Exam 9: Property, Plant, and Equipment, Intangible Assets and Natural Resources

Under the half-year convention, six months' depreciation is recorded on an asset in the year of acquisition and in the year of retirement regardless of the month in which the asset is actually purchased or retired.

Research and development-financial reporting Alert Industries has spent $5 billion over the last three years in developing a new drug labeled BJ13. FDA approval is expected by the end of the month, at which time the drug will be available for sale. None of Alert's competitors has a product similar to BJ13, and the medical community is anxiously awaiting availability of this drug. Although BJ13 promises to be a "wonder drug" with huge financial success, Alert's income statements for the last few years have shown substantial losses and Alert's statement of financial position only includes $ 0.3 billion product BJ13 among the assets of the business. Explain why one of Alert's seemingly most valuable assets apparently has been reported for only $0.3 billion in the statement of financial position, and why Alert's income statements for the past few years reported substantial losses. IFRS currently require that amounts spent for research be expensed as incurred and amounts spent for development be capitalized as intangible assets if and only if all the following six specific recognition criteria are met: 1. The technical feasibility of completing the intangible asset for use or sale; 2. The entity intends to complete the intangible asset and use or sell it; 3. The entity has the ability to use or sell the intangible asset; 4. How the intangible asset will generate probable future economic benefits, for example, the existence of a market for the output of the intangible asset, or the usefulness of the intangible asset for internal purpose; 5. The availability of adequate technical, financial, and other resources to complete the development and to use or sell the intangible asset; and 6. The entity's ability to measure reliably the expenditure attributable to the intangible asset during its development.

Prepare journal entries for the following: (a) 1 November 2013. Purchased machinery for $93,600 with a $7,200 residual value and a six year life by paying $14,400 down and the balance with a Note Payable.(Ignore interest) (b) 31 December 2013. Record the adjusting entry for depreciation using the straight line method to the nearest month. (c) 1 July 2014. Sold the equipment for $81,600 cash and paid off the Note Payable.

Which of the following situations is impossible?

On 30 April 2013, Tilton Products purchased machinery for $88,000. The useful life of this machinery is estimated at 8 years, with an $8,000 residual value. -Refer to the above data. In the year 2020, Tilton Products sells this machinery for $4,500. At the date of sale, the machinery had been depreciated by Tilton Products to its estimated residual value of $8,000. This sale results in:

If an asset is determined to be impaired, it should be:

Throughout the current year, Chan Company treated sales taxes paid on purchases of PPE assets as revenue expenditures. As a result, the current year's:

Declining balance depreciation On 6 July 2011, Grayson purchased new machinery with an estimated useful life of 10 years. Cost of the equipment was $80,000, with a residual value of $8,000. Compute the depreciation on this machinery in 2011 and 2012 using each of the following methods. \ 2011 2012 (a) 150\% -declining-balance, using the half-year convention \ underline (b) 200\% -declining-balance, using the half-year convention \ underline

Once the estimated life is determined for a depreciable asset it can never be changed.

Book value represents the cost of an asset that has yet to be allocated to expense.

In the fixed-percentage-of-declining-balance depreciation method, the book value of the asset is multiplied by:

Harvard Company purchased equipment having an invoice price of $11,500. The terms of sale were 2/10, n/30, and Harvard paid within the discount period. In addition, Harvard paid a $160 delivery charge, $185 installation charge, and $931 sales tax. The amount recorded as the cost of this equipment is:

Most companies benefit by using accelerated depreciation methods for income tax purposes.

Which of the following statements about accelerated depreciation methods is not correct?

Four events pertaining to PPE assets are described below. (a) Computed depreciation for use in the annual income tax return (a different method is used in the financial statements). (b) Made a year-end adjusting entry to record depreciation expense for financial reporting purposes. (c) Sold old equipment for cash at a price below its book value, but above its income tax basis. (d) Traded an old automobile in on a new one. The dealer granted a trade-in allowance on the old vehicle that was substantially above its book value and its tax basis. However, the trade-in allowance amounted to only a small portion of the price of the new car; most of the purchase price was paid in cash. Indicate the immediate effects of each of these events upon the financial measurements in the four column headings listed below. Use the code letters, I for increase, D for decrease, and NE for no effect. Note: Indicate only the immediate effects of each transaction. Do not attempt to anticipate how changes in taxable income will affect future cash flows. Transaction Current assets Profit Taxable income Net cash flow (all activities combined) (a) (b) (c) (d)

Armstrong Company recently acquired a new computer system. Which of the following costs associated with the computer should not be debited to the Equipment account?

With respect to depreciation policies, the principle of consistency means:

Depreciation in financial statements Dynasty Co. uses straight-line depreciation in its financial statements, with depreciation for a partial year rounded to the nearest full month. On 28 September 2006 Dynasty purchased equipment at a cost of $140,000. For financial reporting purposes, the useful life of this equipment was estimated at 5 years, with a $30,000 salvage value. Compute the depreciation expense relating to this equipment that Dynasty will recognize in its financial statements in the following years. If no depreciation will be recognized in a particular year, write zero. Year Amount 2006 \ 2007 \ 2008 \ 2009 \ 2010 \ 2011 \

Capital expenditures are recorded as:

It is an acceptable accounting practice to treat an expenditure that is not material in dollar amount as an expense of the current period even though the expenditure may benefit several periods.