Financial Accounting - Quiz 9

Bennie Razor Company has decided to sell one of its old manufacturing machines on June 30, 2015. The machine was purchased for $80,000 on January 1, 2011, and was depreciated on a straight-line basis for 10 years assuming no salvage value. If the machine was sold for $26,000, what was the amount of the gain or loss recorded at the time of the sale?

$18,000 -First, the book value needs to be determined. The accumulated depreciation as of June 30, 2015 is $36,000 or [($80,000/10) x 4.5 years]. Thus, the cost of the machine less accumulated depreciation equals $44,000 or ($80,000 - $36,000). The loss recorded at the time of sale is $18,000 = $26,000 - $44,000.

Erin Danielle Company purchased equipment and incurred the following costs: Cash Price: $24,000 Sales taxes: $1,200 Insurance during transit: $200 Installation and testing $400 Total costs: $25,800

$25,800 -All the costs in the list should be included in the cost of the equipment

Martha Beyerlein Company incurred $150,000 of research and development costs in its laboratory to develop a patent granted on January 2, 2015. On July 31, 2015, Beyerlein paid $35,000 for legal fees in a successful defense of the patent. The total amount debited to Patents through July 31, 2015, should be

$35,000 -Because the $150,000 was spent developing the patent rather than buying it from another firm, it is debited to Research & Development Expense. Only the $35,000 spent on the successful defense can be debited to Patents

A company purchased land for $70,000 cash. Real estate brokers' commission was $5,000 and $7,000 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

$82,000 -The cost of land includes the purchase price, the real estate brokers' commission and the cost to demolish the old building. All costs incurred to get the land ready for its intended use are capitalized in the land account ($70,000 + $5,000 + $7,000)

The gain or loss on exchange of plant assets is the difference between the fair value and the cost of the asset given up.

False

In exchanges of assets in which the exchange has commercial substance

both gains and losses are recognized immediately when an exchange of assets has commercial substance

Depreciation is a process of

cost allocation

Depreciable cost is the

cost of an asset less its salvage value

Depletion expense is computed by multiplying the depletion cost per unit by the

number of units extracted

Which of the following would not be reported under the classification of Property, Plant, and Equipment?

patents