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Exam 9: Property, Plant and Equipment Intangibles

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Question 41

True/False

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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.

A) True
B) False

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Question 42

Multiple Choice

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Which of the following statements is true with respect to intangible assets?

A) Goodwill is an intangible asset that is amortized and tested for impairment.
B) Intangible assets are amortized over a period of 50 years.
C) Intangible assets should be evaluated each year to determine if there has been any impairment in their value.
D) Intangible assets are expensed to income in the year they are acquired.
E) An intangible asset is recorded at market value when the asset is acquired.

F) None of the above
G) D) and E)

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Question 43

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The cost of an asset includes all normal and reasonable expenditures necessary to get it in place and ready for its intended use.

Discuss accounting for an impairment of property, plant and equipment.

Chervinski Industries recently paid $560,000 to buy a building that has an estimated useful life of 40 years and a residual value of $116,000. Calculate the depreciation expense for the third year after acquisition using double-declining-balance depreciation. Assume a full year of depreciation in the first year.

Hertzog Company purchased and installed a machine on February 1, 2019, at a total cost of $72,000. Straight-line depreciation was calculated based on the assumption of a five-year life and no residual value. The machine was disposed of on July 31, 2022. Assuming the machine was totally destroyed in a fire and the insurance company settled the claim for $18,000 cash, prepare the general journal entry to record the disposal.

Hawaii Kai purchased a leasehold property for $8,500,000. The leasehold expires in 15 years. Prepare the journal entry to record the first year's depreciation expense.

At December 31, 2020, Great Coast Coffee Company's adjusted trial balance shows an espresso machine with a book value of $22,000. As part of the year end procedures GCC completed the asset impairment test on the machine and noted that the recoverable value of the machine was $6,000. Record the impairment loss on the asset.

Hertzog Company purchased and installed a machine on February 1, 2019, at a total cost of $72,000. Straight-line depreciation was calculated based on the assumption of a five-year life and no residual value. The machine was disposed of on July 31, 2022. Assuming the machine was sold for $22,000, prepare the general journal entry to record the disposal

Property, plant and equipment can be disposed of by discarding, sale, or exchange of the asset.

During 2021, Melanie's Emporium exchanged an old truck costing $18,000 with accumulated depreciation of $13,000 to the date of exchange for a new truck. The new truck had a cash price of $30,000 and Melanie received a $6,000 trade-in allowance on the old truck. This transaction has commercial substance. Prepare the journal entry to record the exchange.

Treating small-dollar-amount capital expenditures as revenue expenditures is likely to mislead users of financial statements.

Any expenditures for legal fees, surveying, and accrued property taxes should not be included in the cost of land.

Timing Investments purchased land with a building for a total cost of $6,000,000 ($500,000 paid in cash and the balance on a long-term note). The appraised cost of the land and building were $3,500,000 and $1,900,000, respectively. Calculate the costs to be allocated to the land and the building and prepare the appropriate journal entry to record the acquisition.

On January 1, 2019 a machine costing $330,000 with a 4-year service life and an estimated $3,000 residual value was purchased. It was also estimated that the machine would produce 50,000 units during its life. The actual units produced during its first 2 years of operation were 9,000 and 10,000 respectively. Calculate the amount of depreciation expense for the 2019 and 2020 under each of the following assumptions: (a) Straight-line. (b) Double-declining-balance. (c) Units-of-production.

A copyright

Revenue expenditures

Matador & Company was preparing the annual financial statements and, as part of its year-end procedures, prepared the following schedule based on adjusted values at March 31, 2020: $\begin{array}{|l|r|r|r|}\hline \text { Asset } & \text { Cost } & \begin{array}{r}\text { Accumulated } \\\text { Depreciation }\end{array} & \begin{array}{r}\text { Recoverable } \\\text { Amount }\end{array} \\\hline \text { Furniture } & \$ 25,000 & \$ 20,000 & \$ 15,000 \\\hline \text { Computer } & \$ 2,000 & \$ 1,000 & \$- \\\hline \text { Land } & \$ 105,000 & \$- & \$ 125,000 \\\hline \text { Machine } & \$ 90,000 & \$ 25,000 & \$ 45,000 \\\hline\end{array}$ Record the entry for any impairment loss assuming that Matador & Company recorded no impairment losses in previous years.

A patent

Land purchased as a building site is a tangible asset called property, plant and equipment and is classified under the "Long-term Investments" section on the balance sheet.