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

Equipment was purchased for $85,000 on January 1, 2018. Freight charges amounted to $3,500 and there was a cost of $10,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $15,000 salvage value at the end of its 5-year useful life. What is the amount of accumulated depreciation at December 31, 2019, if the straight-line method of depreciation is used?

A company purchased factory equipment on April 1, 2018 for $160,000. It is estimated that the equipment will have a $20,000 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

South Airlines purchased a 747 aircraft on January 1, 2017, at a cost of $35,000,000. The estimated useful life of the aircraft is 20 years, with an estimated salvage value of $5,000,000. On January 1, 2020 the airline revises the total estimated useful life to 15 years with a revised salvage value of $3,500,000. Instructions (a) Compute the depreciation and book value at December 31, 2019 using the straight-line method and the double-declining-balance method. (b) Assuming the straight-line method is used, compute the depreciation expense for the year ended December 31, 2020.

Additions and improvements are costs incurred to increase the operating efficiency, productive capacity, or expected useful life and are referred to as __________________.

If disposal of a plant asset occurs during the year, depreciation is

The Hartley Clinic purchased a new surgical laser for $90,000. The estimated salvage value is $5,000. The laser has a useful life of five years and the clinic expects to use it 10,000 hours. It was used 1,600 hours in year 1; 2,200 hours in year 2; 2,400 hours in year 3; 1,800 hours in year 4; 2,000 hours in year 5. Instructions (a) Compute the annual depreciation for each of the five years under each of the following methods: (1) straight-line. (2) units-of-activity. (b) If you were the administrator of the clinic, which method would you deem as most appropriate? Justify your answer. (c) Which method would result in the lowest reported income in the first year? Which method would result in the lowest total reported income over the five-year period?

A loss on disposal of a plant asset as a result of a sale or a retirement is calculated in the same way.

If the proceeds from the sale of a plant asset exceed its book value, a gain on disposal occurs.

The cost of a patent must be amortized over a 20-year period.

Mattox Company is building a new plant that will take three years to construct. The construction will be financed in part by funds borrowed during the construction period. There are significant architect fees, excavation fees, and building permit fees. Which of the following statements is true?

Able Towing Company purchased a tow truck for $180,000 on January 1, 2017. It was originally depreciated on a straight-line basis over 10 years with an assumed salvage value of $36,000. On December 31, 2019, before adjusting entries had been made, the company decided to change the remaining estimated life to 4 years (including 2019) and the salvage value to $5,000. What was the depreciation expense for 2019?

Interest may be included in the acquisition cost of a plant asset

The asset turnover is calculated as total sales divided by ending total assets.

Rooney Company incurred $560,000 of research and development cost in its laboratory to develop a patent granted on January 1, 2018. On July 31, 2018, Rooney paid $84,000 for legal fees in a successful defense of the patent. The total amount debited to Patents through July 31, 2018, should be:

The four subdivisions for plant assets are

The book value of a plant asset is the difference between the

On January 2, 2018, Kerwin Company purchased a patent for $48,000. The patent has an estimated useful life of 25 years and a 20-year legal life. What entry would the company make at December 31, 2018 to record amortization expense on the patent?

Yanik Company's delivery truck, which originally cost $84,000, was destroyed by fire. At the time of the fire, the balance of the Accumulated Depreciation account amounted to $57,000. The company received $48,000 reimbursement from its insurance company. The gain or loss as a result of the fire was

Sargent Corporation bought equipment on January 1, 2018. The equipment cost $360,000 and had an expected salvage value of $60,000. The life of the equipment was estimated to be 6 years. The depreciable cost of the equipment is

Farr Company purchased a new van for floral deliveries on January 1, 2018. The van cost $56,000 with an estimated life of 5 years and $14,000 salvage value at the end of its useful life. The double-declining-balance method of depreciation will be used. What is the depreciation expense for 2018?