Exam 10: Long-Lived Tangible and Intangible Assets

Chen Company Chen Company office equipment costs $10,000, has an expected life of four years and a salvage value of $400.The firm has depreciated this asset on a straight-line basis.The firm has recorded depreciation for two years and then sells the equipment at midyear in the third year. What is the entry to record depreciation charges up to the date of sale for Chen Company?

Macon Company Macon Company owns an apartment building that originally cost $40 million and by the end of the current period has accumulated depreciation of $10 million, with net carrying value of $30 million.Macon Company had originally expected to collect rentals of $3.34 million each year for 30 years before selling the building for $16 million.Unanticipated placement of a new shopping center has caused Macon Company to reassess the future rentals.Macon Company expects the building to provide rentals for only 15 more years before Macon will sell it.Macon Company uses a discount rate of 8% per year in discounting expected rentals from the building. Macon now expects to receive annual rentals of $2.7 million per year for 15 years and to sell the building for $10.0 million after 15 years; these payments, in total, have a present value of $26.2 million when discounted at 8% per year.The building's fair value is $25 million today.Costs to sell are estimated at $1,000,000. Using the Macon Company data, under U.S.GAAP:

Describe several issues in the accounting for long-lived assets.

Which of the following is not true regarding long-lived assets with a finite life?

Clayton Drug Company purchases a patent from its creator.Which of the following is/are true?

U.S.GAAP provisions require a three-step procedure for measuring and recording impairments for long-lived assets other than nonamortized intangibles and goodwill.An asset impairment loss arises when the carrying values of the assets

The recording of amortization of intangibles generally results in a

The terms salvage value and residual value refer to the estimated proceeds on the disposition of an

The capitalization of interest in the acquisition cost of assets during construction

How does disposal of an asset through sale, abandonment, or trade-in on another asset affect net income?

The original depreciation or amortization schedule for long-lived assets sometimes requires changing.Which of the following is/are not true?

A firm may retire an asset from service by trading it in on a new asset.U.S.GAAP and IFRS require that firms record a trade-in that lacks commercial substance at

Sigma Company suffers a loss to its building in a fire and spends $100,000 on repairs and improvements.It judges that $80,000 of the expenditure replaces long-lived assets lost in the fire, and $20,000 represents improvements to the building.Which of the following is the single journal entry that Sigma Company will make?

An impairment loss on all intangibles that do not require amortization, except goodwill, arises when

An impairment loss on all assets except intangibles that do not require amortization arises when

IFRS uses the idea of a disposal group, a group of assets and directly associated liabilities that a firm will dispose of as a group in a single transaction.The disposal group notion of IFRS envisions a larger unit than the component notion of U.S.GAAP.In the year that a firm decides to sell or otherwise dispose of a unit that qualifies as a(n) _____ it aggregates the assets and liabilities of that unit on the balance sheet into four groups: current assets, noncurrent assets, current liabilities, and noncurrent liabilities.

Long-lived assets with extremely long useful lives, such as land and works of art, are treated as having an indefinite life.

The depreciable or amortizable basis of long-lived assets is the acquisition cost less salvage value.

Chen Company Chen Company office equipment costs $10,000, has an expected life of four years and a salvage value of $400.The firm has depreciated this asset on a straight-line basis.The firm has recorded depreciation for two years and then sells the equipment at midyear in the third year. If the Chen Company sells the equipment for $4,600 cash, the entry to record the sale would be as follows:

An impairment loss on a brand name arises when