Deck 9: Plant and Intangible Assets

Question 1

On March 12, Year 1, Shoreham, Inc. acquired melting equipment for $45,600. The estimated life of the equipment is 6 years, with an estimated residual value of $2,400.

-Refer to above data. In its financial statements, Shoreham uses straight-line depreciation with the half-year convention. The book value of the equipment at December 31, Year 2, will be:

A) $26,600.
B) $42,000.
C) $34,800.
D) Some other amount.

Answer 1

$34,800.

Question 2

On March 12, Year 1, Shoreham, Inc. acquired melting equipment for $45,600. The estimated life of the equipment is 6 years, with an estimated residual value of $2,400.

-Refer to above data. In its financial statements, Shoreham uses double-declining-balance depreciation with half-year convention. The book value of the equipment at December 31, Year 2, will be:

A) $20,267.
B) $12,667.
C) $25,333.
D) Some other amount.

Answer 2

$25,333.

Question 3

Sayville Dairy sold a delivery truck for cash of $8,680. The original cost of the truck was $33,600, and a loss of $5,320 was recognized on the sale. The accumulated depreciation at the date of sale must have been:

A) $24,920.
B) $14,560.
C) $3,360.
D) $19,600.

Answer 3

$19,600.

Question 4

Cage 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.

A) Presley should record goodwill of $300,000.
B) Cage paid $300,000 for goodwill generated by Presley.
C) Cage should charge the $300,000 excess paid for Presley Company directly to expense.
D) Presley should record amortization over a period not to exceed 40 years.

Question 5

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

A) Net income is overstated.
B) Revenue is overstated.
C) Depreciation expense is understated.
D) None of the above; payments of sales taxes should be treated as revenue expenditures.

Question 6

On May 5, Year 1, 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.

-Refer to the above data. Assume Lloyd uses straight-line depreciation with the half-year convention. Depreciation expense to be recognized in Year 1 (the year of purchase) is:

A) $7,400.
B) $8,400.
C) $3,700.
D) Some other amount.

Question 7

On May 5, Year 1, 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.

-Refer to the data above. Assume Lloyd uses 200%-declining-balance depreciation with the half-year convention. Depreciation expense to be recognized in Year 2 (the second year of ownership) is:

A) $8,400.
B) $13,120.
C) $15,120.
D) Some other amount.

Question 8

On May 5, Year 1, 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.

-Refer to the data above. Assume Lloyd uses 150%-declining-balance depreciation with the half-year convention. Depreciation expense to be recognized in Year 1 (the year of purchase) is:

A) $8,400.
B) $6,300.
C) $12,600.
D) Some other amount.

Question 9

On May 5, Year 1, 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.

-Refer to the data above. Assume Lloyd uses the units-of-output method and that the machine was in operation for 1,000 hours in Year 1 and 1,800 hours in Year 2. The book value of the machine at December 31, Year 2 is:

A) $48,100.
B) $58,100.
C) $25,900.
D) Some other amount.

Question 10

On April 8, Year 1, Dreamland Park purchased a Ferris wheel for $300,000. The estimated life of the Ferris wheel was 10 years, with an estimated residual value of $60,000. The service life in terms of output is estimated at 30,000 hours of operation.
Compute the depreciation on this Ferris wheel in Year 1 and Year 2 using the following methods.

Question 11

Louisville Farms, a breeder of racehorses, paid $432,000 cash for a prize-winning stallion on January 1, Year 1. 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 May 31, Year 7, for cash of $85,000. Depreciation had last been recorded on December 31, Year 6.
a) Compute to the nearest full month depreciation for the fractional period from January 1, Year 7 to May 31 of Year 7. $______________
b) Compute the book value of the stallion at May 31, Year 7, the date of sale.$______________
c) Compute the gain or loss on the sale of the stallion. $______________ (gain/loss)
d) In the space provided below, prepare the journal entry to record the sale of the stallion on May 31, Year 7. (Use Breeding Stock as the title of the asset account. Assume that depreciation to date of sale already has been recorded.)