acg9

A permanent decline in the market value of an asset is called a write-down. a disposal. a depreciation. a capital expenditure. an impairment.

an impairment. Solution:An impairment is recognized when a permanent decline in the market value of an asset exists. A disposal occurs when an asset is sold or otherwise removed from operations. A capital expenditure occurs when a company spends funds on an asset and capitalizes that amount. A write-down is what is done when there is an impairment.

Caruso Company purchased equipment on January 1 at a total invoice cost of $400,000. The equipment has an estimated salvage value of $50,000 and an estimated useful life of 4 years. What is the amount of accumulated depreciation at December 31 of the third year if the straight-line method of depreciation is used? $262,500 $156,000 $87,500 $175,000 $215,000

$262,500 Solution:Since the asset has been in use for three full years, the accumulated depreciation at December 31 of the third year is equal to three times the annual depreciation expense: (i.e., $400,000 - $50,000)/4 = $87,500 per year.

A company has the following asset account balances: Buildings and equipment, $6,200,000; Accumulated depreciation, $1,800,000; Patents, $950,000; Inventory, $1,000,000; and Goodwill, $4,000,000. How much will be reported on the balance sheet under property, plant & equipment? $7,750,000 $10,350,000 $6,200,000 $9,350,000 $4,400,000

$4,400,000. Solution:Buildings and equipment less accumulated depreciation are the only amounts included under Plant & Equipment: $6,200,000 - $1,800,000 = $4,400,000.

A company's average total assets are $250,000, depreciation expense is $10,000, and accumulated depreciation is $60,000. Net income is $1,200,000. Net sales total $300,000. What is the asset turnover?

1.2

A company's average total assets are $200,000, depreciation expense is $10,000, and accumulated depreciation is $60,000. Net income is $1,000,000. Net sales total $250,000. What is the asset turnover?

1.25

Coronado Company purchased land for $80,000. The company also assumes $16,000 of accrued taxes on the property, incurred $9,000 to remove an old building, and received $4,000 from the salvage of the old building. At what amount will the land be recorded in the accounting records?

101

Ralph's Wrecker Service bought equipment for $70,000 on January 1 of its first year. The equipment's original estimated useful life is 8 years and its estimated salvage value is $14,000. The company uses the straight-line method of depreciation. On December 31 of its third year, before year-end adjusting entries have been recorded, Ralph's decides to shorten the estimated useful life by 2 years giving it a total life of 6 years. The company did not change the salvage value and continues to use the straight-line method. How much depreciation expense should be recorded for the third year? $11,000 $10,500 $9,333 $14,000 $7,000

10500 Solution:Original depreciation per year = [(70,000 - 14,000)/8] x 2 = 7,000Revised depreciation per year = [(70,000 - 2 x 7,000 - 14,000]/ (6-2)= 10,500

A company has the following asset account balances: Buildings and equipment, $5,800,000; Accumulated depreciation, $1,600,000; Patents, $1,050,000; Inventory, $1,000,000; and Goodwill, $4,000,000. How much will be reported on the balance sheet under property, plant & equipment?

4.2

Given the following account balances at year end, how much are total intangible assets on the balance sheet of Alisha Enterprises? Sales revenue, $45,000,000; Cash, $1,500,000; Copyrights, $500,000; Accounts receivable, $4,000,000; Land, $15,000,000; Equipment, $25,000,000; Trademarks, $1,000,000; and Goodwill, $4,500,000. The company also paid $2,000,000 for research & development during the current year. $5,500,000 $6,000,000 $11,500,000 $8,000,000 $5,000,000

6 Solution:The intangibles are copyrights of $500,000, trademarks of $1,000,000, and goodwill of $4,500,000 totaling $6,000,000. Notice that research & development is not an intangible asset even though research & development may lead to new intangibles, such as patents or copyrights.

An asset purchased on January 1 for $40,000 has an estimated salvage value of $4,000. The current useful life is 8 years. How much is total accumulated depreciation using the straight-line method at the end of the second year of life?

9000

When equipment is sold for cash in an amount that is greater than its book value, the company debits the following

Accumulated Depreciation and (ii) Cash When plant assets, such as equipment, are sold for cash in an amount that is greater than their book value, the asset is sold at a gain. When equipment is sold for more than its book value, the company debits (i) Cash and (ii) Accumulated Depreciation and it credits (i) Equipment and (ii) Gain on Disposal of Plant Assets.

Which of the following measures provides an indication of how efficient a company is in employing its assets? Debt to total assets ratio Profit margin ratio Asset turnover ratio Current ratio Inventory turnover ratio

Asset turnover ratio

On February 1 of the current year, Fritz Company purchases and places into service new equipment. The cost of the equipment is $135,000. The equipment has an estimated 5-year life and $20,000 salvage value at the end of its useful life. What is the depreciation expense for the current year ending December 31 if the company uses the straight-line method of depreciation?

Depreciation expense per year = (Cost - salvage value)/LifeDepreciation expense per year = ($135,000 - 20,000)/5 years = $23,000 per yearDepreciation expense for February 1 through December 31 = $23,000 x 11/12 = $21,083

A company sold a plant asset for $3,000. It had a cost $10,000 and its accumulated depreciation is $7,500. What gain or loss did the company experience?

Gain of $500 Book value is $2,500 ($10,000 - $7,500). Since the proceeds ($3,000) exceed the book value ($2,500) by $500, there is a gain.

Which of the following best describes depreciation?

It is a cost allocation method.

Which of the following statements is false?

Research and development costs are not expensed when they result to a successful patent.

Welch Company's average total assets is $240,000, average total equity is $150,000, and net sales is $60,000. Its return on assets is 12%. What was the company's net income?

Return on assets is net income divided by average total assets. Alternatively, net income equals average total assets times the return on assets.Net income = $240,000 x 12% = $28,800.

Caruso Company purchased equipment on January 1 at a total invoice cost of $400,000. The equipment has an estimated salvage value of $10,000 and an estimated useful life of 5 years. What is the amount of accumulated depreciation at the end of the second year if the straight-line method of depreciation is used?

Since the asset has been in use for two full years, the accumulated depreciation at December 31 of the secpond year is equal to two times the annual depreciation expense: (i.e., $400,000 - $10,000)/5 = $78,000 per year.Total accumulated depreciation = $78,000 per year x 2 years = $156,000.

Fryman Company purchased a new van for floral deliveries on January 1 of the current year. The van cost $48,000 with an estimated life of 5 years and $12,000 salvage value at the end of its useful life. The double-declining-balance method of depreciation will be used. What is the balance of the Accumulated Depreciation account at the end of the second year after adjusting entries have been recorded? $7,680. $11,520. $30,720. $23,040. $38,750

Solution:Double-declining-balance depreciation expense = [(Cost - accumulated depreciation) x 2/LifeFirst year's depreciation expense = [(48,000 - 0) x 2/5] = 19,200Second year's depreciation expense = [(48,000 - 19,200) x 2/5] = 30,720

Which of the following statements is true? Goodwill is recorded when a business invests in itself by acquiring property, plant & equipment. If an intangible asset has an unspecified or indeterminate life, it should be amortized. Research and development costs are usually added to the cost of an asset rather than expensed when incurred. Correct Answer The amortization period of a patent is the lesser of its useful life or 20 years, whichever is shorter. Trademarks are amortized over a period of 20 years.

The amortization period of a patent is the lesser of its useful life or 20 years, whichever is shorter. Research and development costs are expensed when incurred whether they produce a patent or not. The cost of intangibles with unspecified or indeterminate lives are not amortized. Those with definite lives are amortized. Intangibles are amortized over the asset's legal or useful life, whichever is shorter. For patents, the legal life is 20 years. In order to report goodwill, a company must have entered into an exchange transaction that involves the purchase of an entire business.

A purchase of equipment includes a purchase price of $18,000, freight charges of $500, and installation costs of $2,500. The estimated salvage value and useful life are $2,000 and four years, respectively. Under the straight-line method, how much is annual depreciation expense?

The cost of the equipment is $18,000 plus the freight costs of $500 and the installation costs of $2,500 for a total of $21,000. Depreciation expense = ($21,000 - $2,000)/4 = $4,750 per year.

Which statement is true about additions to plant assets? They are revenue expenditures. Their cost is immediately expensed. They increase the Purchases account. They increase a Repair Expense account. They are capitalized.

They are capitalized. Solution:Additions to plant assets are capital expenditures, because they increase either the operating efficiency, productive capacity, or useful life of the asset. Capital expenditures are debited to asset accounts and then depreciated over their expected useful lives.

When there is a change in a depreciable asset's useful life or salvage value only that asset's current and future years' depreciation will be affected. the company's previous depreciation expenses should be corrected. a footnote disclosure must explain why the change in estimate occurred. only that asset's future years' depreciation will be affected. new plant assets should be acquired to replace the old.

only that asset's current and future years' depreciation will be affected. Solution:When estimated depreciation changes, the changes should be reflected in the current and future years, not in prior years.

On March 1 of the current year, Freddy Company purchases and places into service new equipment. The cost of the equipment is $200,000. The equipment has an estimated 5-year life and $30,000 salvage value at the end of its useful life. What is the depreciation expense for the current year ending December 31 if the company uses the straight-line method of depreciation? $33,333 $40,000 $25,500 $34,000 $28,333

$28,333 Solution:Depreciation expense per year = (Cost - salvage value)/LifeDepreciation expense per year = ($200,000 - 30,000)/5 years = $34,000 per yearDepreciation expense for March 1 through December 31 = $34,000 x 10/12 = $28,333

Given the following account balances at year end, how much is amortization expense on Analog Enterprises' income statement for the current year if the company amortizes intangibles over ten years? Sales revenue, $45,000,000; Patents, $2,500,000; Accounts receivable, $4,000,000; Land, $15,000,000; Equipment, $25,000,000; Trademarks, $1,200,000; Goodwill, $4,500,000; and Copyrights, $1,500,000. The company also paid $2,000,000 for research & development at the start of the current year. Assume that all of the company's intangible assets were acquired at the start of the current year. $520,000 $600,000 $250,000 $850,000

$400,000 Solution:The intangibles are trademarks patents, goodwill, and copyrights. Only patents and copyrights are amortized. Amortization expense for the year equals ($2,500,000 + $1,500,000)/10 = $400,000. Notice that research & development is not an intangible asset even though research & development may lead to new intangibles, such as patents or copyrights. Goodwill is not amortized because it is considered to have an indefinite life. Trademarks are registered with the U.S. patent office and have lives of 20 years but they may be renewed indefinitely; because trademarks (and trade names) have indefinite lives, they are not amortized.

Massey Corporation purchased a piece of land for $50,000. Massey paid attorney's fees of $5,000 and brokers' commissions of $3,000 in connection with the purchase. An old building on the land was torn down at a cost of $1,500, and proceeds from the scrap were $500. Massey also assumes $6,000 of property taxes on the land owed by the previous owner. How much is the total cost of the land? $69,500 $65,500 $55,000 $67,300

$65,000 Solution:All costs necessary to get the land ready to use should be capitalized as part of the cost of the land. The total to be debited to the land account is the cost of the land of $50,000 plus the attorney's fees of $5,000, the brokers' commissions of $3,000, plus the cost of tearing down the old building, $1,500. The proceeds from the scrap sale totaling $500 should be subtracted and the assumption of $6,000 of accrued taxes added results in a total cost of the land of $65,000.

Rhonda's Rose Shop bought equipment for $80,000 on January 1 of its first year. The equipment's original estimated useful life is 5 years and its estimated salvage value is $10,000. The company uses the straight-line method of depreciation. On December 31 of its second year, before year-end adjusting entries have been recorded, Rhonda's decides to extend the estimated useful life 1 year giving it a total life of 6 years. The company did not change the salvage value and continues to use the straight-line method. How much depreciation expense should be recorded for the second year?

11200 Original depreciation per year: ($80,000 - 10,000)/5 years = $14,000 per year.Revised depreciation per year: ($80,000 - 1 x 14,000 - 10,000)/(6-1) = $11,200 per year

Able Towing Company purchased a tow truck for $60,000 on January 1 of its first year. The truck was originally depreciated on a straight-line basis over 10 years with an estimated salvage value of $12,000. At the end of the third year, before year-end adjusting entries have been recorded, the company decided to revise the estimated life of the truck to a total of 6 years and to change its estimated salvage value to $2,000. How much depreciation expense should be recorded for the third year? $12,100 $4,800 $15,000 $11,000 $6,000

12,100 Solution:For the first three years, the annual depreciation expense is ($60,000 - $12,000)/10 years = $4,800 per year. In the third year, before depreciation is recorded, the asset's book value is ($60,000 - 2 x 4,800 = $50,400), and this remaining book value should be depreciated to the asset's revised salvage value over the asset's remaining estimated useful life: ($50,400 - $2,000)/(6-2) = $12,100. Note: There are four years of useful life including the third, fourth, fifth, and sixth years.

In the current year, Brogan Company sold equipment for $22,000. The original cost was $80,000, the estimated salvage value was $8,000, and the expected useful life was 8 years. The equipment was fully depreciated. How much is the gain or loss on the sale? $14,000 gain $50,000 loss $850 loss $5,400 gain $7,000 gain

14 Solution:The book value at the date of sale is the salvage value since the asset is fully depreciated. The gain or loss is the selling price less the book value: $22,000 - $8,000 = $14,000 gain.

An asset purchased on January 1 for $60,000 has an estimated salvage value of $3,000. The current useful life is 8 years. How much is total accumulated depreciation using the straight-line method at the end of the second year of life?

14250 The annual depreciation is calculated as the sum of the purchase price less the salvage value divided by the useful life: ($60,000 - $3,000)/8 years = $7,125.At the end of the second year, there will be two years of accumulated depreciation for a total of $14,250.

Lorek Company acquires land for $140,000 cash. Additional costs are as follows: Removal of shed, $1,000; Filling and grading, $2,500; Salvage value of lumber of shed, $200; Broker commission, $4,000; Paving of parking lot, $13,000; Closing costs, $1,700. Lorek Company should record the acquisition cost of the land as

149 Purchase price, 140,000Add: Removal of shed less salvages (i.e., 1,000 - 200), 800Add: Filling and grading, 2,500Add: Broker's commission, 4,000Add: Closing costs, 1,700Acquisition costs of land, 149,000 Note: Paving of the parking lot is recorded as a land improvement rather than as part of the cost of the land.

Lorek Company acquires land for $160,000 cash. Additional costs are as follows: Removal of shed, $500; Filling and grading, $2,000; Salvage value of lumber of shed, $120; Broker commission, $6,000; Paving of parking lot, $15,500; Closing costs, $1,000. Lorek Company Should record the acquisition cost of the land as $169,380 $167,620 $162,500 $184,880 $169,620

169380 Solution:Purchase price, 160,000Add: Removal of shed less salvages (i.e., 500 - 120), 380Add: Filling and grading, 2,000Add: Broker's commission, 6,000Add: Closing costs, 1,000Acquisition costs of land, 169,380 Note: Paving of the parking lot is recorded as a land improvement rather than as part of the cost of the land.

A plant asset was purchased on January 1 for $40,000 with an estimated salvage value of $8,000 at the end of its useful life. The current year's depreciation expense is $4,000. It is calculated on the straight-line basis. The balance of the company's Accumulated Depreciation account at the end of the year after adjusting entries is $24,000. The remaining useful life of the plant asset is

2 Depreciation per year = (Cost - salvage value)/Useful lifeSolving for useful life: Useful life = ($40,000 - 8,000)/$4,000 = 8 yearsYears expired = Accumulated depreciation/Depreciation per year = $24,000/$4,000 = 6 yearsRemaining life = Useful life - Years expired = (8 - 6) = 2 years.

Oahu Industries' average total assets for the year are $4,000,000, its average total stockholders' equity for the year are $3,000,000, its net income is $800,000, its gross margin is $2,000,000, and its net sales are $10,000,000. What is Oahu's return on assets?

20

Clarence Trucking Inc. purchased a new truck on January 1 of the current year for $360,000. Its useful life is expected to be 8 years and its salvage value is estimated at $60,000. The company uses the double-declining balance method. What is the truck's book value at the end of December 31 of the second year?

202.5 The depreciation expense for the first year would be ($360,000 - 0) x (2 x 1/8) = $90,000 which produces a book value of $270,000 at the end of the first year (i.e., $360,000 - 90,000). The depreciation expense for the second year would be based on the book value at the start of the second year: $270,000 x (2 x 1/8) = $67,500.The book value at the end of the second year equals the asset's cost minus its accumulated depreciation = $360,000 - 90,000 - 67,500 = $202,500.

Oahu Industries' average total assets for the year are $4,000,000, its average total stockholders' equity for the year are $3,000,000, its net income is $900,000, its gross margin is $5,000,000, and its net sales are $12,000,000. What is Oahu's return on assets? 30% 25% 14% 22.5% 8.75%

22.5 Solution:Return on assets is calculated by dividing net income by the average total assets. Oahu's return on assets is $900,000 divided by $4,000,000 = 22.5%.

A business bought a new truck for $40,000 for its auto parts delivery service. It estimated that the truck would last 200,000 miles with a salvage value of $4,000. What would be the depreciation expense for the first year assuming it is driven 12,500 miles in the first year?

2250

On January 1 of the current year, equipment cost $128,000 and is estimated to have a $16,000 salvage value at the end of its 8-year useful life. The annual depreciation expense recorded for the second year using the double-declining-balance method would be $18,000. $16,000. $24,000. $22,250. $22,000.

24 Solution:Double-declining-balance depreciation expense = [(Cost - accumulated depreciation) x 2/LifeFirst year's depreciation expense = [(128,000 - 0) x 2/8] = 32,000Second year's depreciation expense = [(128,000 - 32,000) x 2/8] = 24,000

Corian Company purchased equipment and incurred these costs: Cash price, $24,000; Sales taxes, $1,200; Insurance during transit, $200; Annual maintenance costs, $400. What amount should be recorded as the cost of the equipment?

25400 All costs necessary to get the asset ready to use should be included as part of the cost of the equipment because these are the costs that are necessary to acquire, safely transport, and prepare it for its intended use ($24,000 + $1,200 + $200 = $25,400). The $400 annual maintenance costs are expensed as operating expenses as incurred; they are not capitalized or added to the asset's cost or depreciated.

Corian Company purchased equipment and incurred these costs: Cash price, $26,000; Sales taxes, $1,200; Insurance during transit, $400; Annual maintenance costs, $500. What amount should be recorded as the cost of the equipment?

276

Bazydlo Corporation bought equipment for $320,000 and it had an expected salvage value of $40,000. The life of the equipment was estimated to be 7 years. The depreciable cost of the equipment is

280

On October 1 of the current year, Mann Company purchased and places a new asset into service. The cost of the asset is $80,000 with an estimated 5-year life and $20,000 salvage value at the end of its useful life. What is the depreciation expense for the current year ending December 31 if the company uses the straight-line method of depreciation? $3,000. $16,000. $2,000. $4,000. $8,000.

3 Solution:Depreciation expense per year = (Cost - salvage value)/LifeDepreciation expense per year = ($80,000 - 20,000)/5 years = $12,000 per yearDepreciation expense for October 1 through December 31 = $12,000 x 3/12 = $3,000

A plant asset was purchased on January 1 for $45,000 with an estimated salvage value of $5,000 at the end of its useful life. The current year's depreciation expense is $5,000. It is calculated on the straight-line basis. The balance of the company's Accumulated Depreciation account at the end of the year after-adjusting entries is $25,000. The remaining useful life of the plant asset is 6 years. 5 years. 3 years. 10 years. 8 years.

3 Solution:Depreciation per year = (Cost - salvage value)/Useful lifeSolving for useful life: Useful life = ($45,000 - 5,000)/$5,000 = 8 yearsYears expired = Accumulated depreciation/Depreciation per year = $25,000/$5,000 = 5 yearsRemaining life = Useful life - Years expired = (8 - 5) = 3 years.Chapter 9, Learning objective 3: Compute periodic depreciation using the straight-line method, and contrast its expense pattern with those of other methods.

Welch Company's average total assets is $200,000, average total equity is $120,000, and net sales is $100,000. Its return on assets is 15%. What was the company's net income? $80,000 $18,000 $30,000 $15,000 $25,000

30 Solution:Return on assets is net income divided by average total assets. Alternatively, net income equals average total assets times the return on assets.Net income = $200,000 x 15% = $30,000.

On March 1 of the current year, La Presa Company sells some equipment for $30,000. The original cost was $60,000, the estimated salvage value was $12,000, and the expected useful life was 6 years. Straight-line depreciation is used. On January 1 of the currentyear, the Accumulated Depreciation account had a balance of $32,000. How much is the gain or loss on the sale?

3333 First, the accumulated depreciation must be brought up to date to the date of sale. Since the equipment has a $48,000 depreciable cost (i.e., Depreciable cost = Cost - salvage value = $60,000 - 12,000) and a life of 6 years, the depreciation is $8,000 per year. In the current year, depreciation expense is $1,333 (i.e., $8,000 per year x 2/12) which increases accumulated depreciation. The Accumulated Depreciation balance at the date of sale is $33,333 (i.e., $32,000 + 1,333). Book value equals cost minus accumulated depreciation. Book value is $26,667 (i.e., $60,000 - $33,333).A gain occurs if the selling price exceeds the book value, and a loss occurs if the selling price is less than the book value. Sales price - book value = $30,000 - 26,667 = $3,333 (i.e., gain).

On August 1 of the current year, Moreno Company purchased a patent from another company for $90,000. The estimated useful life of the patent is 10 years, and its remaining legal life is 15 years . How much is Moreno's amortization expense for the current year?

3750 Amortization is calculated using the straight-line method over the shorter of the useful life or the remaining legal life. In this case, the shorter is 10 years. Amortization expense for the current year = $90,000/10 years x 5/12 = $3,750.

On July 1 of the current year, Fred Company purchases and places into service new equipment. The cost of the equipment is $90,000. The equipment has an estimated 10-year life and $15,000 salvage value at the end of its useful life. What is the depreciation expense for the current year ending December 31 if the company uses the straight-line method of depreciation?

3750 Depreciation expense per year = (Cost - salvage value)/LifeDepreciation expense per year = ($90,000 - 15,000)/10 years = $7,500 per yearDepreciation expense for July 1 through December 31 = $7,500 x 6/12 = $3,750

Bubba's Trucking Company purchased a new truck on January 1 of the current year for $200,000. Its useful life is expected to be 8 years and its salvage value is estimated at $30,000. What is the depreciation expense for the second year using the declining-balance method at double the straight-line rate (i.e., the double-declining balance method)?

3750 The depreciation expense for the first year would be ($200,000 - 0) x (2 x 1/8) = $50,000. This produces a book value of $150,000 (i.e., $200,000 - 50,000) at the end of the first year. The depreciation expense for the second year would be based on the book value at the start of the second year: $150,000 x (2 x 1/8) = $37,500.

A plant asset was purchased on January 1 for $48,000 with an estimated salvage value of $3,000 at the end of its useful life. The current year's depreciation expense is $5,000. It is calculated on the straight-line basis. The balance of the company's Accumulated Depreciation account at the end of the year after adjusting-entries is $25,000. The remaining useful life of the plant asset is 6 years. 5 years. 4 years. 8 years. 10 years.

4 Solution:Depreciation per year = (Cost - salvage value)/Useful lifeSolving for useful life: Useful life = ($48,000 - 3,000)/$5,000 = 9 yearsYears expired = Accumulated depreciation/Depreciation per year = $25,000/$5,000 = 5 years

Bubba's Trucking Company purchased a new semi-truck on January 1 of the current year for $180,000. Its useful life is expected to be 6 years and its salvage value is estimated at $35,000. What is the depreciation expense for the second year using the declining-balance method at double the straight-line rate (i.e., the double-declining balance method)?

40

In the current year, Pierce Company incurred $160,000 of research and development costs in its laboratory to develop a new product. It also spent $25,000 in legal fees for a patent on that new product. Later in the current year, Pierce paid $15,000 for legal fees in a successful defense of that patent. What is the total amount that should be debited to the company's Patents account in the current year?

40 Only the $25,000 in legal fees and the $15,000 of successful defense costs should be debited to the Patents account. The research and development costs spent to develop the new product must be expensed in the year they were incurred because there is no certainty of future benefits.

On April 1 of the current year, Frey Company purchases and places into service new equipment. The cost of the equipment is $75,000. The equipment has an estimated 10-year life and $15,000 salvage value at the end of its useful life. What is the depreciation expense for the current year ending December 31 if the company uses the straight-line method of depreciation?

4500 Depreciation expense per year = (Cost - salvage value)/LifeDepreciation expense per year = ($75,000 - 15,000)/10 years = $6,000 per yearDepreciation expense for April 1 through December 31 = $6,000 x 9/12 = $4,500

On January 1 of the current year, Hess Company places a new asset into service. The cost of the asset is $80,000. It has an estimated 5-year life and $20,000 salvage value. What is the book value of the plant asset on the December 31 of the current year after recording depreciation assuming the company uses the double-declining-balance method of depreciation?

48 Double-declining-balance depreciation expense = [(Cost - accumulated depreciation) x 2/LifeDouble-declining-balance depreciation expense = [(80,000 - 0) x 2/5] = 32,000Book value at the end of the first-year = Cost - accumulated depreciation after the current year's depreciationBook value at the end of the first-year = 80,000 - 32,000 = 48,000

Given the following account balances at year end, how much are total intangible assets on the balance sheet of Alisha Enterprises? Sales revenue, $45,000,000; Cash, $1,500,000; Accounts receivable, $3,000,000; Land, $15,000,000; Equipment, $25,000,000; Franchises, $500,000; Trademarks, $1,700,000; and Goodwill, $2,800,000. The company also paid $1,500,000 for research & development during the current year.

5 The intangibles are trademarks of $1,700,000, franchises of $500,000, and goodwill of $2,800,000 totaling $5,000,000. Notice that research & development is not an intangible asset even though research & development may lead to new intangibles, such as patents or copyrights.

A factory machine was purchased for $70,000 on January 1, 2014. It was estimated that it would have a $14,000 salvage value at the end of its 5-year useful life. It was also estimated that the machine would be run 40,000 hours in the 5 years. If the actual number of machine hours ran in 2014 was 4,000 hours and the company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2014 would be

5.6 Units-of-activity depreciation per unit = (Cost - Salvage)/Life measured in units of activity times units of activity in the current yearUnits-of-activity depreciation expense = [($70,000 - $14,000)/40,000] x 4,000 = $5,600

Schneider Trucking Inc. purchased a new truck on January 1 of the current year for $160,000. Its expected useful life is 6 years and its salvage value is estimated at $30,000. What is the depreciation expense for the current year using the double-declining balance method?

5333 The depreciation expense for the first year would be the truck's cost times 2 divided by the life in years = $160,000 x (2 x 1/6) = $53,333.

Equipment with a cost of $225,000 has an estimated salvage value of $15,000 and an estimated life of 4 years or 10,000 hours. It is to be depreciated by the units-of-activity method. What is the amount of depreciation for the first full year, during which the equipment was used 2,700 hours?

567 Units-of-activity depreciation per unit = (Cost - Salvage)/Life measured in units of activity times units of activity in the current yearUnits-of-activity depreciation expense = [($225,000 - $15,000)/10,000] x 2,700 = $56,700

Given the following account balances at year end, how much are total intangible assets on the balance sheet of Alisha Enterprises? Sales revenue, $45,000,000; Cash, $1,500,000; Copyrights, $500,000; Accounts receivable, $4,000,000; Land, $15,000,000; Equipment, $25,000,000; Trademarks, $1,000,000; and Goodwill, $4,500,000. The company also paid $2,000,000 for research & development during the current year.

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Schneider Trucking Inc. purchased a new truck on January 1 of the current year for $180,000. Its expected useful life is 5 years and its salvage value is estimated at $25,000. What is the depreciation expense for the current year using the double-declining balance method? $87,500 $43,750 $72,000 $53,333 $50,000

72 Solution:The depreciation expense for 20X1 would be the truck's cost times 2 divided by the life in years = $180,000 x (2 x 1/5) = $72,000.Chapter 9, Learning objective 9: Compute periodic depreciation using the declining-balance method and the units-of-activity method.

Equipment with a cost of $300,000 has an estimated salvage value of $20,000 and an estimated life of 4 years or 10,000 hours. It is to be depreciated by the units-of-activity method. What is the amount of depreciation for the first full year, during which the equipment was used 2,700 hours? $75,000. $70,000. $72,500. $77,500. $75,600.

75.6 Solution:Units-of-activity depreciation per unit = (Cost - Salvage)/Life measured in units of activity times units of activity in the current yearUnits-of-activity depreciation expense = [($300,000 - $20,000)/10,000] x 2,700 = $75,600

Karen's Craft shop bought equipment for $40,000 on January 1 of its first year. The equipment's original estimated useful life is 8 years and its estimated salvage value is $8,000. The company uses the straight-line method of depreciation. On December 31 of its third year, before year-end adjusting entries have been recorded, Karen's decides to shorten the estimated useful life by 3 years giving it a total life of 5 years. The company did not change the salvage value and continues to use the straight-line method. How much depreciation expense should be recorded for the third year?

8 Original depreciation per year: ($40,000 - 8,000)/8 years = $4,000 per year.Revised depreciation per year: ($40,000 - 2 x 4,000 - 8,000)/(5-2) = $8,000 per year

On May 1 of the current year, Moreno Company purchased a patent from another company for $96,000. The estimated useful life of the patent is 8 years, and its remaining legal life is 12 years. How much is Moreno's amortization expense for the current year? $7,500 $8,000 $6,000 $10,000 $12,000

8 Solution:Amortization is calculated using the straight-line method over the shorter of the useful life or the remaining legal life. In this case, the shorter is 8 years. Amortization expense for the current year = $96,000/8 years x 8/12 = $8,000.

An asset purchased on January 1 for $40,000 has an estimated salvage value of $4,000. The current useful life is 8 years. How much is total accumulated depreciation using the straight-line method at the end of the second year of life? $13,500 $15,000 $7,125 $9,000 $14,250

9 Solution:The annual depreciation is calculated as the sum of the purchase price less the salvage value divided by the useful life: ($40,000 - $4,000)/8 years = $4,500At the end of the second year, there will be two years of accumulated depreciation for a total of $9,000.

When equipment is sold for cash in an amount that is less than its book value, the company debits the following

Accumulated Depreciation, (ii) Cash, and (iii) Loss on Disposal of Plant Assets When plant assets, such as equipment, are sold for cash in an amount that is less than their book value, the asset is sold at a loss. When equipment is sold for less than its book value, the company debits (i) Cash, (ii) Accumulated Depreciation and (iii) Loss on Disposal of Plant Assets and it credits (i) Equipment.

Which of the following costs should not be included in the cost of a building? Parking lot repaving Real estate broker's commission Purchase price Remodeling of the building prior to use Closing costs (e.g., title insurance)

Solution:Parking lot repaving costs are considered to be land improvements and are capitalized in an account separate from buildings. All costs necessary to get the building ready to use should be capitalized as part of the cost of the building. For example, closing costs must be paid prior to taking ownership of the building.

A company's average total assets are $250,000, depreciation expense is $10,000, and accumulated depreciation is $60,000. Net income is $1,200,000. Net sales total $300,000. What is the asset turnover? 3.33 1.55 0.8 1.2 4.17

Solution:The asset turnover is net sales divided by the average total assets: $300,000/$250,000 = 1.2 times.

A purchase of equipment includes a purchase price of $18,000, freight charges of $500 and installation costs of $3,500. The estimated salvage value and useful life are $4,000 and four years, respectively. Under the straight-line method, how much is annual depreciation expense? $5,120 $4,750 $4,625 $4,000 $4,500

Solution:The cost of the equipment is $18,000 plus the freight costs of $500 and the installation costs of $3,500 for a total of $22,000. Depreciation expense = ($22,000 - $4,000)/4 = $4,500 per year.Chapter 9, Learning objective 3: Compute periodic depreciation using the straight-line method, and contrast its expense pattern with those of other methods.

Which ratio is computed by dividing net income by net sales? The debt to assets ratio Inventory turnover ratio The return on assets The profit margin ratio The asset turnover ratio

Solution:The profit margin ratio is net income divided by net sales. It tells how effective a company is in turning its sales into income. It measures how much income is provided by each dollar of sales (on average).

On September 1, Year 1, Best Buy purchased an asset for $9,000, with a $1,500 estimated salvage value, and a 4-year useful life. How much is the Year 1 depreciation expense using the straight-line method? $1,150 $2,250 $750 $625 $1,875

Solution:The purchase price less salvage value is divided by the useful life times the portion of a year that will be expensed: ($9,000 - $1,500)/4 x 4/12 = $625.

Which of the following is an acceptable way to express the useful life of a depreciable asset? All of these Expected number of units to be produced by the depreciable asset Expected number of miles a depreciable vehicle will be driven Expected number of hours the depreciable asset will remain productive Expected life in years of the depreciable asset

all Solution:The expected useful life of a depreciable asset can be expressed in years, units, hours and/or miles drives depending on the type of depreciable asset.

Banana Company paid $300,000 for a machine a few years ago. This year, the machine was completely destroyed in a fire. At the date of the fire, the accumulated depreciation on the machine was $120,000. An insurance check for $100,000 was received as a result of the fire. No journal entry for the casualty was recorded until Banana Company received the check from the insurance company. Banana Company's entry to record the insurance proceeds will include a credit to the Accumulated Depreciation account for $120,000. loss on disposal of plant assets of $20,000. credit to the Equipment account for $300,000. credit to the Cash account for $20,000. gain on disposal of plant assets of $20,000.

credit to the Equipment account for $300,000. Solution: Remove the asset and its accumulated depreciation from the company's books while recording the cash received from the insurance company. Record a gain or loss so that debits being recorded equal the credits being recorded. Gains are recorded with credits, and losses are recorded with debits. Debit cash for $100,000 Debit accumulated depreciation for $120,000 Credit the equipment account for $300,000 Debit loss on the disposal of plant assets for $80,000

Banana Company paid $132,000 for a machine a few years ago. This year, the machine was completely destroyed in a fire. At the date of the fire, the accumulated depreciation on the machine was $60,000. An insurance check for $100,000 was received as a result of the fire. No journal entry for the casualty was recorded until Banana Company received the check from the insurance company. Banana Company's entry to record the insurance proceeds will include a

gain on disposal of plant assets of $28,000. Remove the asset and its accumulated depreciation from the company's books while recording the cash received from the insurance company. Record a gain or loss so that debits being recorded equal the credits being recorded. Gains are recorded with credits, and losses are recorded with debits. Debit cash for $100,000 Debit accumulated depreciation for $60,000 Credit the equipment account for $132,000 Credit a gain on the disposal of plant assets for $28,000

A company sold a plant asset for $3,500. It had cost $11,000 and its accumulated depreciation is $8,500. What gain or loss did the company experience?

gains of 1k Book value is $2,500 ($11,000 - $8,500). Since the proceeds ($3,500) exceed the book value ($2,500) by $1,000, there is a gain.

The calculation of depreciation using the declining-balance method results in an increasing depreciation expense each period. multiplies a constant percentage times the previous year's depreciation expense. multiplies a declining percentage times a constant book value. all of these. ignores salvage value in determining the amount to which a constant rate is applied.

ignores salvage value in determining the amount to which a constant rate is applied. The declining-balance method of computing depreciation is based on multiplying a constant percentage (or rate) by the asset's book value to compute depreciation expense. Each year's depreciation expense increases the asset's accumulated depreciation. As the asset's accumulated depreciation increases year-by-year, the asset's book value declines (i.e., recall that book value if the asset's cost minus its accumulated depreciation). Since a constant percentage is multiplied against book value—and book value declines year-by-year—depreciation expense declines year-by-year. Salvage value is not used when determining the amount to which the constant rate is applied.

Banana Company paid $200,000 for a machine a few years ago. This year, the machine was completely destroyed in a fire. At the date of the fire, the accumulated depreciation on the machine was $80,000. An insurance check for $100,000 was received as a result of the fire. No journal entry for the casualty was recorded until Banana Company received the check from the insurance company. Banana Company's entry to record the insurance proceeds will include a

loss on disposal of plant assets of $20,000. Remove the asset and its accumulated depreciation from the company's books while recording the cash received from the insurance company. Record a gain or loss so that debits being recorded equal the credits being recorded. Gains are recorded with credits, and losses are recorded with debits. Debit cash for $100,000 Debit accumulated depreciation for $80,000 Debit loss on the disposal of plant assets for $20,000 Credit the equipment account for $200,000

All of the following statements are true regarding the declining-balance method of depreciation except

the declining-balance method produces lower depreciation expense in the early years as opposed to the later years. The declining-balance method of computing depreciation is based on multiplying a constant percentage (or rate) by the asset's book value to compute depreciation expense. Each year's depreciation expense increases the asset's accumulated depreciation. As the asset's accumulated depreciation increases year-by-year, the asset's book value declines (i.e., recall that book value if the asset's cost minus its accumulated depreciation). Since a constant percentage is multiplied against book value—and book value declines year-by-year—depreciation expense declines year-by-year. Salvage value is not used when determining the amount to which the constant rate is applied.

All of the following statements are true regarding the declining-balance method of depreciation except the declining-balance method is appropriate when assets lose their usefulness rapidly. these are all true the book value to which to which the depreciation rate is applied declines each year. the declining-balance method is compatible with the matching principle. the declining-balance method produces lower depreciation expense in the early years as opposed to the later years.

the declining-balance method produces lower depreciation expense in the early years as opposed to the later years. The declining-balance method of computing depreciation is based on multiplying a constant percentage (or rate) by the asset's book value to compute depreciation expense. Each year's depreciation expense increases the asset's accumulated depreciation. As the asset's accumulated depreciation increases year-by-year, the asset's book value declines (i.e., recall that book value if the asset's cost minus its accumulated depreciation). Since a constant percentage is multiplied against book value—and book value declines year-by-year—depreciation expense declines year-by-year. Salvage value is not used when determining the amount to which the constant rate is applied.