Exam 9: Plant and Intangible Assets

The term plant assets refers to long-lived assets acquired for use in business operations, rather than for resale to customers.

Most companies benefit by using accelerated depreciation methods for income tax purposes.

The write-down of an impaired asset is treated as a cash outflow from investing activities.

Four events pertaining to plant assets are described below. (a)Computed depreciation for use in the annual income tax return (a different method is used in the financial statements). (b)Made a year-end adjusting entry to record depreciation expense for financial reporting purposes. (c)Sold old equipment for cash at a price below its book value,but above its income tax basis. (d)Traded an old automobile in on a new one.The dealer granted a trade-in allowance on the old vehicle that was substantially above its book value and its tax basis.However,the trade-in allowance amounted to only a small portion of the price of the new car; most of the purchase price was paid in cash. Indicate the immediate effects of each of these events upon the financial measurements in the four column headings listed below.Use the code letters,I for increase,D for decrease,and NE for no effect. Note: Indicate only the immediate effects of each transaction.Do not attempt to anticipate how changes in taxable income will affect future cash flows.

Any rational,systematic method of depreciation is acceptable,as long as costs are allocated to expense in a reasonable manner.

The term accumulated depreciation,as used in accounting,is best defined as:

Goodwill is only recorded when the value of a company increases and not when it decreases in value.

Total stockholders' equity of Tucker Company is $4,000,000.The fair market value of Tucker's net identifiable assets (assets less liabilities)is $5,000,000.Empire Corporation makes an offer to purchase Tucker's entire business for $5,800,000.In this situation:

If an asset is determined to be impaired,it should be:

Machinery is purchased on May 15,2015 for $50,000 with a $5,000 salvage value and a five year life.The half year convention is followed.What method of depreciation will give the highest amount of depreciation expense in year 2?

Various depreciation methods-first year On September 5,2015,Apollo purchased equipment costing $40,000,with an estimated life of 6 years and an estimated salvage value of $4,000. Compute the depreciation expense Apollo would recognize on this equipment in 2015,assuming:

Lewis Imports sold a depreciable plant asset for cash of $135,000.The accumulated depreciation amounted to $170,000,and a loss of $15,000 was recognized on the sale.Under these circumstances,the original cost of the asset must have been:

With respect to depreciation policies,the principle of consistency means:

When a depreciable asset is sold at a price equal to its book value,a journal entry would include:

The book value of an asset is equal to its cost plus accumulated depreciation.

International standards require that goodwill:

Research and development-financial reporting Alert Industries has spent $5 billion over the last three years in developing a new drug labeled BJ13.FDA approval is expected by the end of the month,at which time the drug will be available for sale.None of Alert's competitors has a product similar to BJ13,and the medical community is anxiously awaiting availability of this drug.Although BJ13 promises to be a "wonder drug" with huge financial success,Alert's income statements for the last few years have shown substantial losses and Alert's balance sheet does not include product BJ13 among the assets of the business. Explain why one of Alert's seemingly most valuable assets apparently has been omitted from the balance sheet,and why Alert's income statements for the past few years reported substantial losses.

Early in the current year,Tokay Co.purchased the Silverton Mine at a cost of $20,000,000.The mine was estimated to contain 200,000 tons of ore and to have a residual value of $5,000,000 after mining operations are completed.During the year,105,000 tons of ore were removed from the mine.At year-end,the book value of the mine (cost minus accumulated depletion)is:

Accounting terminology Listed below are nine technical accounting terms introduced in this chapter: Each of the following statements may (or may not)describe one of these technical terms.In the space provided below each statement,indicate the accounting term described,or Answer "None" if the statement does not correctly describe any of the terms. _____ (a.)An expenditure to pay an expense of the current period. _____ (b.)The accelerated depreciation system used in federal income tax returns for depreciable assets purchased after 1986. _____ (c.)A policy that fractional-period depreciation on assets acquired or sold during the period should be computed to the nearest month. _____ (d.)An intangible asset representing the present value of future earnings in excess of normal return on net identifiable assets. _____ (e.)Expenditures that could lead to the introduction of new products,but which,according to the FASB,should be viewed as an expense of the current accounting period. _____ (f.)Depreciation methods that take less depreciation in the early years of an asset's useful life,and more depreciation in the later years. _____ (g.)An account showing the portion of the cost of a plant asset that has been written off to date as depreciation expense.

Clark Imports sold a depreciable plant asset for cash of $35,000.The accumulated depreciation amounted to $70,000,and a loss of $5,000 was recognized on the sale.Under these circumstances,the original cost of the asset must have been: