All of the following assets are subject to depreciation except:
Answer: 1 Depreciation is the allocation of the plant assets cost over its useful life. Because land does not have a defined useful life, it does not lose usefulness; therefore, it is not depreciated.
Which of the following costs would be included in the Land account?
Grading the land
Paving parking lot
Removal of useless, old barn on land
Mowing the grass
Answer: 2 and 3 Grading the land and removing the old building are added to the Land account. Mowing the grass is a maintenance expense.
Tyne Company made a lump-sum purchase of land and building for $100,000. The appraised values for the land was $22,000 and the for the building was $88,000. How much should be debited to Building?
Answer: $80,000 Total appraised value = $22,000 + $88,000 = $110,000 80% (88,000 ÷ 110,000) of the $100,000 cost should be allocated to the Building. $100,000 x 80% = $80,000
Which of the following costs is a capital expenditure?
Replace broken window in office building
Paint foyer of office building
Addition on building for three new offices
Paid maintenance plan on heating system
Answer: 3 An addition is a permanent improvement that makes the building more useful for a long period of time. Capital expenditure ıncreases the asset’s capacity or efficiency or extends the asset’s useful life.
On January 1, Finley Company purchased a machine for $9,000. It has a residual value of $1,000 and a useful life of 8 years or 10,000 hours of operation.
How much depreciation is recognized at the end of the first year assuming the company uses the double-declining balance method of depreciation?
Answer: $2,250 (Cost–Accumulated depreciation) x (2/yrs of life) = ($9,000 – 0) x (2/8) = $2,250
If the amount of use of a machine varies from year to year, the depreciation method that best matches expense with revenue is
Units of production
None of the above
Answer: 2 Depreciation expense is recognized only to extent that an asset has been used in a period.
Change in Accounting Estımate In 2005, Conway Company purchased an asset for $6,000. It was estimated to have a useful life of 5 years and a residual value of $1,000. The straight-line method of depreciation is used. At the beginning of 2007, Conway revises the estimated useful to a total of 8 years. How much depreciation expense will Conway recognize on the asset at the end of 2007?
Answer: $500 Cost $6,000 Depreciation for 2005 $1,000 Depreciation for 2006 1,000 (2,000) Book value $4,000 Less residual value (1,000) $3,000 $3,000 ÷ (8 – 2 years) = $500
Roge Company owns a truck that cost $35,000 and has total accumulated depreciation of $20,000 to-date. Roge sells the truck for $10,000. What amount of gain/(loss) is recognized on the date of sale? What is the journal entry to record this sale?
Cost $35,000 Accumulated Depreciation (20,000) Book value $15,000 Cash received from sale (10,000) Loss on sale $5,000
The accounts of Haley-Davis Printing Company include Land, Buildings and Equipment. Haley-Davis has a separate accumulated depreciation account for each asset. On January 1 Haley-Davis traded in equipment with accumulated depreciation of $90,000 (cost of $130,000) for similar new equipment. Haley-Davis also paid $80,000 cash. Record this transaction.
a) Mineral Asset 398,500 Cash 398,500 b) Mineral Asset 1,500 Cash 1,500 To record filing and license fees GENERAL JOURNAL DATE DESCRIPTION REF DEBIT CREDIT
b) Mineral Asset 60,000 Cash 60,000 Paid for geological survey c) Depletion Expense, Mineral Asset 92,000 Accumulated Depletion, Mineral Asset 92,000 GENERAL JOURNAL DATE DESCRIPTION REF DEBIT CREDIT
84. Golden Miners purchased a mine in 20X5 for $1,920,000. It was estimated that the mine contained 3,000,000 tons of ore, and would be totally worthless once all ore was extracted. Golden Miners extracted 250,000 tons in 20X5 and 300,000 tons in 20X6. Depletion expense for 20X6 would equal:
Goodwill is defined as the excess of purchase price over the fair value of the net assets acquired.
Goodwill can only be recorded in the purchase of another company.
Goodwill is no longer amortized
Goodwill is now subject to an “impairment” test.
Intangible Assets: Goodwill Purchase price paid for Mexana Company $10 million Assets at market value 9 million Less Mexana’s liabilities 1 million Market value of Mexana’s net assets 8 million Goodwill $ 2 million Goodwill Example – p. 417
PepsiCo, Inc. has acquired several other companies. Assume that PepsiCo purchased Kettle Chips Co. for $8 million cash. The book value of Kettle Chips’ assets is $12 million (market value, $15 million), and it has liabilities of $10 million.
Calculate goodwill. Record the purchase of Kettle Chips by PepsiCo.
Calculation of Goodwill Purchase price paid for Kettle Chips...........………… $8,000,000 Market value of Kettle Chips’ net assets: Market value of Kettle Chips’ assets $15,000,000 Less: Kettle Chips’ liabilities.....……. (10,000,000 ) Market value of Kettle Chips’ net assets..………... 5,000,000 Cost of goodwill purchased..............…………………. $3,000,000