Chapter 9

Intangible assets?

Goodwill + Trademarks

Pearson Company bought a machine on January 1, 2017. The machine cost $180000 and had an expected salvage value of $30000. The life of the machine was estimated to be 5 years. The company uses the straight-line method of depreciation. The book value of the machine at the beginning of the third year would be

$120000 ($180000 - $30000) ÷ 5 = $30000; $180000 - ($30000 × 2) = $120000 ((Cost - sal. val.) ÷ 5 yrs.) = ann. dep.; (Cost - (ann. dep. × 2))

Rains Company purchased equipment on January 1 at a list price of $125000, with credit terms 2/10, n/30. Payment was made within the discount period. Rains paid $6250 sales tax on the equipment, and paid installation charges of $2200. Prior to installation, Rains paid $5000 to pour a concrete slab on which to place the equipment. What is the total cost of the new equipment?

$135950 ($125000 × 0.98) + $6250 + $2200 + $5000 = $135950 (List price × (1 - .02) + sal. tax + inst. + conc. Slab)

Equipment with a cost of $640000 has an estimated salvage value of $60000 and an estimated life of 4 years or 12000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was used 3000 hours?

$145000 ($640000 - $60000) ÷ 4 = $145000 (Cost - sal. val.) ÷ 4 yrs.

On May 1, 2017, Irwin Company purchased the copyright to Quick Computer Tutorials for $120000. It is estimated that the copyright will have a useful life of 5 years. The amount of amortization expense recognized for the year 2017 would be

$16000 ($120000 ÷ 5) × 8/12 = $16000 (Cost ÷ 5 yrs) × 6/12

On January 1, a machine with a useful life of 5 years and a salvage value of $25000 was purchased for $125000. What is the depreciation expense for year 2 under straight-line depreciation?

$20000 ($125000 - $25000) ÷ 5 = $20000 [(Cost - sal. val.) ÷ 5 yrs]

On July 1, 2017, Linden Company purchased the copyright to Norman Computer Tutorials for $210000. It is estimated that the copyright will have a useful life of 5 years. The amount of amortization expense recognized for the year 2017 would be

$21000 ($210000 ÷ 5) × 6/12 = $21000 (Cost ÷ 5 yrs) × 6/12

Hopson Company incurred $900000 of research and development costs in its laboratory to develop a new product. It spent $120000 in legal fees for a patent granted on January 2, 2017. On July 31, 2017, Hopson paid $90000 for legal fees in a successful defense of the patent. What is the total amount that should be debited to Patents through July 31, 2017?

$210000. $120000 + $90000 = $210000 (Leg. fees + def. leg. fees)

Givens Retail purchased land for a new parking lot for $125000. The paving cost $175000 and the lights to illuminate the new parking area cost $60000. Which of the following statements is true with respect to these additions?

$235000 should be debited to Land Improvements $175000 + $60000 = $235000 (Pav. Cost + lights)

Mitchell Corporation bought equipment on January 1, 2017. The equipment cost $300000 and had an expected salvage value of $50000. The life of the equipment was estimated to be 6 years. The depreciable cost of the equipment is

$250000 $300000 - $50000 = $250000 (Cost - sal. val.)

A plant asset cost $192000 and is estimated to have a $24000 salvage value at the end of its 8-year useful life. The annual depreciation expense recorded for the third year using the double-declining-balance method would be

$27000 ($192000 - $0) × 0.25 = $48000; ($192000 - $48000) × 0.25 = $36000; ($192000 - $84000) × 0.25 = $27000 (Cost - AD) × (1/8 × 2) = end. AD; (Cost - end. A/D) × (1/8 × 2)

Equipment was purchased for $150000. Freight charges amounted to $7000 and there was a cost of $20000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $30000 salvage value at the end of its 5-year useful life. Depreciation Expense each year using the straight-line method will be

$29400. ($150000 + $7000 + $20000 - $30000) ÷ 5 = $29400 (Pur. Price + freight + found. - Sal. value) ÷ 5yrs.

Equipment was purchased for $85000 on January 1, 2016. Freight charges amounted to $3500 and there was a cost of $10000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $15000 salvage value at the end of its 5-year useful life. What is the amount of accumulated depreciation at December 31, 2017, if the straight-line method of depreciation is used?

$33400 [($85000 + $3500 + $10000 - $15000) ÷ 5] × 2 = $33400 [(Pur. Price + freight + found. - sal. val. ) ÷ 5 yrs] × 2

An asset was purchased for $400000. It had an estimated salvage value of $80000 and an estimated useful life of 10 years. After 5 years of use, the estimated salvage value is revised to $64000 but the estimated useful life is unchanged. Assuming straight-line depreciation, depreciation expense in Year 6 would be

$35200 ($400000 - $80000) × 5/10 = $160000; [($400000 - $160000) - $64000] ÷ (10 - 5) = $35200 (Cost - sal. val.) × 5/10 = A/D: (Cost - A/D - sal. val.) ÷ (10 - 5)

Jack's Copy Shop bought equipment for $240000 on January 1, 2016. Jack estimated the useful life to be 3 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2017, Jack decides that the business will use the equipment for a total of 5 years. What is the revised depreciation expense for 2017?

$40000 ($240000 - 0) ÷ 3 = $80000; ($240000 - $80000) ÷ (5 - 1) = $40000 (Cost - sal. val.) ÷ 3 yrs. = dep./yr.; (Cost - A/D) ÷ (5 - 1)

A company purchased land for $350000 cash. Real estate brokers' commission was $25000 and $35000 was spent for demolishing an old building on the land before construction of a new building could start. Under the historical cost principle, the cost of land would be recorded at

$410,000 $350000 + $25000 + $35000 = $410000

On October 1, 2017, Mann Company places a new asset into service. The cost of the asset is $120000 with an estimated 5-year life and $30000 salvage value at the end of its useful life. What is the depreciation expense for 2017 if Mann Company uses the straight-line method of depreciation?

$4500 [($120000 - $30000) ÷ 5] × 3/12 = $4500 [(Cost - sal. val.) ÷ 5 yrs] × 3/12

Bates Company purchased equipment on January 1, 2016, at a total invoice cost of $1200000. The equipment has an estimated salvage value of $30000 and an estimated useful life of 5 years. What is the amount of accumulated depreciation at December 31, 2017, if the straight-line method of depreciation is used?

$468000 [($1200000 - $30000) ÷ 5] × 2 = $468000 ((Cost - sal. val.) ÷ 5 yrs.) × 2 yrs.

Arnold Company purchases a new delivery truck for $45000. The sales taxes are $2500. The logo of the company is painted on the side of the truck for $1200. The truck's annual license is $120. The truck undergoes safety testing for $220. What does Arnold record as the cost of the new truck?

$48920 $45000 + $2500 + $1200 + $220 = $48920 (Pur price + sal. tax. + logo + test.)

Equipment with a cost of $300000 has an estimated salvage value of $20000 and an estimated life of 4 years or 10000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was used 2700 hours?

$70000 ($300000 - $20000) ÷ 4 = $70000 (Cost - sal. val.) ÷ 4 yrs

A company purchased factory equipment on April 1, 2017, for $128000. It is estimated that the equipment will have a $16000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2017, is

$8400 [($128000 - $16000) ÷ 10] × 9/12 = $8400 [(Cost - sal. val.) ÷ 10 yrs] × 9/12

Wesley Hospital installs a new parking lot. The paving cost $60000 and the lights to illuminate the new parking area cost $24000. Which of the following statements is true with respect to these additions?

$84000 should be debited to Land Improvements. $60000 + $24000 = $84000 (Pav. Cost + lights)

A plant asset was purchased on January 1 for $55000 with an estimated salvage value of $5000 at the end of its useful life. The current year's depreciation expense is $5000 calculated on the straight-line basis and the balance of the Accumulated Depreciation account at the end of the year is $25000. The remaining useful life of the plant asset is

5 years ($55000 - $5000) ÷ $5000 = 10; 10 - ($25000 ÷ $5000) = 5 (Cost - sal. val.) ÷ dep. exp. = use. life; (Use. life - (A/D ÷ dep. exp.))

National Molding is building a new plant that will take three years to construct. The construction will be financed in part by funds borrowed during the construction period. There are significant architect fees, excavation fees, and building permit fees. Which of the following statements is true?

Interest is capitalized during the construction as part of the cost of the building.