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Exam 7: Long-Term Assets

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Question 41

Multiple Choice

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Capital Construction purchased a 3-acre tract of land for a building site for $350,000.The company demolished the old building at a cost of $12,000,but was able to sell scrap from the building for $1,500.The cost of title insurance was $900 and attorney fees for reviewing the contract was $500.Property taxes paid were $3,000,of which $250 covered the period after the purchase date.The capitalized cost of the land is:

A) $366,400.
B) $366,150.
C) $364,650.
D) $231,150.

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

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Question 42

Multiple Choice

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Lake Incorporated purchased all of the outstanding stock of Huron Company paying $850,000 cash.Lake assumed all of the liabilities.Book values and fair values of acquired assets and liabilities were: Lake would record goodwill of:

A) $ 0.
B) $150,000.
C) $345,000.
D) $850,000.

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

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Question 43

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Taking a "big bath" is recording all losses in one year to make a bad year even worse.

The amount of impairment loss is the excess of book value over:

Declining-balance depreciation will be lower than straight-line depreciation in earlier years,but higher in later years.

Listed below are five terms followed by a list of phrases that describe or characterize the terms.Match each phrase with the best term placing the letter designating the term in the space provided. a.Capitalize b.Materiality c.Repairs and maintenance d.Addition e.Improvement Phrases: _____ Occurs when we add a new major component to an existing asset. _____ The cost of replacing a major component of an asset. _____ Large enough to influence an investor or creditor's decision. _____ Recording an expenditure as an asset. _____ Expenses after acquisition that maintain a given level of benefits.

Return on assets is calculated as:

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?

Residual value,also referred to as salvage value,is the amount the company expects to receive from selling the asset at the end of its service life.

An exclusive 20-year right to manufacture a product or to use a process is a:

Burger Chef acquired a delivery truck on March 1,2015 for $26,000.The company estimates a residual value of $2,000 and a 6-year service life.It expects to drive the truck 80,000 miles.Actual mileage was 12,000 miles in 2015 and 16,000 miles in 2016.Calculate depreciation expense using the activity-based method for 2015 and 2016,assuming a December 31 year-end.

Which of the following statements is true regarding the amortization of intangible assets?

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

A patent is an exclusive right to a published work such as a song,film,or painting.

We record goodwill as an intangible asset in the balance sheet only when we purchase it as part of the acquisition of another company.

If the defense of an intangible right is unsuccessful,then the firm should expense the litigation costs as incurred because they provide no future benefit.

The acquiring company records goodwill equal to the purchase price less the book value of the net assets acquired.

Listed below are five terms followed by a list of phrases that describe or characterize the terms.Match each phrase with the best term placing the letter designating the term in the space provided. a.Amortization b.Depletion c.Straight-line method d.Declining-balance method e.Activity-based method Phrases: _____ The process of recording expense for natural resources. _____ Allocates an asset's cost based on its use. _____ An accelerated depreciation method that records more depreciation in earlier years and less depreciation in later years. _____ Allocating the cost of an intangible asset over its service life. _____ Allocates an equal amount of depreciation to each year of the asset's service life.

At the beginning of the year,Big Time Tires acquired 100% of the common stock of Discount Tires.The purchase price allocation included the following items: $800,000,patent;$300,000,trademark considered to have an indefinite useful life;and $2 million,goodwill.Big Time Tire's policy is to amortize intangible assets with finite useful lives using the straight-line method,no residual value,and a five-year service life.What is the total amount of amortization expense that would appear in Big Time Tire's income statement for the first year related to these items?