Depreciation Unit

Sonoma Company purchased land for $70,000 on December 31, 2009. As of May 31, 2012, the land's value had increased to $71,500. On December 31, 2012, the land was appraised for $74,000. By what amount should the Land account be increased?

$0.

Schneider Trucking Inc. purchased a new semi-truck on January 1, 2012 for $200,000. Its useful life is expected to be 4 years and its salvage value is estimated at $25,000. What is the depreciation for 2012 using the declining-balance method at a double the straight-line rate?

$100,000. (The depreciation for 2012 would be (2 × 25%) × $200,000 = $100,000.)

Able Towing Company purchased a tow truck for $60,000 on January 1, 2010. It was originally depreciated on a straight-line basis over 10 years with an estimated salvage value of $12,000. On December 31, 2012, before adjusting entries had been made, the company decided to change the remaining estimated life to 4 more years as of January 1, 2012, and the salvage value was adjusted to $2,000. How much is depreciation expense for 2012?

$12,100. (For the first two years the depreciation is ($60,000 - $12,000) ÷ 10 = $4,800 per year. The depreciable cost that remains at the beginning of 2012 is $60,000 - $2,000 - (2 years × $4,800) = $48,400. This amount is allocated over the remaining useful life of 4 years, which is $12,100 per year.)

On June 1, 2012, Brislin Company sold some 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. (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.)

A company has the following asset account balances: Buildings and equipment $9,200,000 Accumulated depreciation 1,200,000 Patents 750,000 Land Improvements 1,000,000 Land 5,000,000 How much will be reported on the balance sheet under property, plant, & equipment?

$14,000,000. (Buildings and equipment, land improvements, and land, less accumulated depreciation are included for a total of $14,000,000.)

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?

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

Cuso Company purchased equipment on January 1, 2011, 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 December 31, 2012, if the straight-line method of depreciation is used?

$156,000. (Since the asset has been in use for two years, the accumulated depreciation at December 31, 2012, is equal to two times the annual depreciation expense: ($400,000 - $10,000)/5 = $78,000 per year. Total accumulated depreciation = $78,000 per year × 2 years = $156,000)

Bennie Razor Company has decided to sell one of its old manufacturing machines on June 30, 2012. The machine was purchased for $80,000 on January 1, 2008, and was depreciated on a straight-line basis over a 10-year life assuming no salvage value. If the machine was sold for $26,000, how much is the gain or loss to be recorded at the time of the sale?

$18,000 loss.

On January 1, 2010, Jamacha Company purchased some equipment for $15,000. The estimated salvage value and useful life are $3,000 and 4 years, respectively. On January 1, 2012, the company determines that the asset's remaining useful life is 3 years. What is the revised depreciation expense for 2012 if the company uses the straight-line method?

$2,000.

If you bought a new truck for $40,000 for your auto parts delivery service, and you estimated that the truck would last you 200,000 miles with a salvage value of $4,000, what would be your depreciation expense for the first year in which you used the truck for 12,500 miles?

$2,250. (The depreciation rate per mile is $0.18, which is ($40,000 - $4,000) divided by 200,000 miles. Depreciation expense = $0.18 × 12,500 miles = $2,250.)

Corristan Company purchased equipment and incurred these costs: Cash price $24,000 Sales taxes 1,200 Insurance during transit 200 Annual maintenance costs 400 Total costs $25,800 What amount should be recorded as the cost of the equipment?

$25,400 (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. The annual maintenance costs are expensed, not capitalized. $24,000 + $1,200 + $200 = $25,400)

Given the following account balances at year end, how much is amortization expense on Anisha Enterprises income statement for the current year if Anisha thinks all of its intangibles should be amortized over ten years? Sales revenue $45,000,000 Patents 1,500,000 Accounts receivable 4,000,000 Land 15,000,000 Equipment 25,000,000 Trademarks 1,000,000 Goodwill 4,500,000 Research & development 2,000,000

$250,000. (The intangibles are trademarks patents and goodwill. Only trademarks and patents are amortized. ($1,000,000 + $1,500,000)/10 = $250,000.)

Pierce Company incurred $150,000 of research and development costs in its laboratory to develop a new product. It spent $20,000 in legal fees for a patent granted on January 2, 2010. On July 31, 2012, Pierce paid $15,000 for legal fees in a successful defense of the patent. What is the total amount that should be debited to Patents through July 31, 2012?

$35,000. (Only the $20,000 in legal fees and the $15,000 of successful defense costs should be debited to the Patents account through July 31, 2010. The research and development costs spent to develop the new product must be expensed in the year they were incurred.)

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 Goodwill 4,000,000 How much is the total amount reported on the balance sheet under property, plant & equipment?

$4,400,000.

A company purchased a dump truck for $25,000. In addition, freight charges were $500, and an additional payment of $800 was made to paint the company's logo on the truck. The estimated salvage value and useful life are $3,800 and 5 years, respectively. How much is annual depreciation expense under the straight-line method?

$4,500.

A purchase of equipment for $18,000 also involves freight charges of $500 and installation costs of $2,500. The estimated salvage value and useful life are $2,000 and 4 years, respectively. Under the straight-line method, how much is annual depreciation expense?

$4,750. (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)

At the beginning of the year, Powers Company purchased a piece of machinery for $50,000. It has a salvage value of $5,000, an estimated useful life of 9 years, and estimated units of output of 90,000 units. Actual units produced during the first year were 11,000. How much is depreciation expense for the first year under the straight-line method?

$5,000. (The annual depreciation is calculated as the sum of the purchase price ($50,000) less the salvage value ($5,000) divided by the life (9 years) resulting in an annual depreciation value of $5,000.)

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 4,000,000 Land 15,000,000 Equipment 25,000,000 Trademarks 1,000,000 Goodwill 4,500,000 Research & development 2,000,000

$5,500,000. (The intangibles are trademarks ($1,000,000) and goodwill ($4,500,000) totaling $5,500,000.)

Schneider Trucking Inc. purchased a new semi-truck on January 1, 2011 for $200,000. Its useful life is expected to be 4 years and its salvage value is estimated at $25,000. What is the depreciation for 2012 using the declining-balance method at double the straight-line rate?

$50,000. (The depreciation for 2011 would be (2 × 25%) × $200,000 = $100,000 which would leave a book value of $100,000 at the end of 2011. The depreciation for 2012 would be (2 × ¼) × $100,000 = $50,000.)

Massey Corporation purchased a piece of land for $50,000. Massey paid attorney's fees of $5,000 and brokers' commissions of $4,000 in connection with the purchase. An old building on the land was torn down at a cost of $2,000, and proceeds from the scrap were $500. How much is the total cost of the land?

$60,500 (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 $4,000, plus the cost of tearing down the old building, $2,000. The proceeds from the scrap sale totaling $500 should be subtracted for a total cost of the land of $60,500.)

On September 1, 2012, West Buy purchased an asset for $9,000, with a $1,500 estimated salvage value, and a 4-year useful life. How much is the 2012 depreciation expense using the straight-line method?

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

On March 1, 2012, 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 amortization expense for 2012?

$7,500. (Amortization is calculated using the straight-line method: $90,000 ÷ 10 years × 10/12 = $7,500.)

On April 1, 2012, La Presa Company sells some equipment for $18,000. The original cost was $50,000, the estimated salvage value was $8,000, and the expected useful life was 6 years. On December 31, 2011, the Accumulated Depreciation account had a balance of $29,400. How much is the gain or loss on the sale?

$850 loss. (First, the accumulated depreciation must be brought up to date. Since the equipment has a $42,000 depreciable cost and a life of 6 years, the depreciation is $7,000 per year or $1,750 for 3 months through April 1, 2012. The Accumulated Depreciation balance at the date of sale is $29,400 plus $1,750 or $31,150. Next, the book value must be determined which is: $50,000 less $31,150, or $18,850. The gain or loss is the selling price less the book value: $18,000 - $18,850 = $850 loss.)

Coronado Company purchased land for $80,000. The company also paid $12,000 in accrued taxes on the property, incurred $5,000 to remove an old building, and received $2,000 from the salvage of the old building. At what amount will the land be recorded in the accounting records?

$95,000.

Kant Enterprises purchased a truck for $11,000 on January 1, 2011. The truck will have an estimated salvage value of $1,000 at the end of 5 years. If you use the units-of-activity method, which formula can be used to calculate the balance in accumulated depreciation at December 31, 2012?

($10,000/Total estimated activity) × Units of activity for 2011 and 2012. (The rate to use for units-of-activity is calculated as: (Cost - Salvage value)/Total activity expected. The rate should then be multiplied by the units of activity for both 2011 and 2012.)

An asset purchased on January 1 for $48,000 has an estimated salvage value of $3,000. The current year's depreciation expense is $5,000 and the balance of the Accumulated Depreciation account, after adjustment, is $20,000. If the company uses the straight-line method, what is the asset's remaining useful life?

5 years. (Since the depreciable cost is $45,000 ($48,000 purchase price less the salvage value of $3,000) and the annual depreciation is $5,000, this confirms the 9-year life. The balance in Accumulated Depreciation indicates that 4 years of life have been consumed ($20,000/$5,000). Of the total 9 years of life, 5 years remain.)

What is depreciation?

A cost allocation method. (Depreciation is a process of allocating the cost of a long-term asset over its useful service life.)

Which one of the following will minimize depreciation expense in the first year of owning an asset?

A long estimated life, a high salvage value, and straight-line depreciation.

A permanent decline in the market value of an asset is called

An impairment.

Which one of the following costs will not be included in the cost of equipment?

Annual insurance.

When using the straight-line depreciation method, which of the following is not a factor affecting the computation of depreciation?

Book value. (Book value is equal to acquisition cost less accumulated depreciation. The factors affecting the computation of depreciation include acquisition cost, useful life, and salvage value.)

Which of the following is not a way to express the useful life of a depreciable asset?

Cost of acquisition.

When there is a change in estimated depreciation

Current and future years' depreciation should be revised.

Which depreciation method calculates annual depreciation expense based on book value at the beginning of each year?

Declining-balance.

A company sold for $3,000 a plant asset that had a cost of $10,000 and accumulated depreciation of $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 is not a depreciable asset?

Land.

Which one of the following is not a depreciable asset?

Land.

Harrington Corporation recently leased a number of trucks from Andre Corporation. In inspecting the books of Harrington Corporation, you notice that the trucks have not been recorded as assets on Harrington's balance sheet. What type of acquisition are the trucks for Harrington?

Operating lease. (Operating leases are accounted for as rentals and are not recorded on the balance sheet.)

Which of the following costs should not be included in the cost of a building?

Parking lot repaving. (Parking lot repaving costs are considered to be land improvements and are capitalized in an account separate from buildings.)

Which of the following gives the recipient the right to manufacture, sell, or otherwise control an invention for a period of 20 years?

Patent.

When a plant asset is retired, the difference between selling price and the book value of the asset is

Recognized on the income statement as a gain or loss on disposal of plant asset.

Which of the following statements is false?

Research and development costs are expensed when incurred, except when the research and development expenditures result in a successful patent.

If a company reports goodwill as an intangible asset on its books, what is the one thing you know with certainty?

The company purchased another company.

Which statement is true about additions to plant assets?

They are capitalized.

Which one of these statements is true?

Totals of major classes of assets can be shown in the balance sheet, with asset details disclosed in the notes to the financial statements.

With respect to plant assets, which of the following need not be disclosed in the financial statements or notes to the financial statements?

Useful life of each plant asset.