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Exam 9: Fixed Assets and Intangible Assets

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Question 81

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A copy machine acquired on May 1 with a cost of $2,545 has an estimated useful life of 3 years.Assuming that it will have a residual value of $445,determine the depreciation for the first and second year by the straight-line method.Round your answers to the nearest whole dollar.

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Straight­line depreciation = cost estima...

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Question 82

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

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B) False

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Question 83

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

On July 1,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 31. b Calculate the third year's depreciation expense and provide the journal entry for the third year ending December 31. c Calculate the last year's depreciation expense and provide the journal entry for the last year.

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

On December 31,Bowman Company estimated that goodwill of $80,000 was impaired.A patent with an estimated useful economic life of 10 years was acquired for $252,000. 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.

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

For each of the following fixed assets,determine the depreciation expense for Year 3: Disposal date is N/A if asset is still in use. Method: SL = straight line; DDB = double declining balance Assume the estimated life is 5 years for each asset. $\begin{array}{|l|c|c|c|c|c|c|}\hline & & & & & & \\\text { Item } & \text { Cost } & \begin{array}{c}\text { Residual } \\\text { Value }\end{array} & \text { Purchase Date } & \text { Disposal Date } & \begin{array}{c}\text { Depr. } \\\text { Method }\end{array} & \begin{array}{c}\text { Depr. } \\\text { Expense } \\\text { Year 3 }\end{array} \\\hline \text { A } & \$ 40,000 & \$ 4,000 & \text { July 1, Year 3 } & \text { N/A } & \text { SL } & \\\hline \text { B } & \$ 50,000 & \$ 5,000 & \text { Jan. 1,Year 1 } & \text { Aug. 31,Year 3 } & \text { SL } & \\\hline \text { C } & \$ 60,000 & \$ 2,000 & \text { Oct. 1, Year 3 } & \text { N/A } & \text { DDB } & \\\hline \text { D } & \$ 80,000 & \$ 10,000 & \text { Jan. 1, Year 2 } & \text { April 1,Year 3 } & \text { DDB } & \\\hline\end{array}$

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

Eagle Country Club has acquired a lot to construct a clubhouse.Eagle had the following costs related to the construction: $\begin{array}{l}\begin{array}{lll}\text { Architects' fees } \\\text { Construction labor } \\\text { Engineers' fees } \\\text { Fences around building } \\\text { Grading and leveling } \\\text { Insurance costs incurred during construction } \\\text { Interest on money borrowed for construction } \\\text { Land } \\\text { Building Materials } \\\text { Sales taxes } \\\text { Trees and shrubs }\end{array}\begin{array}{r}\$ 45,000 \\80,000\\15,000\\9,000\\10,000\\7,000\\5,000\\73,000\\237,000\\6000\\6000\\\end{array}\end{array}$ Determine the cost of the club house to be reported on the balance sheet.

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

Accumulated Depreciation

On June 1,Scotter 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 or 30,000 hours. Using straight-line depreciation,calculate depreciation expense for the first year.

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

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.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.The buyer gave no cash in the exchange.The transaction lacks commercial substance. $\begin{array}{|l|c|c|c|c|}\hline\text { Date } & {\text { Description }} & \begin{array}{c}\text { Post. } \\\text { Ref. }\end{array} & \text { Debit } & \text { Credit } \\\hline \\\hline \\\hline \\\hline & & & &\\\hline \\\hline \\\hline \\\hline \\\hline & & & & \\\hline \\\hline \\\hline \\\hline \\\hline & & & &\\\hline \\\hline \\\hline \\\hline\end{array}$

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.

Sands Company purchased mining rights for $500,000.They expect to harvest 1 million tons of ore over the next five years.During the current year,Sands mined 350,000 tons of ore.The entry to record the depletion would include

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

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

On July 1,Hartford Construction purchases a bulldozer for $228,000.The equipment has a 9-year life with a residual value of $16,000.Hartford uses the units-of-output 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.