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Exam 7: Long-Term Assets

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Question 81

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Abbott Company purchased a computer that cost $10,000. It had an estimated useful life of 5 years and no residual value. The computer was depreciated by the straight-line method and was sold at the end of the fourth year of use for $3,000 cash. Abbott should record:

A) a gain of $1,000.
B) a loss of $1,000.
C) neither a gain nor a loss - the computer was sold at its book value.
D) neither a gain nor a loss - the gain that occurred in this case would not be recognizeD.$10,000/5 = depreciation of $2,000 per year. After four years, the book value would be $10,000 - ($2,000 x 4 years) = $2,000. The asset was sold for $3,000 or a $1,000 gain over book value.

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

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Question 82

True/False

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A trademark is a word, slogan, or symbol that distinctively identifies a company, product, or service.

A) True
B) False

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Question 83

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

Cowboy Development incurred the following costs associated with the purchase of a piece of land that it will use to re-build an office building: Sale price of the land $\quad 400,000$ Sale of salvaged parts already on land $\quad 20,000$ Demolition of the old building $\quad \$ 30,000$ Ground breaking ceremony (food and supplies) $\quad \$ 1,500$ Land preparation and leveling $\quad \$ 7,500$ What amount should be recorded for the purchase of the land?

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

We expense internally generated intangible assets, such as research and development and advertising costs, as we incur them.

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

Using the straight-line method, depreciation expense for 2012 would be:

Using the straight-line method, the book value at December 31, 2012 would be:

Wiley Company purchased new equipment for $60,000. Wiley paid cash for the equipment. Other costs associated with the equipment were: transportation costs, $1,000; sales tax paid $3,000; and installation cost, $2,500. The cost recorded for the equipment was:

We allocate natural resources to expense through a process known as "depletion."

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: $\begin{array} { l r r } & \text { Book Value } & \text { Fair Value } \\\text { Current assets } & \$ 24,000 & \$ 30,000 \\\text { Property, plant, and equipment } & 44,000 & 56,000 \\\text { Other assets } & 4,000 & 6,000 \\\text { Current liabilities } & 16,000 & 16,000 \\\text { Long-term liabilities } & 24,000 & 22,000\end{array}$ Calculate the amount paid for goodwill.

On January 1, 2010, Jacob Inc. purchased a commercial truck for $48,000 and uses the straight-line depreciation method. The truck has a useful life of eight years and an estimated residual value of $8,000. On December 31, 2012, Jacob Inc. sold the truck for $30,000. What amount of gain or loss should Jacob Inc. record on December 31, 2012?

We record a loss if we sell an asset for less than book value.

Land improvements are recorded separately from the land itself because, unlike land, these assets are subject to depreciation.