Exam 11: Investments in Noncurrent Operating Assets-Utilization and Retirement

The impairment test for an intangible asset with a definite life compares the

In accordance with generally accepted accounting principles, which of the following methods of amortization is normally recommended for intangible assets?

Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues?

The Bucol Company purchased a tooling machine in 2001for $120,000. The machine was being depreciated on the straight-line method over an estimated useful life of 20 years, with no salvage value. At the beginning of 2011, when the machine had been in use for ten years, the company paid $20,000 to overhaul the machine. As a result of this improvement, the company estimated that the useful life of the machine would be extended an additional five years. What would be the depreciation expense recorded for the above machine in 2011?

The John Company purchased a machine on November 1, 2002, for $148,000. At the time of acquisition, the machine was estimated to have a useful life of ten years and an estimated salvage value of $4,000. John has recorded monthly depreciation using the straight-line method. On July 1, 2011, the machine was sold for $13,000. What should be the loss recognized from the sale of the machine?

WM is a waste disposal company. Explain the effect the following actions of the management of WM Company might have in managing earnings:

A truck that cost $8,000 was originally being depreciated over four years using the straight-line method with no salvage value. If after one year, it was decided that the truck would last an additional four years (or a total of five years), the second year's depreciation would be

On January 1, 2007, Barry Company purchased for $600,000, a trademark with an estimated useful life of 16 years. In January 2011, Barry paid $90,000 for legal fees in a successful defense of the trademark. Trademark amortization expense for the year ended December 31, 2011, should be

Bellows Bottling purchased for $800,000 a trademark for a very successful soft drink it markets under the name BLAST!. The trademark was determined to have an indefinite life. A competitor recently introduced a product that is in direct competition with the BLAST! product, thus suggesting the need for an impairment test. Data gathered by Bellows suggests that the useful life of the trademark is still indefinite, but the cash flows expected to be generated by the trademark have been reduced either to $30,000 per year (with a probability of 80%) or to $60,000 per year (with 20% probability). The appropriate risk-free interest rate is 5%. The appropriate risk-adjusted interest rate is 10%. Prepare the appropriate journal entry (if needed) to record the effect of the events described above.

Which of the following assets generally is required to be tested at least annually for impairment?

The sum-of-the-years'-digits method of depreciation is being used for a machine with a five-year estimated useful life. What would be the fraction applied to the cost to be depreciated in the fourth year?

In 2010, Newman Company paid $1,000,000 to purchase land containing a total estimated 160,000 tons of extractable mineral deposits. The estimated value of the property after the mineral has been removed is $200,000. Extraction activities began in 2011, and by the end of the year, 20,000 tons had been recovered and sold. In 2012, geological studies indicated that the total amount of mineral deposits had been underestimated by 25,000 tons. During 2012, 30,000 tons were extracted, and 28,000 tons were sold. What is the depletion rate per ton (rounded to the nearest cent) in 2012?

The impairment test for an intangible asset with an indefinite life compares the

In recording the trade of one asset for another, which of the following accounts is usually debited?

On January 1, 2011, Carson Company purchased equipment at a cost of $420,000. The equipment was estimated to have a useful life of five years and a salvage value of $60,000. Carson uses the sum-of-the-years'-digits method of depreciation. What should the accumulated depreciation be at December 31, 2014?

Dewey Company purchased a machine that was installed and placed in service on January 2, 2010, at a total cost of $480,000. Residual value was estimated at $80,000. The machine is being depreciated over ten years by the double-declining-balance method. For the year 2011, Dewey should record depreciation expense of

Hearsa Manufacturing Inc. purchased a new machine on January 2, 2011, that was built to perform one function on its assembly line. Data pertaining to this machine are: Acquisition cost $330,000 Residual value $30,000 Estimated service life: Years 5 Service hours 250,000 Production output 300,000 Using each of the following methods, compute the annual depreciation rate and charge for the years ended December 31, 2011, and 2012:

Ellis Construction Company recently exchanged an old truck, which cost $108,000 and was one-third depreciated, and paid $70,000 cash for a similar truck having a current fair value of $130,000. The exchange lacked commercial substance. At what amount should the truck be recorded on the books of Ellis?

Bingham Mining Company has a copper mine in Australia. The company is subject to the pronouncements of the International Accounting Standards Board, and, specifically, IFRS 36. The plant and equipment used in this operation were acquired five years ago for $1,600,000 and have been depreciated using straight-line depreciation over a 20-year life. The controller estimates that the assets have a remaining useful life of 15 years. The controller of the company is preparing the financial statements for the year just ended and notes that the fair value of the plant and equipment is estimated to be $1,150,000 at the close of last year. The controller also determines that the present value of the discounted future cash flows associated with the asset's future use equals $1,300,000. Prepare the entry (if any) the controller should make under IFRS 36 relating to the current fair value of the plant & equipment. Additionally, assume that the company sold the plant & equipment for $1,300,000 immediately after the end of last year. Prepare the entry (if any) required under IFRS 36.

The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were