Exam 9: Plant Assets, Natural Resources, and Intangible Assets

Depletion expense is reported in the income statement as an operating expense.

A company purchased a patent on January 1, 2018, for $2,500,000. The patent's legal life is 20 years but the company estimates that the patent's useful life will only be 5 years from the date of acquisition. On June 30, 2018, the company paid legal costs of $135,000 in successfully defending the patent in an infringement suit. Prepare the journal entry to amortize the patent at year end on December 31, 2018. (b) Trent Company purchased a franchise from Tastee Food Company for $400,000 on January 1, 2018. The franchise is for an indefinite time period and gives Trent Company the exclusive rights to sell Tastee Wings in a particular territory. Prepare the journal entry to record the acquisition of the franchise and any necessary adjusting entry at year end on December 31, 2018. (c) Kline Company incurred research and development costs of $500,000 in 2018 in developing a new product. Prepare the necessary journal entries during 2018 to record these events and any adjustments at year end on December 31, 2018.

Tomko Company purchased machinery with a list price of $96,000. They were given a 10% discount by the manufacturer. They paid $600 for shipping and sales tax of $4,500. Tomko estimates that the machinery will have a useful life of 10 years and a residual value of $30,000. If Tomko uses straight-line depreciation, annual depreciation will be

Improvements are

Under the double-declining-balance method, the depreciation rate used each year remains constant.

Prepare the journal entries to record the following transactions for Ogleby Company which has a calendar year end and uses the straight-line method of depreciation. a) On September 30, 2018, the company exchanged old delivery equipment and $36,000 for new delivery equipment. The old delivery equipment was purchased on January 1, 2016, for $126,000 and was estimated to have an $18,000 salvage value at the end of its 5-year life. Depreciation on the delivery equipment has been recorded through December 31, 2017. It is estimated that the fair value of the old delivery equipment is $54,000 on September 30, 2018. (b) On June 30, 2018, the company exchanged old office equipment and $40,000 for new office equipment. The old office equipment originally cost $80,000 and had accumulated depreciation to the date of disposal of $35,000. It is estimated that the fair value of the old office equipment on June 30 was $60,000. The transaction has commercial substance.

Natural resources include standing timber and underground deposits of oil, gas, and minerals.

Which one of the following items is not considered a part of the cost of a truck purchased for business use?

Weller Company purchased a truck for $66,000. The company expected the truck to last four years or 100,000 miles, with an estimated residual value of $6,000 at the end of that time. During the second year the truck was driven 27,000 miles. Compute the depreciation for the second year under each of the methods below and place your answers in the blanks provided.

Which of the following statements concerning IFRS and U.S. GAAP is true?

South Airlines purchased a 747 aircraft on January 1, 2017, at a cost of $35,000,000. The estimated useful life of the aircraft is 20 years, with an estimated salvage value of $5,000,000. On January 1, 2020 the airline revises the total estimated useful life to 15 years with a revised salvage value of $3,500,000. Instructions (a) Compute the depreciation and book value at December 31, 2019 using the straight-line method and the double-declining-balance method. (b) Assuming the straight-line method is used, compute the depreciation expense for the year ended December 31, 2020.

In calculating depreciation, both plant asset cost and useful life are based on estimates.

Intangible assets

Intangible assets are the rights and privileges that result from ownership of long-lived assets that

Henson Company incurred $600,000 of research and development costs in its laboratory to develop a new product. It spent $90,000 in legal fees for a patent granted on January 2, 2018. On July 31, 2018, Henson paid $60,000 for legal fees in a successful defense of the patent. What is the total amount that should be debited to Patents through July 31, 2018?

For each entry below make a correcting entry if necessary. If the entry given is correct, then state "No entry required." (a) The $60 cost of repairing a printer was charged to Equipment. (b) The $5,000 cost of a major engine overhaul was debited to Maintenance and Repairs Expense. The overhaul is expected to increase the operating efficiency of the truck. (c) The $6,000 closing costs associated with the acquisition of land were debited to Miscellaneous Expense. (d) A $500 charge for transportation expenses on new equipment purchased was debited to Freight-In.

A loss on the exchange of plant assets occurs when the fair value of the old asset is less than its book value.

The book value of a plant asset is the difference between the

Equipment was purchased for $150,000. Freight charges amounted to $7,000 and there was a cost of $20,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $30,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be

The book value of a plant asset is obtained by subtracting ______________ from the ______________ of the plant asset.