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Exam 8: Reporting and Interpreting Property,plant,and Equipment;intangibles;and Natural Resources

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Question 51

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Lue Company sold used equipment for $450,000 cash.The equipment was purchased 5 years ago for a cost of $800,000.It has been depreciated using the straight-line method over an estimated useful life of 10 years with an estimated residual value of $50,000. Prepare the journal entry at the end of year five for the asset's disposal assuming the fifth year's depreciation had been recorded.

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*[($800,0...

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Question 52

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Goodwill is recorded only when an existing company is bought by another company and the purchase price exceeds the fair value of the purchased company's net assets.

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Question 53

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Which of the following is correct regarding gain or loss on disposal of a long-lived asset?

The land cost initially reported on the balance sheet may include legal fees and title insurance.

A company has some bottling equipment which cost $8.5 million,has a net book value of $4.1 million,estimated future cash flows of $3.7 million,and a fair value of $3.1 million. How much is the asset impairment loss?

Barkley Company has a piece of equipment that it has been depreciating for 3 years.The equipment originally was estimated to have a useful life of 8 years and at the beginning of the current year,Barkley determines that the equipment's life has been extended to 10 years.When Barkley calculates depreciation for the current year,how many years of life should be used to calculate the depreciation expense?

Smith Company exchanges assets to acquire a building.The market price of the Smith stock on the exchange date was $35 per share and the building's book value on the books of the seller was $250,000. Which of the following journal entries is correct for Smith Company when Smith issues 10,000 shares of $10 par value common stock and pays $20,000 cash in exchange for the building?

Which of the following best describes the objective of depreciation?

If a long-lived asset has been impaired,the journal entry will require a debit to a loss account and a credit to the long-lived asset account.

In most cases,the depreciation method chosen for financial reporting purposes (GAAP)must also be utilized for income tax reporting (IRS).

Benson Mining Company purchased a site containing a mineral deposit during 2019.The purchase price was $820,000,and the site is estimated to contain 400,000 tons of extractable ore.Benson constructed a building at the site,at a cost of $500,000,to be used while the ore is being extracted.When the ore reserves are gone,the building will have no further value. A.Explain the objective of recording depletion of natural resources. B.Determine Benson's depletion rate per ton of ore. C.Prepare the journal entry to record depletion for the year 2019,when Benson mined and sold 150,000 tons of ore. D.Prepare the journal entry to record depreciation on the building for 2019.Benson calculates depreciation on the building using the units-of-production method based on the amount of ore extracted (150,000 tons in 2019).

Which of the following statements is correct?

On January 1,2017,Gordon Company purchased a patent for $420,000 from an inventor who had developed a new manufacturing process.At the time of the purchase,the patent had a remaining useful life of 10 years. A.Prepare the journal entry to record Gordon's purchase of the patent. B.Prepare the journal entry to record amortization of the patent on December 31,2017. C.At the end of 2020,after amortization had been recorded through December 31,2020,Gordon concluded that the estimated future cash flows from the patent to be $250,000.The patent's estimated fair value on December 31,2020 was $200,000.Prepare the journal entry to record the patent impairment,if necessary.

Sadler Corporation purchased equipment to be used in manufacturing.The purchase was made at the beginning of 2018 by paying cash of $150,000.The equipment has an estimated residual value of $10,000 and an expected useful life of 10 years.At the beginning of 2020,Sadler concluded that the total useful life of the equipment will be 8 years rather than 10,and that the residual value will be zero.Sadler uses the straight-line method for depreciation. A.Prepare the journal entry to record depreciation on the equipment for 2019. B.Prepare the journal entry to record depreciation on the equipment for 2020,including the effect of the changes in estimates. C.Describe how and when a business should account for a change in the estimated useful life and/or residual value of a depreciable asset.

Under GAAP,research and development costs are capitalized once a product or process has been developed.

Which of the following accounts would not be considered a tangible asset?

Schager Company purchased a computer system on January 1,2019,at a cash cost of $25,000.The estimated useful life is 10 years,and the estimated residual value is $3,000.The company will use the double declining-balance depreciation method. How much is the 2020 depreciation expense?

Hi-Crest Company purchased a machine on January 1,2019,for $300,000.The machine has an estimated useful life of 5 years and a $10,000 residual value. Calculate depreciation expense and the year-end book value for 2019 and 2020 using the double declining-balance method of depreciation.

Failure to record amortization expense on a patent during the current year will result in which of the following?

Operating leases