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Exam 7: Long-Term Assets

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Question 1

Multiple Choice

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Northern purchased the entire business of Southern including all its assets and liabilities for $600,000.Below is information related to the two companies: How much goodwill did Northern pay for acquiring Southern?

A) $100,000.
B) $300,000.
C) $200,000.
D) $150,000.

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

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Question 2

Multiple Choice

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Bricker Enterprises purchased a machine for $100,000 on October 1,2012.The estimated service life is ten years with a $10,000 residual value.Bricker records partial-year depreciation based on the number of months in service.Depreciation expense for 2012,using straight-line,is:

A) $1,500.
B) $7,500.
C) $2,250.
D) $2,500.

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

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C

Question 3

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Profit margin is net income divided by net sales.

Bricktown Exchange purchases a copyright on January 1,2012,for $50,000.The copyright has a remaining legal life of 25 years,but only an expected useful life of five years with no residual value.Assuming the company uses the straight-line method,what is the amortization expense for the year ended December 31,2012?

On January 1,2010,Jacob Inc.purchased a commercial truck for $48,000 and uses the straight-line depreciation method.The truck has a useful life of eight years and an estimated residual value of $8,000.On December 31,2012,Jacob Inc.sold the truck for $30,000.What amount of gain or loss should Jacob Inc.record on December 31,2012?

We use the term capitalize to describe recording an expenditure as an expense. We use the term capitalize to describe recording an expenditure as an asset.

When a change in estimate is required,the company changes depreciation in prior,current and future years. When a change in estimate is required,the company changes depreciation in current and future years,but not in prior periods.

We capitalize repairs and maintenance expenditures because they maintain a given level of benefits. We expense repairs and maintenance expenditures in the period incurred because they maintain a given level of benefits.

Using the double-declining balance method,the book value at December 31,2013 would be:

ACME Drilling is evaluating an off-shore oil drilling platform for possible impairment.They estimate the following: book value,$18.5 million; fair value,$12 million; sum of estimated future cash flows generated from the oil drilling platform,$16 million.What amount of impairment loss,if any,should they record?

ABO purchased a truck at the beginning of 2012 for $140,000.They sold the truck at the end of 2013 for $95,000.If the expected life of the truck was six years with a residual value of $20,000 and ABO uses straight-line depreciation,which of the following is true regarding the entry to record the sale of the truck?

Taco Hut purchased equipment on May 1,2012,for $15,000.Residual value at the end of an estimated 8 year service life is expected to be $3,000.Calculate depreciation expense using the straight-line method for 2012 and 2013,assuming a December 31 year-end.

A more comparable measure of profitability than income is return on assets,which equals net income divided by average total assets.

Book value is equal to the original cost of the asset minus the current balance in Accumulated Depreciation.

Aspen,Inc.developed a new horse transport device and incurred research and development costs of $250,000.Rather than continue with their own research,Aspen decided to purchase a patent for a similar design from Vail,Inc.for $350,000.What are the total assets and expenses for these developments?

Accumulated Depreciation is a liability account that is increased by credits. Accumulated Depreciation is a contra-asset account; it reduces an asset account.

Crestview Estates purchased a tractor on January 1,2012,for $65,000.The tractor's useful life is estimated to be 30,000 miles and has a residual value of $5,000.If Crestview used the tractor 5,000 miles in 2012 and 3,000 miles in 2013,what is the balance for accumulated depreciation at the end of 2013 using the activity method?

Contrast the effects of the straight-line,declining-balance,and activity-based depreciation methods on annual depreciation expense.

Why don't we depreciate land? What are land improvements? Why do we record land and land improvements separately?

The exclusive right to benefit from a creative work,such as a film,is a: