Exam 9: Plant and Intangible Assets

It is an acceptable accounting practice to treat an expenditure that is not material in dollar amount as an expense of the current period even though the expenditure may benefit several periods.

Goodwill-financial reporting considerations Cabot Corporation's balance sheet at December 31,2018,includes an asset entitled goodwill in the amount of $900,000. (a)Briefly explain what is meant by the term goodwill. (b)Under what circumstances is goodwill recorded in the accounting records? Include in your answer a specific situation in which Cabot would have recorded the goodwill mentioned above.

Depreciation and disposal-a comprehensive problem Domino,Inc uses straight-line depreciation with a half-year convention in its financial statements.On March 10,2018,Domino acquired a computer system at a cost of $98,800.Estimated useful life is six years,with residual value of $5,200. (a)Complete the following schedule,showing depreciation expense Domino expects to recognize each year in the financial statements. (b)Assume Domino sells the computer system on October 3,2021,for $26,650.

In February 2018,Gemstone Industries purchased the Opal Mine at a cost of $20,000,000.The mine is estimated to contain 500,000 carats of stone and to have a residual value of $1,000,000 after mining operations are completed.During 2018,50,000 carats of stone were removed from the mine and sold.In this situation:

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 that will benefit only the current accounting 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 when incurred. ________ 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.

A revenue expenditure is recorded in an expense account.

The inclusion of the intangible asset goodwill in the financial statements of a company indicates:

An asset that costs $18,800 and has accumulated depreciation of $6,000 is sold for $11,600.What amount of gain or loss will be recognized when the asset is sold?

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.

The half-year convention permits a company to take six months depreciation during the first year of an asset's life even if the asset was purchased on January 25th.

The legal life of most patents is:

A coal mine is regarded as an underground inventory of coal and is recorded as a current asset,Underground Coal Inventory,in the balance sheet.

In the year 2023,Tilton Products sells this machinery for $4,500.At the date of sale,the machinery had been depreciated by Tilton Products to its estimated residual value of $8,000.This sale results in:

Under international accounting standards,companies may revalue their plant and equipment rather than using historical cost throughout the assets' lives.

Just as there are depreciation methods to calculate the decline in market value of assets,there are appreciation methods to record the increase in market value of assets.

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:

Amortization expense increases net income and reduces cash flows from investing activities.

The journal entry to record depreciation expense consists of a debit to the asset being depreciated and a credit to Accumulated Depreciation.

Mayer Instrumentation sold a depreciable asset for cash of $300,000.The original cost of the asset was $1,200,000.Mayer recognized a gain of $45,000 on the sale.What was the amount of accumulated depreciation on the asset at the time of its sale?

In February 2018,Brilliant Industries purchased the Topaz Mine at a cost of $10,000,000.The mine is estimated to contain 500,000 carats of stone and to have a residual value of $500,000 after mining operations are completed.During 2018,50,000 carats of stone were removed from the mine and sold.In this situation: