ACC 131 Lecture Notes - Lecture 7: Intangible Asset, Fixed Asset, Historical Cost

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15 Nov 2016

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Chapter 7 (12 conceptual multiple choice, 5 multiple choice problems) Accumulated depreciation, which represents the total amount of depreciation expense that has been recorded for an asset since the asset was acquired, is reported on the balance sheet as a contra-asset. What is the definition of an intangible asset. They include patents, copyrights, trademarks, licenses, and goodwill. Depreciation is the process of allocating, in a systematic and rational manner, the cost of a tangible fixed asset (other than land) to expense over the asset"s useful life. What information do you need to know in order to calculate depreciation. Useful life (or expected life) of the fixed asset. Residual value (salvage value) of the fixed asset. How are assets that are classified as property plant and equipment reported on the balance sheet. An operating asset is recorded at its cost, including the cost of acquiring the asset and the cost of preparing the asset for use (historical cost principle).

Related Questions

1.As a company records depreciation expense for a period oftime, cash is accumulated to replace fixed assets as they wearout.

True/False

4.An asset was purchased for $110,000.00 on January 1, Year 1and originally estimated to have a useful life of 11 years with aresidual value of $9,000.00. At the beginning of the third year, itwas determined that the remaining useful life of the asset was only4 years with a residual value of $2,600.00. Calculate thethird-year depreciation expense using the revised amounts andstraight line method.

Select the correct answer.

$22,759.09

$21,259.09

$22,259.09

$23,259.09

5. Costs associated with normal research and developmentactivities should be treated as intangible assets.

True/False

7. The amount of the depreciation expense for the second fullyear of use of a fixed asset costing $100,000, with an estimatedresidual value of $5,000 and a useful life of 4 years, is $25,000by the double-declining-balance method.

True/False

9. The amount of depreciation expense for the first full year ofuse of a fixed asset costing $95,000, with an estimated residualvalue of $5,000 and a useful life of 5 years, is $19,000 by thestraight-line method.

True/False

12. The accumulated depletion of a natural resource is reportedon the:

a. balance sheet as a deduction from the cost of theresource

b. income statement as a deduction from revenues

c. balance sheet as depreciation from the cost of theresource

d. income statement as an increase in revenue

15. An exchange is said to have commercial substance if futurecash flows remain the same as a result of the exchange.

True/False

18 Equipment with a cost of $220,000 has an estimated residualvalue of $30,000 and an estimated life of 10 years or 19,000 hours.It is to be depreciated by the straight-line method. What is theamount of depreciation for the first full year, during which theequipment was used 2,100 hours?

$19,000

$22,000

$30,000

$21,000

30. When exchanging equipment, if the trade-in allowance isgreater than the book value a loss results.

True/False

38. Once the useful life of a depreciable asset has beenestimated and the amount to be depreciated each year has beendetermined, the amounts cannot be changed.

True/False

QUESTION 1 Which of the following is considered in computing depreciation expense using the straight-line method? A. Net income of the company B. Balance in accumulated depreciation C. Asset's fair value D. Cost of inventory produced by equipment E. Asset's historical cost

QUESTION 2 Which of the following methods of depreciation allocates an equal expense to each period in which the asset is used to generate revenue? A. The sum-of-years' digits method B. The units-of-production method C. The double-declining balance method D. The straight-line method E. The activity depreciation method

QUESTION 3 What type of an account is accumulated depreciation? A. Expense B. Equity C. Loss D. Liability E. Contra asset

4 Which of the following accounting principles dictates that an asset's cost should be expensed over its useful life? A. Matching B. Revenue recognition C. Going concern D. Conservatism E. Consistency 1

QUESTION 5 Opine Company uses the double-declining-balance method of depreciation. It purchases a building with a cost of $560,000, a salvage value of $32,000 and a useful life of 16 years. What is the depreciation expense for the second year? A. $61,250 B. $60,000 C. $57,750 D. $70,000 E. $66,000

QUESTION 6 Clark Company acquired a desk for $500. The estimated salvage value is $50 and the estimated life is 5 years. What journal entry should Clark make to record depreciation expense? A. Depreciation Expense 100 Desk 100 B. Depreciation Expense 90 Desk 90 C. Accumulated Depreciation 90 Depreciation Expense 90 D. Depreciation Expense 90 Accumulated Depreciation 90 E. Depreciation Expense 100 Accumulated Depreciation 100

QUESTION 7 Jacobs Company estimates that its new equipment will last 6 years and have a residual value of $3,000. The original cost of the equipment was $39,000. What would be the balance in the accumulated depreciation account at the end of year 4? A. $0 B. $26,000 C. $24,000 D. $39,000 E. $6,000

QUESTION 18 Which of the following accounts will be shown on the balance sheet with accumulated depreciation account? A. Building B. Prepaid rent C. Cash D. Land E. Goodwill

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1.On August 7, Green River InflatablesCo. paid $1,675 to purchase and install a hydraulic lift, and $40for an air filter for one of its delivery trucks.

a.Journalize the entries for the newhydraulic lift and the air filter expenditure.

b.Why are expenditures on equipment andother fixed assets sometimes capitalized (treated as an asset) andother times expensed?

2.Equipment acquired at the beginningof the year at a cost of $440,000 has an estimated residual valueof $25,000 and an estimated useful life of 8 years. Straight-linedepreciation is used. Determine (a) the total amount to bedepreciated over the life of the asset, (b) the amount ofdepreciation each year, (c) the journal entry to record the firstyearâs depreciation, (d) the book value of the asset at the end ofthe first year.

3.A tractor acquired at a cost of$275,000 has an estimated residual value of $39,000, an estimateduseful life of 40,000 hours, and was operated 2,660 hours duringthe first year. Determine (a) the total amount to be depreciatedover the life of the asset, (b) the amount of depreciation for theyear, (c) the journal entry to record the yearâs depreciation, (d)the book value of the asset at the end of the first year, (e)explain why units of output may be preferred overstraight line as a method of depreciating the tractor.

4. Equipment acquired at the beginning of the year at a cost of$280,000 has an estimated residual value of $45,000 and anestimated useful life of 16 years. Determine: (a) thedouble-declining-balance rate, (b) the double-declining-balancedepreciation for the first year, (c) the journal entry to recordthe first yearâs depreciation, (d) the book value at the end of thefirst year, (e) explain the advantages double-declining-balance may have over straight line in depreciatingassets.

5. A truck with a cost of $82,000 has an estimated residualvalue of $16,000, an estimated useful life of 12 years, and isdepreciated by the straight-line method. (a) Determine the amountof the annual depreciation, (b) Assuming that at the start of theeighth year the remaining life is estimated to be six years and theresidual value is estimated to be $12,000, determine thedepreciation expense for each of the remaining six years, (c)explain why depreciation is recalculated in situations likethis.

6. Equipment was acquired at the beginning of the year at a costof $465,000. The equipment was depreciated using the straight-linemethod based on an estimated useful life of 15 years and anestimated residual value of $45,000.

What was the depreciation for the first year?

Assuming the equipment was sold at the end of the eighth yearfor $235,000, determine the gain or loss on the sale of theequipment.

Journalize the entry to record the sale.

7. Glacier Mining Co. acquired mineral rights for $494,000,000.The mineral deposit is estimated at 475,000,000 tons. During thecurrent year, 31,500,000 tons were mined and sold.

Determine the depletion rate.

Determine the amount of the depletion expense for the currentyear.

Journalize the adjusting entry on December 31 to record thedepletion expense.

Why is depletion taken on mineral rights?

8. On December 31, it was estimated that goodwill of $6,000,000was impaired. In addition, a patent with an estimated usefuleconomic life of 12 years was acquired for $1,500,000 on April1.

Journalize the adjusting entry on December 31 for the impairedgoodwill.

What is goodwill?

What does it mean for goodwill to be impaired?

Journalize the adjusting entry on December 31 for theamortization of the patent rights.

Why are patents and other intangible assets amortized?

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ACC 131 Lecture Notes - Lecture 7: Intangible Asset, Fixed Asset, Historical Cost

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