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

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,

Chapter 10 Fixed Assets and Intangible Assets

Student: _

1 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

3 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

9 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

18 A capitalized asset will appear on the balance sheet as a long term asset

27 It is not necessary for a company to use the same depreciation method for financial statements and for

determining income taxes

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

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 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

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 4 years, is $25,000 by the declining-balance method at twice the straight-line rate

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

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

54 Both the initial cost of the asset and the accumulated depreciation will be taken off the books with the disposal of the asset

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

B used in the operations of a business

C held for sale in the ordinary course of the business

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

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

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

76 Expenditures that add to the utility of fixed assets for more than one accounting period are

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

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

82 When determining whether to record an asset as a fixed asset, what two criteria must be met?

A Must be an investment and must be long lived

B Must be long lived and must use the asset in a productive manner

C Must be short lived and must be a tangible asset

D Must be a tangible asset and must be an investment

83 Factors contributing to a decline in the 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

88 A machine with a cost of $120,000 has an estimated residual value of $15,000 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?

90 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?

93 The depreciation method that does not use residual value in calculating the first year's depreciation expense

is

A straight-line B units-of-production C double-declining-balance D none of the above 94 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.) A EOM Depreciation Expense 100

Accumulated Depreciation 100

B EOM Depreciation Expense 1,200 Accumulated Depreciation 1,200 C EOM Accumulated Depreciation 1,200 Depreciation Expense 1,200 D EOM Accumulated Depreciation 100

Depreciation Expense 100

95 The proper journal entry to purchase a computer costing $975 on account on January 2 to be utilized within the business would be: A Jan 2 Office Supplies 975

Accounts Payable 975

B Jan 2 Office Equipment 975

Accounts Payable 975

C Jan 2 Office Supplies 975

Accounts Receivable 975

D Jan 2 Office Equipment 975

Accounts Receivable 975

96 Residual value is also known as all of the following except

A scrap value

B trade in value

C salvage value

D net book value

97 The formula for depreciable cost is

A initial cost + residual value

B initial cost - residual value

C initial cost - accumulated depreciation

D depreciable cost = initial cost

98 Expected useful life is

A calculated when the asset is sold

B estimated at the time that the asset is placed in service

C determined each year that the depreciation calculation is made

D none of the answers are correct

99 The calculation for annual depreciation using the straight-line depreciation method is

A initial cost / estimated useful life

B depreciable cost / estimated useful life

C depreciable cost * estimated useful life

D initial cost * estimated useful life

100 The calculation for annual depreciation using the units-of-production method is

A (initial cost/estimated output) * the actual yearly output

B (depreciable cost / yearly output) * estimated output

C depreciable cost / yearly output

D (depreciable cost / estimated output) * the actual yearly output

101 Computer equipment was acquired at the beginning of the year at a cost of $57,000 that has an estimated residual value of $9,000 and an estimated useful life of 5 years Determine the 2nd year’s depreciation using straight-line depreciation

102 Which of the following is true?

A If using the double-declining-balance the total amount of depreciation expense during the life of the asset will be the highest

B If using the units-of-production method, it is possible to depreciate more than the depreciable cost

C If using the straight line method, the amount of depreciation expense during the first year is higher than that

of the double-declining-balance

D Regardless of the depreciation method, the amount of total depreciation expense during the life of the asset will be the same

103 An asset was purchased for $120,000 on January 1, 2010 and originally estimated to have a useful life of

10 years with a residual value of $10,000 At the beginning of 2012, it was determined that the remaining useful life of the asset was only 4 years with a residual value of $2,000 Calculate the 2012 depreciation expense using the revised amounts and straight line method

107 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?

$5,000 In recording this transaction, Bacon Company should record

A the new machinery at $16,700

B the new machinery at $12,700

A debit Accumulated Depreciation; credit Machinery

B debit Machinery; credit Accumulated Depreciation

C debit Cash; credit Accumulated Depreciation

D debit Depreciation Expense; credit Accumulated Depreciation

110 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:

A debit Cash and Accumulated Depreciation; credit Machinery

B debit Machinery; credit Cash and Accumulated Depreciation

C debit Cash and Machinery; credit Accumulated Depreciation

D debit Cash and Depreciation Expense; credit Accumulated Depreciation

111 When a company exchanges machinery and receives a trade-in allowance greater than the book value, this

112 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:

A debit Machinery and Accumulated Depreciation; credit Machinery and Cash

B debit Cash and Machinery; credit Accumulated Depreciation

C debit Cash and Machinery; credit Accumulated Depreciation and Machinery

D debit Machinery, Accumulated Depreciation, and Loss on Disposal; credit Machinery and Cash

113 On December 31, Strike Company has decided to discard one of its batting cages The initial cost of the equipment was $310,000 with an accumulated depreciation of $260,000 Depreciation has been taken up to the end of the year The following will be included in the entry to record the disposal

117 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?

118 When a company replaces a component of property, plant and equipment, which statement below does not

account for one of the steps in the process?

A book value of the replaced component is written off to depreciation expense

B the asset cost of the replaced component is credited

C any cost to remove the old component is charged to expense

D the identifiable direct costs associated with the new component are capitalized

119 The accumulated depletion account is

A an expense account

B an intangible asset account

C reported on the income statement as other expense

D reported on the balance sheet as a deduction from the cost of the mineral deposit

122 Expenditures for 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

C Goodwill is not amortized

D Not enough information

127 Fixed assets are ordinarily presented in the balance sheet

A at current market values

B at replacement costs

C at cost less accumulated depreciation

D in a separate section along with intangible assets

128 Machinery was purchased on January 1, 2010 for $51,000 The machinery has an estimated life of 7 years and an estimated salvage value of $9,000 Double-declining balance depreciation for 2011 would be

129 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 3 years and 30,000 hours

Using straight line depreciation, calculate depreciation expense for the first year

130 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 3 years and 30,000 hours

Using straight line depreciation, calculate depreciation expense for the second year

131 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 3 years and 30,000 hours

132 What is the cost of the land, based upon the following data?

135 Computer equipment was acquired at the beginning of the year at a cost of $65,000 that has an estimated residual value of $3,800 and an estimated useful life of 8 years Determine the (a) depreciable cost, (b)

straight-line rate, and (c) annual straight-line depreciation

138 A machine costing $57,000 with a 6-year life and $54,000 depreciable cost was purchased January 1,

2015 Compute the yearly depreciation expense using straight-line depreciation

139 A machine costing $85,000 with a 5-year life and $5,000 residual value was purchased January 2,

2011 Compute depreciation for each of the five years, using the declining-balance method at twice the straight-line rate

141 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

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

a) What was the depreciation expense for the first year?

b) 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 c) Journalize the entry to record the sale

a Determine the depletion rate

b Determine the amount of depletion expense for the current year

c Journalize the adjusting entry to recognize the depletion expense

146 Convert each of the following estimates of useful life to a straight-line depreciation rate, stated as a

147 Prior to adjustment at the end of the year, the balance in Trucks is $300,900 and the balance in

Accumulated Depreciation-Trucks is $88,200 Details of the subsidiary ledger are as follows:

Truck No Cost Estimated Residual Value Estimated Useful Life Accumulated Depreciation at

(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

148 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

151 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

153 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

(1) Journalize the adjusting entry on December 31 for the impaired goodwill

(2) Journalize the adjusting entry on December 31 for the amortization of the patent rights

Disposal date is N/A if asset is still in use

Method: SL = Straight Line; DDB = Double Declining Balance

Assume the estimated life was 5 years for each asset

Item Cost Residual Value Purchase Date Disposal date Depr Method Depr Expense 2011

Beginning of the year $ 901,070 $820,000

End of the year 829,330 901,070

a) Determine the Fixed Asset Turnover for 2012 and 2011

b) Does the change in Fixed Asset Turnover from 2011 to 2012 indicate a favorable or unfavorable trend.?

157 Fill in the missing numbers using the formula for Fixed Asset Turnover:

158 Williams Company acquired machinery on July 1, 2009, at a cost of $130,000 The estimated useful life

of the machinery was 10 years and the estimated residual value was $10,000 Williams uses the

double-declining-balance method of depreciation On October 1, 2012, Williams sold the equipment for

$75,000

1) Record the journal entry for the depreciation on this machinery for 2012

2) Record the journal entry for the sale of the machinery

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) Cost of paving parking area for employees and customers

(2) Insurance during construction of building

(3) Interest incurred on loan during construction of building

(4) Fee paid for installation of equipment

(5) Special foundation for new equipment acquired

(6) Insurance on new equipment while in transit

(7) Freight charges on new equipment

(8) Cost of repairing vandalism damage to equipment during installation

(9) Sales tax on new equipment

(10) Cost incurred in repairing damage resulting from installation of new equipment

(11) Cost of land fill for building site

(12) Cost of lubricating oil purchased for periodic oil changes for equipment

(13) Parking lot lighting

(14) Installing a fence around the parking lot

(15) Repainting the trim on a building

(16) Special assessment paid to city for extension of water main to property

(17) Cost of razing and removing the old building on property acquired for a building site

(18) Delinquent real estate taxes assumed by purchaser on property acquired for a building site

(19) Attorney's fee for title search

(20) Architect's fee for building plans and supervision of construction

(e) U S Treasury note

(f) land used for employee parking

(g) gold mine

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) What has the amount of annual depreciation been in past years?

(b) What was the original life estimate of the building?

(c) To what account should the $1,000,000 be debited?

(d) What is the book value of the building after the extraordinary repairs have been made?

(e) What is the expected remaining life of the building after the extraordinary repairs have been made?

(f) 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

163 Journalize each of the following transactions:

(a) A wing costing $2,345,000 was added to the building A new mortgage was issued for the cost

(b) Equipment was upgraded to increase its capacity to produce widgets The upgrade cost of $11,500 was paid in cash

(c) A major overhaul costing $8,000 on a machine increased the useful life by 4 years The payment was made in cash

a Replaced a broken window

b Replaced the roof that had been on the building 23 years

c Serviced all the air conditioners before summer started

d Replaced the air conditioners with refrigerated air conditioners in the customer service areas

e Added a warehouse to the back of the building

f Repainted the interior walls

g 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) straight-line

(b) units-of-production (1,200 hours first year; 2,250 hours second year)

(c) declining-balance at twice the straight-line rate

(Round the answer to the nearest dollar.)

(a) straight-line

(b) declining-balance at twice the straight-line rate

(c) units-of-production (used for 1,600 hours during the current year)

(Round the answer to the nearest dollar.)

167 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 straight-line rate and (b) the straight-line method Assume a fiscal year ending December 31

168 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) What is the book value at the end of the sixth year of use?

(b) 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 $6,000,

what is the amount of depreciation for the seventh year?

(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

170 On July 1st, Harding Construction purchases a bulldozer for $228,000 The equipment has a 8 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

(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

Determine the cost of the Club House to be reported on the balance sheet.

173 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 double declining-balance method

c production method (4,500 copies were made the first year)

174 A copy machine acquired on March 1, 2011 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

175 A copy machine acquired on March 1, 2011 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 double-declining-balance method

176 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) Record the depreciation for the one-half year prior to the sale, using the straight-line method

(b) Record the sale of the equipment

(c) Assuming that the equipment had been sold for $25,000 cash, prepare the entry for (b) above to record the sale

(a) Price of new, $120,000; trade-in allowance on old, $4,000; balance paid in cash

(b) Price of new, $120,000; trade-in allowance on old, $34,000; balance paid in cash

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 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 The buyer gave no cash in the

exchange The transaction lacks commercial substance

179 Prepare the following journal entries and calculations:

(a) 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

(b) 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

(c) 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 5

years Determine the amount to be amortized for the current fiscal year