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Exam 11: Property, Plant, and Equipment and Intangible Assets: Utilization and Disposition

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Question 41

Multiple Choice

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Jennings Advertising Inc. reported the following in its December 31, 2018, balance sheet: $\begin{array}{lr}\text {Equipment }&\$500,000\\\text {Less: Accumulated depreciation- equipment }&\$135,000\\\end{array}$ In a disclosure note, Jennings indicates that it uses straight-line depreciation over 10 years and estimates salvage value at 10% of cost. What is the average age of the equipment owned by Jennings?

A) 2.7 years.
B) 3 years.
C) 7 years.
D) 7.3 years.

E) A) and B)
F) A) and D)

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Question 42

Multiple Choice

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Listed below are 10 terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the correct term. -Allocation base

A) Cost allocation for an intangible asset.
B) Adding a new major component to existing plant and equipment.
C) Can be expressed in units of time or in units of activity.
D) Cost allocation for natural resources.
E) The amount the company expects to receive for the asset at the end of its life.
F) The replacement of a major component of plant and equipment asset.
G) Allocates an equal amount of depreciable base to each period.
H) Estimates service life in terms of a measure of activity.
I) The difference between cost and residual value.
J) Multiplies book value by twice the straight-line rate.

K) E) and H)
L) D) and G)

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Question 43

Multiple Choice

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Granite Enterprises acquired a patent from Southern Research Corporation on January 1, 2018, for $4 million. The patent will be used for 5 years, even though its legal life is 20 years. Rocky Corporation has made a commitment to purchase the patent from Granite for $200,000 at the end of five years. Compute Granite's patent amortization for 2018, assuming the straight-line method is used.

On January 1, 2018, Hobart Mfg. Co. purchased a drill press at a cost of $36,000. The drill press is expected to last 10 years and has a residual value of $6,000. During its 10-year life, the equipment is expected to produce 500,000 units of product. In 2018 and 2019, 25,000 and 84,000 units, respectively, were produced. -Required: Compute depreciation for 2018 and 2019 and the book value of the drill press at December 31, 2018 and 2019, assuming the sum-of-the-years'-digits method is used.

The cost of an engine tune-up is an example of which of the following expenditures taking place after acquisition of the asset:

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Change in useful life

Which depreciation method is most common for financial reporting? Which depreciation method is most common for tax reporting? Why do companies choose these methods?.

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Depletion

According to International Financial Reporting Standards (IFRS) , the impairment loss for property, plant, and equipment is the difference between book value and:

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Service life

When selling property, plant, and equipment for cash:

On February 12, 2018, Forest Incorporated purchased the right to remove timber from a 10,000-acre tract of land over the next three years, and the company estimates no residual value. The timber is to be sold as lumber for new home construction. The cost of the timber rights was $240,000, with estimated salable timber feet of 750,000. During 2018 and 2019, Forest harvested and sold 600,000 feet of timber. What is the book value of the timber rights at the end of 2019, assuming the company uses the units-of-production method?

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Repairs and maintenance

According to International Financial Reporting Standards (IFRS) , the level of testing for goodwill impairment is the:

Listed below are 10 terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the correct term. -Residual value

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Allocation base

Tatsuo Corporation purchased farm equipment on January 1, 2016, for $280,000. In 2016 and 2017, Tatsuo depreciated the asset on a straight-line basis with an estimated useful life of five years and a $90,000 residual value. In 2018, due to changes in technology, Tatsuo revised the residual value to $30,000 but still plans to use the equipment for the full five years. What depreciation would Tatsuo record for the year 2018 on this equipment?

A change in the estimated recoverable units used to compute depletion requires retroactive adjustments to the financial statements.

On January 1, 2018, Morrow Inc. purchased a spooler at a cost of $40,000. The equipment is expected to last eight years and have a residual value of $4,000. During its eight-year life, the equipment is expected to produce 250,000 units of product. In 2018 and 2019, 42,000 and 76,000 units respectively were produced. -Required: Compute depreciation for 2018 and 2019 and the book value of the spooler at December 31, 2018 and 2019, assuming the units-of-production is used.

Changes in the estimates involved in depreciation, depletion, and amortization require retroactive restatement of financial statements.