Exam 8: Accounting for Long-Term Operational Assets

Indicate whether each of the following statements is true or false. _____ a) Plant assets are classified as long-term assets, while intangible assets are treated as current assets. _____ b) Intangible assets include patents, copyrights, and goodwill. _____ c) The cost of most intangible assets should be amortized over the asset's useful life. _____ d) The cost of land should be depleted over its useful life. _____ e) The cost of a natural resource should be expensed (depleted) over its useful life.

In 2013, Harrogate Corporation Co. acquired a patent from a competitor for $175,000. At the time of purchase, it had 12 years of its legal life remaining; however, due to competition, Harrogate believes that the patent will only be useful for 8 years. Prepare the general journal entry to recognize amortization expense for 2013.

Which of the following would most likely not be expensed using the straight-line method?

Title search and document costs incurred to purchase a building are expensed in the period the building is acquired.

Explain how a business using the straight-line method would re-compute depreciation after revising the useful life estimate.

Clampett Corporation paid cash to acquire land to be used for oil production. The costs incurred by Clampett were the following: Estimates were made that 10,500,000 gallons of crude oil can be extracted from the site over the life of the asset. Required: a) Prepare the journal entry(ies) to record the purchase of the oil field. b) Given that Clampett was able to extract 230,000 gallons in the first year, 975,000 gallons in the second year, and 854,000 gallons in the third year Calculate the depletion charge for each year

Which of the following should be the main determinant for selection of the allocation method for long-term operational assets?

The cost of natural resources includes the purchase price, as well as exploration costs and surveys.

A copyright is an intangible asset with an indefinite useful life.

Which of the following general journal entries shows the proper recording of an impairment loss of $13,000 for goodwill?

What is the name of the tax rule that requires six months of depreciation expense to be taken in the year of purchase of the asset and the year of disposal regardless of the purchase date?

The Grant Company purchased the Lee Company for $600,000 cash. The fair market value of Lee's assets was $520,000, and the company had $40,000 in liabilities. Which of the following choices would reflect the purchase on Grant's financial statements?

Recognizing depreciation expense on equipment or a building is an asset use transaction.

On January 1, 2013 Dungan Company purchased a car that cost $35,000. The car had an expected useful life of 6 years and a $10,000 salvage value. Based on this information alone:

An expenditure that improves the quality of service provided by a plant asset is added to the historical cost of the asset.

On January 1, 2013, the Daley Corporation paid $9,000 for major improvements on a two-year-old manufacturing machine. Although the expenditure did not change the expected useful life, it greatly increased the productivity of the machine. Prior to this transaction, the machine account in the general ledger was listed at $42,000, and the accumulated depreciation account was $10,000. Daley uses the straight-line depreciation method. The estimated useful life was six years, and the estimated salvage value was $2,000. Required: a) Prepare the entry in general journal form for the January 1, 2013 transaction. b) Immediately after the January 1, 2013 transaction, what is the book value of the asset on Daley books? c) Compute the depreciation for the machine for December 31, 2013.

In 2013, Rocky Mountain Mining Co. purchased a coal mine that contained an estimated 1,000,000 tons of coal for a cash price of $28,500,000. The company mined 350,000 tons of coal in 2013. Required: a) What is the amount of depletion to be recorded per ton of coal? b) What is the amount of depletion expense for 2013?

For 2013, The Oscar Company records depreciation expense of $12,000 on its income statement and $9,000 of MACRS depreciation on its tax return. Which of the following answers is correct regarding the difference between the two figures?

Leland Co. paid $400,000 for a purchase that included land, building, and office furniture. An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: Land, $50,000, Building, $370,000, and Office Furniture, $80,000. Based on this information the cost that would be allocated to the land is:

In January 2013, Rogers Co. purchased a machine that cost $75,000. The equipment is estimated to have a 5-year life and a salvage value of $15,000. Required: a) Compute the amount of depreciation expense for 2013 and 2014 using the double declining balance method. b) Compute the amount of MACRS depreciation for the above equipment for 2013 assuming the property is 5 year property and the MACRS percentage is 20%.