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Exam 7: Long-Term Assets

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Question 31

True/False

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A patent is an exclusive right to a published work such as a song, film, or painting.

A) True
B) False

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Question 32

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The depreciable cost used in calculating depreciation expense is:

A) Its service life.
B) The amount allowable under tax depreciation methods.
C) The difference between its replacement value and cost.
D) The asset's cost minus its estimated residual value.

E) B) and C)
F) All of the above

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Question 33

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Listed below are five terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the best term placing the number designating the term in the space provided.

A copyright is an exclusive right of protection given to the creator of a published work such as a song, film, painting, photograph, book, or computer software.

When a change in estimate is required, the company changes depreciation in prior, current and future years.

Holiday Laboratories purchased a high speed industrial centrifuge at a cost of $420,000. Shipping costs totaled $15,000. Foundation work to house the centrifuge cost $8,000. An additional water line had to be run to the equipment at a cost of $3,000. Labor and testing costs totaled $6,000. Materials used up in testing cost $3,000. What is the total cost of the equipment? How much of this amount should be expensed immediately?

The return on assets is equal to the:

Career Services, Incorporated sold some office equipment for $52,000 on December 31, 2012. The journal entry to record the sale would include which of the following if the original cost of the equipment was $80,000 with a residual value of $5,000 and a useful life of 10 years? Assume the machine was purchased on January 1, 2009 and depreciated using the straight-line method.

The balance sheet of Hidden Valley Farms reports total assets of $450,000 and $550,000 at the beginning and end of the year, respectively. Net income and sales for the year are $100,000 and $800,000, respectively. What is Hidden Valley's asset turnover?

We capitalize repairs and maintenance expenditures because they maintain a given level of benefits.

Taking a "big bath" is recording all losses in one year to make a bad year even worse.

Bad Brads BBQ purchased a piece of equipment by paying $5,000 cash. They also incurred a shipping cost of $400 to get the equipment to its factory. The fair value of this equipment is $7,000. For what amount should Bad Brads BBQ record the equipment?

Western Wholesale Foods incurs the following expenditures during the current fiscal year: (1) Salaries for the repair technicians, $155,000; (2) remodeling of the executive offices, $84,000; (3) annual maintenance costs related to its machinery, $72,900; (4) improvement of the production line resulting in an increase in productivity, $38,000; and (5) addition of a sprinkler system to the manufacturing facility to reduce the risk of fire damage, $35,000. How should Western account for each of these expenditures?

Nanki Corporation purchased equipment at the beginning of 2012 for $650,000. In 2012 and 2013, Nanki depreciated the asset on a straight-line basis with an estimated useful life of 8 years and a $10,000 residual value. In 2014, due to changes in technology, Nanki revised the useful life to a total of six years (four more years) with zero residual value. What depreciation expense would Nanki record for the year 2014 on this equipment?

Stephan's Resorts purchased equipment for $40,000. Residual value at the end of an estimated four-year service life is expected to be $8,000. The machine operated for 2,200 hours in the first year and the company expects the machine to operate for a total of 10,000 hours over its four year life. Calculate depreciation expense for the first year using each of the following depreciation methods: (1) straight-line, (2) double-declining-balance, and (3) activity-based.

Taco Hut purchased equipment on May 1, 2012, for $15,000. Residual value at the end of an estimated 8 year service life is expected to be $3,000. Calculate depreciation expense using the straight-line method for 2012 and 2013, assuming a December 31 year-end.

Intangible assets with an indefinite useful life (goodwill and most trademarks) are not amortized.

Alliance Products purchased equipment that cost $120,000. It had an estimated useful life of four years and no residual value. The equipment was depreciated by the straight-line method and was sold at the end of the third year of use for $25,000 cash. Alliance should record:

On July 1, 2012, Landon Co. purchased a $500,000 tract of land that is intended to be the site of a new office complex. Landon incurred additional costs and realized salvage proceeds during 2012 as follows: $\begin{array} { l r } \text { Demolition of existing building on site } & \$ 75,000 \\\text { Legal and other fees to close escrow } & 15,000 \\\text { Proceeds from sale of demolition scrap } & 10,000\end{array}$ What would be the capitalized cost of the land?

We record goodwill as an intangible asset in the balance sheet only when we purchase it as part of the acquisition of another company.