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Exam 9: Long-Term Assets: Fixed and Intangible

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Question 81

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During construction of a building, the cost of interest on a construction loan should be charged to an expense account.

A) True
B) False

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Question 82

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Equipment acquired at a cost of $126,000 has a book value of $42,000. Journalize the disposal of the equipment under the following independent assumptions. (a) The equipment had no market value and was discarded. (b) The equipment is sold for $\$ 54,000$ . (c) The equipment is sold for $\$ 24,000$ . (d) The equipment is traded-in for a similar asset. The list price of the new equipment is $\$ 63,000$ . The buyer gave no cash in the exchange. The transaction lacks commercial substance. ​ Journal $\begin{array} { | l | l | l | l | l | } \hline \text { Date } & \text { Description } & \begin{array} { c } \text { Post. } \\\text { Ref. }\end{array} & \text { Debit } & \text { Credit } \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline \\\hline \\\hline \\\hline \\\hline \\\hline \\\hline \\\hline \\\hline \\\hline \\\hline \\\hline \\\hline\end{array}$

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Question 83

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Equipment acquired on January 2, Year 1, at a cost of $525,000 has an estimated useful life of eight years and an estimated residual value of $45,000. Required:

Land Improvements

On December 31, it was estimated that goodwill of $65,000 was impaired. On July 1, a patent with an estimated useful economic life of 10 years was acquired for $60,000. (a) Journalize the adjusting entry on December 31 for the impared goodwill. (b) Joumalize the adjusting entry on December 31 for the amortization of the patent rights.

Once the useful life of a depreciable asset has been estimated and the amount to be depreciated each year has been determined, the amounts cannot be changed.

On June 1, Scotter Company purchased equipment at a cost of $120,000 that has a depreciable cost of $90,000 and an estimated useful life of 3 years or 30,000 hours. Using straight-line depreciation, calculate depreciation expense for the first year, which ends on December 31.

Gain on Sale of Equipment

Both the initial cost of the asset and the accumulated depreciation will be taken off the books with the disposal of the asset.

When a company exchanges machinery and receives a trade-in allowance greater than the book value, this transaction would be recorded with which of the following entries (assuming the exchange was considered to have commercial substance) ?

Long-lived assets that are intangible in nature, used in the operations of the business, and not held for sale in the ordinary course of business are called fixed assets.

A machine costing $185,000 with a 5-year life and $20,000 residual value was purchased January 2. Compute depreciation for each of the five years, using the double-declining-balance method.

An estimate of the amount for which an asset can be sold at the end of its useful life is called residual value.

Select best of the following expenditures as chargeable to (a) Land, (b) Land Improvements, (c) Buildings, (d) Machinery and Equipment, or (e) other account.

Classify each of the following costs associated with long-lived assets as one of the following: -Landscaping at new business location

Expenditures for research and development are generally recorded as

On the first day of the fiscal year, a new walk-in cooler with a list price of $58,000 was acquired in exchange for an old cooler and $44,000 cash. The old cooler had a cost of $25,000 and accumulated depreciation of $16,000. Assume the transaction has commercial substance. (a) Determine the gain to be recorded on the exchange. (b) Journalize the entry to record the exchange.

Comment on the validity of the following statements. "As an asset loses its ability to provide services, cash needs to be set aside to replace it. Depreciation accomplishes this goal."

The cost of computer equipment does not include the consultant's fee to supervise installation of the equipment.

Classify each of the following costs associated with long-lived assets as one of the following: -Freight costs paid on purchase of new equipment