Question 1

Why don't we depreciate land? What are land improvements? Why do we record land and land improvements separately?

Accepted Answer

The answer of Why don't we depreciate land? What are...

Question 2

Northwest Catering owns and operates several restaurant services in Oregon,Washington,and Idaho.One restaurant chain has experienced sharply declining profits.The company's management has decided to test the operational assets for possible impairment.The relevant information for these assets is presented below:
 
Determine the amount of the impairment loss,if any.

Accepted Answer

The answer of Northwest Catering owns and operates several restaurant...

Question 3

The Bomb Pop Corporation sold ice cream equipment for $16,000.They originally purchased the equipment for $40,000,and depreciation through the date of sale totaled $25,000.What was the gain or loss on the sale of the equipment? Record the sale of the equipment.

Accepted Answer

The answer of The Bomb Pop Corporation sold ice cream...

Question 4

In testing for recoverability of an operational asset,an impairment loss is required if the:

Accepted Answer

An impairment loss is recognized when the asset's book value exceeds the expected future cash flows, indicating the asset is not fully recoverable.

Question 5

At the beginning of the year,Big Time Tires acquired 100% of the common stock of Discount Tires.The purchase price allocation included the following items: $800,000,patent;$300,000,trademark considered to have an indefinite useful life;and $2 million,goodwill.Big Time Tire's policy is to amortize intangible assets with finite useful lives using the straight-line method,no residual value,and a five-year service life.What is the total amount of amortization expense that would appear in Big Time Tire's income statement for the first year related to these items?

Accepted Answer

The answer of At the beginning of the year,Big Time...

Question 6

Nate's Hot Dogs exchanges long-term assets with Lizzy's Lemonade.Nate receives a delivery truck and gives up a piece of machinery.The fair value and book value of the machinery were $27,000 and $25,000 (original cost of $35,000 less accumulated depreciation of $10,000),respectively.Since the delivery truck was worth $32,000,Nate paid an additional $5,000 in cash to Lizzy.Record the exchange for Nate's Hot Dogs.

Accepted Answer

The answer of Nate's Hot Dogs exchanges long-term assets with...

Question 7

Taco Hut purchased equipment on May 1,2015,for $15,000.Residual value at the end of an estimated 8 year service life is expected to be $3,000.Calculate depreciation expense using the straight-line method for 2015 and 2016,assuming a December 31 year-end.

Accepted Answer

The answer of Taco Hut purchased equipment on May 1,2015,for...

Question 8

Burger Chef acquired a delivery truck on March 1,2015 for $26,000.The company estimates a residual value of $2,000 and a 6-year service life.It expects to drive the truck 80,000 miles.Actual mileage was 12,000 miles in 2015 and 16,000 miles in 2016.Calculate depreciation expense using the activity-based method for 2015 and 2016,assuming a December 31 year-end.

Accepted Answer

The answer of Burger Chef acquired a delivery truck on...

Question 9

Strawberry Fields purchased a tractor at a cost of $38,000 and sold it two years later for $25,000.Strawberry Fields recorded depreciation using the straight-line method,a five-year service life,and an $8,000 residual value.What was the gain or loss on the sale? Record the sale.

Accepted Answer

The answer of Strawberry Fields purchased a tractor at a...

Question 10

On January 1,2015,The Donut Stop purchased a patent for $80,000.The remaining legal life is 20 years,but the company estimates the patent will be useful for only five more years.In January 2016,the company incurred legal fees of $25,000 in successfully defending a patent infringement suit.The successful defense did not change the company's estimate of useful life.The Donut Stop's year end is December 31.Record the purchase and amortization in 2015 and the legal fees and amortization in 2016.What is the balance in the Patents account at the end of 2016?

Accepted Answer

The answer of On January 1,2015,The Donut Stop purchased a...

Question 11

Holiday Laboratories purchased a high speed industrial centrifuge at a cost of $420,000.Shipping costs totaled $15,000.Foundation work to house the centrifuge cost $8,000.An additional water line had to be run to the equipment at a cost of $3,000.Labor and testing costs totaled $6,000.Materials used up in testing cost $3,000.What is the total cost of the equipment? How much of this amount should be expensed immediately?

Accepted Answer

The answer of Holiday Laboratories purchased a high speed industrial...

Question 12

Leonard's Jewelry owns a patent with a carrying value of $50 million.Due to adverse economic conditions,Leonard's management determined that it should assess whether an impairment should be recognized for the patent.The estimated future cash flows to be provided by the patent total $43 million,and its fair value at that point totals $35 million.Under these circumstances,Leonard:

Accepted Answer

Leonard would record an impairment loss on the patent equal to the difference between the carrying value and the fair value, which is $15 million ($50 million - $35 million). This is because the estimated future cash flows to be provided by the patent are less than its carrying value, indicating that it is not worth as much as previously believed.

Question 13

If a company initially records an expense incorrectly as an asset,explain how this mistake affects the income statement and the balance sheet.

Accepted Answer

The answer of If a company initially records an expense...

Question 14

China Dragon purchased new restaurant equipment on September 1,2015,for $8,000.Residual value at the end of an estimated 5 year service life is expected to be $2,000.Calculate depreciation expense using the straight-line method for 2015 and 2016,assuming a December 31 year-end.

Accepted Answer

The answer of China Dragon purchased new restaurant equipment on...

Question 15

Wilson Inc.owns equipment for which it originally paid $70 million and has recorded accumulated depreciation on the equipment of $12 million.Due to adverse economic conditions,Wilson's management determined that it should assess whether an impairment should be recognized for the equipment.The estimated future cash flows to be provided by the equipment total $60 million,and its fair value at that point totals $50 million.Under these circumstances,Wilson:

Accepted Answer

The answer of Wilson Inc.owns equipment for which it originally...

Question 16

Soccer Wholesale purchased land and a warehouse for $800,000.In addition to the purchase price,Soccer Wholesale makes the following expenditures related to the acquisition: broker's commission,$48,000;title insurance,$3,000;and miscellaneous closing costs,$8,000.The warehouse is immediately demolished at a cost of $80,000 in anticipation of building a new warehouse.Determine the amount Soccer Wholesale should record as the cost of the land.

Accepted Answer

The answer of Soccer Wholesale purchased land and a warehouse...

Question 17

Chubbyville purchases a delivery van for $23,500.Chubbyville estimates a four-year service life and a residual value of $2,500.During the four-year period,the company expects to drive the van 105,000 miles.Calculate annual depreciation for the four-year life of the van using each of the following methods.Round all amounts to the nearest dollar.
1.Straight line.
2.Double-declining-balance.
3.Activity-based.Actual miles driven each year were 24,000 miles in Year 1;26,000 miles in Year 2;22,000 miles in Year 3;and 25,000 miles in Year 4.Note that actual total miles of 97,000 fall short of expectations by 8,000 miles.

Accepted Answer

The answer of Chubbyville purchases a delivery van for $23,500.Chubbyville...

Question 18

Accounting for impairment losses:

Accepted Answer

Accounting for impairment losses involves a two-step process in accordance with Generally Accepted Accounting Principles (GAAP) to first test for impairment and then record the loss. This process applies to all assets, including intangible assets with indefinite lives and goodwill, not just depreciable operational assets or those with finite lives.

Question 19

ACME Drilling is evaluating an offshore oil-drilling platform for possible impairment.They estimate the following: book value,$18.5 million;fair value,$12 million;sum of estimated future cash flows generated from the oil drilling platform,$16 million.What amount of impairment loss,if any,should they record?

Accepted Answer

The answer of ACME Drilling is evaluating an offshore oil-drilling...

Question 20

Mountainview Resorts purchased equipment for $40,000.Residual value at the end of an estimated four-year service life is expected to be $8,000.The machine operated for 2,200 hours in the first year and the company expects the machine to operate for a total of 10,000 hours over its four year life.Calculate depreciation expense for the first year using each of the following depreciation methods: (1)straight-line, (2)double-declining-balance,and (3)activity-based.

Accepted Answer

The answer of Mountainview Resorts purchased equipment for $40,000.Residual value...

Quiz 7: Long-Term Assets