ACCT 101 Module 5 Chapter 8

A delivery van that cost $45,000 with accumulated depreciation of $15,000 is sold for $20,000. How much gain or loss will be recognized on this sale?

$10000 loss 45000-15000 = 30000 30000-20000 = 10000

Ion Co. purchased land for $190,000. Ion also paid $5000 in brokerage fees, $1000 in legal fees, and $500 in title costs. The recorded cost of this land should be:

$196500

Alin Co. purchases a building for $3000000 and pays an additional $30,000 for closing costs (brokerage, title, attorney fees). Alin also pays $20,000 in renovations, including painting, carpet, lighting, etc. Alin should record the cost of the building at:

$350,000

A company acquires a patent for $20000 to manufacture and sell an item. The company intends to hold the patent for 5 years. Amortization for the first year will be recorded with a debit to Amortization expense for __________.

$4000 (20000/5 years)

Juno Co. purchased a machine for $10,000 and estimates it will use the machine for four years with a $2000 salvage value. Using the double declining-balance depreciation method, compute the machine's first year depreciation expense.

$5000 $10,000 x (.25 x 2) = $5,000

Nimo purchased a machine for $12000 and estimates it will use the machine for five years with a $2000 salvage value. Using the double declining-balance depreciation method, compute the machine's first year depreciation expense.

(100%/5 x 2) = .4% 12000 x .4 = 4800 for the first year 4800

Double-Declining-Balance Depreciation Formula

1. Compute the asset's straight-line depreciation rate 2. Double the straight-line rate 3. Compute depreciation by multiplying this rate by the asset's beginning of period book value

Units of Production depreciation Formula

1. Rate per unit or hour (Cost - Salvage value) / Estimated units or hours 2) Depreciation XP (Rate per unit/hr) x (# units/hrs) A variable cost

Ironworks Co. sells a machine that cost $5000 with a current book value of $1500 for $2000 cash. Ironworks will record a debit to which account and for how much?

Accumulated Depreciation - Equipment for $3500

Decline in asset value over its useful life

Acquisition - 1. Compute Cost Use - 2. Allocate cost to periods benefited Use - 3. Account for subsequent expenditures. Disposal - 4. Record Disposal

Land Improvements

Additions to land and have limited useful lives. Ex: Parking lot surfaces, driveways, walkways, fences, landscaping, etc.

No gain or loss recognized

Book value is equal to the selling price

Loss on sale of asset

Book value is greater than the selling price

Gain on sale of asset

Book value is less than the selling price

Units of Productions deprecation

Charges a varying amount to expense for each period of an asset's useful life depending on its usage.

A company sells a machine that costs $7000 for $500 cash. The machine had $6500 accumulated depreciation. The entry to record this transaction will include which of the following entries?

Credit to Machinery for $7000 Debit to Accumulated Depreciation - Machinery for $6500 Debit to Cash for $500

Patent purchased for $20,000 expected to be used for the 20 year life with no salvage value. What would the entry to expense be for the patent's second year of life?

Debit to Amortization expense $1000 Credit to Accumulated Amortization $1000

Disposal of plant assets

Discarding, sale, or exchange.

Patent

Exclusive right granted to its owner to manufacture and sell an item or use a process for 20 years.

True or false: The cost of plant assets should include ALL of the normal and reasonable expenditures necessary to get the asset in place and ready of its intended use, including repairs to damages incurred after installation.

False, costs should include repairs to damages or errors incurred after installation.

Which of the following intangible assets is not amortized using straight-line amortization?

Goodwill

Amortization expense is recorded on the ___________ financial statement

Income statement

Briar Co. disposed of a piece of equipment that cost $6000 whih accumulated depreciation of $4500. The entry to record this disposal would include a debit to which account and for how much?

Loss on Disposal of Equipment for $1500

Which of the following assets are tangible?

Mineral deposit Copy machine

Types of Intangibles

Patents Copyrights Trademarks Trade Names (Brand Names) Goodwill Leaseholds Operating Lease or Capital Lease Sublease

Amortiziation

Process of allocating the cost of an intangible asset to expense over its estimated useful life. Similar to depreciation and depletion but only straight-line method is used for amortizing intangibles unless the company can show another method is preferred.

Plant assets should be recorded at cost, including all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use. This would include which of the following costs?

Testing Assembling Shipping charges

Lump-Sum purchase

The purchase of multiple plant assets for one purchase price

The ______ life (also called service life) is the length of time the asset is productively used in a company's operations.

Useful

Discarding of a plant asset

When it is no longer useful to the company and has no market value. The asset is full depreciated, or zero book value. Ex: Machine costing $9000 with accumulated depreciation of $9000 is discarded.

Salvage value

also known as residual value or scrap value Estimate of the asset's value at the end of its benefit period. The amount the owner expects to receive from disposing of the asset at the end of its benefit period. If the asset is expected to be traded in on a new asset, its salvage value is the expected trade-in value.

Straight-line depreciation

cost - salvage value / useful life in periods

Intangible assets, such as goodwill, continue indfintiedly into the future and are not amortized. The value of these assets are tested annual for________

impairment

Accelerated depreciation method

method that produces higher depreciation expense in early years than the straight line approach

Plant Assets

tangible assets used in a company's operations that have a useful life of more than one accounting period. Also called plants and equipment; property, plant and equipment (PP&E); or fixed assets. Plant assets make up the single largest class of assets they own.

On January 2, Dice Co. purchases a mixing machine for $25,500. The machine is expected to last four years and have a salvage value of $5500. Assuming the company uses the straight-line method, depreciation expense should be _________ per year.

$5000 (25500-5500)/4=5000

Straight line depreciation is calculated by taking cost minus __________ value divided by useful life.

Salvage

Useful life

The length of time a plant asset is productively used in a company's operations. Also known as service life, might not be as long as the asset's total productive life. Ex: Computers normally have a 8 year life, but some companies trade in old computers for new ones every two years. This gives the computers a two-year useful life. Cost of these computers is charged to depreciation expense over a two year period.

Depreciation

The process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use. Factors: - cost - salvage value - useful life

Declining-balance method of depreciation

Uses a deprecation rate that is a multiple of the straight-line rate and applies it to the asset's beginning of period book value. The amount of depreciation declines each period because book value declines each period

costs of machinery and equipment

All costs normal and necessary to purchase them and prepare them for intended use. Ex: Purchase price, taxes, transportation charges, insurance while in transit, installation, assembling, and testing of machinery and equipment.

Cost

Cost principle of all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use. Cost of a factory machine, includes its invoice cost less any discount, plus any necessary freight, unpacking, assembling, installing, and testing costs.

Zen Co. sells a copier machine for $2000. The copier cost Zen $6000 and at the time of sale, accumulated depreciation was $2500. Zen will record this sale with which of the following entries?

Debit to loss on Sale of Machinery for $1500

Privo Co. purchases a machine that cost $15,000. Privo estimates a 5-year life with no salvage value. The first 3 years of depreciation expense are $6000, $36000, and $2160. Privo is using the _________ depreciation method.

Declining balance