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Exam 7: Long-Term Assets

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Question 31

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A building was purchased for $50,000.The asset has an expected useful life of 6 years and depreciation expense each year is $8,000 using the straight-line method.What is the residual value of the building?

A) $0.
B) $2,000.
C) $4,000.
D) $6,000.

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

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Question 32

Multiple Choice

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Which one of the following regarding the book value of an asset is correct?

A) It is the fair value of the asset if the asset is sold.
B) It reflects the original cost of the asset less accumulated depreciation.
C) It is the original cost of the asset minus the depreciation expense for that asset during the year.
D) It is the original cost at which the asset was purchased.

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

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Question 33

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Real Angus Steakhouse purchased land for $75,000 cash.They also incurred commissions of $4,500,property taxes of $5,000,and title insurance of $800.The $5,000 in property taxes includes $4,000 in back taxes paid by Real Angus on behalf of the seller and $1,000 due for the current year after the purchase date.For what amount should Real Angus Steakhouse record the land?

Many intangible assets are not recorded on the balance sheet at their estimated market values.

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.

Bad Brads BBQ purchased a piece of equipment by paying $5,000 cash.They also incurred a shipping cost of $400 to get the equipment to its factory.The fair value of this equipment is $7,000.For what amount should Bad Brads BBQ record the equipment?

In accounting,goodwill

Cash received from the sale of salvaged materials increases the total cost of land. Cash received from the sale of salvaged materials decreases the total cost of land.

In accounting,goodwill

On March 31,2012,the New Harvest Bakery acquired all the outstanding common stock of Red Rock Bakery for $68,000 in cash.The book values and market values of Red Rock's assets and liabilities were as follows: Calculate the amount paid for goodwill. $\begin{array}{lrr}&\text { Book Value }&\text { Fair Value }\\\text { Current assets } & \$ 24,000 & \$ 30,000 \\\text { Property, plant, and equipment } & 44,000 & 56,000 \\\text { Other assets } & 4,000 & 6,000 \\\text { Current liabilities } & 16,000 & 16,000 \\\text { Long-term liabilities } & 24,000 & 22,000\end{array}$

The depreciable cost used in calculating depreciation expense is:

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

In 2012,Sam's Salads had the following expenditures related to developing its trademark. During your year-end review of the accounts related to intangibles,you discover that the company has capitalized all the above as costs of the trademark.Management contends that all of the costs increase the value of the trademark; therefore,all the costs should be capitalized. 1.Which of the above costs should Sam's capitalize to the Trademark account in the balance sheet? 2.Which of the above costs should Sam's report as expense in the income statement? $\begin{array}{lr}\text { General advertising costs } & \$ 300,000 \\\text { Advertising specifically focused on trademark development } & 120,000 \\\text { Legal fees to register trademark } & 52,000 \\\text { Registration and design fees for the trademark } & 38,000 \\\text { Legal fees for successful defense of the new trademark } & 33,000\\\text { Total }&\$543,000\end{array}$

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

Management must review long-term assets for impairment when events or changes in circumstances indicate that book value might not be recoverable.

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:

Explain how the accounting treatment differs between purchased and internally developed intangible assets.

Research and development costs should be capitalized when the:

The balance sheet of Hidden Valley Farms reports total assets of $450,000 and $550,000 at the beginning and end of the year,respectively.Net income and sales for the year are $100,000 and $800,000,respectively.What is Hidden Valley's asset turnover?

Recognition of impairment for long-term assets is required if book value exceeds: