Exam 9: Plant Assets, Natural Resources, and Intangible Assets

Research and development costs can be classified as a property, plant, and equipment item or as an intangible asset.

For each of the following unrelated transactions, (a) determine the amount of the amortization or depletion expense for the current year, and (b) present the adjusting entries required to record each expense at year end. (1) Timber rights were purchased on a tract of land for $480,000. The timber is estimated at 1,200,000 board feet. During the current year, 75,000 board feet of timber were cut and sold. (2) Costs of $8,000 were incurred on January 1 to obtain a patent. Shortly thereafter, $22,000 was spent in legal costs to successfully defend the patent against competitors. The patent has an estimated legal life of 12 years.

The balance in the Accumulated Depreciation account represents the

A plant asset cost $288,000 and is estimated to have a $36,000 salvage value at the end of its 8-year useful life. The annual depreciation expense recorded for the third year using the double-declining-balance method would be

Orr Corporation sold equipment for $30,000. The equipment had an original cost of $90,000 and accumulated depreciation of $45,000. As a result of the sale,

Hayden Company purchased a machine on January 1, 2018, at a cost of $90,000. It is expected to have an estimated salvage value of $5,000 at the end of its 5-year life. The company capitalized the machine and depreciated it in 2018 using the double-declining-balance method of depreciation. The company has a policy of using the straight-line method to depreciate equipment but the company accountant neglected to follow company policy when he used the double-declining-balance method. Net income for the year ended December 31, 2018 was $55,000 as the result of depreciating the machine incorrectly. Instructions Using the method of depreciation which the company normally follows, prepare the correcting entry and determine the corrected net income. (Show computations.)

Ordinary repairs should be recognized when incurred as revenue expenditures.

In calculating depreciation, both plant asset cost and useful life are based on estimates.

Gagner Clinic purchases land for $175,000 cash. The clinic assumes $1,500 in property taxes due on the land. The title and attorney fees totaled $1,000. The clinic has the land graded for $2,200. What amount does Gagner Clinic record as the cost for the land?

A characteristic of capital expenditures is that the expenditures occur frequently during the period of ownership.

Which one of the following items is not considered a part of the cost of a truck purchased for business use?

Which of the following methods of computing depreciation is production based?

A patent should

Nicholson Company purchased equipment on January 1, 2016, for $80,000 with an estimated salvage value of $20,000 and estimated useful life of 8 years. On January 1, 2018, Nicholson decided the equipment will last 12 years from the date of purchase. The salvage value is still estimated at $20,000. Using the straight-line method the new annual depreciation will be:

With the exception of land, plant assets experience a ______________ in service potential over their useful lives.

Presented below are selected transactions for Werley Company for 2018. Jan. 1 Received $9,000 scrap value on retirement of machinery that was purchased on January 1, 2008. The machine cost $90,000 on that date, and had a useful life of 10 years with no salvage value. April 30 Sold equipment for $34,000 that was purchased on January 1, 2015. The equipment cost $90,000, and had a useful life of 5 years with no salvage value. Dec. 31 Discarded a business automobile that was purchased on April 1, 2014. The car cost $27,000 and was depreciated on a 5-year useful life with a salvage value of $2,000. Instructions Journalize all entries required as a result of the above transactions. Werley Company uses the straight-line method of depreciation and has recorded depreciation through December 31, 2017.

Frank White the new controller of Youngman Company, has reviewed the expected useful lives and salvage values of selected depreciable assets at the beginning of 2018. His findings are as follows. All assets are depreciated by the straight-line method. Youngman Company uses a calendar year in preparing annual financial statements. After discussion, management has agreed to accept Frank's proposed changes. Instructions (a) Compute the revised annual depreciation on each asset in 2018. (Show computations.) (b) Prepare the entry (or entries) to record depreciation on the building in 2018.

A plant asset was purchased on January 1 for $60,000 with an estimated salvage value of $12,000 at the end of its useful life. The current year's Depreciation Expense is $6,000 calculated on the straight-line basis and the balance of the Accumulated Depreciation account at the end of the year is $30,000. The remaining useful life of the plant asset is

A company purchased factory equipment on June 1, 2018, for $160,000. It is estimated that the equipment will have a $10,000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2018, is

Intangible assets are the rights and privileges that result from ownership of long-lived assets that