Exam 8: Operating Assets: Property, plant, and Equipment, and Intangibles

Tarkington Beers,Inc.purchased the most popular and well-known pub in a college town.Its purchase price was $1,200,000.The appraisers determined that the land should be valued at $400,000,the building at $500,000 and the equipment at $200,000.Which of the following statements is correct?

When constructing assets,capitalized interest is based on

Interest included as part of the acquisition cost of the asset is referred to as___________ of interest.

Royal Company purchased a dump truck at the beginning of 2012 at a cost of $50,000.The truck had an estimated life of 5 years and an estimated residual value of $20,000.On January 1,2014,the company made major repairs of $30,000 to the truck that extended the life 3 years.Thus,starting with 2014,the truck has a remaining life of 5 years and a new salvage value of $8,000.Royal uses the straight-line depreciation method What is the book value of the truck to be reported on the balance sheet at December 31,2014?

Recently,companies have been ordered by governmental agencies to clean up environmental damages caused by business operations.How should costs incurred in these situations be treated?

A revenue expenditure is deducted from the cost of the asset.

Research and development costs should be presented as intangible assets.

Marrow Company has a large portion of its plant assets concentrated in an area where technology is changing rapidly.Marrow wants to minimize taxable income and maximize net income reported to stockholders.Recommend a course of action for Marrow.Support your recommendation.

Halifax Resort incurred the following costs to acquire and prepare land during 2013 for a new parking lot: purchase price for land,$800,000;cost to clear the land,$30,000;cost of paving,$40,000;and lighting for the parking lot,$20,000.How much should Halifax record in the Land Improvements account?

Glitch Company incurred the following costs during 2014 and 2015: a.Research and development costing $40,000 was conducted on a new product to sell in future years.A product was successfully developed,and a patent for it was granted during 2014.Glitch is unsure of the period benefited by the research,but believes the product will result in increased sales over the next five years. b.Legal costs and application fees of $25,000 for the 20-year patent were incurred on January 1,2014. c.A patent infringement suit was successfully defended at a cost of $24,000.Assume that all costs were incurred on January 1,2015. REQUIRED: Determine how the costs in (a)and (b)should be presented on Glitch's financial statements as of December 31,2014.Also determine the amount of amortization of intangible assets that Glitch should record in 2014 and 2015.

Rose,Inc.purchased equipment at the beginning of 2013 for $180,000.Rose decided to depreciate the equipment over a 5-year period using the double-declining-balance method.Rose estimated the equipment's residual value at $30,000.Which of the following statements is correct concerning Rose's financial statements at December 31,2013?

Which of the following items is added to net income to determine cash flows from operating activities when the indirect method is used to prepare the Operating Activities category of the statement of cash flows?