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Exam 10: Plant Assets, natural Resources, and Intangibles

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Question 21

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A company purchased property for a building site.The costs associated with the property were: Purchase price……………………… $175,000 Real estate commissions ……………………… 15,000 Legal fees ……………………… 800 Expenses of clearing the land ……………………… 2,000 Expenses to remove old building ……………………… 1,000 What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building?

A) $175,800 to Land; $18,800 to Building.
B) $190,000 to Land; $3,800 to Building.
C) $190,800 to Land; $1,000 to Building.
D) $192,800 to Land; $0 to Building.
E) $193,800 to Land; $0 to Building.

F) All of the above
G) A) and C)

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Question 22

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Accounting for the exchange of assets depends on whether the transaction has commercial substance; commercial substance implies that it alters the company's future cash flows.

A) True
B) False

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Question 23

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Since goodwill is an intangible,it is amortized each year using the straight-line method,the same as other intangibles are amortized.

What is depreciation of plant assets? What are the factors to consider in computing depreciation?

The original cost of a machine was $60,000.After $45,000 of depreciation was recorded,the machine was traded in on a new machine priced at $75,000.A $10,500 trade-in allowance was received on the old machine and the balance of $64,500 was paid in cash.This transaction has commercial substance.Prepare the general journal entry to record this trade-in.

During the current year,a company acquired a new computer with a cash price of $12,800 by exchanging an old one on which the company received a $1,500 trade-in allowance (with the balance of $11,300 paid in cash).The old computer cost $9,000 and its accumulated depreciation was $5,500 as of the exchange date.Assuming the exchange transaction had commercial substance,prepare the journal entry to record the exchange.

A leasehold:

A company needed a new building.It found a suitable location with an existing old building on the land.The company reached an agreement to buy the land and the building for $960,000 cash.The old building was demolished to make way for the needed new building.Following is information regarding the demolition of the old building and construction of the new one: Construction cost of new building including $660,000 for parking lot………………………………………. $9,560,000 Demolition of old building…………………………………. 300,000 Proceeds from sale of salvaged materials from old building 120,000 Prepare a single journal entry to record the above costs assuming all transactions are paid in cash.

A company discarded a display case originally purchased for $8,000.The accumulated depreciation was $7,200.The company should recognize a (an) :

Natural resources are often called wasting assets because they are physically consumed when used.

Once the estimated depreciation expense for an asset is calculated:

Monte Ray leases office space for $7,000 per month.On January 3,Monte Ray incurs $75,000 to improve his leased office space.These improvements are expected to yield benefits for 8 years.Ray has 6 years remaining on his lease.What journal entry would be needed to record the expense for the first year related to the improvements.

The units-of-production method of depreciation charges a varying amount of expense for each period of an asset's useful life depending on its usage.

Goodwill:

The cost of fees for insuring the title and any accrued property taxes are included in the cost of land.

Cowers reported net sales of $2,463 million and average total assets of $1,546 million.Its total asset turnover equals 1.59.

A company sold a machine that originally cost $100,000 for $60,000 cash.The accumulated depreciation on the machine was $40,000.The company should recognize a:

A company exchanged its used machine for a new machine in a transaction that had commercial substance.The old machine cost $70,000,and the new one had a cash price of $95,000.The company had taken $60,000 depreciation on the old machine and was allowed a $2,500 trade-in allowance and the balance of $92,500 was paid in cash.What gain or loss should be recorded on the exchange?

Total asset turnover is used to evaluate:

Revising an estimate of the useful life or salvage value of a plant asset is referred to as a change in accounting estimate,and is reflected in the past,current,and future financial statements.