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

Various depreciation methods--two years On 6 September 2010, East River Tug Co. purchased a new tugboat for $400,000. The estimated life of the boat was 20 years, with an estimated residual value of $40,000. Compute the depreciation on this tugboat in 2010 and 2011 using the following methods. Apply the half-year convention. (If necessary, round to the nearest dollar.) 2010 2011 (a) Straight-line underline \ (b) 200\% -declining-balance \ \ (c) 150\% -declining-balance underline \

Early in the current year, Amazon Co. purchased the Rio Silver Mine at a cost of $30,000,000. The mine was estimated to contain 400,000 tons of ore and to have a residual value of $7,500,000 after mining operations are completed. During the year, 115,000 tons of ore were removed from the mine. At year-end, the book value of the mine is:

As for the depreciable PPE assets of a company, the accounting policy of not charging any depreciation:

Suffolk Associates sold office furniture for cash of $42,000. The accumulated depreciation at date of sale amounted to $38,000, and a gain of $18,000 was recognized on the sale. The original cost of the asset must have been:

Revenue expenditures are recorded as:

Research and development costs should be capitalized to match the period of benefit.

Expenditures for research intended to lead to new products of commercial value:

The following expenditures are related to land, land improvements, and buildings, which were acquired on November 1, 2009. Cost of real estate acquired for a new manufacturing plant \ 365,000 The land is appraised for \ 262,800 and the building for \ 102,200. Real estate taxes paid by the purchaser \ 20,000 Cost of removing a barn \ 8,500 Architect's fees for updating building \ 6,750 Attorney's fees for closing sale \ 12,500 Grading land \ 3,500 Paving parking lot \ 7,000 Planting trees and shrubs \ 9,250 Cost of repairs to building due to storm during construction \ 1,300 Lights placed on driveway 4750 Fee to real estate broker \ 2,500 Required: Determine the cost of the land, the building and the improvements (Round to the nearest dollar) Prepare journal entries on 31 December, 2009 for depreciation assuming the building will have a useful life of 20 years and no residual value. Use double declining balance method and the half-year convention. Depreciate the land improvements using straight-line method, a 5 year life, to the nearest month with zero residual value (to the nearest dollar).

Louisville Farms, a breeder of racehorses, paid $432,000 cash for a prize-winning stallion on 1 January 2007. The stallion is depreciated on a straight-line basis, with depreciation for partial years rounded to the nearest month. Estimated useful life was nine years, with no residual value. After owning the animal for six years and five months, Louisville Farms sold the stallion on 31 May 2013, for cash of $85,000. Depreciation had last been recorded on 31 December, 2012. -Compute the gain or loss on the sale of the stallion. $______________ (gain/loss)

Annual depreciation expense is increased when salvage values are small.

On 5 May 2013, Lloyd purchased a machine for $84,000. The estimated life of the machine was 10 years, with an estimated residual value of $10,000. The service life in terms of "output" is estimated at 8,000 hours of operation. -Assume Lloyd uses 200%-declining-balance depreciation with the half-year convention. Depreciation expense to be recognized in 2014 (the second year of ownership) is:

Which depreciation method is most commonly used among publicly owned corporations?

Goodwill-financial reporting considerations Cabot Corporation's statement of financial position at 31 December 2013 includes an asset entitled goodwill in the amount of $900,000, net of accumulated amortization. (a) Briefly explain what is meant by the term goodwill. (b) Under what circumstances is goodwill recorded in the accounting records? Include in your Answer a specific situation in which Cabot would have recorded the goodwill mentioned above.

On 2 April 2013, Victor, Inc. acquired a new piece of filtering equipment. The cost of the equipment was $160,000 with a residual value of $20,000 at the end of its estimated useful lifetime of 4 years. -Refer to the above information. Assume that in its financial statements, Victor uses straight-line depreciation and rounds depreciation for fractional years to the nearest whole month. Depreciation recognized on this equipment in 2013 and 2014 will be:

Just as there are depreciation methods to calculate the decline in value of assets, there are appreciation methods to record the increase in value of assets.

Sales tax on equipment is not part of the acquisition cost and should not be capitalized.

If an accelerated depreciation method is used for an asset with a useful life of five years, more depreciation expense would be recorded in the third year than in the fifth year.

A gain is recognized on the disposal of PPE assets when:

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. Assume that in its financial statements, Tilton Products uses the 200%-declining-balance method and the half-year convention. Depreciation expense in 2013 and 2014 will be:

The inclusion of the intangible asset goodwill in the financial statements of a company indicates: