Exam 11: Property, Plant, and Equipment and Intangible Assets: Utilization and Disposition

On January 3, 2018, Tracer Incorporated purchased a patent for $450,000 to manufacture a new type of chair. The patent has a remaining legal life of 12 years. Tracer plans to manufacture the chair for eight years and then sell the patent for $50,000. The company amortizes intangible assets using the straight-line method. On December 29, 2020, Tracer decides to sell the patent for $325,000. Assuming the company has a December 31 year end, what is the gain or loss recorded on the sale of the patent?

Any method of depreciation should be both systematic and rational.

Listed below are five terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term. -Rearrangements

Notsofast Inc. acquired land for $500,000 on July 1, 2017. It erroneously recorded the full amount as an expense. Explain what Notsofast must do when it discovers the error in 2018.

On January 1, 2018, Hobart Mfg. Co. purchased a drill press at a cost of $36,000. The drill press is expected to last 10 years and has a residual value of $6,000. During its 10-year life, the equipment is expected to produce 500,000 units of product. In 2018 and 2019, 25,000 and 84,000 units, respectively, were produced. -Required: Compute depreciation for 2018 and 2019 and the book value of the drill press at December 31, 2018 and 2019, assuming the units-of-production method is used.

International Financial Reporting Standards (IFRS) require goodwill to be tested for impairment at least annually.

Cutter Enterprises purchased equipment for $72,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $6,000. -Using the straight-line method, depreciation for 2018 would be:

Fryer Inc. owns equipment for which it paid $90 million. At the end of 2018, it had accumulated depreciation on the equipment of $27 million. Due to adverse economic conditions, Fryer's management determined that it should assess whether an impairment loss should be recognized for the equipment. The estimated undiscounted future cash flows to be provided by the equipment total $60 million, and the equipment's fair value at that point is $40 million. Under these circumstances, Fryer:

Briefly explain the disclosures that are required relative to depreciable assets.

The physical life of a depreciable asset is bounded by its service life.

Listed below are 10 terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the correct term. -Depletion

Which of the following represents an event that indicates an asset's book value may not be recoverable?

A major addition to equipment should have been capitalized in the year 2018 but was incorrectly expensed. Which of the following is (are) true?

An asset was acquired on September 30, 2018, for $100,000 with an estimated 5-year life and $20,000 residual value. The company uses double-declining-depreciation. Calculate the gain or loss if the asset was sold on December 31, 2019, for $50,000. Partial-year depreciation is to be calculated.

Archie Co. purchased a framing machine for $45,000 on January 1, 2018. The machine is expected to have a four-year life, with a residual value of $5,000 at the end of four years. -Using the double-declining balance method, depreciation for 2019 and book value at December 31, 2019, would be:

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Depreciation

Natural resources that have been harvested but not yet sold are accounted for as:

Briefly explain how to account for a change in depreciation method.

Briefly differentiate between activity-based and time-based allocation methods.

Russell Enterprises acquired a franchise from Michael Incorporated for $300,000. The franchise agreement is for a period of six years. Russell uses straight-line to amortize all intangible assets. What would be the reported book value of the franchise two years after the purchase?