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Exam 11: Investments in Noncurrent Operating Assets-Utilization and Retirement

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Question 21

Multiple Choice

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On January 1,2013,Canal Locks Corporation purchased drilling equipment for $11,500.The equipment has an estimated useful life of four years and a salvage value of $200.Given this information,if Canal uses the sum-of-the-years'-digits method of depreciation and then trades the equipment for new equipment with a fair market value of $16,000 on December 31,2014,and pays $8,000 cash in the exchange,assuming the exchange has commercial substance,the new equipment should be recorded at

A) $16,000.
B) $12,475.
C) $11,590.
D) $8,110.

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

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Question 22

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On January 1,2012,Costas Co.purchased a new machine for $1,250,000.The new machine has an estimated useful life of five years and the salvage value was estimated to be $250,000.Costas uses the sum-of-the-years'-digits method of depreciation.The amount of depreciation expense for 2014 is

A) $200,000.
B) $250,000.
C) $300,000
D) $416,667

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

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Question 23

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Backhoe Construction Company recently exchanged an old truck,which cost $118,000 and was one-third depreciated,and paid $80,000 cash for a used crane having a current fair value of $140,000.Assuming the exchange has commercial substance,at what amount should the crane be recorded on the books of Backhoe?

Which of the following reasons provides the best theoretical support for accelerated depreciation?

Five years ago,Monroe,Inc. ,purchased a patent for $110,000.Lower demand for the product produced under this patent necessitates that an impairment test be made.On the date of purchase,the patent had an estimated useful life of eleven years.It currently has a remaining useful life of four years.The current fair value of the patent is $43,000.Company management estimates that the patent will generate future cash flows of $12,000 per year for the next four years. The amount of the impairment loss to be recognized is

Which of the following is NOT required to be reported in the financial statements or disclosed in the accompanying notes?

Meteor Motor Sales exchanged a car from its inventory for a computer to be used as a noncurrent operating asset.The following information relates to this exchange that took place on July 31,2014: The exchange has commercial substance. On July 31,2014,how much profit should Meteor recognize on this exchange?

Image Creators,Inc.owns the following equipment and computes their depreciation on the straight-line basis: Required:

On January 1 Murphy Company acquired a machine with a four-year useful life.Murphy estimates the salvage value of the machine will be equal to ten percent of the acquisition cost.The company is debating between using either the double-declining-balance method or the sum-of-the-years'-digits method of depreciation.Comparing the depreciation expense for the first two years computed using these methods,the depreciation expense for the double-declining-balance method (compared to the sum-of-the-years'-digits method) will match which of the patterns shown below? First Second Year Year

Winwood Construction purchased a crane on January 1,2013,for $102,750.At the time of purchase,the crane was estimated to have a life of six years and a residual value of $6,750.In 2015,Winwood determined that the crane had a total useful life of seven years and a residual value of $4,500.If Winwood uses the straight-line method of depreciation,what will be the depreciation expense for the crane in 2015?

In accordance with generally accepted accounting principles,which of the following methods of amortization is normally recommended for intangible assets?

In January 2014,Router Mining Corporation purchased a mineral mine for $7,200,000 with removable ore estimated by geological surveys at 4,320,000 tons.The property has an estimated value of $720,000 after the ore has been extracted.Router incurred $2,160,000 of development costs preparing the property for the extraction of ore.During 2014,540,000 tons were removed and 480,000 tons were sold.For the year ended December 31,2014,Router should include what amount of depletion in its cost of goods sold?

Information concerning Santori Corporation's intangible assets is as follows: Santori incurred $352,000 of experimental and development costs in its laboratory to develop a patent that was granted on January 2,2014.Legal fees and other costs associated with registration of the patent totaled $65,600.Thomas estimates that the useful life of the patent will be eight years. A second patent was purchased from Lowman Company for $160,000 on July 1,2011.Expenditures for successful litigation in defense of this patent totaling $40,000 were paid on July 1,2014.Thomas estimates that the useful life of the patent will be 20 years from the date of acquisition. Prepare a schedule showing the intangible assets section of Santori's balance sheet at December 31,2014.

In 2013,Pauley Company paid $1,000,000 to purchase land containing a total estimated 160,000 tons of extractable mineral deposits.The estimated value of the property after the mineral has been removed is $200,000.Extraction activities began in 2014,and by the end of the year,20,000 tons had been recovered and sold.In 2015,geological studies indicated that the total amount of mineral deposits had been underestimated by 25,000 tons.During 2015,30,000 tons were extracted,and 28,000 tons were sold.What is the depletion rate per ton (rounded to the nearest cent) in 2015?

On January 1,2014,Ashton Company purchased equipment at a cost of $570,000.The equipment was estimated to have a useful life of five years and a salvage value of $60,000.Ashton uses the sum-of-the-years'-digits method of depreciation.What should the accumulated depreciation be at December 31,2016?

On January 1,2013,Pastel Colors Corporation purchased drilling equipment for $11,500.The equipment has an estimated useful life of four years and a salvage value of $200.Assuming that Pastel Colors uses the straight-line method of depreciation,if it trades the equipment for new equipment with a list price of $15,500 on December 31,2014,and pays $4,050 in the exchange,assuming the exchange lacks commercial substance,the new equipment should be recorded at

When assets are exchanged at a loss in an exchange lacking commercial substance,the basis of the new asset is usually

Which of the following assets generally is required to be tested at least annually for impairment?

Morgan Trucking traded a used truck with a book value of $1,700 and a fair market value of $2,300 for a new truck with a list price of $17,800.Morgan agreed to pay $13,000 in cash for the exchange in addition to giving up the used truck.Assuming the exchange has commercial substance,at what amount should the new truck be recorded?

Wastenot is a waste disposal company.Explain the effect the following actions of the management of Wastenot Company might have in managing earnings: