fixed assets and intangible assets test bank

Name Chapter Fixed Assets and Intangible Assets Description Instructions Modify Add Question Here Question True/False points Modify Remove 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 True/False points Modify Remove 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 True/False points Modify Remove 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 True/False points Modify Remove Question Land acquired as a speculation is reported under Investments on the balance sheet Answer True False Add Question Here Question True/False points Modify Remove Question To a major resort, timeshare properties would be classified as property, plant and equipment Answer True False Add Question Here Question True/False points Modify Remove 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 True/False points Modify Remove 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 True/False points Modify Remove 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 True/False points Modify Remove 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 True/False points Modify Remove 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 True/False points Modify Question Capital expenditures are costs of acquiring, constructing, adding, or replacing property, plant and equipment Answer True Remove False Add Question Here Question 12 True/False points Modify Remove 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 True/False points Modify Remove 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 True/False points Modify Remove Question The cost of replacing an engine in a truck is an example of ordinary maintenance Answer True False Add Question Here Question 15 True/False points Modify Remove Question A capital lease is accounted for as if the asset has been purchased Answer True False Add Question Here Question 16 True/False points Modify Remove Question An operating lease is accounted for as if the lessee has purchased the asset Answer True False Add Question Here Question 17 True/False points Modify Remove Question An intangible asset is one that has a physical existence Answer True False Add Question Here Question 18 True/False points Modify Remove Question A capitalized asset will appear on the balance sheet as a long term asset Answer True False Add Question Here Question 19 True/False points Modify Remove Question Long lived assets held for sale are classified as fixed assets Answer True False Add Question Here Question 20 True/False points Modify Remove 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 True/False points Modify Remove Question The normal balance of the accumulated depreciation account is debit Answer True False Add Question Here Question 22 True/False points Modify Remove Question As a company depreciates a piece of equipment, it cash flow goes up Answer True False Add Question Here Question 23 True/False points Question All property, plant, and equipment assets are depreciated over time Answer True Modify Remove False Add Question Here Question 24 True/False points Modify Remove 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 True/False points Modify Remove Question The depreciable cost of a building is the same as its acquisition cost Answer True False Add Question Here Question 26 True/False points Modify Remove 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 True/False points Modify Remove 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 True/False points Modify Remove 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 True/False points Modify Remove Question The units of production depreciation method matches expenses against revenue the best Answer True False Add Question Here Question 30 True/False points Modify Remove 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 True/False points Modify Remove Question Residual value is not incorporated in the initial calculations for double-declining-balance depreciation Answer True False Add Question Here Question 32 True/False points Modify Remove Question The double-declining-balance method is an accelerated depreciation method Answer True False Add Question Here Question 33 True/False points Modify Remove 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 True/False points Modify Remove 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 True/False points Modify Remove 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 years, is $19,000 by the straight-line method Answer True False Add Question Here Question 36 True/False points Modify Remove 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 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 True/False points Modify Remove 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 years, is $25,000 by the declining-balance method at twice the straight-line rate Answer True False Add Question Here Question 38 True/False points Modify Remove Question When depreciation estimates are revised, all years of the asset’s life are affected Answer True False Add Question Here Question 39 True/False points Modify Remove Question For income tax purposes most companies use an accelerated deprecation method called double declining balance Answer True False Add Question Here Question 40 True/False points Modify Remove 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 True/False points Modify Remove 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 True/False points Modify Remove Question Revising depreciation estimates does affect the amounts of depreciation expense recorded in past periods Answer True False Add Question Here Question 43 True/False points Modify Remove Question Capital expenditures are costs that are charged to Stockholders' Equity accounts Answer True False Add Question Here Question 44 True/False points Modify Remove 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 True/False points Modify Remove 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 True/False points Modify Remove 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 Answer True False Add Question Here Question 47 True/False points Modify Remove 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 True/False points Modify Remove 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 True/False points Modify Remove Question A gain can be realized when a fixed asset is discarded Answer True False Add Question Here Question 50 True/False points Modify Remove 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 True/False points Modify Remove 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 True/False points Modify Remove 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 True/False points Modify Remove 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 True/False points Modify Remove 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 True/False points Modify Remove 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 True/False points Modify Remove 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 True/False points Modify Remove Question Minerals removed from the earth are classified as intangible assets Answer True False Add Question Here True/False points Modify Remove 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 True/False points Modify Remove Question Intangible assets differ from property, plant and equipment assets in that they lack physical substance Answer True False Add Question Here Question 60 True/False points Modify Remove 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 True/False points Modify Remove Question 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 Answer True False Add Question Here Question 62 True/False points Modify Remove Question Costs associated with normal research and development activities should be treated as intangible assets Answer True False Add Question Here Question 63 True/False points Modify Remove Question Patents are exclusive rights to manufacture, use, or sell a particular product or process Answer True False Add Question Here Question 64 True/False points Modify Remove 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 True/False points Modify Remove 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 True/False points Modify Remove 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 True/False points Modify Remove 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 True/False points Modify Remove 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 years, is $20,000 by the sum-of-the-years’-digits method Answer True False Add Question Here Question 69 True/False points Modify Remove 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 True/False points Modify Remove 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 points 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 Modify Remove Answer Items A Ordinary Maintenance and Repairs B Asset Improvements C Extraordinary Repairs Add Question Here Question 72 Matching points 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 Modify Remove Answer Items A Patent B Copyright C Trademark D Goodwill Add Question Here Question 73 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points 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 Modify Remove fences on the land Add Question Here Question 78 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 points Modify Remove operating leases or current leases long-term leases or current leases Add Question Here Question 87 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove Question A machine with a cost of $80,000 has an estimated residual value of $5,000 and an estimated life of 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 Multiple Choice points Modify Remove Question Equipment with a cost of $130,000 has an estimated residual value of $10,000 and an estimated life of 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 points Modify Remove Question A machine with a cost of $75,000 has an estimated residual value of $5,000 and an estimated life of 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 points Modify Remove 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 points Modify Remove 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 years Due to obsolescence, it was determined that the useful life should be shortened by 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove Question If a fixed asset, such as a computer, were purchased on January 1st for $3,750 with an estimated life of 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 points Modify Remove Question The proper journal entry to purchase a computer on account to be utilized within the business would be: Answer Jan Office Supplies 1,350 Accounts Payable 1,350 Jan Office Equipment 1,350 Accounts Payable 1,350 Jan Office Supplies 1,350 Accounts Receivable 1,350 Jan Office Equipment 1,350 Accounts Receivable 1,350 Add Question Here Question 102 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 points Modify Remove 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 points Modify Remove 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 points Modify Remove 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 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 points Modify Remove 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 points Modify Remove 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 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 points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove Question Xtra Company purchased goodwill from Argus for $144,000 Argus had developed the goodwill over 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 Multiple Choice points Modify Remove Question Which intangible assets are amortized over their useful life? Answer trademarks goodwill patents all of the above Add Question Here Question 133 Multiple Choice points Modify Remove Question The exclusive right to use a certain name or symbol is called a Answer franchise patent trademark copyright Add Question Here Question 134 Multiple Choice points Modify Remove 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 Multiple Choice points Modify Remove Question Machinery was purchased on January 1, 2009 for $51,000 The machinery has an estimated life of 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 Essay points Modify 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 Remove Answer $196,000 Add Question Here Question 137 Essay points Modify Remove 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 Essay points Modify Remove 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 Essay points Modify Remove 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 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 Essay points Modify Remove 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% * = 8% Add Question Here Question 141 Essay points Modify Remove 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 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 Essay points Modify Remove 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 ÷ years = $9,000 per year Add Question Here Question 143 Essay points Modify Remove 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 $85,000 × 40 = $34,000 (2) Year $51,000 × 40 = $20,400 (3) Year $30,600 × 40 = $12,240 (4) Year $18,360 × 40 = $7,344 (5) Year $11,016 - 5,000 = $6,016 Add Question Here Question 144 Essay points Modify Remove 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 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 Essay points Modify Remove 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 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 Essay points Modify Remove 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 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 Essay points Modify Remove 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 Essay points Modify Remove 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 Essay points Modify Remove 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 Essay points Modify Remove 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 years 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 Essay points Modify Remove 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 $100,000 $13,000 300,000 -30,000 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 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 Essay points Modify Remove 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 Add Question Here Question 153 Essay points Modify Remove 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 Essay points Modify Remove 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 Essay points Modify Remove 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 Essay points Modify Remove 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 Essay points Modify Remove Question The following are two independent situations A tractor acquired on January 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 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 First year: 20/210 × $75,000 = $7,143 Second year: 19/210 × $75,000 = $6,786 2010: 8/36 × ($198,000 – $18,000) = $40,000 2011: 7/36 × ($198,000 – $18,000) = $35,000 Add Question Here Question 158 Essay points Modify Remove 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 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 Essay points Modify 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 Required: (1) Journalize the adjusting entry on December 31 for the impaired goodwill Remove (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 Essay points Modify Remove 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, 8, 10, 12, 15 Add Question Here Question 161 Essay points Modify Remove 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 Essay points Modify Remove 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 Essay points Modify 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 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 Remove Cash 7,000 Add Question Here Question 164 Essay points Modify Remove 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 Essay points Modify Remove Question 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.) Answer 1st Year (a) $70,000 ($360,000 - 10,000) = 350,000 ÷ (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 ÷ $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 Essay points Modify Remove Question 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.) Answer (a) $28,125 = ($240,000 - 15,000) = 225,000 ữ = 56,250 ì 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 Essay points Modify Remove Question 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 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 ữ 5) = 90,000 ì 3/12 Following year: $90,000 = ($500,000 - 50,000) = 450,000 ÷ Add Question Here Question 168 Essay points Modify Remove Question 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) 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 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 × = 43,200 )) $5,760 ($36,800 - 8,000) ÷ Add Question Here Question 169 Essay points Modify Remove 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 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 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 Essay points Modify Remove Question On July 1st, Harding Construction purchases a bulldozer for $330,000 The equipment has a 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 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 Essay points Modify Remove Question On July 1st, Hartford Construction purchases a bulldozer for $330,000 The equipment has a 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 Essay points Modify Remove 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 Essay points Modify Remove Question 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 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 Book Value at Beginning of Year 1,410 Cost 1,410 Rate 50%* Depreciation for Year 705 *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) Add Question Here Question 174 Essay points Modify Remove Question A copy machine acquired on March 1, 2009 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 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 Essay points Modify Remove Question A copy machine acquired on March 1, 2009 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 declining-balance method Answer First year depreciation = $293.75 [352.50 x (10 /12)] Year Book Value at Beginning of Year 705 Cost 705 Rate 50%* Depreciation for Year 352.50 *Rate = (100%/Life) × Rate = (1/4) × Rate = 0.50 Add Question Here Question 176 Essay points Modify Remove Question 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) 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 Essay points Modify Remove 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 Essay points Modify Remove 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 Essay points Modify Remove 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 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 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 Essay points Modify Remove 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 = Depletion expense = depletion rate × quantity extracted Depletion expense = × 3,000,000 Depletion expense = $600,000 Add Question Here Question 181 Essay points Modify Remove Question 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 Answer Journal Post Ref Date Dec 31 Description Amortization Expense Patents Debit 2,500 Credit 2,500 Add Question Here Question 182 Essay points Modify Remove 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 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 Essay points Modify Remove 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 years Determine the depreciation expense for the five years using the sum-of-the-years-digits depreciation method Answer Year (63,000*5/15) 21,000 Year (63,000*4/15) 16,800 Year (63,000*3/15) 12,600 Year (63,000*2/15) 8,400 Year (63,000*1/15) 4,200 Add Question Here