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Exam 9: Long-Term Assets: Fixed and Intangible

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Question 121

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A lathe priced at a fair market value of $124,000 is acquired in a transaction that has commercial substance by trading in a similar lathe and paying cash for the difference between the trade-in allowance of $45,000 and the price of the new lathe. ​ (a) What is the amount of cash given? (b) Assuming that the book value of the lathe traded in is $50,000, what is the gain or loss on the exchange?

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(a) Cash given = Cost of new lathe - Tra...

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Question 122

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Falcon Company acquired an adjacent lot to construct a new warehouse, paying $40,000 and giving a short-term note for $410,000. Legal fees paid were $13,275, delinquent taxes assessed were $14,500, and fees paid to remove an old building from the land were $15,800. Materials salvaged from the demolition of the building were sold for $6,800. A contractor was paid $890,000 to construct the new warehouse. Determine the cost of the land to be reported on the balance sheet and show your work.

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Question 123

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The following information was taken from a recent annual report of Harrison Company (in millions): $\begin{array}{|l|r|r|} \hline& \text { Current Year } & \text { Preceding Year } \\\hline \text { Land and buildings } & \$ 726 & \$ 361 \\\hline \text { Machinery, equipment, and internal -use software } & 595 & 470 \\\hline \text { Office furniture and equipment } & 94 & 81 \\\hline \text { Other fixed assets rel ated to leases } & 760 & 569 \\\hline \text { Accumulated depreciation and amortization } & 894 & 644 \\\hline\end{array}$ ​ Required: (a) Compute the book value of the fixed assets for the current year and the preceding year and explain the differences, if any. (b) Would you normally expect the book value of fixed assets to increase or decrease during the year?

The amount of depreciation expense for a fixed asset costing $95,000, with an estimated residual value of $5,000 and a useful life of 5 years or 20,000 operating hours, is $21,375 by the units-of-output method during a period when the asset was used for 4,500 hours.

Machinery is purchased on July 1 of the current fiscal year for $240,000. It is expected to have a useful life of 4 years, or 25,000 operating hours, and a residual value of $15,000. Compute the depreciation for the last six months of the current fiscal year ending December 31 by each of the following methods: (a) straight-line (b) double-declining-balance (c) units-of-output (used for 1,600 hours during the current year) ​

Capital expenditures are costs that improve a fixed asset or extend its useful life.

It is not necessary for a company to use the same depreciation method for financial statements and for determining income taxes.

The calculation for annual depreciation using the units-of-output method is

Match the intangible assets described with their proper classification (a-d) . -A new kitchen gadget that can be produced by only one company

The natural resources of some companies include

Machinery acquired at a cost of $80,000 and on which there is accumulated depreciation of $55,000 (including depreciation for the current year to date) is exchanged for similar machinery. Assume that the transaction has commercial substance. For financial reporting purposes, present entries to record the exchange of the machinery under each of the following assumptions: (a) Frice of new, $\$ 120,000$ ; trade-in allowance on old, $\$ 4,000$ ; balance paid in cash. (b) Price of new, $\$ 120,000$ ; trade-in allowance on old, $\$ 34,000$ ; bal ance paid in cash.

Which of the following should be included in the acquisition cost of a piece of equipment?

On July 1, Hartford Construction purchases a bulldozer for $228,000. The equipment has a 9-year life with a residual value of $16,000. Hartford uses the units-of-output method of depreciation, and the bulldozer is expected to yield 26,500 operating hours. What is the depreciation expense per hour of operation?

A fixed asset with a cost of $52,000 and accumulated depreciation of $47,500 is traded for a similar asset priced at $60,000 (fair market value) in a transaction with commercial substance. Assuming a trade-in allowance of $5,000, at what cost will the new equipment be recorded in the books?

Factors contributing to a decline in the usefulness of a fixed asset may be divided into the following two categories

Solare Company acquired mineral rights for $60,000,000. The diamond deposit is estimated at 6,000,000 tons. During the current year, 2,300,000 tons were mined and sold. (a) Determine the depletion rate. (b) Determine the amount of depletion expense for the current year. (c) Joumalize the adjusting entry to recognize the depletion expense.

The units-of-output depreciation method provides a good match of expenses against revenue.

Match the intangible assets described with their proper classification

The difference between the balance in a fixed asset account and its related accumulated depreciation account is the asset's book value.

An asset was purchased for $58,000 and originally estimated to have a useful life of 10 years with a residual value of $3,000. After two years of straight-line depreciation, it was determined that the remaining useful life of the asset was only 2 years with a residual value of $2,000. What will be the annual depreciation for the asset?