144. Burger Chef acquired a delivery truck on March 1, 2012 for $26,000. The company
estimates a residual value of $2,000 and a 6-year service life. It expects to drive the truck
80,000 miles. Actual mileage was 12,000 miles in 2012 and 16,000 miles in 2013. Calculate
depreciation expense using the activity-based method for 2012 and 2013, assuming a
December 31 year-end.
145. Contrast the effects of the straight-line, declining-balance, and activity-based
depreciation methods on annual depreciation expense.
146. Which depreciation method is most common for financial reporting? Which depreciation
method is most common for tax reporting? Why do companies choose these methods?
147. At the beginning of the year, Big Time Tires acquired 100% of the common stock of
Discount Tires. The purchase price allocation included the following items: $800,000, patent;
$300,000, trademark considered to have an indefinite useful life; and $2 million, goodwill.
Big Time Tire’s policy is to amortize intangible assets with finite useful lives using the
straight-line method, no residual value, and a five-year service life. What is the total amount
of amortization expense that would appear in Big Time Tire’s income statement for the first
year related to these items?
148. On January 1, 2012, The Donut Stop purchased a patent for $80,000. The remaining
legal life is 20 years, but the company estimates the patent will be useful for only five more
years. In January 2013, the company incurred legal fees of $25,000 in successfully defending
a patent infringement suit. The successful defense did not change the company’s estimate of
useful life. The Donut Stop’s year end is December 31st. Record the purchase and amortization
in 2012 and the legal fees and amortization in 2013. What is the balance in the Patents
account at the end of 2013?
149. The Bomb Pop Corporation sold ice cream equipment for $16,000. They originally
purchased the equipment for $40,000, and depreciation through the date of sale totaled
$25,000. What was the gain or loss on the sale of the equipment? Record the sale of the
equipment.
150. Strawberry Fields purchased a tractor at a cost of $38,000 and sold it two years later for
$25,000. Strawberry Fields recorded depreciation using the straight-line method, a five-year
service life, and an $8,000 residual value. What was the gain or loss on the sale? Record the
sale.
151. Nate’s Hot Dogs exchanges long-term assets with Lizzy’s Lemonade. Nate receives a
delivery truck and gives up a piece of machinery. The fair value and book value of the
machinery were $27,000 and $25,000 (original cost of $35,000 less accumulated depreciation
of $10,000), respectively. Since the delivery truck was worth $32,000, Nate paid an additional
$5,000 in cash to Lizzy. Record the exchange for Nate’s Hot Dogs.
152. New World Deli exchanged land for a more suitable parcel of land to be used for a new
restaurant. New World Deli reported the old land at its original cost of $85,000. According to
an independent appraisal, the old land currently is worth $110,000. New World Deli paid
$15,000 in cash to complete the transaction. Record the exchange.
153. Allied Construction and Axis Construction reported the following information in their
annual financial statements ($ in millions):
Required:
1. Calculate Allied Construction’s return on assets, profit margin, and asset turnover ratio for
2012.
2. Calculate Axis Construction’s return on assets, profit margin, and asset turnover ratio for
2012.
3. Which company has the better profit margin and which company has the better asset
turnover?
154. ACME Drilling is evaluating an off-shore oil drilling platform for possible impairment.
They estimate the following: book value, $18.5 million; fair value, $12 million; sum of
estimated future cash flows generated from the oil drilling platform, $16 million. What
amount of impairment loss, if any, should they record?
155. Northwest Catering owns and operates several restaurant services in Oregon,
Washington, and Idaho. One restaurant chain has experienced sharply declining profits. The
company’s management has decided to test the operational assets of the restaurants for
possible impairment. The relevant information for these assets is presented below:
1.#