Accy 1 LS: Chapter 7. Long-Term Assets

On January 1,20X1m Claire Corp. purchases a patent by paying $10,000 cash and issuing 100 shared of its $1 par value stock with a fair value of $20 per share. Claire also pays $400 for legal and filing fees. One month after acquiring the patent, Claire paid $3,000 in legal fees to successfully defend its right to the patent. What amount is recorded in the patent account?

$15,400 = $10,000 + 100x20 + 400 + 3,000

ON JAN 1 2018, PRITCHETT CORP PURCHASED EQUIPMENT FOR $50,000. THE EQUIPMENT HAD A FIVE-YEAR LIFE WITH A $10,000 RESIDUAL VALUE. PRITCHETT USES THE STRAIGHT-LINE DEPRECIATION METHOD. WHAT IS THE BOOK VALUE OF THE EQUIPMENT ON JANUARY 1, 2021?

26,000 (50,000-10,000)/5=8,000 PER YEAR $50,0000 LESS ACCUMULATED DEPRECIATION OF 24,000 = 26,000

On Jan 1st, year 1, Paisley Corp. purchases equipment for 200,000. Paisley uses the double-declining-balance method of depreciation. The asset has a 10 year service life and a $10,000 residual value. What is the book value as the end of year 1?

160,000 (the depreciation rate is 2 x 1/10 =20%. $200,000 x 20 = 40,000 depreciation expense in year 1. Book value at the end of year 1 is cost less accumulated deprecation, $200,000 - $40,000 = $160,000 )

On December 30, 20x1, Rocket Cord. disposed of equipment with a historical cost of $100,000 and accumulated depreciation of $70,000. The equipment was sold for $80,000 cash. The journal entry to record the sale will include which of the following entries?

> Debit accumulated depreciation $70,000 > Credit to equipment $100,000

Wall corp exchanges old equip for new eqiup. The original cost of the old equip was 100,000 and its accumulates depreciation at the date of exchange was 60,000. the new asset recieved had a fair value of 80,000 and a book value of 65,000. the journal entry to record this exchange will include

> credit gain or exchange of asset 40,000 > debit accumulated depreciation 60,000

Depreciation

Allocation of the cost of a tangible fixed asset

Accelerated method that multiplies a constant percentage rate times the decreasing book value

Declining-balance method

The following are accelerated methods of depreciation

Double-declining balance method, declining-balance method, MACRS

Recurring Costs

Expensed during the period they are incurred

Cost of acquiring assets

Included as part of assets' acquisition costs

Method that matches usage of the asset with revenues generated from the asset

Units-of-output method

THE PROFIT MARGIN RATIO IS DEFINED AS ___ _______ DIVIDED BY NET SALES

NET INCOME

Allocates an equal portion of the depreciable base to each year of the assets service life

Straight-line method

amortization

allocation of the cost of an intangible asset

depletion

allocation of the cost of natural resources

to record the expenditure as an asset

capitalize

The following statements describe the accounting rules for a franchise agreement

capitalize the cost of the franchise. amortize the cost of the franchise over its life. expense periodic payments as incurred.

The cost of a major improvement that extend the service life of an asset would be

capitalized

Accounting for land improvements requires that the land improvements are ___________ and then ___________over periods benefited by their use

capitalized, depreciated

The accumulated deprecation account is classified as a(n)

contra asset

Cheng Corporation exchanges old equipment for new equipment. The original cost of the old equip was 90,000 and its accumulated depreciation at the date of exchange was 40,000. the new equipment received had a fair value of 40,000 and a book value ;of 35,000. the journal entry to record this exchange will include which of the following entries?

debit loss on exchange 10,000 credit equipment 90,000 debit equipment 40,000

The journal entry to record the amortization of an intangible asset would include a

debit to amortization expense.

the cost of maintenance that does not increase the future benefits would be

expensed

Intangible assets are categorized as those with finite lives and those with __________ lives

indefinite

what costs are capitalized as an intangible asset for a franchise

initial payment for the franchise. legal costs for the franchise agreement

return on assets is

net income divided by average total assets ( add current assets to noncurrent assets to arrive at total assets.)

asset turnover

net sales / average total assets

The asset turnover ratio provides an indication of how efficiently a company uses all of its assets to generate _______

revenue

book value

the original cost of the asset less the accumulated depreciation