fixed assets and intangible assets test bank

Name Chapter 9--Fixed Assets and Intangible Assets

Description

Instructions Modify

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Question 1 True/False 0 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

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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Question As a company depreciates a piece of equipment, it cash flow goes up.

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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Question The units of production depreciation method matches expenses against revenue the best.

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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Question 58

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

Answer True

False

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

known as boot.

Answer True

False

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

Answer True

False

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Question 71 Matching 0 points Modify Remove

Question Classify each of the following as:

Answer Match Question Items Answer Items

C. - A. Overhauling an engine in a large truck. A. Ordinary Maintenance and Repairs

A. - B. Exterior and interior painting B. Asset Improvements

B. - C. Paving a new parking lot C. Extraordinary Repairs

B. - D. New landscaping

B. - E. Installing a new air conditioning system in an old building

C. - F. Resurfacing a pool in an apartment building

A. - G. Adding freon to an air conditioning system

A. - H. Fixing damage due to a car accident

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Question 72 Matching 0 points Modify Remove

Question Match the intangible assets with their proper classification

Answer Match Question Items Answer Items

B. - A. Rights to sell this book and make a profit A. Patent

C. - B. McDonald’s Golden Arches B. Copyright

A. - C. A new kitchen gadget that can be profited by only one company C. Trademark

D. - D. Location of a company D. Goodwill

B. - E. I-Tunes Music

D. - F. Reputation of a company

C. - G. Nike Swoosh

C. - H. Mickey Mouse

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Question 73 Multiple Choice 0 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

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Question Land acquired so it can be resold in the future is listed in the balance sheet as a(n)

Answer fixed asset

current asset

investment

intangible asset

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

Answer transportation costs

installation costs

testing costs prior to placing the equipment into production

all are correct

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

Answer insurance costs during construction

cost of paving parking lot

cost of repairing vandalism damage during construction

cost of removing the demolished building existing on the land when it was purchased

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Question Which of the following is included in the cost of land?

Answer cost of paving a parking lot

brokerage commission

outdoor parking lot lighting attached to the land

fences on the land

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Question Accumulated Depreciation

Answer is used to show the amount of cost expiration of intangibles

is the same as Depreciation Expense

is a contra asset account

is used to show the amount of cost expiration of natural resources

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

Answer $147,000

$152,000

$145,000

$110,000

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

Answer $93,000

$90,000

$82,000

$85,000

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Question A new machine with a purchase price of $94,000, with transportation costs of $8,000, installation costs of $5,000, and special acquisition fees of $2,000, would have a cost basis of

Answer $ 99,000

$107,000

$102,000

$109,000

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

Answer committed expenditures

revenue expenditures

current expenditures

capital expenditures

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Question A capital expenditure results in a debit to

Answer an expense account

a stockholders’ equity account

a liability account

an asset account

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

Answer cleaning the carpet in the front room

tune-up for a company truck

replacing an engine in a company car

replacing all burned-out light bulbs in the factory

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Question In a lease contract, the party who legally owns the asset is the

Answer lessee

lessor

operator

banker

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Question All leases are classified as either

Answer capital leases or long-term leases

capital leases or operating leases

operating leases or current leases

long-term leases or current leases

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Question The journal entry for recording an operating lease payment would

Answer be a memo entry only

debit the fixed asset and credit Cash

debit an expense and credit Cash

debit a liability and credit Cash

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

Answer Must be an investment and must be long lived.

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

Must be long lived and must be a tangible asset.

Must be a tangible asset and must be an investment.

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Question Factors contributing to a decline in the usefulness of a fixed asset may be divided into the following two categories

Answer salvage and functional

physical and functional

residual and salvage

functional and residual

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Question A fixed asset's estimated value at the time it is to be retired from service is called

Answer book value

residual value

market value

carrying value

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Question All of the following below are needed for the calculation of straight-line depreciation except

Answer cost

residual value

estimated life

units produced

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Question The method of determining depreciation that yields successive reductions in the periodic depreciation charge over the estimated life of the asset is

Answer units-of-production

declining-balance

straight-line

time-valuation

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Question When the amount of use of a fixed asset varies from year to year, the method of determining depreciation expense that best matches allocation of cost with revenue is

Answer declining-balance

straight-line

units-of-production

MACRS

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

Answer $5,000

$25,000

$15,000

$26,667

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

equipment was used 3,300 hours?

Answer $24,000

$32,500

$33,000

$35,750

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

Answer $17,500

$37,500

$18,750

$16,667

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Question The most widely used depreciation method is

Answer straight-line

sum-of-the-years-digits

declining-balance

units-of-production

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

Answer $11,636

$16,000

$11,000

$8,000

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

Answer straight-line

units-of-production

double-declining-balance

none of the above

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

Answer EOM Depreciation Expense 100 Accumulated Depreciation 100

EOM Depreciation Expense 1,200 Accumulated Depreciation 1,200

EOM Accumulated Depreciation 1,200 Depreciation Expense 1,200

EOM Accumulated Depreciation 100 Depreciation Expense 100

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Question The proper journal entry to purchase a computer on account to be utilized within the business would be:

Answer Jan 2 Office Supplies 1,350 Accounts Payable 1,350

Jan 2 Office Equipment 1,350 Accounts Payable 1,350

Jan 2 Office Supplies 1,350 Accounts Receivable 1,350

Jan 2 Office Equipment 1,350 Accounts Receivable 1,350

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

Answer scrap value

trade in value

salvage value

net book value

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Question The formula for depreciable cost is

Answer initial cost + residual value

initial cost - residual value

initial cost - accumulated depreciation

depreciable cost = initial cost

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Question Expected useful life is

Answer calculated when the asset is sold.

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

determined each year that the depreciation calculation is made.

none of the answers are correct.

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

Answer initial cost / estimated useful life

depreciable cost / estimated useful life

depreciable cost * estimated useful life

initial cost * estimated useful life

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

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

(depreciable cost / yearly output) * estimated output

depreciable cost / yearly output

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

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

Answer $26,000

$24,800

$12,400

$13,000

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Question Which of the following is true?

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

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

If using the straight line method, the amount of depreciation expense during the first year is higher than that of the double-declining-balance.

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

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

Answer $25,000

$11,000

$24,000

$24,500

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

Answer $54,000

$59,500

$60,000

$60,500

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

Answer $54,000

$45,000

$51,000

$50,000

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

Answer $3,000

$4,500

$ 500

$1,500

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

Answer $2,000 loss

$1,500 loss

$3,500 gain

$2,000 gain

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Question The Bacon Company acquired new machinery with a price of $15,200 by trading in similar old machinery and paying $12,700. The old machinery originally cost $9,000 and had accumulated depreciation of $5,000. In recording this transaction, Bacon Company should record

Answer the new machinery at $16,700

the new machinery at $12,700

a gain of $1,500

a loss of $1,500

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Question When a company discards machinery that is fully depreciated, this transaction would be recorded with the following entry

Answer debit Accumulated Depreciation; credit Machinery

debit Machinery; credit Accumulated Depreciation

debit Cash; credit Accumulated Depreciation

debit Depreciation Expense; credit Accumulated Depreciation

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Question When a company sells machinery at a price equal to its book value, this transaction would be recorded with an entry that would include the following:

Answer debit Cash and Accumulated Depreciation; credit Machinery

debit Machinery; credit Cash and Accumulated Depreciation

debit Cash and Machinery; credit Accumulated Depreciation

debit Cash and Depreciation Expense; credit Accumulated Depreciation

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Question When a company exchanges machinery and receives a trade-in allowance greater than the book value, this transaction would be recorded with the following entry:

Answer debit Machinery and Accumulated Depreciation; credit Machinery, Cash, and Gain on Disposal

debit Machinery and Accumulated Depreciation; credit Machinery and Cash


debit Cash and Machinery; credit Accumulated Depreciation and Machinery

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Question When a company exchanges machinery and receives a trade-in allowance less than the book value, this transaction would be recorded with the following entry:

Answer debit Machinery and Accumulated Depreciation; credit Machinery and Cash


debit Cash and Machinery; credit Accumulated Depreciation and Machinery

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

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Question On December 31, Strike Company has decided to discard one of its batting cages. The initial cost of the equipment was $215,000 with an accumulated depreciation of $185,000. Depreciation has been taken up to the end of the year. The following will be included in the entry to record the disposal.

Answer Accumulated Depreciation Dr. $215,000

Loss on Disposal of Asset $185,000

Equipment Cr. $215,000

Gain on Disposal of Asset $30,000

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Question 120

Question On December 31, Strike Company has decided to sell one of its batting cages. The initial cost of the equipment was $215,000 with an accumulated depreciation of $185,000. Depreciation has been taken up to the end of the year. The company found a company that is willing to buy the equipment for $30,000. What is the amount of the gain or loss on this transaction?

Answer Gain of $30,000

Loss of $30,000

No gain or loss

Cannot be determined

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Answer Gain of $20,000

Loss of $10,000

No gain or loss

Cannot be determined

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Answer Cannot be determined

No gain or loss

Gain of $25,000

Gain of $55,000

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Question On December 31, Strike Company has decided to trade-in one of its batting cages for another one that has a cost of $500,000. The seller of the batting cage is willing to allow a trade-in amount of $40,000. The initial cost of the old equipment was $225,000 with an accumulated depreciation of $195,000. Depreciation has been taken up to the end of the year. The difference will be paid in cash. What is the amount of the gain or loss on this transaction?

Answer The gain will not be recognized and will be added to the price of the old equipment.

The gain will not be recognized and will be added to the price of the new equipment

The gain will not be recognized and will be subtracted from the price of the old equipment

The gain will not be recognized and will be subtracted from the price of the new equipment.

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Question On December 31, Strike Company has decided to trade-in one of its batting cages for another one that has a cost of $500,000. The seller of the batting cage is willing to allow a trade-in amount of $11,000. The initial cost of the old equipment was $215,000 with an accumulated depreciation of $185,000. Depreciation has been taken up to the end of the year. The difference will be paid in cash. What is the amount of the gain or loss on this transaction?

Answer Loss of $11,000

Gain of $11,000

Loss of $19,000

No loss or gain will be recorded.

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Question When a company replaces a component of property, plant and equipment, which statement below does not account for one of the steps to this process?

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

the asset cost of the replaced component is credited

any cost to remove the old component is charged to expense

the identifiable direct costs associated with the new component are capitalized

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Question The accumulated depletion account is

Answer an expense account

an intangible asset account

reported on the income statement as other expense

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

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Question The process of transferring the cost of metal ores and other minerals removed from the earth to an expense account is called

Answer depletion

deferral

amortization

depreciation

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Question 128

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

Answer $10,500

$43,200

$16,800

$20,000

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Question Expenditures for research and development are generally recorded as

Answer current operating expenses

assets and amortized over their estimated useful life

assets and amortized over 40 years

current assets

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Question The term applied to the amount of cost to transfer to expense resulting from a decline in the utility of intangible assets is

Answer amortization

depletion

depreciation

allocation

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Question Xtra Company purchased goodwill from Argus for $144,000. Argus had developed the goodwill over 6 years. How much would Xtra amortize the goodwill for its first year?

Answer $8,640

$24,000

Goodwill is not amortized.

Not enough information.

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Question Which intangible assets are amortized over their useful life?

Answer trademarks

goodwill

patents

all of the above

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Question The exclusive right to use a certain name or symbol is called a

Answer franchise

patent

trademark

copyright

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Question Fixed assets are ordinarily presented in the balance sheet

Answer at current market values

at replacement costs

at cost less accumulated depreciation

in a separate section along with intangible assets

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

Answer $10,929

$6,000

$10,500

$9,000

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Question 136 Essay 0 points Modify Remove

Question What is the cost of the land, based upon the following data? Land purchase price $178,000Broker's commission 15,000Payment for the demolition and removal of existing building 5,000Cash received from the sale of materials salvaged from the demolished building 2,000

Answer $196,000

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Question Comment on the validity of the following statements. "As an asset loses its ability to provide services, cash needs to be set aside to replace it. Depreciation accomplishes this goal."

Answer Depreciation is the periodic transfer of the cost of an asset to expense. Depreciation is a noncash expense. Depreciation does not accumulate cash for replacements.

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Question On April 15, Compton Co. paid $1,350 to upgrade a delivery truck and $45 for an oil change. Journalize the entries for the delivery truck and oil change expenditures.

Answer April 15 Delivery Truck 1,350

Cash 1,350

15Repairs and maintenance Exp 45

Cash 45

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

Answer (a) $42,000(b) 25%(c) $10,500

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Question In using this method, a double-declining balance rate is determined by doubling the straight-line rate. Assume that an asset has a useful life of 25 years, determine the rate to be used if using the double-declining balance method.

Answer 4% * 2 = 8%

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

Answer (a) $48,000(b) $0.048 per copy(c) $11,520 (240000*.048)

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Question A machine costing $57,000 with a 6-year life and $3,000 residual value was purchased January 2, 2009. Compute the yearly depreciation expense using straight-line depreciation.

Answer ($57,000 - $3,000) = $54,000 ÷ 6 years = $9,000 per year

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Question A machine costing $85,000 with a 5-year life and $5,000 residual value was purchased January 2, 2009. Compute depreciation for each of the five years, using the declining-balance method at twice the straight-line rate.

Answer (1) Year 1 $85,000 × .40 = $34,000(2) Year 2 $51,000 × .40 = $20,400(3) Year 3 $30,600 × .40 = $12,240(4) Year 4 $18,360 × .40 = $7,344(5) Year 5 $11,016 - 5,000 = $6,016

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

Answer (a) $60,000 (b) 40% (c) $25,200 ($63,000 * 40%)

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

Answer a) $5,500 b) $47,000 c) $22,500

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Question Equipment was acquired at the beginning of the year at a cost of $75,000. The equipment was depreciated using the straight-line method based upon an estimated useful life of 6 years and an estimated residual value of $7,500. a) What was the depreciation for the first year?b) Assuming the equipment was sold at the end of the second year for $59,000, determine the gain or loss on sale of the

equipment.c) Journalize the entry to record the sale.

Answer a) $11,250 b) $6,500 Gain c) Cash 59,000 Accumulated Depreciation 22,500 Equipment 75,000 Gain on Sale of Asset 6,500

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

Answer a)

b)

List price $52,000

Trade In 10,000

NBV of old cooler. 7,000

Unrealized gain 3,000

Cost of new truck $49,000

Equipment (new) 49,000 Accum. Depreciation 17,000 Equipment 24,000 Cash 42,000

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Question Solare Company acquired mineral rights for $60,000,000. The diamond deposit is estimated at 6,000,000 tons. During the current year, 2,300,000 were mined and sold. a. Determine the depletion rate.b. Determine the amount of depletion expense for the current year.c. Journalize the adjusting entry to recognize the depletion expense.

Answer a) $10 per tonb) $23,000,000c) Dec 31 Depletion Expense 23,000,000 Accumulated Depletion 23,000,000 Depletion of mineral deposit

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Question Falcon Company acquired an adjacent lot to construct a new warehouse, paying $30,000 and giving a short-term note for $370,000. Legal fees paid were $11,425, delinquent taxes assessed were $12,000, and fees paid to remove an old building from the land were $18,500. Materials salvaged from the demolition of the building were sold for $4,500. A contractor was paid $910,000 to construct a new warehouse. Determine the cost of the land to be reported on the balance sheet and show your work.

Answer Initial cost of land ($30,000 + $370,000) $400,000 Plus: Legal fees 11,425 Delinquent taxes 12,000 Demolition of building 18,500 41,925 $441,925 Less: Salvage of materials 4,500 Cost of land $437,425

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Question Convert each of the following estimates of useful life to a straight-line depreciation rate, stated as a percentage, assuming that the residual value of the fixed asset is to be ignored: (1) 2 years(2) 8 years(3) 10 years(4) 20 years(5) 25 years(6) 40 years(7) 50 years

Answer (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)

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Question Prior to adjustment at the end of the year, the balance in Trucks is $250,900 and the balance in Accumulated Depreciation-Trucks is $88,200. Details of the subsidiary ledger are as follows:

Truck No. Cost Estimated Residual Value

Estimated Useful Life Accumulated Depreciation at Beginning of Year

Miles Operated During Year

1 $100,000 $13,000 300,000 -- 30,000

Required:

2 72,900 9,900 300,000 $60,000 25,000

3 38,000 3,000 200,000 8,050 45,000

4 90,000 13,000 200,000 20,150 40,000

(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.

Answer (1)

Truck No. Rate per Mile Miles Operated Depreciation 1 29.0 cents 30,000 $8,7002 21.0 25,000 3,000*3 17.5 45,000 7,8754 38.5 40,000 15,400 Total 34,975 *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 34,975 Accumulated Depreciation—Trucks 34,975

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Question Champion Company purchased and installed carpet in its new general offices on March 30 for a total cost of $18,000. The carpet is estimated to have a 15-year useful life and no residual value. a. Prepare the journal entries necessary for recording the purchase of the new carpet. b. Record the December 31 adjusting entry for the partial-year depreciation expense for the carpet assuming that Champion

Company uses the straight-line method.

Answer a. Mar. 30 Carpet 18,000 Cash 18,000 b. Dec. 31 Depreciation Expense 900 Accumulated Depreciation 900 Carpet depreciation [($18,000/15 years) × 9/12].

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Question Equipment acquired on January 2, 2009 at a cost of $273,500 has an estimated useful life of eight years and an estimated residual value of $35,500. Required: (1) What was the annual amount of depreciation for the years 2009, 2010, and 2011, assuming the straight-line method of

depreciation is used? (2) What was the book value of the equipment on January 1, 2012? (3) Assuming that the equipment was sold on January 2, 2012, for $170,500, journalize the entry to record the sale. (4) Assuming that the equipment had been sold on January 2, 2012, for $189,000 instead of $168,500, journalize the entry

to record the sale.

Answer

(1) 2009 depreciation expense: $29,750 [($273,500 – $35,500)/8] 2010 depreciation expense: $29,750 2011 depreciation expense: $29,750 (2) $184,250 [$273,500 – ($29,750 × 3)]

(3) Cash 170,500 Accumulated Depreciation—Equipment 89,250 Loss on Disposal of Fixed Assets 13,750 Equipment 273,500 (4) Cash 189,000 Accumulated Depreciation—Equipment 89,250 Equipment 273,500 Gain on Disposal of Fixed Assets 4,750

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Question Chasteen Company acquired mineral rights for $13,600,000. The mineral deposit is estimated at 80,000,000 tons. During the current year, 13,750,000 tons were mined and sold. Required: (1) Determine the amount of depletion expense for the current year. (2) Journalize the adjusting entry to recognize the depletion expense.

Answer (1) $13,600,000/80,000,000 tons = $0.17 depletion per ton 13,750,000 × $0.17 = $2,337,500 depletion expense (2) Depletion Expense 2,337,500 Accumulated Depletion 2,337,500 Depletion of mineral deposit.

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

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

Answer (1) ($1,125,000/15) + ($90,000/12) = $82,500 total patent expense (2) Amortization Expense—Patents 82,500 Patents 82,500 Amortized patent rights ($75,000 + $7,500).

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Question The following information was taken from a recent annual report of Harrison Company:

Required:

2010 2009

Land and buildings $726 $361

Machinery, equipment, and internal-use software 595 470

Office furniture and equipment 94 81

Other fixed assets related to leases 760 569

Accumulated depreciation and amortization 894 644

(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): Current Preceding Year Year Land and buildings $726 $361 Machinery, equipment, and internal-use software 595 470 Office furniture and equipment 94 81 Other fixed assets related to leases 760 569 $2,175 $1,481 Less accumulated depreciation 894 644 Book value $1,281 $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.

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Question The following are two independent situations. 1. A tractor acquired on January 4 at a cost of $75,000 has an estimated useful life of 20 year. Assuming that it will have no

residual value, determine the depreciation for the tractor for each of the first two years, using the sum-of-the-years-digits depreciation method. Round to the nearest dollar.

2. A storage tank acquired at the beginning of fiscal year 2010 at a cost of $198,000, has an estimated residual value of

$18,000 and an estimated useful life of eight years. Based on this information, determine the depreciation for the storage tank for each of the first two years using the sum-of-the-years-digits depreciation method. Round to the nearest dollar.

Answer 1. First year: 20/210 × $75,000 = $7,143 Second year: 19/210 × $75,000 = $6,786 2. 2010: 8/36 × ($198,000 – $18,000) = $40,000 2011: 7/36 × ($198,000 – $18,000) = $35,000

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

Answer a. Depreciation Expense—Equipment 15,000 Accumulated Depreciation—Equipment 15,000 Equipment depreciation ($20,000 × 9/12). b. Accumulated Depreciation—Equipment 235,000 Equipment 458,000 Loss on Exchange of Fixed Assets 9,000 Equipment 336,000 Cash 366,000

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

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

Answer

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

(1) Dec 31 Loss from impaired Goodwill 80,000 Goodwill 80,000 (2) Dec 31 Amortization Expense - Patents 14,700 Patents 14,700

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Question Identify each of the following expenditures as chargeable to (a) Land, (b) Land Improvements, (c) Buildings, (d) Machinery and Equipment, or (e) other account. (1) Cost of paving parking area for employees and customers.(2) Insurance during construction of building.(3) Interest incurred on loan during construction of building.(4) Fee paid for installation of equipment.(5) Special foundation for new equipment acquired.(6) Insurance on new equipment while in transit.(7) Freight charges on new equipment.(8) Cost of repairing vandalism damage to equipment during installation.(9) Sales tax on new equipment.(10) Cost incurred in repairing damage resulting from installation of new equipment.(11) Cost of land fill for building site.(12) Cost of lubricating oil purchased for periodic oil changes for equipment.(13) Parking lot lighting.(14) Installing a fence around the parking lot.(15) Repainting the trim on a building.(16) Special assessment paid to city for extension of water main to property.(17) Cost of razing and removing the old building on property acquired for a building site.(18) Delinquent real estate taxes assumed by purchaser on property acquired for a building site.(19) Attorney's fee for title search.(20) Architect's fee for building plans and supervision of construction.

Answer (a) 11, 16, 17, 18, 19(b) 1, 13, 14(c) 2, 3, 20(d) 4, 5, 6, 7, 9(e) 8, 10, 12, 15

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Question Identify the following as a Fixed Asset (FA), or Intangible Asset (IA), or Natural Resource (NR), or Neither (N) (a) computer(b) patent(c) oil reserve(d) goodwill(e) U. S. Treasury note(f) land used for employee parking(g) gold mine

Answer FA (a) (f)IA (b) (d)NR (c) (g)N (e)

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Question A number of major structural repairs completed at the beginning of the current fiscal year at a cost of $1,000,000 are expected to extend the life of a building 10 years beyond the original estimate. The original cost of the building was $6,552,000, and it has been depreciated by the straight-line method for 25 years. Estimated residual value is negligible and has been ignored. The related accumulated depreciation account after the depreciation adjustment at the end of the preceding fiscal year is $4,550,000. (a) What has the amount of annual depreciation been in past years?(b) What was the original life estimate of the building?(c) To what account should the $1,000,000 be debited?(d) What is the book value of the building after the extraordinary repairs have been made?(e) What is the expected remaining life of the building after the extraordinary repairs have been made?(f) What is the amount of straight-line depreciation for the current year, assuming that the repairs were completed at the very

beginning of the current year? Round to the nearest dollar.

Answer (a) $182,000 ($4,550,000 ÷ 25)(b) 36 years ($6,552,000 ÷ $182,000)(c) Accumulated Depreciation - Building(d) $3,002,000 ($6,552,000 + $1,000,000 - $4,550,000)(e) 21 years (36 - 25 + 10)(f) $142,952 ($3,002,000 ÷ 21)

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Question Journalize each of the following transactions: (a) A wing costing $1,250,000 was added to the building. A new mortgage was issued for the cost.(b) Equipment was upgraded to increase its capacity to produce widgets. The upgrade cost of $13,000 was paid in

cash.(c) A major overhaul costing $7,000 on a machine increased the useful life by 2 years. The payment was made in

cash.

Answer (a) Building 1,250,000 Mortgage Payable 1,250,000 (b) Equipment 13,000 Cash 13,000 (c) Accumulated Depreciation-Machinery 7,000

Cash 7,000

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

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

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

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

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

(Round the answer to the nearest dollar.)

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

Answer 1st Year(a) $70,000 ($360,000 - 10,000) = 350,000 ÷ 5(b) $30,000 ($360,000 - 10,000) = ($350,000 ÷ 14,000 hours) = $25/hr × 1,200(c) $144,000 ($360,000 × .40) 2nd Year(a) $70,000 ($360,000 - 10,000) = 350,000 ÷ 5(b) $56,250 ($360,000 - 10,000) = ($350,000 ÷ 14,000 hours) = $25/hr × 2,250(c) $86,400 ($360,000 - 144,000) = 216,000 × .40

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

(Round the answer to the nearest dollar.)

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

Answer (a) $28,125 = ($240,000 - 15,000) = 225,000 ÷ 4 = 56,250 × 6/12(b) $60,000 = ($240,000 × .50) = $120,000 × 6/12(c) $14,400 = ($240,000 - 15,000) = ($225,000 ÷ 25,000 hours) = $9.00 × 1,600 hours

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Question Determine the depreciation, for the year of acquisition and for the following year, of a fixed asset acquired on October 1 for $500,000, with an estimated life of 5 years, and residual value of $50,000, using (a) the declining-balance method at twice the straight-line rate and (b) the straight-line method. Assume a fiscal year ending December 31.

Answer (a) Year of acquisition: $50,000 = (500,000 × .40) = 200,000 × 3/12) Following year: $180,000 = ($500,000 - 50,000) = 450,000 × .40(b) Year of acquisition: $22,500 = ($500,000 - 50,000) = (450,000 ÷ 5) = 90,000 × 3/12 Following year: $90,000 = ($500,000 - 50,000) = 450,000 ÷ 5

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Question Equipment costing $80,000 with a useful life of 10 years and a residual value of $8,000 has been depreciated for 6 years by the straight-line method. Assume a fiscal year ending December 31. (a) What is the book value at the end of the fifth year of use?(b) If early in the seventh year it is estimated that the remaining useful life is 5 years (instead of 4) and the residual value

is still $8,000, what is the amount of depreciation for the seventh year?

Answer (a) $36,800 ($80,000 - (80,000 - 8,000 = 72,000/10 = 7,200 × 6 = 43,200 ))(b) $5,760 ($36,800 - 8,000) ÷ 5

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

(b) Write the journal entries for each year of the service life for these assets with 200% declining balance method.

Answer (a)

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

Acquisition cost $135,000

Less residual value 10,000

Depreciable value $125,000

Divided by service life 4 years

Annual depreciation $31,250

Dec 31 Depreciation Expense Sales Equipment 31,250 Accumulated Depreciation - Sales Equipment 31,250

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

1st year, Dec 31 Depreciation Expense - Sales Equipment 67,500 Accumulated Depreciation - Sales Equipment 67,500

2nd year, Dec 31 Depreciation Expense - Sales Equipment 33,750 Accumulated Depreciation - Sales Equipment 33,750

3rd year, Dec 31 Depreciation Expense - Sales Equipment 16,875 Accumulated Depreciation - Sales Equipment 16,875

4th year, Dec 31 Depreciation Expense - Sales Equipment 6,875 Accumulated Depreciation - Sales Equipment 6,875

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Question On July 1st, Harding Construction purchases a bulldozer for $330,000. The equipment has a 9 year life with a residual value of $15,000. Harding uses straight-line depreciation. (a) Calculate the depreciation expense and provide the journal entry for the first year ending December 31st. (b) Calculate the third year and provide the journal entry for the third year ending December 31st. (c) Calculate the last year’s depreciation expense and provide the journal entry for the last year.

Answer Annual depreciation is:

(a) First year depreciation is $35,000 × (6/12) = $17,500 (July through December)

(b) Journal entry for the third year. (It is also the same for all years other than the first and last year):

(c) Last year depreciation is $35,000 × (6/12) = $17,500 (January through June)



Depreciable amount 315,000

Divided by service life in years 9

Annual depreciation $35,000

Dec 31st Depreciation Expense 17,500 Accumulated Depreciation 17,500



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Question On July 1st, Hartford Construction purchases a bulldozer for $330,000. The equipment has a 9 year life with a residual value of $15,000. Hartford uses units-of-production method depreciation and the bulldozer is expected to yield 22,500 operating hours. (a) Calculate the depreciation expense per hour of operation. (b) The bulldozer is operated 1,250 hours in the first year, 2,755 hours in the second year, and 1,225 hours in the third year of operations. Journalize the depreciation expense for each year.

Answer (a) Hourly depreciation is:

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

Second year - 2,755 hours × $14 per hour = $38,570

Third year - 1,225 hours × $14 per hour = $17,150



Depreciable amount 315,000

Service life in hours 22,500

Hourly depreciation $14

1st year Depreciation Expense 17,500 Accumulated Depreciation 17,500

2nd year Depreciation Expense 38,570 Accumulated Depreciation 38,570

3rd year Depreciation Expense 17,150 Accumulated Depreciation 17,150

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

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

Architects’ Fees $25,000Construction Labor 80,000Engineers’ Fees 15,000Fences around building 9,000Grading and leveling 10,000Insurance costs incurred during construction 7,000Interest on money borrowed for construction 5,000Land 37,000Building Materials 237,000 Sales Taxes 6,000Trees and Shrubs 6,000

Answer Architects’ Fees $25,000Construction Labor 80,000Engineers’ Fees 15,000Insurance costs incurred during construction 7,000Interest on money borrowed for construction 5,000Building Materials 237,000 Sales Taxes 6,000 Cost of Club House $375,000

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

Answer

b. Declining Balance Method = $705

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

Book Value at Depreciation Year Cost Beginning of Year Rate for Year 1 1,410 1,410 50%* 705

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

c. Units-of-production = (cost-residual value) / estimated copies Units-of-production = (1,410-75)/13,350 Units-of-production = $0.10 per copy

First year depreciation = $450.00 ($.10 × 4,500)

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Question A copy machine acquired on March 1, 2009 with a cost of $1,410 has an estimated useful life of 3 years. Assuming that it will have a residual value of $150, determine the depreciation for the first and second year by the straight-line method.

Answer Straight-line depreciation = (cost-estimated residual value)/ estimated life Straight-line depreciation = (705-75)/3 Straight-line depreciation = $420 per year First year = 350 (420 / 12months * 10) Second year = 420

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Question A copy machine acquired on March 1, 2009 with a cost of $705 has an estimated useful life of 4 years. Assuming that it will have a residual value of $125, determine the depreciation for the first year by the declining-balance method.

Answer First year depreciation = $293.75 [352.50 x (10 /12)]

Book Value at Depreciation Year Cost Beginning of Year Rate for Year 1 705 705 50%* 352.50

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

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Question Computer equipment (office equipment) purchased 6 1/2 years ago for $170,000, with an estimated life of 8 years and a residual value of $10,000, is now sold for $60,000 cash. (Appropriate entries for depreciation had been made for the first six years of use.) Journalize the following entries: (a) Record the depreciation for the one-half year prior to the sale, using the straight-line method.(b) Record the sale of the equipment.(c) Assuming that the equipment had been sold for $25,000 cash, prepare the entry for (b) above to record the sale.

Answer (a) Depreciation Expense-Office Equipment 10,000 Accumulated Depreciation-Office Equipment 10,000 (b) Cash 60,000 Accumulated Depreciation-Office Equipment 130,000 Office Equipment 170,000 Gain on Sale of Fixed Assets 20,000

(c) Cash 25,000 Accumulated Depreciation-Office Equipment 130,000 Loss on Disposal of Fixed Assets 15,000 Office Equipment 170,000

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Question Machinery acquired at a cost of $80,000 and on which there is accumulated depreciation of $50,000 (including depreciation for the current year to date) is exchanged for similar machinery. For financial reporting purposes, present entries to record the disposition of the old machinery and the acquisition of new machinery under each of the following assumptions: (a) Price of new, $115,000; trade-in allowance on old, $4,000; balance paid in cash.(b) Price of new, $115,000; trade-in allowance on old, $34,000; balance paid in cash.

Answer (a) Accumulated Depreciation-Machinery 50,000 Machinery 115,000 Loss on Disposal of Fixed Assets 26,000 Machinery 80,000 Cash 111,000 (b) Accumulated Depreciation-Machinery 50,000 Machinery 111,000 Machinery 80,000 Cash 81,000

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Question Equipment acquired at a cost of $126,000 and a book value of $42,000. Journalize the disposal of the equipment under the following independent assumptions.

Journal

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.

Date

Description

Post Ref Debit

Credit

Answer

Journal

Date

Description

Post Ref Debit

Credit

a. Loss on Disposal of Fixed Asset 42,000

Accumulated Depreciation - Equip 84,000

Equipment 126,000

b. Cash 54,000


Equipment 126,000

Gain on Disposal of Fixed Asset 12,000

c. Cash 24,000


Loss on Disposal of Fixed Asset 18,000

Equipment 126,000

d. Equipment (new Equipment) 42,000


Equipment (old equipment) 126,000

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Question Prepare the following journal entries and calculations: (a) A patent that was acquired for $410,000 at the beginning of the current year expires in 15 years and is expected to have value

for 4 years. Present the adjusting entry to amortize the patent for the current year.(b) Mineral rights on an ore deposit estimated at 4,000,000 tons of ore were acquired for $2,800,000. Present the adjusting entry

to record depletion for the current year, during which 350,000 tons of ore were removed.(c) Legal costs incurred to defend the rights that a patent provided 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.

Answer (a) Amortization Expense-Patents 102,500 Patents 102,500 ($410,000 ÷ 4) (b) Depletion Expense 245,000 Accumulated Depletion 245,000 (350,000 × $.70) (c) $4,000 ($60,000 ÷ 15)

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

Journal

Date

Description

Post Ref Debit

Credit

Answer

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

Journal

Date

Description

Post Ref Debit

Credit

Dec 31 Depletion Expense 600,000*

Accumulated Depletion 600,000

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

Journal

Date

Description

Post Ref Debit

Credit

Answer Journal

Date

Description

Post Ref Debit

Credit

Dec 31 Amortization Expense 2,500

Patents 2,500

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

Answer a)

b)

Loss from Impaired Goodwill 65,000

Goodwill 65,000

Amortization Expense - Patents 3,000

Patents 3,000

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Question Computer equipment was acquired at the beginning of the year at a cost of $66,000 that has an estimated residual value of $3,000 and an estimated useful life of 5 years. Determine the depreciation expense for the five years using the sum-of-the-years-digits depreciation method.

Answer Year 1 (63,000*5/15) 21,000Year 2 (63,000*4/15) 16,800Year 3 (63,000*3/15) 12,600Year 4 (63,000*2/15) 8,400Year 5 (63,000*1/15) 4,200

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fixed assets and intangible assets test bank

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