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Exam 9: Plant Assets, Natural Resources, and Intangible Assets

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Question 61

Multiple Choice

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A truck that cost $84,000 and on which $70,000 of accumulated depreciation has been recorded was disposed of for $21,000 cash. The entry to record this event would include a

A) gain of $7,000.
B) loss of $7,000.
C) credit to the Truck account for $14,000.
D) credit to Accumulated Depreciation for $70,000.

E) None of the above
F) A) and B)

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Question 62

Multiple Choice

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Mather Company purchased equipment on January 1, 2013 at a total invoice cost of $280,000; additional costs of $5,000 for freight and $25,000 for installation were incurred. The equipment has an estimated residual value of $10,000 and an estimated useful life of five years. The amount of accumulated depreciation at December 31, 2014 if the straight-line method of depreciation is used is:

A) $108,000.
B) $110,000.
C) $120,000.
D) $124,000.

E) A) and D)
F) All of the above

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Question 63

Multiple Choice

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On a statement of financial position, natural resources may be described more specifically as all of the following except

On January 1, 2013, Chicago Furniture purchased a new delivery truck. The company paid $60,000 for the truck, $12,000 for an annual insurance policy and $1,300 for a motor vehicle license. The truck has an estimated residual value of $5,000 at the end of its 4 year useful life and Chicago Furniture uses the double-declining-balance method for other similar assets. At what net amount will Chicago Furniture record the truck on its statement of financial position at December 31, 2013?

Assets that are experiencing rapid price changes must be revalued on an annual basis, otherwise less frequent revaluation is acceptable.

A loss on the exchange of plant assets occurs when the fair value of the old asset is less than its book value.

Useful life is expressed in terms of units of production or expected use.

Rooney Company incurred $420,000 of research costs in its laboratory to develop a patent granted on January 1, 2014. On July 31, 2014, Rooney paid $63,000 for legal fees in a successful defense of the patent. The total amount debited to Patents through July 31, 2014, should be:

Ordinary repairs are expenditures to maintain the operating efficiency of a plant asset and are referred to as

Kemp Company purchased factory equipment with an invoice price of €85,000. Other costs incurred were freight costs, €1,100; installation wiring and foundation, €2,200; material and labor costs in testing equipment, €700; oil lubricants and supplies to be used with equipment, €500; fire insurance policy covering equipment, €1,400. The equipment is estimated to have a €5,000 residual value at the end of its 10-year useful service life. Instructions (a) Compute the acquisition cost of the equipment. Clearly identify each element of cost. (b) If the double-declining-balance method of depreciation was used, the constant percentage applied to a declining book value would be __________.

Goodwill is an unusual asset in that it cannot be sold individually apart from a business as a whole. If goodwill is an intangible asset, why can't it be sold like other intangible assets such as copyrights and patents? Briefly explain what makes goodwill different.

If an acquired franchise or license has an indefinite life, the cost of the asset is not amortized.

Losses on an exchange of plant assets that has commercial substance are

Research and development costs

U.S. GAAP requires companies to expense all research and development costs as incurred.

Comment on the validity of the following statements: "As an asset loses its ability to provide services, cash needs to be set aside to replace it. Depreciation accomplishes this goal."

On January 1, 2014, Cooper Tree Company (CTC) purchases a copper mine for €15,000,000. The mine is estimated to have 20 million tons of copper and no residual value. CTC estimates that it will take 10 years to extract all the copper contained in the mine. CTC spends an additional €3,000,000 during the early part of 2014 preparing the mine. During 2014, CTC extracts 3 million tons of copper; however due to price fluctuations none of the copper is sold during 2014. On CTC's financial statement for 2014, how would the depletion associated with the extracted copper be reported?

Mento, Inc. spent $4,500,000 during 2014 to repair and update its plant assets. This consisted of $1,800,000 to paint the building, $345,000 to place worn-out gears on motors, $960,000 to install special shelving that will increase operating efficiency in the plant, and $1,395,000 on new machinery. What amount of these costs would appear as assets on Mento, Inc.'s December 31, 2014 statement of financial position?

Farr Company purchased a new van for floral deliveries on January 1, 2014. The van cost €48,000 with an estimated life of 5 years and €12,000 residual value at the end of its useful life. The double-declining-balance method of depreciation will be used. What is the depreciation expense for 2014?

Which of the following is not true of ordinary repairs?