Exam 9: Fixed Assets and Intangible Assets

Golden Sales has bought $135,000 in fixed assets on January 1st associated with sales equipment. The residual value of these assets is estimated at $10,000 after they service their 4 year service life. Golden Sales managers want to evaluate the options of depreciation. (a) Compute the annual straight-line depreciation and provide the sample depreciation journal entry to be posted at the end of each of the years. (b) Write the journal entries for each year of the service life for these assets using the double- declining balance method.

When selling a piece of equipment for cash, a loss will result when the proceeds of the sale are less than the book value of the asset.

Patents are exclusive rights to manufacture, use, or sell a particular product or process.

A copy machine acquired on March 1, 2011 with a cost of $1,410 has an estimated useful life of 3 years. Assuming that it will have a residual value of $150, determine the depreciation for the first and second year by the straight-line method.

Comment on the validity of the following statements. "As an asset loses its ability to provide services, cash needs to be set aside to replace it. Depreciation accomplishes this goal."

When a seller allows a buyer an amount for old equipment that is traded in for new equipment of similar use, this amount is known as boot.

An exchange is said to have commercial substance if future cash flows remain the same as a result of the exchange.

The normal balance of the accumulated depreciation account is debit.

On December 31, Strike Company has decided to trade-in one of its batting cages for another one that has a cost of $500,000. The seller of the batting cage is willing to allow a trade-in amount of $11,000. The initial cost of the old equipment was $215,000 with an accumulated depreciation of $185,000. Depreciation has been taken up to the end of the year. The difference will be paid in cash. What is the amount of the gain or loss on this transaction?

Equipment was acquired at the beginning of the year at a cost of $75,000. The equipment was depreciated using the straight-line method based upon an estimated useful life of 6 years and an estimated residual value of $7,500. a)What was the depreciation expense for the first ye ar? b)Assuming the equipment was sold at the end of the second ye ar for $\$ 59,000$ , detemine the gain or loss on sale of the equipment. c)Joumalize the entry to record the sale.

Which intangible assets are amortized over their useful life?

The acquisition costs of property, plant, and equipment should include all normal, reasonable and necessary costs to get the asset in place and ready for use.

When a company replaces a component of property, plant and equipment, which statement below does not account for one of the steps in the process?

When a property, plant, and equipment asset is sold for cash, any gain or loss on the asset sold should be recorded.

When a company establishes an outstanding reputation and has a competitive advantage because of it, the company should record goodwill on its financial statements.