 first year depreciation 2nd year: ($135,000 - $67,500) × 50% = $33,750 second year depreciation 3rd year: ($135,000-$67,500-$33,750) × 50% = $16,875 third year depreciation 4th year: $135,000-$67,500-$33,750-16,875-$10,000 residual value = $6,875 fourth year depreciation

1st year, Dec 31 Depreciation Expense - Sales Equipment Accumulated Depreciation - Sales Equipment

67,500 67,500

2nd year, Dec 31 Depreciation Expense - Sales Equipment Accumulated Depreciation - Sales Equipment

33,750

3rd year, Dec 31 Depreciation Expense - Sales Equipment Accumulated Depreciation - Sales Equipment

16,875

4th year, Dec 31 Depreciation Expense - Sales Equipment Accumulated Depreciation - Sales Equipment

6,875

33,750 16,875 6,875

Note: The depreciable value is $10,000 and this value is taken into account the computation of the final year of depreciation. Add Question Here

Question 170

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Question On July 1st, Harding Construction purchases a bulldozer for $330,000. The equipment has a 9 year life with a residual value of $15,000. Harding uses straight-line depreciation. (a) Calculate the depreciation expense and provide the journal entry for the first year ending December 31st. (b) Calculate the third year and provide the journal entry for the third year ending December 31st. (c) Calculate the last year’s depreciation expense and provide the journal entry for the last year. Answer Annual depreciation is: Acquisition cost $330,000 Less residual value 15,000 Depreciable amount 315,000 Divided by service life in years 9 Annual depreciation $35,000 (a) First year depreciation is $35,000 × (6/12) = $17,500 (July through December) Dec 31st Depreciation Expense 17,500 Accumulated Depreciation

17,500

(b) Journal entry for the third year. (It is also the same for all years other than the first and last year): Dec 31st Depreciation Expense 35,000 Accumulated Depreciation

35,000

(c) Last year depreciation is $35,000 × (6/12) = $17,500 (January through June) Dec 31st Depreciation Expense Accumulated Depreciation

17,500

17,500 Add Question Here

Question 171

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Question On July 1st, Hartford Construction purchases a bulldozer for $330,000. The equipment has a 9 year life with a residual value of $15,000. Hartford uses units-of-production method depreciation and the bulldozer is expected to yield 22,500 operating hours. (a) Calculate the depreciation expense per hour of operation.

(b) The bulldozer is operated 1,250 hours in the first year, 2,755 hours in the second year, and 1,225 hours in the third year of operations. Journalize the depreciation expense for each year. Answer (a) Hourly depreciation is: Acquisition cost $330,000 Less residual value 15,000 Depreciable amount 315,000 Service life in hours 22,500 Hourly depreciation $14

(b) First year - 1,250 hours × $14 per hour = $17,500 1st year Depreciation Expense Accumulated Depreciation

17,500

Second year - 2,755 hours × $14 per hour = $38,570 2nd year Depreciation Expense Accumulated Depreciation

38,570

Third year - 1,225 hours × $14 per hour = $17,150 3rd year Depreciation Expense Accumulated Depreciation

17,150

17,500

38,570

17,150 Add Question Here

Question 172

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Question Eagle Country Club has acquired a lot to construct a clubhouse. Eagle had the following costs related to the construction: Architects’ Fees Construction Labor Engineers’ Fees Fences around building Grading and leveling Insurance costs incurred during construction Interest on money borrowed for construction Land Building Materials Sales Taxes Trees and Shrubs

$25,000 80,000 15,000 9,000 10,000 7,000 5,000 37,000 237,000 6,000 6,000

Determine the cost of the Club House to be reported on the balance sheet. Answer Architects’ Fees Construction Labor Engineers’ Fees Insurance costs incurred during construction Interest on money borrowed for construction Building Materials Sales Taxes Cost of Club House

$25,000 80,000 15,000 7,000 5,000 237,000 6,000 $375,000 Add Question Here

Question 173

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Question A copy machine acquired with a cost of $1,410 has an estimated useful life of 4 years. It is also expected to have a useful operating life of 13,350 copies. Assuming that it will have a residual value of $75, determine the depreciation for the first year by the a. straight-line method b. declining-balance method c. production method (4,500 copies were made the first year) Answer

a.

Straight-line depreciation = (cost-estimated residual value)/ estimated life Straight-line depreciation = (1,410-75)/4 Straight-line depreciation = $333.75 per year

b. Declining Balance Method = $705 Year 1

Book Value at Beginning of Year 1,410

Cost 1,410

Rate 50%*

Depreciation for Year 705

*Rate = (100%/Life) × 2 Rate = (1/4) × 2 Rate = 0.50 c.

Units-of-production = (cost-residual value) / estimated copies Units-of-production = (1,410-75)/13,350 Units-of-production = $0.10 per copy First year depreciation = $450.00 ($.10 × 4,500) Add Question Here

Question 174

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Question A copy machine acquired on March 1, 2009 with a cost of $1,410 has an estimated useful life of 3 years. Assuming that it will have a residual value of $150, determine the depreciation for the first and second year by the straight-line method. Answer Straight-line depreciation = (cost-estimated residual value)/ estimated life Straight-line depreciation = (705-75)/3 Straight-line depreciation = $420 per year First year = 350 (420 / 12months * 10) Second year = 420 Add Question Here

Question 175

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Question A copy machine acquired on March 1, 2009 with a cost of $705 has an estimated useful life of 4 years. Assuming that it will have a residual value of $125, determine the depreciation for the first year by the declining-balance method. Answer First year depreciation = $293.75 [352.50 x (10 /12)] Year 1

Book Value at Beginning of Year 705

Cost 705

Rate 50%*

Depreciation for Year 352.50

*Rate = (100%/Life) × 2 Rate = (1/4) × 2 Rate = 0.50 Add Question Here

Question 176

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Question Computer equipment (office equipment) purchased 6 1/2 years ago for $170,000, with an estimated life of 8 years and a residual value of $10,000, is now sold for $60,000 cash. (Appropriate entries for depreciation had been made for the first six years of use.) Journalize the following entries: (a) (b) (c) Answer

Record the depreciation for the one-half year prior to the sale, using the straight-line method. Record the sale of the equipment. Assuming that the equipment had been sold for $25,000 cash, prepare the entry for (b) above to record the sale. (a) (b)

Depreciation Expense-Office Equipment Accumulated Depreciation-Office Equipment

10,000

Cash Accumulated Depreciation-Office Equipment Office Equipment Gain on Sale of Fixed Assets

60,000 130,000

10,000

170,000 20,000

(c)

Cash Accumulated Depreciation-Office Equipment Loss on Disposal of Fixed Assets Office Equipment

25,000 130,000 15,000 170,000 Add Question Here

Question 177

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Question Machinery acquired at a cost of $80,000 and on which there is accumulated depreciation of $50,000 (including depreciation for the current year to date) is exchanged for similar machinery. For financial reporting purposes, present entries to record the disposition of the old machinery and the acquisition of new machinery under each of the following assumptions: (a) (b)

Price of new, $115,000; trade-in allowance on old, $4,000; balance paid in cash. Price of new, $115,000; trade-in allowance on old, $34,000; balance paid in cash. (a)

Answer

(b)

Accumulated Depreciation-Machinery Machinery Loss on Disposal of Fixed Assets Machinery Cash

50,000 115,000 26,000

Accumulated Depreciation-Machinery Machinery Machinery Cash

50,000 111,000

80,000 111,000

80,000 81,000 Add Question Here

Question 178

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Question Equipment acquired at a cost of $126,000 and a book value of $42,000. Journalize the disposal of the equipment under the following independent assumptions. a. The equipment had no market value and was discarded. b. The equipment is sold for $54,000. c. The equipment is sold for $24,000. d. The equipment is traded-in for a similar asset. The list price of the new equipment is $63,000. Journal Post Ref Date

Description

Debit

Credit

Answer Journal Post Ref Date a.

b.

c.

d.

Description Loss on Disposal of Fixed Asset Accumulated Depreciation - Equip Equipment

Debit 42,000 84,000

Credit

126,000

Cash Accumulated Depreciation - Equip Equipment Gain on Disposal of Fixed Asset

54,000 84,000

Cash Accumulated Depreciation - Equip Loss on Disposal of Fixed Asset Equipment

24,000 84,000 18,000

Equipment (new Equipment) Accumulated Depreciation - Equip Equipment (old equipment)

42,000 84,000

126,000 12,000

126,000

126,000 Add Question Here

Question 179

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Question Prepare the following journal entries and calculations: (a) (b) (c)

A patent that was acquired for $410,000 at the beginning of the current year expires in 15 years and is expected to have value for 4 years. Present the adjusting entry to amortize the patent for the current year. Mineral rights on an ore deposit estimated at 4,000,000 tons of ore were acquired for $2,800,000. Present the adjusting entry to record depletion for the current year, during which 350,000 tons of ore were removed. Legal costs incurred to defend the rights that a patent provided were $60,000. At the time the patent had been in existence

for 5 years. Determine the amount to be amortized for the current fiscal year. (a)

Answer

(b)

(c)

Amortization Expense-Patents Patents ($410,000 ÷ 4)

102,500

Depletion Expense Accumulated Depletion (350,000 × $.70)

245,000

102,500

245,000

$4,000 ($60,000 ÷ 15) Add Question Here

Question 180

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Question Macon Co. acquired drilling rights for $7,500,000. The oil deposit is estimated at 37,500,000 gallons. During the current year, 3,000,000 gallons were drilled. Journalize the adjusting entry at December 31, 2009 to recognize the depletion expense. Journal Post Ref Date

Description

Debit

Credit

Answer Journal Post Ref Date Dec 31

Description Depletion Expense Accumulated Depletion

Debit 600,000*

Credit 600,000

*Depletion rate = cost / estimated size Depletion rate = 7,500,000/37,500,000 Depletion rate = .2 Depletion expense = depletion rate × quantity extracted Depletion expense = .2 × 3,000,000 Depletion expense = $600,000 Add Question Here

Question 181

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Question On July 1, 2010, Howard Co. acquired patents rights for $40,000. The patent has a useful life of 8 years and a legal life of 15 years. Journalize the adjusting entry on December 31, 2010 to recognize the amortization. Journal Post Ref Date

Description

Debit

Credit

Answer Journal Post Ref Date Dec 31

Description Amortization Expense Patents

Debit 2,500

Credit 2,500 Add Question Here

Question 182

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Question On December 31 it was estimated that goodwill of $65,000 was impaired. In addition, a patent with an estimated useful economic life of 10 years was acquired for $60,000 on July 1. a) b) Answer

Journalize the adjusting entry on December 31 for the impaired goodwill. Journalize the adjusting entry on December 31 for the amortization of the patent rights. a) Loss from Impaired Goodwill Goodwill b) Amortization Expense - Patents Patents

65,000 65,000 3,000 3,000 Add Question Here

Question 183

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Question Computer equipment was acquired at the beginning of the year at a cost of $66,000 that has an estimated residual value of $3,000 and an estimated useful life of 5 years. Determine the depreciation expense for the five years using the sum-of-the-years-digits depreciation method. Answer Year 1 (63,000*5/15) 21,000 Year 2 (63,000*4/15) 16,800 Year 3 (63,000*3/15) 12,600 Year 4 (63,000*2/15) 8,400 Year 5 (63,000*1/15) 4,200 Add Question Here