Exam 9: Reporting and Analyzing Long-Lived Assets

In recording the purchase of a business, goodwill should be recorded for the excess of ________________ over the _________________ of the net assets acquired.

The return on assets ratio can be computed from the profit margin ratio and the asset turnover ratio.

Interline Trucking purchased a tractor trailer for $84,000. Interline uses the units-of-activity method for depreciating its trucks and expects to drive the truck 1,000,000 miles over its 12-year useful life. Salvage value is estimated to be $12,000. If the truck is driven 80,000 miles in its first year, how much depreciation expense should Interline record?

A company purchased a patent on January 1, 2014, 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, 2014, the company paid legal costs of $162,000 in successfully defending the patent in an infringement suit. Prepare the journal entry to amortize the patent at year end on December 31, 2014. (b) Milner Company purchased a franchise from the Tasty Food Company for $450,000 on January 1, 2014. The franchise is for an indefinite time period and gives Milner Company the exclusive rights to sell Tasty 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, 2014. (c) Huerter Company incurred research and development costs of $500,000 in 2014 in developing a new product. Prepare the necessary journal entries during 2014 to record these events and any adjustments at year end on December 31, 2014.

Kinney 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 $8,000 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. Units-of-activity $------------------ Double-declining-balance $--------------

Research and development costs that result in a successful product that is patentable are charged to the Patent account.

A change in the estimated useful life of a plant asset may cause a change in the amount of depreciation recognized in the current and future periods, but not in prior periods.

On October 1, 2014, Mann 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 depreciation expense for 2014 if Mann Company uses the straight-line method of depreciation?

The declining-balance method of depreciation is called an accelerated depreciation method because it depreciates an asset in a shorter period of time than the asset's useful life.

Using the following data for Hayes, Inc., compute its asset turnover ratio and the return on assets ratio.

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

Salem Company hired Kirk Construction to construct an office building for ₤8,000,000 on land costing ₤2,000,000, which Salem Company owned. The building was complete and ready to be used on January 1, 2014 and it has a useful life of 40 years. The price of the building included land improvements costing ₤600,000 and personal property costing ₤750,000. The useful lives of the land improvements and the personal property are 10 years and 5 years, respectively. Salem Company uses component depreciation, and the company uses straight-line depreciation for other similar assets. What total amount of depreciation expense would Salem Company report on its income statement for the year ended December 31, 2014?

Vineyard Company sold the following two pieces of equipment in 2014: Instructions Journalize all entries required to update depreciation and record the sales of the two assets in 2014. The company has recorded depreciation on the equipment through December 31, 2013.

An asset was purchased for $300,000. It had an estimated salvage value of $60,000 and an estimated useful life of 10 years. After 5 years of use, the estimated salvage value is revised to $48,000 but the estimated useful life is unchanged. Assuming straight-line depreciation, depreciation expense in Year 6 would be

Identify the factors that are considered in classifying an expenditure as a capital or a revenue expenditure. Are there instances where it may be difficult to classify an expenditure as one or the other ? What basis would be used in a decision?

Equipment costing $40,000 with a salvage value of $8,000 and an estimated life of 8 years has been depreciated using the straight-line method for 2 years. Assuming a revised estimated total life of 5 years and no change in the salvage value, the depreciation expense for Year 3 would be

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

Additions and improvements

Certain types of leases, called capital leases, allow the lessee to account for the transaction as a rental.

On May 1, 2014, Irwin Company purchased the copyright to Quick Computer Tutorials for $90,000. It is estimated that the copyright will have a useful life of 5 years. The amount of amortization expense recognized for the year 2014 would be