Exam 10: Long-Lived Assets

For purposes of impairment tests,the fair value of an asset is defined by the FASB as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date.

U.S.GAAP requires that virtually all costs incurred for research and development of an internally generated patent be capitalized.

Kitty Co.broke ground on its new building on March 1,2015,and completed construction November 30,2015.Kitty made the following expenditures in conjunction with this project: Date Expenditure April 1,2015 \ 450,000 June 1,2015 200,000 September 1,2015 400,000 November 30,2015 100,000 Kitty's cumulative weighted average expenditures on this project would be

Harrison Company owns a manufacturing plant with a fair value of $3,500,000,a recorded cost of $6,200,000,and accumulated depreciation of $2,400,000.Pablo Company owns a warehouse with a fair value of $3,000,000,a recorded cost of $5,500,000,and accumulated depreciation of $2,800,000.Harrison and Pablo exchange assets with Harrison also receiving cash of $500,000 from Pablo.The exchange is considered to have commercial substance. Required: Record the exchange on the books of: 1.Harrison. 2.Pablo.

GAAP requires that all exchange transactions be recorded at the fair value of the exchanged assets.Thus,except in the rare case that the book value and the fair value of exchanged assets are identical,gains (or losses)on exchanges should be expected.

When asset reinvestment is not continuous,the increasing age of the asset base in conjunction with rising prices introduces distortions in various performance measures that make financial statement analysis difficult.

Research indicates that investors treat R&D expenditures as if they are assets.

The FASB justified expensing research and development costs for all of the following reasons except

Rick Company uses straight-line depreciation for its property,plant,and equipment which-stated at cost-consisted of the following: Land \ 25,000 \ 25,000 Buildings 195,000 195,000 Machinery and equipment 795,000 750,000 1,015,000 970,000 - Accumulated depreciation Net book value 5595,000 \ 570,000 Rick's depreciation expense for 2015 and 2014 was $115,000 and $110,000 respectively. Required: What amount was debited to accumulated depreciation during 2015 because of property,plant,and equipment retirements?

The apportionment of the cost of a wasting asset to future periods under the matching principle is

Firms are required to disclose separately total expensed R&D costs;thus,analysts can use these disclosures to reconstruct what asset and amortization amounts would be if GAAP allowed R&D to be capitalized.Required disclosures of marketing and advertising expenditures permit a similar adjustment approach for trademarks and brands.

Nadir Company purchased a milling machine on January 3,Year 1 for $55,000.The machine was being depreciated on the straight-line method over an estimated useful life of 10 years,with $5,000 salvage value.At the beginning of Year 9,the company paid $15,000 to overhaul the machine.As a result of this expenditure,the company estimated that the remaining useful life of the machine was now 8 years with no salvage value. Required: What should be the depreciation expense recorded for this machine in Year 9 and what is the asset's December 31,Year 9 book value?

Doggy Co. began construction of a new cutter for the U.S. Coast Guard on January 1, 2014 and completed construction of the ship on October 31, 2015. To finance construction, Doggy took out an $8,000,000, 2-year, 6% construction loan on February 1, 2014. Interest on the loan was to be paid annually on the anniversary date of the loan. Doggy has no other outstanding interest-bearing debt. Doggy made the following expenditures in conjunction with this construction project: Date Amount 2/1/2014 \ 1,050,000 3/31/2014 900,000 6/1/2014 750,000 10/1/2014 1,000,000 12/31/2014 600,000 3/1/2015 900,000 9/1/2015 250,000 -How much interest should Doggy capitalize in 2014 related to the cutter project?

Which one of the following items would be charged to the cost of a building rather than the cost of the land?

Long-lived assets are

Devine Company sold a machine that originally cost $34,000 and accumulated depreciation of $27,000 and for $6,000.Devine had a/an

The method of measuring long-lived assets at their estimated value in an output market is the expected benefit approach.

Eagle Corporation acquired a new machine on January 2, 2013 at a cost of $126,000. The machine has an expected 4 year life and a salvage value of $6,000. -If Eagle uses the double-declining balance depreciation method,the depreciation expense in 2014 is

One way to value a piece of manufacturing equipment is to just add up the net future operating cash inflows the equipment is expected to generate over its life.

The most widely-used depreciation method for U.S.income tax purposes is