Exam 9: Reporting and Analyzing Long-Lived Assets

All plant assets (fixed assets) must be depreciated for accounting purposes.

A truck costing $48,000 and on which $40,000 of accumulated depreciation has been recorded was discarded as having no value. The entry to record this event would include a

IFRS allows companies to revalue plant assets to fair value. When an asset has increased in value, where is the account "Revaluation Surplus" reported?

The Modified Accelerated Cost Recovery System (MACRS) is a depreciation method that

The term applied to the periodic expiration of a plant asset's cost is

Arnold Company purchases a new delivery truck for $40,000. The sales taxes are $2,500. The logo of the company is painted on the side of the truck for $1,200. The truck's annual license is $120. The truck undergoes safety testing for $220. What does Arnold record as the cost of the new truck?

Physician Reference Service (PRS) provides services to physicians including research assistance, diagnosis coding, and medical practice software including an advanced medical record cross-referencing system. PRS is aggressive in monitoring other firms' offerings and ensuring that its services are comparable to all others. Because of its need to stay abreast of new product offerings, PRS spends a lot of money sending professionals to trade shows. In addition, PRS has agreements with several clients whereby the client requests a presentation of a competitor's services. A PRS employee poses as an employee of the client's office and attends the presentation, obtaining as much data and sample information as possible. The cost of the travel and attending presentations is charged to Product Development and expensed during the current year. In April of this year, PRS began selling a software product substitute before the competitor's software was released. The competitor, Compu-Med, sued for copyright infringement and won. PRS had to withdraw its product from the market and pay $1.5 million in damages. PRS immediately negotiated an agreement with Compu-Med to sell Compu-Med's product (since it was prohibited from offering its own version for five years). This agreement cost an additional $1.3 million, but it allowed PRS to continue to offer a full line of services. PRS' accountant, Kelly Hall, initially recorded the cash payments as "Loss from Lawsuit" and "Product Development," respectively. However, Gilbert Brown, the controller, instructed Kelly to create an intangible asset, named "Goodwill," and charge both costs to this account. "We're protected from another lawsuit as long as this agreement is in effect," he says. "It's about as close to goodwill as we'll ever get from our competitors. We might as well amortize the cost rather than take the full hit to income, anyway." Required: 1. What are the ethical issues? 2. What should Kelly do?

If an acquired franchise or license is for an indefinite time period, then the cost of the asset should not be amortized.

All of the following are factors that a company should consider before a write-down impairment of an asset is recorded except

Recording depreciation each period is necessary in accordance with the

Revson Corporation purchased land adjacent to its plant to improve access for trucks making deliveries. Expenditures incurred in purchasing the land were as follows: purchase price, $55,000; broker's fees, $6,000; title search and other fees, $5,000; demolition of an old building on the property, $5,700; grading, $1,200; digging foundation for the road, $3,000; laying and paving driveway, $25,000; lighting $7,500; signs, $1,500. List the items and amounts that should be included in the Land account.

A loss on disposal of a plant asset occurs if the cash proceeds received from the asset sale is less than the asset's book value.

The Rowland Clinic purchased a new surgical laser for $84,000. The estimated salvage value is $4,000. The laser has a useful life of five years and the clinic expects to use it 10,000 hours. It was used 1,600 hours in year 1; 2,100 hours in year 2; 2,400 hours in year 3; 1,900 hours in year 4; 2,000 hours in year 5. Instructions (a) Compute the annual depreciation for each of the five years under each of the following methods: (1) straight-line. (2) units-of-activity. (b) If you were the administrator of the clinic, which method would you deem as most appropriate? Justify your answer. (c) Which method would result in the lower reported income in the first year? Which method would result in the lower total reported income over the five-year period?

A plant asset cost $128,000 and is estimated to have a $16,000 salvage value at the end of its 8-year useful life. The annual depreciation expense recorded for the third year using the double-declining-balance method would be

The cost of a long-term asset is expensed

For each item listed below, enter a code letter in the blank space to indicate the allocation terminology for the item. Use the following codes for your answer:

A loss on disposal of a plant asset is reported in the financial statements

Mideast Airlines purchased a 777 aircraft on January 1, 2012 at a cost of $40,000,000. The estimated useful life of the aircraft is 20 years, with an estimated salvage value of $6,000,000. Instructions Compute the accumulated depreciation and book value at December 31, 2014 using the straight-line method and the double-declining-balance method.

On October 1, 2014, Hess Company places a new asset into service. The cost of the asset is $80,000 with an estimated 5-year life and $20,000 salvage value at the end of its useful life. What is the book value of the plant asset on the December 31, 2014, balance sheet assuming that Hess Company uses the double-declining-balance method of depreciation?

Nix Corporation sold equipment for $20,000. The equipment had an original cost of $60,000 and accumulated depreciation of $30,000. Ignoriing the tax effect, as a result of the sale