Exam 8: Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

On January 1, 2016, Gordon Company purchased a patent for $420,000 from an inventor who had developed a new manufacturing process. At the time of the purchase, the patent had a remaining useful life of 10 years. Required: A.Prepare the journal entry to record Gordon's purchase of the patent. B.Prepare the journal entry to record amortization of the patent on December 31, 2016. C.At the end of 2019, after amortization had been recorded through December 31, 2019, Gordon concluded that the estimated future cash flows from the patent to be $250,000.The patent's estimated fair value on December 31, 2019 was $200,000.Prepare the journal entry to record the patent impairment, if necessary.

During 2016, a company purchased a mine at a cost of $3,000,000. The company spent an additional $600,000 getting the mine ready for its intended use. It is estimated that 300,000 tons of mineral can be removed from the mine and the residual value of the mine will be $600,000. During 2016, 45,000 tons of mineral were removed from the mine and 35,000 tons were sold. Which of the following statements is correct with respect to the accounting for the mine?

Which of the following includes only intangible assets?

Ordinary repairs and maintenance costs are incurred to maintain a long-lived productive asset and are expensed as incurred.

Covey Company purchased a machine on January 1, 2016, by paying cash of $250,000. The machine has an estimated useful life of five years, is expected to produce 500,000 units, and has an estimated residual value of $25,000. Required: A.Calculate depreciation expense to the nearest whole dollar for each year of the machine's useful life under.1.Straight-line depreciation method.2.Double declining-balance method. B.What is the book value of the machine after three years using the double declining-balance method? C.What is the book value of the machinery after three years using the straight-line method? D.If the machine was used to produce and sell 120,000 units in 2016, what would be the depreciation expense using the units-of-production method?

Goodwill is recorded only when an existing company is bought by another company and the purchase price exceeds the fair value of the purchased company's net assets.

The financial statements of Franklin Company contained the following errors: Required: A.Was net income for 2015 understated or overstated? Briefly explain your answer. B.1.Considering the effect of the errors of both years at December 31, 2016, is retained earnings overstated or understated, and by what amount? 2.Briefly explain your answer to part B (1).

The units-of-production method of depreciation allocates an asset's cost over its useful life based on the current period's production relative to its total estimated production.

If a company has an asset with a book value of $5.0 million and estimates the future cash flows to be received over the asset's remaining life to be $5.5 million, no impairment has occurred and no loss would be recognized.

Depreciation is the process of estimating a long-lived asset's current market value.

During 2016, a company purchased a mine at a cost of $3,000,000. The company spent an additional $600,000 getting the mine ready for its intended use. It is estimated that 300,000 tons of mineral can be removed from the mine and the residual value of the mine will be $600,000. During 2016, 45,000 tons of mineral were removed from the mine and 35,000 tons were sold. Which of the following statements is incorrect with respect to the accounting for the mine?

Use of the double-declining-balance method of depreciation results in increasing amounts of depreciation expense over an asset's life.

Hill Inc. purchased an asset on January 1, 2016. Hill chose an accelerated depreciation method to depreciate the asset. Which of the following is correct if Hill would have chosen the straight-line depreciation method instead?

Which of the following describes the effect of recording depreciation expense at year-end?

On January 1, 2015, Boston Company purchased a heavy duty machine having an invoice price of $13,000. Boston paid transportation and installation costs totaling $3,000. The machine is estimated to have a 4-year useful life and a $1,400 residual value. Required: Calculate depreciation expense and book value for 2015-2018, assuming double declining-balance method of depreciation.

On January 1, 2016, Pyle Company purchased an asset that cost $50,000 and had no estimated residual value. The estimated useful life of the asset is 8 years and straight-line depreciation is used. An error was made in 2016 because the total amount of the asset's cost was debited to an expense account for 2016 and no depreciation was recorded. Pretax income for 2016 was $42,000. How much is the correct 2016 pretax income?

Determine the effect of the following transactions on the financial statement components identified. Code each item listed under the transaction with the letter A, B, or C, as follows. A.If the transaction results in an increase in the financial statement component. B.If the transaction results in a decrease in the financial statement component. C.If the transaction does not affect the financial statement component.Transaction 1: The adjusting journal entry to record depreciation expense was prepared.Net income _____ Total assets _____ Stockholders' equity _____ Transaction 2: The adjusting journal entry to record patent amortization expense was prepared.Net income _____ Total assets _____ Stockholders' equity _____ Transaction 3: A depreciable asset was sold for a gain.Net income _____ Total assets _____ Stockholders' equity _____ Transaction 4: The adjusting journal entry to record an impairment loss was prepared.Net income _____ Total assets _____ Stockholders' equity _____

Gains and losses on disposal of a long-lived asset are determined by comparing the asset's cost to its book value.

Bennett Corporation sold a piece of equipment on June 30, 2018, for $50,000 cash. The equipment had been purchased on January 1, 2014, for $150,000. The equipment had an estimated useful life of 6 years and a $30,000 residual value. Bennett Corp. has been using the straight-line method of depreciation and has a year-end of December 31st. Required: Prepare any necessary journal entries on June 30, 2018, assuming that 2018 depreciation expense has not been recorded.

Patents, trademarks, and franchises are examples of tangible assets.