Test bank accounting 25th editon warren chapter 10 fixed assets and intangible assets

Chapter 10 Fixed Assets and Intangible Assets Student: _ 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 True False 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 True False 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 True False Land acquired as a speculation is reported under Investments on the balance sheet True False To a major resort, timeshare properties would be classified as property, plant and equipment True False 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 True False The cost of repairing damage to a machine during installation is debited to a fixed asset account True False During construction of a building, the cost of interest on a construction loan should be charged to an expense account True False The cost of computer equipment does not include the consultant's fee to supervise installation of the equipment True False 10 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 True False 11 Capital expenditures are costs of acquiring, constructing, adding, or replacing property, plant and equipment True False 12 The cost of new equipment is called a revenue expenditure because it will help generate revenues in the future True False 13 Expenditures that increase operating efficiency or capacity for the remaining useful life of a fixed asset are betterments True False 14 The cost of replacing an engine in a truck is an example of ordinary maintenance True False 15 A capital lease is accounted for as if the asset has been purchased True False 16 An operating lease is accounted for as if the lessee has purchased the asset True False 17 An intangible asset is one that has a physical existence True False 18 A capitalized asset will appear on the balance sheet as a long term asset True False 19 Long lived assets held for sale are classified as fixed assets True False 20 Functional depreciation occurs when a fixed asset is no longer able to provide services at the level for which it was intended True False 21 The normal balance of the accumulated depreciation account is debit True False 22 As a company records depreciation expense for a period of time a corresponding cash inflow from investing activities is reported on the statement of cash flows True False 23 All property, plant, and equipment assets are depreciated over time True False 24 The book value of a fixed asset reported on the balance sheet represents its market value on that date True False 25 The depreciable cost of a building is the same as its acquisition cost True False 26 It is necessary for a company to use the same depreciation method for all of its depreciable assets True False 27 It is not necessary for a company to use the same depreciation method for financial statements and for determining income taxes True False 28 An estimate of the amount which an asset can be sold at the end of its useful life is called residual value True False 29 The units of production depreciation method provides a good match of expenses against revenue True False 30 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 True False 31 Residual value is not incorporated in the initial calculations for double-declining-balance depreciation True False 32 The double-declining-balance method is an accelerated depreciation method True False 33 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 True False 34 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 True False 35 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 years, is $19,000 by the straight-line method True False 36 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 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 True False 37 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 years, is $25,000 by the declining-balance method at twice the straight-line rate True False 38 When depreciation estimates are revised, all years of the asset’s life are affected True False 39 For income tax purposes most companies use an accelerated deprecation method called double declining balance True False 40 Assets may be grouped according to common traits and depreciated by using a single composite rate True False 41 Regardless of the depreciation method, the amount that will be depreciated during the life of the asset will be the same True False 42 Revising depreciation estimates does affect the amounts of depreciation expense recorded in past periods True False 43 Capital expenditures are costs that are charged to Stockholders' Equity accounts True False 44 Though a piece of equipment is still being used, the equipment should be removed from the accounts if it has been fully depreciated True False 45 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 True False 46 When a property, plant, and equipment asset is sold for cash, any gain or loss on the asset sold should be recorded True False 47 Ordinary gains from the sale of fixed assets should be reported in the other income section of the income statement True False 48 A gain can be realized when a fixed asset is discarded True False 49 When old equipment is traded in for a new equipment, the difference between the list price and the trade in allowance is called boot True False 50 When a plant asset is traded for another similar asset, losses on the asset traded are not recognized True False 51 When exchanging equipment, if the trade-in allowance is greater than the book value a loss results True False 52 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, if the transaction is deemed to have commercial substance, the buyer would report a gain on disposal of fixed assets of $5,000 True False 53 The entry to record the disposal of fixed assets will include a credit to accumulated depreciation True False 54 Both the initial cost of the asset and the accumulated depreciation will be taken off the books with the disposal of the asset True False 55 Minerals removed from the earth are classified as intangible assets True False 56 The method used to calculate the depletion of a natural resource is the straight line method True False 57 Intangible assets differ from property, plant and equipment assets in that they lack physical substance True False 58 The transfer to expense of the cost of intangible assets attributed to the passage of time or decline in usefulness is called amortization True False 59 The cost of a patent with a remaining legal life of 10 years and an estimated useful life of years is amortized over 10 years True False 60 Costs associated with normal research and development activities should be treated as intangible assets True False 61 Patents are exclusive rights to manufacture, use, or sell a particular product or process True False 62 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 to lack of a material cost True False 63 When a company establishes an outstanding reputation and has a competitive advantage because of it, the company should record goodwill on its financial statements True False 64 The difference between the balance in a fixed asset account and its related accumulated depreciation account is the asset's book value True False 65 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 True False 66 An exchange is said to have commercial substance if future cash flows remain the same as a result of the exchange True False 67 A characteristic of a fixed asset is that it is A intangible B used in the operations of a business C held for sale in the ordinary course of the business D a short-term investment 68 Land acquired so it can be resold in the future is listed in the balance sheet as a(n) A fixed asset B current asset C investment D intangible asset 69 Which of the following should be included in the acquisition cost of a piece of equipment? A transportation costs B installation costs C testing costs prior to placing the equipment into production D all are correct 70 Which of the following is included in the cost of constructing a building? A insurance costs during construction B cost of paving parking lot C cost of repairing vandalism damage during construction D cost of removing the demolished building existing on the land when it was purchased 71 Which of the following is included in the cost of land? A cost of paving a parking lot B brokerage commission C outdoor parking lot lighting attached to the land D fences on the land 72 Accumulated Depreciation A is used to show the amount of cost expiration of intangibles B is the same as Depreciation Expense C is a contra asset account D is used to show the amount of cost expiration of natural resources 73 A building with an appraisal value of $154,000 is made available at an offer price of $172,000 The purchaser acquires the property for $40,000 in cash, a 90-day note payable for $45,000, and a mortgage amounting to $75,000 The cost basis recorded in the buyer's accounting records to recognize this purchase is A $154,000 B $172,000 C $160,000 D $120,000 74 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 A $93,000 B $90,000 C $82,000 D $85,000 75 A new machine with a purchase price of $109,000, with transportation costs of $12,000, installation costs of $5,000, and special acquisition fees of $6,000, would have a cost basis of A $114,000 B $126,000 C $121,000 D $132,000 76 Expenditures that add to the utility of fixed assets for more than one accounting period are A committed expenditures B revenue expenditures C utility expenditures D capital expenditures 77 A capital expenditure results in a debit to A an expense account B a capital account C a liability account D an asset account 78 Which of the following below is an example of a capital expenditure? A cleaning the carpet in the front room B tune-up for a company truck C replacing an engine in a company car D replacing all burned-out light bulbs in the factory 79 In a lease contract, the party who legally owns the asset is the A lessee B lessor C operator D banker 80 All leases are classified as either A capital leases or long-term leases B capital leases or operating leases C operating leases or current leases D long-term leases or current leases 81 The journal entry for recording an operating lease payment would A be a memo entry only B debit the fixed asset and credit Cash C debit an expense and credit Cash D debit a liability and credit Cash 160 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) (a) (b) (c) (d) (e) 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 11, 16, 17, 18, 19 1, 13, 14 2, 3, 20 4, 5, 6, 7, 8, 10, 12, 15 161 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) FA IA NR N computer patent oil reserve goodwill U S Treasury note land used for employee parking gold mine (a) (f) (b) (d) (c) (g) (e) 162 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) (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 $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) 163 Journalize each of the following transactions: (a) (b) (c) A wing costing $2,345,000 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 $11,500 was paid in cash A major overhaul costing $8,000 on a machine increased the useful life by years The payment was made in cash (a) Building Mortgage Payable 2,345,000 Equipment Cash 11,500 Accumulated Depreciation-Machinery Cash 8,000 (b) (c) 2,345,000 11,500 8,000 164 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 a b c d e f g Revenue expenditure Capital expenditure, replacement Revenue expenditure Capital expenditure, replacement Capital expenditure, additional Revenue expenditure Capital expenditure, additional 165 Equipment purchased at the beginning of the fiscal year for $360,000 is expected to have a useful life of 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.) (a) (b) (c) 1st Year $70,000 ($360,000 - $10,000) = $350,000 ÷ $30,000 ($360,000 - $10,000) = ($350,000 ÷ 14,000 hours) = $25/hr ´ 1,200 $144,000 ($360,000 ´ 40) (a) (b) (c) 2nd Year $70,000 ($360,000 - $10,000) = $350,000 ÷ $56,250 ($360,000 - $10,000) = ($350,000 ÷ 14,000 hours) = $25/hr ´ 2,250 $86,400 ($360,000 - $144,000) = $216,000 ´ 40 166 Machinery is purchased on July of the current fiscal year for $240,000 It is expected to have a useful life of 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.) (a) (b) (c) $28,125 = ($240,000 - $15,000) = $225,000 ÷ = $56,250 ´ 6/12 $60,000 = ($240,000 ´ 50) = $120,000 ´ 6/12 $14,400 = ($240,000 - $15,000) = ($225,000 ÷ 25,000 hours) = $9.00 ´ 1,600 hours 167 Determine the depreciation, for the year of acquisition and for the following year, of a fixed asset acquired on October for $500,000, with an estimated life of years, and residual value of $50,000, using (a) the declining-balance method at twice the straight-line rate and (b) the straight-line method Assume a fiscal year ending December 31 (a) (b) Year of acquisition: $50,000 = ($500,000 ´ 40) = ($200,000 ´ 3/12) Following year: $180,000 = ($500,000 - $50,000) = $450,000 ´ 40 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 ÷ 168 Equipment costing $80,000 with a useful life of 10 years and a residual value of $8,000 has been depreciated for years by the straight-line method Assume a fiscal year ending December 31 (a) (b) What is the book value at the end of the sixth year of use? If early in the seventh year it is estimated that the remaining useful life is years (instead of 4) and the residual value is $6,000, what is the amount of depreciation for the seventh year? (a) ($80,000 - $8,000) = $72,000 $72,000/10 = $7,200 $7,200 x = $43,200 $80,000 - $43,200 = $36,800 $6,160 ($36,800 - $6,000) ÷ (b) 169 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 year service life Golden Sales managers want to evaluate the options of depreciation (a) Compute the annual straight-line depreciation and 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 using the double- declining balance method (a) Acquisition cost Less residual value Depreciable value Divided by service life Annual depreciation Dec 31 (b) $135,000 10,000 $125,000 years $31,250 Depreciation Expense Sales Equipment Accumulated Depreciation - Sales Equipment 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 67,500 Accumulated Depreciation - Sales Equipment 2nd year, Dec 31 Depreciation Expense Sales Equipment 33,750 Accumulated Depreciation - Sales Equipment 3rd year, Dec 31 Depreciation Expense Sales Equipment 33,750 16,875 Accumulated Depreciation - Sales Equipment 4th year, Dec 31 Depreciation Expense Sales Equipment 67,500 16,875 6,875 Accumulated Depreciation - Sales Equipment Note: The residual value is $10,000 and this value is taken into account in the computation of the final year of depreciation 6,875 170 On July 1st, Harding Construction purchases a bulldozer for $228,000 The equipment has a year life with a residual value of $16,000 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’s depreciation expense 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 Annual depreciation is: Acquisition cost Less residual value Depreciable amount Divided by service life in years Annual depreciation $228,000 16,000 212,000 $26,500 (a) First year depreciation is $26,500 ´ (6/12) = $13,250 (July through December) Dec 31st Depreciat 13,250 ion Expense Accumul 13,250 ated Depreciat ion (b) Journal entry for the third year (It is also the same for all years other than the first and last year): Dec 31st Depreciat 26,500 ion Expense Accumul 26,500 ated Depreciat ion (c) Last year depreciation is $26,500 ´ (6/12) = $13,250 (January through June) Dec 31st Depreciat 13,250 ion Expense Accumul ated Depreciat ion 13,250 171 On July 1st, Hartford Construction purchases a bulldozer for $228,000 The equipment has a year life with a residual value of $16,000 Hartford uses units-of-production method depreciation and the bulldozer is expected to yield 26,500 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 (a) Hourly depreciation is: Acquisition cost Less residual value Depreciable amount Service life in hours Hourly depreciation (b) First year - 1,250 hours ´ $ per hour = $10,000 1st year Depreciation 10,000 Expense Accumulated Depreciation Second year - 2,755 hours ´ $ per hour = $22,040 2nd year Depreciation 22,040 Expense Accumulated Depreciation Third year - 1,225 hours ´ $ per hour = $ 9,800 3rd year Depreciation 9,800 Expense Accumulated Depreciation $228,000 16,000 212,000 26,500 $8 10,000 22,040 9,800 172 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 $45,000 80,000 15,000 9,000 10,000 7,000 5,000 73,000 237,000 6,000 6,000 Determine the cost of the Club House to be reported on the balance sheet 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 $45,000 80,000 15,000 7,000 5,000 237,000 6,000 $395,000 173 A copy machine acquired with a cost of $1,410 has an estimated useful life of 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 b c a straight-line method double declining-balance method production method (4,500 copies were made the first year) Straight-line depreciation = (cost-estimated residual value)/ estimated life Straight-line depreciation = ($1,410 - $75)/4 Straight-line depreciation = $333.75 per year b Double-declining Balance Method = $705 Year Cost $1,410 Book Value at Beginning of Year $1,410 *Rate = (100%/Life) ´ Rate = (1/4) ´ 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) Rate 50%* Depreciation for Year $705 174 A copy machine acquired on March 1, 2011 with a cost of $1,410 has an estimated useful life of 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 Straight-line depreciation = (cost-estimated residual value)/ estimated life Straight-line depreciation = ($1,410 - $150)/3 Straight-line depreciation = $420 per year First year = $350 ($420 / 12 months * 10) Second year = $420 175 A copy machine acquired on March 1, 2011 with a cost of $705 has an estimated useful life of years Assuming that it will have a residual value of $125, determine the depreciation for the first year by the double-declining-balance method First year depreciation = $293.75 [$352.50 x (10 /12)] Year Cost $705 Book Value at Beginning of Year $705 Rate 50%* Depreciation for Year $352.50 *Rate = (100%/Life) ´ Rate = (1/4) ´ Rate = 0.50 176 Computer equipment (office equipment) purchased 1/2 years ago for $170,000, with an estimated life of 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) 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) (c) 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 Cash Accumulated Depreciation-Office Equipment Loss on Disposal of Fixed Assets Office Equipment 25,000 130,000 15,000 10,000 170,000 20,000 170,000 177 Machinery acquired at a cost of $80,000 and on which there is accumulated depreciation of $55,000 (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, $120,000; trade-in allowance on old, $4,000; balance paid in cash Price of new, $120,000; trade-in allowance on old, $34,000; balance paid in cash (a) Accumulated Depreciation-Machinery Machinery Loss on Disposal of Fixed Assets Machinery Cash 55,000 120,000 21,000 Accumulated Depreciation-Machinery Machinery Machinery Gain on Exchange of Machinery Cash 55,000 120,000 (b) 80,000 116,000 80,000 9,000 86,000 178 Equipment acquired at a cost of $126,000 has a book value of $42,000 Journalize the disposal of the equipment under the following independent assumptions a b c d The equipment had no market value and was discarded The equipment is sold for $54,000 The equipment is sold for $24,000 The equipment is traded-in for a similar asset The list price of the new equipment is $63,000 The buyer gave no cash in the exchange The transaction lacks commercial substance Journal Post Ref Date Description Debit Credit Journal Post Ref Date a b c d Description Loss on Disposal of Fixed Asset Accumulated Depreciation - Equipment Equipment Debit 42,000 84,000 Cash Accumulated Depreciation - Equipment Equipment Gain on Disposal of Fixed Asset 54,000 84,000 Cash Accumulated Depreciation - Equipment Loss on Disposal of Fixed Asset Equipment 24,000 84,000 18,000 Equipment (new equipment) Accumulated Depreciation - Equipment Equipment (old equipment) 42,000 84,000 Credit 126,000 126,000 12,000 126,000 126,000 179 Prepare the following journal entries and calculations: (a) (b) (c) (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 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 in (a) were $60,000 At the time the patent had been in existence for years Determine the amount to be amortized for the current fiscal year 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) 180 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, 2011 to recognize the depletion expense Journal Post Ref Date Description Debit Credit Journal Post Ref Date Dec 31 Description Depletion Expense Accumulated Depletion *Depletion rate = cost / estimated size Depletion rate = $7,500,000/37,500,000 Depletion rate = $0.20 Depletion expense = depletion rate ´ quantity extracted Depletion expense = $0.20 ´ $3,000,000 Depletion expense = $600,000 Debit 600,000* Credit 600,000 181 On July 1, 2010, Howard Co acquired patents rights for $40,000 The patent has a useful life of 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 Journal Post Ref Date Dec 31 Description Amortization Expense Patents Debit 2,500 Credit 2,500 182 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 a) b) 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 3,000 183 Clanton Company engaged in the following transactions during 2011 Record each in the general journal below: 1) On January 3, 2011, Clanton purchased a copyright from Dalton Company with a cost of $250,000 with a remaining useful life of 25 years 2) On January 10, 2011, Clanton purchased a trademark from Felton Company with a cost of $700,000 3) On July 1, 2011, Clanton purchased a patent from Garrison Company at a cost of $80,000 The remaining legal life of the patent is 15 years and the expected useful life is 11 years 4) On July 2, 2011, Clanton paid $30,000 in legal fees to defend the patent protection purchased on July 1, 2011 5) Recorded the appropriate amortization for the intangible assets for 2011 6) Clanton Company includes an asset in its ledger recorded when Clanton purchased a computer service business at a price in excess of the fair value of the assets of the company in the amount of $400,000 At December 31, 2011, $100,000 of this asset has become impaired Date Description Debit Credit Date Jan Description Copyright Cash Trademark Cash Patent Cash Patent Cash Amortization - Copyright Copyright Amortization - Patent Patent Loss from Impaired Goodwill Goodwill Debit 250,000 Credit Jan 10 July July Dec 31 Dec 31 Dec 31 250,000 700,000 700,000 80,000 80,000 30,000 30,000 10,000 10,000 5,000 5,000 100,000 100,000 184 On June 1, 2014, Aaron Company purchased equipment at a cost of $120,000 that has a depreciable cost of $90,000 and an estimated useful life of years and 30,000 hours Using straight line depreciation, prepare the journal entry to record depreciation expense for (a) the first year, (b) the second year and (c) the last year $90,000/3 years = $30,000 per full year $30,000/12 months = $2,500 per month 1st year - $2,500 x months = $17,500 Last year - $2,500 x months = $12,500 (a) Deprecitaion Expense 17,500 Accumulated Depreciation 17,500 (b) Deprecitaion Expense 30,000 Accumulated Depreciation 30,000 (c) Deprecitaion Expense 12,500 Accumulated Depreciation 12,500 ... Company: (in millions) Land and buildings Machinery, equipment, and internal-use software Office furniture and equipment Other fixed assets related to leases Accumulated depreciation and amortization... usefulness of a fixed asset may be divided into the following two categories A salvage and functional B physical and functional C residual and salvage D functional and residual 84 A fixed asset's... research and development are generally recorded as A current operating expenses B assets and amortized over their estimated useful life C assets and amortized over 40 years D current assets 123