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

Backhoe Construction Company recently exchanged an old truck,which cost $118,000 and was one-third depreciated,and paid $80,000 cash for a used crane having a current fair value of $140,000.Assuming the exchange has commercial substance,at what amount should the crane be recorded on the books of Backhoe?

During 2009,Cabot Machine Company spent $352,000 on research and development costs for an invention.This invention was patented on January 2,2010,at a nominal cost that was expensed in 2010.The patent has a legal life of 17 years and an estimated useful life of 8 years.In January 2014,Cabot paid $32,000 for legal fees in a successful defense of the patent.Amortization for 2014 should be

Mueller 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.Mueller'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 Mueller Company estimates that the equipment has a remaining useful life of 7 years.Net cash inflow from the equipment will be $80,000 per year.The fair value of the equipment is $240,000. (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)How would your answer to (1)change if the fair value of the equipment was $500,000?

Ibarra Carpet traded cleaning equipment with a cost of $27,000 and accumulated depreciation of $5,250 for new equipment with a fair market value of $14,500.Assuming the exchange lacks commercial substance,Ibarra should record the new equipment at

Nielsen Cargo Company recently exchanged an old truck,which cost $108,000 and was one-third depreciated,and paid $70,000 cash for a similar truck having a current fair value of $130,000.The exchange lacked commercial substance.At what amount should the truck be recorded on the books of Nielsen?

Meteor Motor Sales exchanged a car from its inventory for a computer to be used as a noncurrent operating asset.The following information relates to this exchange that took place on July 31,2014: The exchange has commercial substance. On July 31,2014,how much profit should Meteor recognize on this exchange?

The Fanfare Company applied for and received numerous patents at a total cost of $286,500 at the beginning of 2011.It is assumed the patents will be useful evenly during their full legal lives.At the beginning of 2013,the company paid $48,600 in legal fees for successful defense in a patent infringement suit.At the beginning of 2014,information became available that caused the company to reduce the remaining life of the patents to five years. Calculate the amortization expense for the years 2011,2012,2013,and 2014.Round to the nearest dollar.

On January 1,2012,Costas Co.purchased a new machine for $1,250,000.The new machine has an estimated useful life of five years and the salvage value was estimated to be $250,000.Costas uses the sum-of-the-years'-digits method of depreciation.The amount of depreciation expense for 2014 is

A recently issued FASB standard requires that an impairment loss be recognized if the sum of the expected future net cash inflows (undiscounted and without interest charges)is less than the carrying value of the asset.The amount of the impairment loss recognized is the amount by which the carrying amount of the asset exceeds the fair value of the asset. Provide examples of events or changes in circumstances that indicate that the recoverability of the carrying amount of an asset may have been impaired. Evaluate the recognition criterion proposed by the FASB,specifically addressing the issue of using the undiscounted sum of the future net cash flows.

A depreciable asset has an estimated 15 percent salvage value.At the end of its estimated useful life,the accumulated depreciation would equal the original cost of the asset under which of the following depreciation methods?

Which of the following depreciation methods applies a uniform depreciation rate each period to an asset's book value?

Stiller Company owns a machine that was bought on January 2,2011,for $376,000.The machine was estimated to have a useful life of five years and a salvage value of $24,000.Stiller uses the sum-of-the-years'-digits method of depreciation.At the beginning of 2014,Stiller determined that the useful life of the machine should have been four years and the salvage value $35,200.For the year 2014,Stiller should record depreciation expense on this machine of

The impairment test for an intangible asset with a definite life compares the

A truck that cost $12,000 was originally being depreciated over four years using the straight-line method with no salvage value.If after one year,it was decided that the truck would last an additional four years (or a total of five years),the second year's depreciation would be

Lovejoy Co.purchased a patent on January 1,2011,for $714,000.The patent was being amortized over its remaining legal life of 15 years expiring on January 1,2026.During 2014,Lovejoy determined that the economic benefits of the patent would not last longer than 10 years from the date of acquisition.What amount should be charged to patent amortization expense for the year ended December 31,2014?

Information concerning Santori Corporation's intangible assets is as follows: Santori incurred $352,000 of experimental and development costs in its laboratory to develop a patent that was granted on January 2,2014.Legal fees and other costs associated with registration of the patent totaled $65,600.Thomas estimates that the useful life of the patent will be eight years. A second patent was purchased from Lowman Company for $160,000 on July 1,2011.Expenditures for successful litigation in defense of this patent totaling $40,000 were paid on July 1,2014.Thomas estimates that the useful life of the patent will be 20 years from the date of acquisition. Prepare a schedule showing the intangible assets section of Santori's balance sheet at December 31,2014.

In October 2014,Pollock Company exchanged a used packaging machine having a book value of $240,000 for a new machine and paid a cash difference of $30,000.The market value of the used packaging machine was determined to be $280,000.The exchange had commercial substance.In its income statement for the year ended December 31,2014,how much gain should Pollock recognize on this exchange?

In order to calculate the third year's depreciation on an asset using the sum-of- the-years'-digits method,which of the following must be known about the asset?

Wastenot is a waste disposal company.Explain the effect the following actions of the management of Wastenot Company might have in managing earnings: 1.Management assigned unsupported and inflated salvage values and extended the useful lives of company garbage trucks. 2.Management assigned arbitrary salvage values to other assets that previously had no salvage value. 3.Management did not record expenses required to write off the costs of unsuccessful and abandoned landfill development projects. 4.Management recorded inflated environmental liabilities in connection with acquisitions of other companies. 5.Management improperly capitalized a variety of expenses. 1.Assume all plant assets are depreciated on the group basis.Estimate the original cost of plant assets retired for the year. 2.Assume that the straight-line method is applied individually to all plant assets and that gains and losses on plant asset disposals were approximately equal in amount during the year.Estimate the average proportion of useful life remaining at disposal on the plant assets retired during the year.Identify additional information that would be helpful in answering this question.

In recording the trade of one asset for another,which of the following accounts is usually debited?