Exam 11: Investments in Noncurrent Operating Assets-Utilization and Retirement

The sum-of-the-years'-digits method of depreciation is being used for a machine with a five-year estimated useful life.What would be the fraction applied to the cost to be depreciated in the fourth year?

Carbonite Bottling purchased for $800,000 a trademark for a very successful soft drink it markets under the name BLAST!.The trademark was determined to have an indefinite life.A competitor recently introduced a product that is in direct competition with the BLAST! product,thus suggesting the need for an impairment test.Data gathered by Carbonite suggests that the useful life of the trademark is still indefinite,but the cash flows expected to be generated by the trademark have been reduced either to $30,000 per year (with a probability of 80%)or to $60,000 per year (with 20% probability).The appropriate risk-free interest rate is 5%.The appropriate risk-adjusted interest rate is 10%. Prepare the appropriate journal entry (if needed)to record the effect of the events described above.

Morgan Trucking traded a used truck with a book value of $1,700 and a fair market value of $2,300 for a new truck with a list price of $17,800.Morgan agreed to pay $13,000 in cash for the exchange in addition to giving up the used truck.Assuming the exchange has commercial substance,at what amount should the new truck be recorded?

On January 1,2013,Canal Locks Corporation purchased drilling equipment for $11,500.The equipment has an estimated useful life of four years and a salvage value of $200.Given this information,if Canal uses the sum-of-the-years'-digits method of depreciation and then trades the equipment for new equipment with a fair market value of $16,000 on December 31,2014,and pays $8,000 cash in the exchange,assuming the exchange has commercial substance,the new equipment should be recorded at

In January 2014,Shone Company exchanged an old machine,with a book value of $156,000 and a fair value of $140,000,and paid $40,000 cash for a similar used machine having a list price of $200,000.The exchange had commercial substance.At what amount should the machine acquired in the exchange be recorded on Shone's books?

In accordance with generally accepted accounting principles,which of the following methods of amortization is normally recommended for intangible assets?

When an exchange of similar assets involves a gain,

Raptor Company owns a tract of land that it purchased in 2008 for $200,000.The land is held as a future plant site and has a fair market value of $280,000 on July 1,2014.Talon Company also owns a tract of land held as a future plant site.Talon paid $360,000 for the land in 2013 and the land has a fair market value of $380,000 on July 1,2014.On this date,Raptor exchanged its land and paid $100,000 cash for the land owned by Talon.The exchange had commercial substance.At what amount should Raptor record the land acquired in the exchange?

On July 1,Toucan Corporation,a calendar-year company,received a condemnation award of $150,000 as compensation for the forced sale of a plant located on company property that stood in the path of a new highway.On this date,the plant building had a depreciated cost of $75,000 and the land cost was $25,000.On October 1,Toucan purchased a parcel of land for a new plant site at a cost of $62,500.Ignoring income taxes,Toucan should report in its income statement for the year ended December 31 a gain of

Stanley Company purchased a machine that was installed and placed in service on January 2,2013,at a total cost of $680,000.Residual value was estimated at $70,000.The machine is being depreciated over ten years by the double-declining-balance method.For the year 2014,Stanley should record depreciation expense of

In January,Fanning Corporation entered into a contract to acquire a new machine for its factory.The machine,which had a cash price of $400,000,was paid for as follows: Prior to the machine's use,installation costs of $10,000 were incurred.The machine has an estimated useful life of ten years and an estimated salvage value of $10,000.What should Hunter record as depreciation expense for the first year under the straight-line method?

Which of the following is NOT required to be reported in the financial statements or disclosed in the accompanying notes?

Pepitone Inc.exchanged a machine costing $400,000 with accumulated depreciation of $280,000 for a machine from the Berra Company.Berra paid $20,800 cash in addition to its machine (which cost $200,000 with accumulated depreciation of $68,000)for the Pepitone machine.The Berra machine has a fair value of $160,000. Provide the necessary entries to record the transactions on both companies' books assuming the machine lacks commercial substance.

Harrison Company is located in Taiwan and uses international accounting standards.Harrison Company purchased equipment 8 years ago for $1,000,000.The equipment has been depreciated using the straight-line method with a 20-year useful life and 10% residual value.Harrison's operations have experienced significant losses for the past 2 years and,as a result,the company has decided that the equipment should be evaluated for possible impairment.The management of Harrison Company estimates that the equipment has a remaining useful life of 7 years.The discounted value of the future net cash inflows from the use of the equipment is $220,000.The fair value of the equipment is $240,000.No goodwill was associated with the purchase of the equipment.Harrison Company has chosen to recognize increases in the value of long-term operating assets in accordance with the allowable alternative under IAS 36. (1)Determine if an impairment loss should be recognized. (2)Determine the amount of the loss and prepare the journal entry to record the loss. (3)What journal entry should Harrison Company make if the fair value of the equipment was $980,000?

A company using the group depreciation method for its delivery trucks retired one of the trucks after the average service life of the group was reached.Cash proceeds were received from a salvage company.The net carrying amount of these group asset accounts would be decreased by the

Five years ago,Monroe,Inc.,purchased a patent for $110,000.Lower demand for the product produced under this patent necessitates that an impairment test be made.On the date of purchase,the patent had an estimated useful life of eleven years.It currently has a remaining useful life of four years.The current fair value of the patent is $43,000.Company management estimates that the patent will generate future cash flows of $12,000 per year for the next four years. The amount of the impairment loss to be recognized is

Image Creators,Inc.owns the following equipment and computes their depreciation on the straight-line basis: Required: (1)Composite life of these assets (in years). (2)Composite depreciation rate.

Which of the following reasons provides the best theoretical support for accelerated depreciation?

On January 1 Murphy Company acquired a machine with a four-year useful life.Murphy estimates the salvage value of the machine will be equal to ten percent of the acquisition cost.The company is debating between using either the double-declining-balance method or the sum-of-the-years'-digits method of depreciation.Comparing the depreciation expense for the first two years computed using these methods,the depreciation expense for the double-declining-balance method (compared to the sum-of-the-years'-digits method)will match which of the patterns shown below?

Which of the following assets generally is required to be tested at least annually for impairment?