Exam 8: Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Prepare the required adjusting journal entry at December 31, 2015, the end of the annual accounting period for the three items below. Assume that no adjusting entries have been made during the year. If no entry is required, explain why. A. Polk Company acquired a patent that cost $6,000 on January 1, 2015. The patent was registered on January 1, 2010. The useful life of a patent is 20 years from registration. B. Polk Company acquired a gravel pit on January 1, 2015, that cost $24,000. The company estimates that 30,000 tons of gravel can be extracted economically. During 2015, 4,000 tons were extracted and sold. C. On January 1, 52014, Polk Company acquired a used dump truck that cost $6,000 to use hauling gravel. The company estimated a residual value of 10% of cost and a useful life 4 years. The company uses straight-line depreciation.

Selling a depreciable asset for a gain results in an increase in both net income and assets.

Which of the following statements is incorrect?

A company acquires land by issuing 10,000 shares of its $10 par value common stock currently trading at $20 per share and the appraised value of the land is $250,000. Which of the following statements correctly describes the recording of the land?

Goodwill is recorded only when an existing company is bought by another company and the purchase price exceeds the fair value of the purchased company's net assets.

Which of the following statements is correct with respect to the sale of a depreciable asset?

Which of the following accounts would not be considered a tangible asset?

Amanda Company purchased a computer that cost $10,000. It had an estimated useful life of five years and a residual value of $1,000. The computer was depreciated by the straight-line method and was sold at the end of the third year of use for $5,000 cash. How much of a gain or loss should Amanda record?

On January 1, 2014, Pyle Company purchased an asset that cost $50,000 and had no estimated residual value. The estimated useful life of the asset is 8 years and straight-line depreciation is used. An error was made in 2014 because the total amount of the asset's cost was debited to an expense account for 2014 and no depreciation was recorded. Pretax income for 2014 was $42,000. How much is the correct 2014 pretax income?

Research and development costs are capitalized under GAAP once a product or process has been developed.

Which of the following does not properly describe the depreciation process?

On August 1, Red Company purchased computer equipment for $10,000 cash and also gave 100 shares of White common stock that Red Company held as an investment. The White common stock cost Red Company $5,000 and on August 1 had a fair value of $4,200. The installation costs for the computer equipment were $700 and shipping costs were $500. What amount should be the total amount debited to the computer equipment account?

Which of the following equipment related costs is not capitalized on a balance sheet?

The first step in recording the disposal of a long-lived asset is to update its book value by recognizing depreciation expense for the period of time since the last depreciation adjustment was made.

Patents, trademarks, and franchises are examples of tangible assets.

Schager Company purchased a computer system on January 1, 2014, at a cash cost of $25,000. The estimated useful life is 10 years, and the estimated residual value is $3,000. The company will use the double declining-balance depreciation method. What is the accumulated depreciation balance as of December 31, 2015?

Natural resource depletion is recognized on the income statement for all resources removed during the period whether they are sold or not.

Which of the following statements about the Modified Accelerated Cost Recovery System (MACRS) is correct?

On January 1, 2013, Boston Company purchased a heavy duty machine having an invoice price of $13,000. Boston paid transportation and installation costs totaling $3,000. The machine is estimated to have a 4-year useful life and a $1,400 residual value. Required: Calculate depreciation expense and book value for 2013-2016, assuming double declining-balance method of depreciation.

Lue Company sold used equipment for $450,000 cash. The equipment was purchased 5 years ago for a cost of $800,000. It has been depreciated using the straight-line method over an estimated useful life of 10 years with an estimated residual value of $50,000. Required: Prepare the journal entry at the end of year five for the asset's disposal assuming the fifth year's depreciation had been recorded.