134. Why don’t we depreciate land? What are land improvements? Why do we record land
and land improvements separately?
135. 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?
136. 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.
137. Explain how the accounting treatment differs between purchased and internally
developed intangible assets.
138. Western Wholesale Foods incurs the following expenditures during the current fiscal
year: (1) Salaries for the repair technicians, $155,000; (2) remodeling of the executive offices,
$84,000; (3) annual maintenance costs related to its machinery, $72,900; (4) improvement of
the production line resulting in an increase in productivity, $38,000; and (5) addition of a
sprinkler system to the manufacturing facility to reduce the risk of fire damage, $35,000. How
should Western account for each of these expenditures?
139. Little King Sandwiches made the following expenditures related to its restaurant:
1. Replaced the heating and air conditioning system at a cost of $15,000.
2. Remodeled the restaurant building. The total cost of the project was $150,000.
3. Performed annual building maintenance at a cost of $47,000.
4. Paid annual insurance premium on the property for the coming year, $7,700.
5. Purchased a new delivery truck, $22,500.
6. Landscaped the property and added outdoor lights, $9,000.
140. Taco Hut purchased equipment on May 1, 2012, for $15,000. Residual value at the end
of an estimated 8 year service life is expected to be $3,000. Calculate depreciation expense
using the straight-line method for 2012 and 2013, assuming a December 31 year-end.
141. China Dragon purchased new restaurant equipment on September 1, 2012, for $8,000.
Residual value at the end of an estimated 5 year service life is expected to be $2,000.
Calculate depreciation expense using the straight-line method for 2012 and 2013, assuming a
December 31 year-end.
142. Stephan’s Resorts purchased equipment for $40,000. Residual value at the end of an
estimated four-year service life is expected to be $8,000. The machine operated for 2,200
hours in the first year and the company expects the machine to operate for a total of 10,000
hours over its four year life. Calculate depreciation expense for the first year using each of the
following depreciation methods: (1) straight-line, (2) double-declining-balance, and (3)
activity-based.
143. Chubbyville purchases a delivery van for $23,500. Chubbyville estimates that at the end
of its four-year service life, the van will be worth $2,500. During the four-year period, the
company expects to drive the van 105,000 miles. Calculate annual depreciation for the four-
year life of the van using each of the following methods. Round all amounts to the nearest
dollar.
1. Straight line.
2. Double-declining-balance.
3. Activity-based.
