Exam 9: Reporting and Analyzing Long-Lived Assets

The return on assets ratio indicates how efficiently a company uses its assets.

The cost of an intangible asset with an indefinite life should

A company has the following assets: The total amount reported under Property, Plant, and Equipment would be

Mark's Repair Service uses the straight-line method of depreciation. The company's fiscal year end is December 31. The following transactions and events occurred during the first three years. Instructions Prepare the necessary entries. (Show computations.)

Which of the following methods will result in the highest depreciation in the first year?

A machine with a cost of $480,000 has an estimated salvage value of $30,000 and an estimated useful life of 5 years or 15,000 hours. It is to be depreciated using the units-of-activity method of depreciation. What is the amount of depreciation for the second full year, during which the machine was used 5,000 hours?

Morton's Courier Service recorded a loss of $6,000 when it sold a van that originally cost $56,000 for $10,000. Accumulated depreciation on the van must have been

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

The book value of an asset is equal to the

Goodwill is recorded only when there is an exchange transaction that involves the purchase of an entire business.

In recording the acquisition cost of an entire business

During the current year Knight Company incurred several expenditures. Briefly explain whether the expenditures listed below should be recorded as an operating expense or as an intangible asset. If you view the expenditure as an intangible asset, indicate the number of years over which the asset should be amortized. Explain your answer. (a) Spent $30,000 in legal costs in a patent defense suit. The patent was unsuccessfully defended. (b) Purchased a trademark from another company. The trademark can be renewed indefinitely. Knight Company expected the trademark to contribute to revenue indefinitely. (c) Knight Company acquires a patent for $2,000,000. The company selling the patent has spent $1,000,000 on the research and development of it. The patent has a remaining life of 15 years. (d) Knight Company is spending considerable time and money in developing a different patent for another product. So far $3,000,000 has been spent this year on research and development. Knight Company is very confident they will obtain this patent in the next few years.

A company purchases a remote building site for computer operations. The building will be suitable for operations after some expenditures. The wiring must be replaced to computer specifications. The roof is leaky and must be replaced. All rooms must be repainted and recarpeted and there will also be some plumbing work done. Which of the following statements is true?

Indicate whether each of the following expenditures should be classified as land (L), land improvements (LI), buildings (B), equipment (E), or none of these (X).

Arnold Company purchases a new delivery truck for $40,000. The sales taxes are $2,500. The logo of the company is painted on the side of the truck for $1,200. The truck's annual license is $120. The truck undergoes safety testing for $220. What does Arnold record as the cost of the new truck?

Units-of-activity is an appropriate depreciation method to use when

Using the following data for Hayes, Inc., compute its asset turnover ratio and the return on assets ratio.

Trademarks are generally shown on the balance sheet under

For each entry below make a correcting entry if necessary. If the entry given is correct, then state "No entry required." (a) The $70 cost of repairing a printer was charged to Equipment. (b) The $5,500 cost of a major engine overhaul was debited to Maintenance and Repairs Expense. The overhaul is expected to increase the operating efficiency of the truck. (c) The $6,000 closing costs associated with the acquisition of land were debited to Operating Expenses. (d) A $300 charge for transportation expenses on new equipment purchased was debited to Freight-In.

A company purchased a patent on January 1, 2014, for $2,500,000. The patent's legal life is 20 years but the company estimates that the patent's useful life will only be 5 years from the date of acquisition. On June 30, 2014, the company paid legal costs of $162,000 in successfully defending the patent in an infringement suit. Prepare the journal entry to amortize the patent at year end on December 31, 2014. (b) Milner Company purchased a franchise from the Tasty Food Company for $450,000 on January 1, 2014. The franchise is for an indefinite time period and gives Milner Company the exclusive rights to sell Tasty Wings in a particular territory. Prepare the journal entry to record the acquisition of the franchise and any necessary adjusting entry at year end on December 31, 2014. (c) Huerter Company incurred research and development costs of $500,000 in 2014 in developing a new product. Prepare the necessary journal entries during 2014 to record these events and any adjustments at year end on December 31, 2014.