Accounting 25th edition warren test bank

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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.

True False

2. The acquisition costs of property, plant, and equipment should include all normal, reasonable and necessary costs to get the asset in place and ready for use.

True False

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.

True False

4. Land acquired as a speculation is reported under Investments on the balance sheet.

True False

5. To a major resort, timeshare properties would be classified as property, plant and equipment.

True False

6. Standby equipment held for use in the event of a breakdown of regular equipment is reported as property, plant, and equipment on the balance sheet.

True False

7. The cost of repairing damage to a machine during installation is debited to a fixed asset account.

True False

8. During construction of a building, the cost of interest on a construction loan should be charged to an expense account.

True False

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.

True False

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

True False

12. The cost of new equipment is called a revenue expenditure because it will help generate revenues in the future.

True False

13. Expenditures that increase operating efficiency or capacity for the remaining useful life of a fixed asset are betterments.

True False

14. The cost of replacing an engine in a truck is an example of ordinary maintenance.

True False

15. A capital lease is accounted for as if the asset has been purchased.

True False

16. An operating lease is accounted for as if the lessee has purchased the asset.

True False

17. An intangible asset is one that has a physical existence.

True False

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

True False

19. Long lived assets held for sale are classified as fixed assets.

True False

20. Functional depreciation occurs when a fixed asset is no longer able to provide services at the level for which it was intended.

True False

21. The normal balance of the accumulated depreciation account is debit.

True False

22. As a company records depreciation expense for a period of time a corresponding cash inflow from investing activities is reported on the statement of cash flows.

True False

23. All property, plant, and equipment assets are depreciated over time.

True False

24. The book value of a fixed asset reported on the balance sheet represents its market value on that date.

True False

25. The depreciable cost of a building is the same as its acquisition cost.

True False

26. It is necessary for a company to use the same depreciation method for all of its depreciable assets.

True False

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

True False

28. An estimate of the amount which an asset can be sold at the end of its useful life is called residual value.

True False

29. The units of production depreciation method provides a good match of expenses against revenue.

True False

30. Once the useful life of a depreciable asset has been estimated and the amount to be depreciated each year has been determined, the amounts can not be changed.

True False

31. Residual value is not incorporated in the initial calculations for double-declining-balance depreciation.

True False

32. The double-declining-balance method is an accelerated depreciation method.

True False

33. The double declining balance depreciation method calculates depreciation each year by taking twice the straight line rate times the book value of the asset at the beginning of each year.

True False

34. When minor errors occur in the estimates used in the determination of depreciation, the amounts recorded for depreciation expense in the past should be corrected.

True False

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

True False

36. The amount of depreciation expense for a fixed asset costing $95,000, with an estimated residual value of $5,000 and a useful life of 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.

True False

38. When depreciation estimates are revised, all years of the asset’s life are affected.

True False

39. For income tax purposes most companies use an accelerated deprecation method called double declining balance.

True False

40. Assets may be grouped according to common traits and depreciated by using a single composite rate.

True False

41. Regardless of the depreciation method, the amount that will be depreciated during the life of the asset will be the same.

True False

42. Revising depreciation estimates does affect the amounts of depreciation expense recorded in past periods.

True False

43. Capital expenditures are costs that are charged to Stockholders' Equity accounts.

True False

44. Though a piece of equipment is still being used, the equipment should be removed from the accounts if it has been fully depreciated.

True False

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

True False

46. When a property, plant, and equipment asset is sold for cash, any gain or loss on the asset sold should be recorded.

True False

47. Ordinary gains from the sale of fixed assets should be reported in the other income section of the income statement.

True False

48. A gain can be realized when a fixed asset is discarded.

True False

49. When old equipment is traded in for a new equipment, the difference between the list price and the trade in allowance is called boot.

True False

50. When a plant asset is traded for another similar asset, losses on the asset traded are not recognized.

True False

51. When exchanging equipment, if the trade-in allowance is greater than the book value a loss results.

True False

52. If a fixed asset with a book value of $10,000 is traded for a similar fixed asset, and a trade-in allowance of $15,000 is granted by the seller, if the transaction is deemed to have commercial substance, the buyer would report a gain on disposal of fixed assets of $5,000.

True False

53. The entry to record the disposal of fixed assets will include a credit to accumulated depreciation.

True False

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

True False

55. Minerals removed from the earth are classified as intangible assets.

True False

56. The method used to calculate the depletion of a natural resource is the straight line method.

True False

57. Intangible assets differ from property, plant and equipment assets in that they lack physical substance.

True False

58. The transfer to expense of the cost of intangible assets attributed to the passage of time or decline in usefulness is called amortization.

True False

59. The cost of a patent with a remaining legal life of 10 years and an estimated useful life of 7 years is amortized over 10 years.

True False

60. Costs associated with normal research and development activities should be treated as intangible assets.

True False

61. Patents are exclusive rights to manufacture, use, or sell a particular product or process.

True False

62. When a major corporation develops its own trademark and over time it becomes very valuable, the trademark may not be shown on their balance sheet due to lack of a material cost.

True False

63. When a company establishes an outstanding reputation and has a competitive advantage because of it, the company should record goodwill on its financial statements.

True False

64. The difference between the balance in a fixed asset account and its related accumulated depreciation account is the asset's book value.

True False

65. When a seller allows a buyer an amount for old equipment that is traded in for new equipment of similar use, this amount is known as boot.

True False

66. An exchange is said to have commercial substance if future cash flows remain the same as a result of the exchange.

True False

67. A characteristic of a fixed asset is that it is A. intangible B. used in the operations of a business C. held for sale in the ordinary course of the business D. a short-term investment

68. Land acquired so it can be resold in the future is listed in the balance sheet as a(n) A. fixed asset B. current asset C. investment D. intangible asset

69. Which of the following should be included in the acquisition cost of a piece of equipment?

A. transportation costs B. installation costs C. testing costs prior to placing the equipment into production D. all are correct

70. Which of the following is included in the cost of constructing a building?

A. insurance costs during construction B. cost of paving parking lot C. cost of repairing vandalism damage during construction D. cost of removing the demolished building existing on the land when it was purchased

71. Which of the following is included in the cost of land?

A. cost of paving a parking lot B. brokerage commission C. outdoor parking lot lighting attached to the land D. fences on the land

72. Accumulated Depreciation A. is used to show the amount of cost expiration of intangibles B. is the same as Depreciation Expense C. is a contra asset account D. is used to show the amount of cost expiration of natural resources

73. A building with an appraisal value of $154,000 is made available at an offer price of $172,000. The purchaser acquires the property for $40,000 in cash, a 90-day note payable for $45,000, and a mortgage amounting to $75,000. The cost basis recorded in the buyer's accounting records to recognize this purchase is A. $154,000 B. $172,000 C. $160,000 D. $120,000

74. A used machine with a purchase price of $77,000, requiring an overhaul costing $8,000, installation costs of $5,000, and special acquisition fees of $3,000, would have a cost basis of A. $93,000 B. $90,000 C. $82,000 D. $85,000

75. A new machine with a purchase price of $109,000, with transportation costs of $12,000, installation costs of $5,000, and special acquisition fees of $6,000, would have a cost basis of A. $114,000 B. $126,000 C. $121,000 D. $132,000

76. Expenditures that add to the utility of fixed assets for more than one accounting period are A. committed expenditures B. revenue expenditures C. utility expenditures D. capital expenditures

77. A capital expenditure results in a debit to A. an expense account B. a capital account C. a liability account D. an asset account

78. Which of the following below is an example of a capital expenditure?

A. cleaning the carpet in the front room B. tune-up for a company truck C. replacing an engine in a company car D. replacing all burned-out light bulbs in the factory

79. In a lease contract, the party who legally owns the asset is the A. lessee B. lessor C. operator D. banker

80. All leases are classified as either A. capital leases or long-term leases B. capital leases or operating leases C. operating leases or current leases D. long-term leases or current leases

81. The journal entry for recording an operating lease payment would A. be a memo entry only B. debit the fixed asset and credit Cash C. debit an expense and credit Cash D. debit a liability and credit Cash

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

84. A fixed asset's estimated value at the time it is to be retired from service is called A. book value B. residual value C. market value D. carrying value

85. All of the following below are needed for the calculation of straight-line depreciation except A. cost B. residual value C. estimated life D. units produced

86. The method of determining depreciation that yields successive reductions in the periodic depreciation charge over the estimated life of the asset is A. units-of-production B. declining-balance C. straight-line D. time-valuation

87. 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 A. declining-balance B. straight-line C. units-of-production D. MACRS

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?

A. $ 5,000 B. $35,000 C. $21,000 D. $45,000

89. Equipment with a cost of $220,000 has an estimated residual value of $30,000 and an estimated life of 10 years or 19,000 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 2,100 hours?

A. $19,000 B. $21,000 C. $22,000 D. $30,000

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?

A. $17,500 B. $37,500 C. $18,750 D. $16,667

91. The most widely used depreciation method is A. straight-line B. double-declining-balance C. units-of-production D. units-of-production or double-declining-balance

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

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.

A. $13,200 B. $19,200 C. $ 9,600 D. $ 9,000

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.

A. $25,000 B. $11,000 C. $24,000 D. $24,500

104. 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 in a transaction with commercial substance. Assuming a trade-in allowance of $5,000, the cost basis of the new asset is A. $54,000 B. $59,500 C. $60,000 D. $60,500

105. 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 A. $54,000 B. $45,000 C. $51,000 D. $50,000

106. 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 A. $3,000 B. $4,500 C. $ 500 D. $1,500

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?

A. $2,000 loss B. $1,500 loss C. $3,500 gain D. $2,000 gain

108. 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 A. the new machinery at $16,700 B. the new machinery at $12,700 C. a gain of $1,500 D. a loss of $1,500

109. When a company discards machinery that is fully depreciated, this transaction would be recorded with the following entry 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 transaction would be recorded with the following entry (assuming the exchange was considered to have commercial substance): A. debit Machinery and Accumulated Depreciation; credit Machinery, Cash, and Gain on Disposal B. debit Machinery and Accumulated Depreciation; credit Machinery and Cash C. debit Cash and Machinery; credit Accumulated Depreciation D. debit Cash and Machinery; credit Accumulated Depreciation and Machinery

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.

A. Accumulated Depreciation Dr. $310,000 B. Loss on Disposal of Asset Dr. $260,000 C. Equipment Cr. $310,000 D. Gain on Disposal of Asset Cr. $50,000

114. On December 31, Strike Company has decided to sell 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 company found a company that is willing to buy the equipment for $50,000. What is the amount of the gain or loss on this transaction?

A. Gain of $50,000 B. Loss of $50,000 C. No gain or loss D. Cannot be determined

115. On December 31, Strike Company has decided to sell 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 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?

A. Gain of $20,000 B. Loss of $30,000 C. No gain or loss D. Cannot be determined

116. On December 31, Strike Company has decided to sell 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 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?

A. Cannot be determined B. No gain or loss C. Gain of $ 5,000 D. Gain of $55,000

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?

A. Loss of $11,000 B. Gain of $11,000 C. Loss of $19,000 D. No loss or gain will be recorded.

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

120. The process of transferring the cost of metal ores and other minerals removed from the earth to an expense account is called A. depletion B. deferral C. amortization D. depreciation

121. The Weber Company purchased a mining site for $1,750,000 on July 1, 2014. The company expects to mine ore for the next 10 years and anticipates that a total of 400,000 tons will be recovered. The estimated residual value of the property is $150,000. During 2014 the company extracted 6,500 tons of ore. The depletion expense for 2014 is A. $17,500 B. $16,000 C. $26,000 D. $15,000

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 D. current assets

123. The term applied to the amount of cost to transfer to expense resulting from a decline in the utility of intangible assets is A. amortization B. depletion C. depreciation D. allocation

124. Xtra Company purchased goodwill from Argus for $96,000. Argus had developed the goodwill over 12 years. How much would Xtra amortize the goodwill for its first year?

A. $7,000 B. $ 8,000 C. Goodwill is not amortized.

D. Not enough information.

125. Which intangible assets are amortized over their useful life?

A. trademarks B. goodwill C. patents D. all of the above

126. The exclusive right to use a certain name or symbol is called a A. goodwill B. patent C. trademark D. copyright

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 A. $10,929 B. $6,000 C. $10,500 D. $10,408

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.

A. $17,500 B. $30,000 C. $12,500 D. $40,000

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.

A. $17,500 B. $30,000 C. $12,500 D. $40,000

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.

Using straight line depreciation, calculate depreciation expense for the last year.

A. $17,500 B. $30,000 C. $12,500 D. $40,000

132. 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

133. 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."

134. On April 15, Compton Co. paid $2,800 to upgrade a delivery truck and $125 for an oil change. Journalize the entries for the upgrade to delivery truck and oil change expenditures.

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.

136. A double-declining balance rate for calculating depreciation expense is determined by doubling the straight-line rate. Assuming that an asset has a useful life of 25 years, determine the rate to be used if using the double-declining balance method.

137. Copy equipment was acquired at the beginning of the year at a cost of $72,000 that has an estimated residual value of $9,000 and an estimated useful life of 5 years. It is estimated that the machine has an estimated 1,000,000 copies. This year 315,000 copies were made. Determine the (a) depreciable cost, (b) depreciation rate, and (c) the units-of-production depreciation for the year.

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.

140. Computer equipment was acquired at the beginning of the year at a cost of $63,000 that has an estimated residual value of $3,000 and an estimated useful life of 5 years. Determine the (a) depreciable cost (b) double-declining-balance rate, and (c) double-declining-balance depreciation for the first year.

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.

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

a) b) c)

What was the depreciation expense 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.

143. On the first day of the fiscal year, a new walk-in cooler with a list price of $58,000 was acquired in exchange for an old cooler and $44,000 cash. The old cooler had a cost of $25,000 and accumulated depreciation of $16,000.

Assume the transaction has commercial substance.

a) b)

Determine the gain to be recorded on the exchange.

Journalize the entry to record the exchange.

144. 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 tons were mined and sold.

a. b. c.

Determine the depletion rate.

Determine the amount of depletion expense for the current year.

Journalize the adjusting entry to recognize the depletion expense.

145. Falcon Company acquired an adjacent lot to construct a new warehouse, paying $40,000 and giving a short-term note for $410,000. Legal fees paid were $13,275, delinquent taxes assessed were $14,500, and fees paid to remove an old building from the land were $15,800. Materials salvaged from the demolition of the building were sold for $6,800. A contractor was paid $890,000 to construct a new warehouse. Determine the cost of the land to be reported on the balance sheet and show your work.

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

(1) (2) (3) (4) (5) (6) (7)

2 years 8 years 10 years 20 years 25 years 40 years 50 years

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

1 2 3 4

$100,000 72,900 38,000 90,000

$13,000 9,900 3,000 13,000

Required: (1) (2)

300,000 300,000 200,000 200,000

Accumulated Depreciation at Beginning of Year -$60,000 8,050 20,150

Miles Operated During Year 30,000 25,000 45,000 40,000

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.

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.

149. Equipment acquired on January 2, 2011 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 2011, 2012, and 2013, assuming the straight-line method of depreciation is used?

(2)

What was the book value of the equipment on January 1, 2014?

(3)

Assuming that the equipment was sold on January 2, 2014, for $170,500, journalize the entry to record the sale.

(4)

Assuming that the equipment had been sold on January 2, 2014, for $189,000 instead of $168,500, journalize the entry to record the sale.

150. Chasteen Company acquired mineral rights for $9,100,000. The mineral deposit is estimated at 65,000,000 tons. During the current year, 18,375,000 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.

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) (2)

Determine the patent amortization expense for the current year ended December 31, 2012.

Journalize the adjusting entry to recognize the amortization.

152. The following information was taken from a recent annual report of Harrison Company: (in millions)

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

2012 $726 595 94 760 894

2011 $361 470 81 569 644

Required: (1)

Compute the book value of the fixed assets for the 2012 and 2011 and explain the differences, if any.

(2)

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

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.

154. On December 31, Bowman Company estimated that goodwill of $80,000 was impaired. In addition, a patent with an estimated useful economic life of 10 years was acquired for $252,000 on June 1.

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

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

155. For each of the following fixed assets, determine the depreciation expense and the book value for the dates requested: 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 A B C D

Cost $40,000 $50,000 $60,000 $80,000

Residual Value $4,000 $5,000 $2,000 $10,000

Purchase Date 7/1/2011 1/1/2009 10/1/2011 1/1/2010

Disposal date N/A 8/31/2011 N/A 4/1/2011

Depr Method SL SL DDB DDB

Depr Expense 2011

156. Financial Statement data for the years ended December 31 for Parker Corporation is as follows: 2012 2011 Net Sales $2,595,600 $2,409,498 Fixed Assets: 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:

Net Sales Beginning Fixed Assets Ending Fixed Assets Fixed Asset Turnover

Company A $5,000,000 $450,000 $800,000 ?

Company B $720,000 $275,000 ?

2.4 times

Company C $900,000 ? $310,000 3 times

Company D ? $380,000 $420,000 2.6 times

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.

159. Equipment was purchased on January 5, 2011, at a cost of $90,000. The equipment had an estimated useful life of 8 years and an estimated residual value of $8,000.

After using the equipment for 3 years, the useful life was revised to a total of 10 years and the residual value was reduced to $2,004.

Determine the straight-line depreciation expense for the year 2014 and following years.

160. Identify each of the following expenditures as chargeable to (a) Land, (b) Land Improvements, (c) Buildings, (d) Machinery and Equipment, or (e) other account.

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) (18) (19) (20)

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.

161. Identify the following as a Fixed Asset (FA), or Intangible Asset (IA), or Natural Resource (NR), or Neither (N)

(a) (b) (c) (d) (e) (f) (g)

computer patent oil reserve goodwill U. S. Treasury note land used for employee parking 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) (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.

163. Journalize each of the following transactions:

(a) (b) (c)

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

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

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

164. XYZ Co. incurred the following costs related to the office building used in operating its sports supply company:

a. b. c. d. e. f. g.

Replaced a broken window.

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

Serviced all the air conditioners before summer started.

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

Added a warehouse to the back of the building.

Repainted the interior walls.

Installed window shutters on all windows.

Classify each of the costs as a capital expenditure or a revenue expenditure. For those costs identified as capital expenditures, classify each as an additional or replacement component.

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

(a) (b) (c)

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

(Round the answer to the nearest dollar.)

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

(a) (b) (c)

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

(Round the answer to the nearest dollar.)

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) (b)

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

If early in the seventh year it is estimated that the remaining useful life is 5 years (instead of 4) and the residual value is $6,000, what is the amount of depreciation for the seventh year?

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

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.

171. On July 1st, Hartford Construction purchases a bulldozer for $228,000. The equipment has a 9 year life with a residual value of $16,000. Hartford uses units-of-production method depreciation and the bulldozer is expected to yield 26,500 operating hours. (a) Calculate the depreciation expense per hour of operation. (b) The bulldozer is operated 1,250 hours in the first year, 2,755 hours in the second year, and 1,225 hours in the third year of operations. Journalize the depreciation expense for each year.

172. Eagle Country Club has acquired a lot to construct a clubhouse. Eagle had the following costs related to the construction:

Architects’ Fees Construction Labor Engineers’ Fees Fences around building Grading and leveling Insurance costs incurred during construction Interest on money borrowed for construction Land Building Materials Sales Taxes Trees and Shrubs

$45,000 80,000 15,000 9,000 10,000 7,000 5,000 73,000 237,000 6,000 6,000

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

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. b. c.

straight-line method double declining-balance method 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) (b) (c)

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

Record the sale of the equipment.

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

177. Machinery acquired at a cost of $80,000 and on which there is accumulated depreciation of $55,000 (including depreciation for the current year to date) is exchanged for similar machinery. For financial reporting purposes, present entries to record the disposition of the old machinery and the acquisition of new machinery under each of the following assumptions:

(a) (b)

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

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

178. Equipment acquired at a cost of $126,000 has a book value of $42,000. Journalize the disposal of the equipment under the following independent assumptions. a. b. c. d.

The equipment had no market value and was discarded.

The equipment is sold for $54,000.

The equipment is sold for $24,000.

The equipment is traded-in for a similar asset. The list price of the new equipment is $63,000. The buyer gave no cash in the exchange. The transaction lacks commercial substance.

Journal Post Ref Date

Description

Debit

Credit

179. Prepare the following journal entries and calculations:

(a) (b) (c)

A patent that was acquired for $410,000 at the beginning of the current year expires in 15 years and is expected to have value for 4 years. Present the adjusting entry to amortize the patent for the current year.

Mineral rights on an ore deposit estimated at 4,000,000 tons of ore were acquired for $2,800,000. Present the adjusting entry to record depletion for the current year, during which 350,000 tons of ore were removed.

Legal costs incurred to defend the rights that a patent provided 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.

180. Macon Co. acquired drilling rights for $7,500,000. The oil deposit is estimated at 37,500,000 gallons.

During the current year, 3,000,000 gallons were drilled. Journalize the adjusting entry at December 31, 2011 to recognize the depletion expense.

Journal Post Ref Date

Description

Debit

Credit

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

Journal Post Ref Date

Description

Debit

Credit

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

a) b)

Journalize the adjusting entry on December 31 for the impaired goodwill.

Journalize the adjusting entry on December 31 for the amortization of the patent rights.

183. Clanton Company engaged in the following transactions during 2011. Record each in the general journal below: 1) On January 3, 2011, Clanton purchased a copyright from Dalton Company with a cost of $250,000 with a remaining useful life of 25 years.

2) On January 10, 2011, Clanton purchased a trademark from Felton Company with a cost of $700,000.

3) On July 1, 2011, Clanton purchased a patent from Garrison Company at a cost of $80,000. The remaining legal life of the patent is 15 years and the expected useful life is 11 years.

4) On July 2, 2011, Clanton paid $30,000 in legal fees to defend the patent protection purchased on July 1, 2011.

5) Recorded the appropriate amortization for the intangible assets for 2011.

6) Clanton Company includes an asset in its ledger recorded when Clanton purchased a computer service business at a price in excess of the fair value of the assets of the company in the amount of $400,000. At December 31, 2011, $100,000 of this asset has become impaired.

Date

Description

Debit

Credit

184. On June 1, 2014, Aaron Company purchased equipment at a cost of $120,000 that has a depreciable cost of $90,000 and an estimated useful life of 3 years and 30,000 hours.

Using straight line depreciation, prepare the journal entry to record depreciation expense for (a) the first year, (b) the second year and (c) the last year.

Chapter 10--Fixed Assets and Intangible Assets Key

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.

FALSE

2. The acquisition costs of property, plant, and equipment should include all normal, reasonable and necessary costs to get the asset in place and ready for use.

TRUE

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.

FALSE

4. Land acquired as a speculation is reported under Investments on the balance sheet.

TRUE

5. To a major resort, timeshare properties would be classified as property, plant and equipment.

TRUE

6. Standby equipment held for use in the event of a breakdown of regular equipment is reported as property, plant, and equipment on the balance sheet.

TRUE

7. The cost of repairing damage to a machine during installation is debited to a fixed asset account.

FALSE

8. During construction of a building, the cost of interest on a construction loan should be charged to an expense account.

FALSE

9. The cost of computer equipment does not include the consultant's fee to supervise installation of the equipment.

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.

FALSE

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

TRUE

12. The cost of new equipment is called a revenue expenditure because it will help generate revenues in the future.

FALSE

13. Expenditures that increase operating efficiency or capacity for the remaining useful life of a fixed asset are betterments.

TRUE

14. The cost of replacing an engine in a truck is an example of ordinary maintenance.

FALSE

15. A capital lease is accounted for as if the asset has been purchased.

TRUE

16. An operating lease is accounted for as if the lessee has purchased the asset.

FALSE

17. An intangible asset is one that has a physical existence.

FALSE