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

In accounting, depreciation refers to a decline in the asset's current market value, not the allocation of the cost of an asset to expense.

The term net identifiable assets means:

Depreciation and disposal--a comprehensive problem Domino, Inc uses straight-line depreciation with a half-year convention in its financial statements. On 10 March 2006, Domino acquired a computer system at a cost of $98,800. Estimated useful life is six years, with residual value of $5,200. (a) Complete the following schedule, showing depreciation expense Domino expects to recognize each year in the financial statements. Depreciation Recognized Year in Financial Statements 2006 \ 2007 \ 2008 \ 2009 \ 2010 \ 2011 \ 2012 \ (b) Assume Domino sells the computer system on 3 October 2009, for $26,650. For financial statement purposes, compute the book value of the computer system at date of disposal and the gain or loss on disposal. (Indicate gain or loss.) Book value (date of sale) underline Gain or loss on disposal \

On 8 April 2013, Jupitor Corp. acquired equipment at a cost of $480,000. The equipment is to be depreciated by the straight-line method over six years with no provision for salvage value. Depreciation for fractional years is computed by rounding the ownership period to the nearest month. Depreciation expense recognized in 2014 will be:

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 straight-line depreciation and the half-year convention. Depreciation expense recognized on this machinery in 2013 and 2014 will be:

The tax basis of a depreciable asset generally is higher than the book value of that asset for financial reporting purposes.

Lee Corporation purchases Presley Company's entire business for $2,700,000. The fair market value of Presley's net identifiable assets is $2,400,000.

Sam Dairy sold a delivery truck for cash of 86,800. The original cost of the truck was $336,000, and a loss of $53,200 was recognized on the sale. The accumulated depreciation at the date of sale must have been:

For financial reporting purposes, the gain or loss on the sale of a PPE asset is determined by comparing the asset's:

The book value of an asset is equal to its cost plus accumulated depreciation.

An asset which costs $97,600 and has accumulated depreciation of $82,000 is sold for $18,000. What amount of gain or loss will be recognized when the asset is sold?

Gains and losses in financial statements and tax returns Explain why the amount of gain or loss resulting from the sale of a depreciable asset usually differs between the seller's financial statements and income tax return. In which of these accounting reports is the gain usually larger (or the loss smaller)? Explain your reasoning.

An asset which costs $28,800 and has accumulated depreciation of $6,000 is sold for $21,600. What amount of gain or loss will be recognized when the asset is sold?

Briefly explain the difference between a revenue expenditure and a capital expenditure.

When straight-line depreciation is in use, the depreciation rate of an asset is equal to

Effects of depreciation on profit and cash flows In its financial statements, Flysafe Airlines has for many years depreciated its aircraft over an estimated useful life of 12 years. In preparing this year's financial statements, management decided to revise the estimate from 12 years to 15. Briefly explain how this revision in estimated life is likely to affect this year's: (a) Profit. (b) Net cash flow. (c) Taxable income.

The legal life of most patents is:

Intangible assets are assets used in business operations but which:

Total shareholders' equity of Tucker Company is $4,000,000. The fair market value of Tucker's net identifiable assets (assets less liabilities) is $5,000,000. Empire Corporation makes an offer to purchase Tucker's entire business for $5,800,000. In this situation:

Land improvements are not subject to depreciation.