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Exam 7: Plant Assets, Natural Resources, Intangibles

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Question 41

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State the general rule that is used to determine whether costs relating to plant assets should be capitalized or expensed.

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General rule: Capitalize all costs that ...

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Question 42

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For each of the following scenarios, use the two step approach to determine whether a long-term asset has been impaired and, if so, the amount of loss that should be recorded. a. Equipment Net book value: $450,000 Estimated future cash flows: $400,000 Fair value: $425,000 b. Patent Net book value: $650,000 Estimated future cash flows: $750,000 Fair value: $700,000

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a. Step 1: Test the asset for impairment...

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Question 43

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When compared to the accelerated depreciation methods, the use of the straight-line method increases a company's tax liability.

Which of the following should be included in the cost of land improvements?

At the beginning of the year, the balance in the Buildings account was $1,200,000. At the end of the year, the balance in the Buildings account was $2,100,000. During the year, a building was purchased for $1,400,000. This was the only purchase of buildings during the year. What was the cost of the building or buildings sold during the year?

On January 2, 2016, Helmkamp Company purchased a $20,000 machine. It had an estimated useful life of 5 years and a residual value of $2000. What is the amount of depreciation expense for 2017, the second year of the asset's life, using the double declining-balance method? (Round intermediary calculations to two decimal places and your final answer to the nearest dollar.)

The Manson Company purchased assets for a lump-sum price of $1,000,000. An appraisal indicates the following market prices: Equipment $560,000 Land $210,000 Building $630,000 Prepare the appropriate journal entry if Manson Company paid cash for this transaction.

Willis Company trades in a printing press for a newer model. The cost of the old printing press was $61,000, and accumulated depreciation up to the date of the trade-in is $44,000. The company also pays $42,000 cash for the newer printing press. The fair market value of the newer printing press is $72,000. The journal entry to acquire the new printing press will require a debit to Printing Press for:

When plant assets are exchanged, the gain or loss on the exchange equals:

If a company capitalizes a cost that should have been expensed:

A lump-sum purchase of multiple, long-term plant assets requires the company to:

1. On June 1, 2017, Fox Company purchased Wolf Corporation for $26,000,000 cash. At the time of the purchase, the market value of Wolf Corporation's assets and liabilities were $30,000,000 and $5,000,000, respectively. The book value of Wolf Corporation's assets and liabilities were $10,000,000 and $6,000,000, respectively. Record the journal entry for the acquisition by Fox Company. 2. By December 31, 2017, Fox Company discovered that the goodwill associated with Wolf Corporation is impaired and is worthless. Wolf Corporation is on the brink of bankruptcy. Record the journal entry needed by Fox Company.

If a natural resource is extracted and not sold, which of the following accounts are debited and credited?

The Loss on Disposal of Equipment account is reported as Other income (expense)on the income statement.

To account for the disposal of a plant asset, the cost of the asset and its related accumulated depreciation are removed from the books.

A company incurred the following costs for a new delivery truck: What is the cost of the delivery truck?

The depreciation process follows the ________ principle.

The depreciation process follows the revenue recognition principle.

For each of the following, match the intangible asset with its definition.

Carrie Heffernan Company purchased a delivery van on January 1, 2016, for $50,000. The van was expected to remain in service 4 years (or 100,000 miles)and has a residual value of $5,000. The van traveled 30,000 miles the first year, 25,000 miles the second year, and 22,500 miles in the third and fourth years. Required: 1. Prepare a schedule of depreciation expense per year for the first four years of the asset's life using the (a)straight-line method, (b)units-of-production method, and (c)double-declining-balance method. 2. Prepare a schedule of the book value of the van for each of the four years using the (a)straight-line method, (b)units-of-production method and (c)double-declining-balance method.