Exam 9: Long-Lived Assets

Under the revaluation model, the carrying amount of property, plant, and equipment is its fair value plus any subsequent accumulated depreciation less any subsequent impairment losses.

The diminishing-balance method is the most common method of depreciation for natural resources.

The units-of-production method is ideal for equipment whose activity

If a long-lived asset is retired before it is fully depreciated, and no residual or scrap value is received,

Which of the following statements is NOT true when a fully depreciated long-lived asset is retired?

Below are several transactions for McLaughlin Inc. 1. Timber rights were purchased on a tract of land for $600,000. The timber is estimated at 2,800 cubic metres. During the current year, 180 cubic metres of timber were cut and sold. 2. A company purchased another company on July 1 and recorded goodwill of $400,000. 3. Costs of $18,000 were incurred on January 1 to obtain a patent. Shortly thereafter, $9,000 was spent in legal costs to successfully defend the patent against competitors. The patent has a legal life of 20 years and an estimated 9-year useful life. 4. The company acquired a trademark for the cost of $25,000. The trademark has 20 years until it expires and then it can be renewed for another 20 years for the cost of $25. Instructions For each of the unrelated transactions, determine the amount of the depreciation expense for the current year and present the adjusting entries required to record each expense at year end.

A truck was purchased for $15,000, and it was estimated to have a $3,000 residual value at the end of its useful life. Monthly depreciation expense of $250 was recorded using the straight-line method. The annual depreciation rate is

During 2014, Blackmud Research had the following transactions for cash. This is Blackmud's first year of operations. Mar 1 Registered a new patent, with a legal life of 20 years, at a cost of $30,000. Jun 30 Incurred research costs of $68,000. Aug 1 Incurred development costs of $50,000 related to a product that meets the standards required for capitalization of costs. The costs are expected to provide commercial benefits for 5 years. Aug 31 Purchased a trademark with an indefinite life for $102,000. Nov 1 Purchased software copyright for $300,000. The copyright has a remaining legal life of 30 years, and the related software is expected to produce revenue for 6 years. Instructions a. Record the transactions. b. Prepare the section of the December 31, 2014 balance sheet of Blackmud Research that reports intangible assets. Show calculations where applicable.

Residual value is NOT depreciated, since the amount is expected to be recovered at the end of the asset's useful life.

A loss on disposal of long-lived assets can only occur if the cash proceeds received from the asset sale are less than the asset's carrying amount.

The cost of land does NOT include

A change in the estimated useful life of equipment requires

Harrison Rentals purchased an apartment building in 2006. At the time, the building was expected to have a useful life of 25 years with a residual value of $100,000, during which time it was projected to generate annual rentals of $30,000 (adjusted for inflation). The building's original cost was $500,000. At January 1, 2014 the accumulated depreciation balance on this building was $128,000, and 2014 depreciation has been calculated as $16,000. Harrison has a December 31 year end. During January 2014, Harrison had the following events and transactions related to the building. All transactions are for cash. 1. Painted all the walls in the common areas at a cost of $8,000. 2. Replaced the electrical wiring in three suites due to safety concerns at a cost of $4,500. 3. Replaced all of the linoleum flooring in the suites with hardwood, installed in-suite laundry facilities in each unit, and made other improvements at total cost of $120,000. As a result, the annual rental revenue has been doubled. 4. Completed structural repairs to the building at a cost of $100,000. As a result of this work the building life is expected to be 10 years longer than the original estimate. The residual value estimate has been revised to $134,000. Instructions a. Calculate the carrying amount of the building on December 31, 2014. Provide explanations for any increases to building cost. b. Record the 2015 depreciation expense using the straight line basis, assuming that the increased rental rates go into effect January 1, 2015.

Prairie Airlines purchased a 747 aircraft on January 1, 2013, at a cost of $30,000,000. The estimated useful life of the aircraft is 20 years, with an estimated residual value of $4,000,000. On January 1, 2015 the airline revises the total estimated useful life to 15 years with a revised residual value of $3,000,000. Instructions a. Calculate the depreciation and carrying amount at December 31, 2014 using the straight-line method and the double diminishing-balance method. b. Assuming the straight-line method is used, calculate the depreciation expense for the year ended December 31, 2015.

Lui Company purchased equipment in 2007 for $80,000 and estimated an $8,000 residual value at the end of the equipment's 10-year useful life. At December 31, 2013, there was $50,400 in the Accumulated Depreciation account for this equipment using the straight-line method of depreciation. On March 31, 2014, the equipment was sold for $21,000. Prepare the appropriate journal entries to remove the equipment from the books of Lui Company on March 31, 2014. 2. Gagne Company sold a delivery truck for $11,000. The delivery truck originally cost $25,000 in 2010 and $6,000 was spent on a major overhaul in 2013 (charged to Delivery Truck account). Accumulated Depreciation on the delivery truck to the date of disposal was $20,000. Prepare the appropriate journal entry to record the disposition of the delivery truck. 3. Crenshaw Company sold office equipment that had a carrying amount of $4,500 for $6,000. The office equipment originally cost $15,000 and it is estimated that it would cost $19,000 to replace the office equipment. Prepare the appropriate journal entry to record the disposition of the office equipment.

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. 2. Walker Company purchased a franchise from the Tasty Food Company for $400,000 on January 1, 2014. The franchise is for an indefinite time period and gives Walker 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. 3. Chernomyrdin Company incurred research costs of $200,000 and successful development costs of $500,000 in 2014 in developing a new product that the company was able to patent. The company expects the product to be useful for 10 years. Prepare the necessary journal entries during 2014 to record these events and any adjustments at year end on December 31, 2014.

Rockport Company purchased equipment for $30,000 on January 1, 2013, and will use the diminishing-balance method of depreciation. It is estimated that the equipment will have a 3-year life and a $3,000 residual value at the end of its useful life. The amount of depreciation expense recognized in the year 2015 will be

The carrying amount of a long-lived asset is the difference between the

The replacement of the bumper of a company's delivery truck would be classified as a(n)

The carrying amount of an asset is equal to the