Exam 6: Long-Term Assets: Property, Plant Equipment and Intangibles

Use the following information to answer questions On June 30, 2010, Jumbo Corp. purchased a mine for $2,700,000 with an estimated 1,500,000 tons of extractable ore. The mine has an estimated value of $300,000 after the ore has been extracted. During the first year, 150,000 tons of ore were extracted and 100,000 tons were sold. -What amount of ore cost is included in Cost of Goods Sold for 2010?

Use the following information to answer questions On January 1, 2010, Run & Go Pizza purchased a delivery truck for $50,000. The truck has a $5,000 salvage value and a four-year (or 56,250 miles) useful life. During 2010, the company put 15,750 miles on the delivery truck. -If Run & Go uses the units-of-production method, how much depreciation expense should Run & Go recognize in 2010?

On September 1, 2010, Pablo Co. purchased a parcel of land for $150,000. Pablo paid $5,000 in legal costs to research the title for the land. The following additional costs were incurred during 2010 as Pablo began building construction on the Pablo should record which of the following amounts as the cost for the land and the cost for the building:

The choice of a depreciation method can significantly influence a company's apparent financial condition and reported profits.

A patent grants the holder an exclusive right to manufacture a specific product or to use a specific process for 40 years.

The decision of whether to capitalize or expense an amount spent on a PP&E item after its original purchase is based on the cost of the item.

On June 1, 2010, Pacific Landscaping bought a lawnmower for $29,000. The lawnmower has an estimated life of four years and a $5,000 salvage value. Pacific Landscaping uses the straight-line method of depreciation. Total depreciation expense for the year ended December 31, 2010, is

Use the following information to answer questions On September 1, 2010, Faster than R&G purchased a delivery truck for $42,000. The truck has a $3,000 salvage value and a five-year (or 60,000 miles) useful life. During 2010, the company put 8,700 miles on the delivery truck; the company put 16,100 miles on the truck in 2011. (Round all answers to the nearest dollar.) -If Faster than R&G uses the double-declining balance method, how much depreciation expense should Faster than R&G recognize in 2011?

Most patents will be useful for their entire legal lives.

Use the following information to answer questions On February 1, 2010, Consolidated Department Stores purchased the assets of Jackson Department Store for $750,000. Following are the book and fair market values of those assets at the time of acquisition: -Consolidated should recognize the cost of the building as

The Deep Hole Company recently paid $2,400,000 for a mine capable of producing 6,000 tons of ore. In the first year, Deep Hole extracted 600 tons of ore from the mine and immediately sold it at $500 per ton.

On January 1, 2010, Green Pharmaceuticals received a patent for a new arthritis medication. Research and development costs of $1,000,000 had been incurred by Green during 2007-2009 in developing this patent. The patent has a legal life of 20 years and has an estimated useful life of 5 years. What adjusting journal entry should Green prepare on December 31, 2010 relative to this patent?

If a depreciable asset is disposed of at any point other than year-end, an adjusting entry must be made to recognize depreciation expense on that asset before the disposal is recorded.

Use the following information to answer questions The following information is from Sargent's 2009 and 2010 financial statements. -What is the average asset age of Sargent's assets in 2010?

On January 1, 2010, Green Pharmaceuticals purchased a patent for a new arthritis medication from Winwood Research Labs for $1,000,000. The patent has a remaining legal life of 10 years and an estimated useful life of 5 years. What adjusting journal entry should Green prepare on December 31, 2010 relative to this patent?

Depreciable cost is used to calculate annual depreciation expense using the double-declining-balance method.

Use the following information to answer questions On February 1, 2010, Consolidated Department Stores purchased the assets of Jackson Department Store for $750,000. Following are the book and fair market values of those assets at the time of acquisition: -Consolidated should recognize the cost of the equipment as

Loli Ice Cream Services purchased an ice-cream machine on January 1, 2005, for $44,000. At the time of purchase, the machine was estimated to have a useful life of 10 years and a salvage value of $2,000. The company records depreciation on a straight-line basis. On April 1, 2010, the machine was sold for $20,000. What gain or loss should be recognized from the sale of the machine?

On January 1, 2007, Holloway Enterprises purchased an air compressor for $50,000. The compressor has an estimated salvage value of $5,000 and an estimated useful life of 5 years. Holloway uses the straight-line method to depreciate its assets. Required: 1. Assume that Holloway sells the air compressor for $30,000 cash on March 31, 2010. Prepare all journal entries related to this asset's disposition. 2. Assume that Holloway sells the air compressor for $10,000 cash on March 31, 2010. Prepare all journal entries related to this asset's disposition.

Average asset age is not affected by the use of different depreciation methods.