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Exam 10: Property,plant and Equipment,and Intangibles

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Question 101

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At December 31,2015,Great Coast Coffee Company's adjusted trial balance shows an espresso machine with a book value of $12,000.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.

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Question 102

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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.

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Question 103

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Danner Co.purchased a computer on January 1,2014,for $1,600,000.The straight-line method of depreciation was used,based on an expected life of 6 years and a residual value of $130,000.Prepare the journal entries to record depreciation for the first 6 months of 2016 and the sale of the computer on July 1,2016,for $1,000,000.

Depreciation measures the decline in market value of an asset.

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

Because land has unlimited life,it is not subject to depreciation.Therefore,items that increase the usefulness of the land such as parking lots are also not depreciated.

Prepare journal entries to record the following transactions of Salem Sales Co.during the current year:

Revising estimates of the useful life or residual value of property,plant and equipment is referred to as a(n)_______________________.

On January 4,2015,SportsWorld purchased a patent for $35,000 with a useful life of 10 years.Prepare the journal entry to amortize the patent for the calendar year 2015.

SportsWorld spent $17,000 to remodel its store.This cost will be recognized with a debit to Store Building.

On January 1,2014,Friar Company purchased a machine for $175,000 that was expected to last 6 years and have a residual value of $16,000.On January 4,2017,Friar Company paid $25,000 for improvements to the machine,which increased the total estimated useful life from 6 to 10 years and increased the residual value to $19,500.Friar uses straight-line depreciation. (1)What account should be debited in the journal entry to record the $25,000 improvements? (2)What amount of depreciation expense should be recorded for 2017?

An asset with a current book value of $5,000 has a current market value of $2,000.The company should recognize an impairment loss of $3,000.

The Income Tax Act generally requires that companies use a double-declining-balance method of cost allocation called Capital Cost Allowance to determine the maximum amount of deduction for a taxation year.

Intangible assets:

On April 1,2015,Lockhart Company discarded equipment that cost $80,000,had a useful life of 5 years,a residual value of $14,000,and,under straight-line depreciation,accumulated depreciation as of December 31,2014 of $26,400. (a)Prepare the journal entry to record depreciation up to the date of disposal of the equipment. (b)Prepare the journal entry to record the disposal of the equipment.

Residual value is an estimate of an asset's value at the end of its useful life.

The gain or loss from disposal of property,plant and equipment is the difference between an asset's book value and the value received.

How is the cost principle applied to property,plant and equipment?

Replacement of a roof or renovation of a plant are examples of _______________________.

The cost of an asset plus its accumulated depreciation equals the asset's book value.