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Exam 7: Long-Term Assets

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Question 51

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The Accumulated Depreciation account allows us to reduce the carrying value of assets through depreciation, while maintaining the original cost of each asset in the accounting records.

A) True
B) False

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Question 52

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Strawberry Fields purchased a tractor at a cost of $38,000 and sold it two years later for $25,000. Strawberry Fields recorded depreciation using the straight-line method, a five-year service life, and an $8,000 residual value. What was the gain or loss on the sale? Record the sale.

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* ($38,000 - $8,000...

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Question 53

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The Bomb Pop Corporation sold ice cream equipment for $16,000. They originally purchased the equipment for $40,000, and depreciation through the date of sale totaled $25,000. What was the gain or loss on the sale of the equipment? Record the sale of the equipment.

Shasta Exploring purchases a piece of equipment on January 1, 2012, for $50,000 and the equipment has an expected useful life of five years. Its residual value is estimated to be $4,000. Assuming Shasta uses the double-declining balance depreciation method, what is the depreciation expense for the equipment for 2013?

Straight-line, declining-balance, and activity-based depreciation all are acceptable depreciation methods for both financial reporting and tax reporting.

An exclusive 20-year right to manufacture a product or to use a process is a:

Using the double-declining balance method, depreciation expense for 2012 would be:

If a firm successfully defends an intangible right, it should expense the litigation costs as incurred.

Research and development costs should be:

In 2012, Sam's Salads had the following expenditures related to developing its trademark. $\begin{array}{lr}\text { General advertising costs } & \$ 300,000 \\\text { Advertising specifically focused on trademark development } & 120,000 \\\text { Legal fees to register trademark } & 52,000 \\\text { Registration and design fees for the trademark } & 38,000 \\\text { Legal fees for successful defense of the new trademark } & 33,000\\\text { Total }&\$543,000\end{array}$ During your year-end review of the accounts related to intangibles, you discover that the company has capitalized all the above as costs of the trademark. Management contends that all of the costs increase the value of the trademark; therefore, all the costs should be capitalized. 1. Which of the above costs should Sam's capitalize to the Trademark account in the balance sheet? 2. Which of the above costs should Sam's report as expense in the income statement?

We record a long-term asset at its cost less all expenditures necessary to get the asset ready for use.

The CEO, as head of the company, is ultimately responsible for the firm's accounting.

Productive assets that are physically used up, or depleted are:

The replacement of a major component increased the productive capacity of equipment from 10 units per hour to 18 units per hour. The expenditure for the replacement component should be debited to:

New World Deli exchanged land for a more suitable parcel of land to be used for a new restaurant. New World Deli reported the old land at its original cost of $85,000. According to an independent appraisal, the old land currently is worth $110,000. New World Deli paid $15,000 in cash to complete the transaction. Record the exchange.

Capitalized interest refers to interest costs we add to the asset account rather than recording as interest expense.

Northwest Catering owns and operates several restaurant services in Oregon, Washington, and Idaho. One restaurant chain has experienced sharply declining profits. The company's management has decided to test the operational assets of the restaurants for possible impairment. The relevant information for these assets is presented below: Book value                                     $\$ 4.5$ million estimated total future cash flows       $5.0$ million Fair value                                               $3.5$ million Determine the amount of the impairment loss, if any.

The acquiring company records goodwill equal to the purchase price less the book value of the net assets acquired.

The factors used to compute depreciation expense are an asset's:

Capital Construction purchased a 3-acre tract of land for a building site for $350,000. The company demolished the old building at a cost of $12,000, but was able to sell scrap from the building for $1,500. The cost of title insurance was $900 and attorney fees for reviewing the contract was $500. Property taxes paid were $3,000, of which $250 covered the period after the purchase date. The capitalized cost of the land is: