98. A company sold equipment at a loss. What is the impact on the balance sheet of removing the equipment
account and its related accumulated depreciation account?
99. Equipment with an estimated residual value at acquisition of $15,000 was sold on December 31, 2012, for
$20,000 cash. The following data were available at the time of sale:
Acquisition cost
$100,000
Accumulated depreciation on December 31, 2012, after adjustment
85,000
When this transaction is recorded, it should include a
100. Furniture Barn and Furniture World purchased identical equipment having an estimated useful life of five
years. Furniture Barn uses the straight-line depreciation method whereas Furniture World uses the double-
declining-balance method of depreciation. Assuming the two entities are similar in all other respects, which of
the following statements is correct concerning the equipment? Hint: Without worrying about amounts, graph
depreciation expense over the five years.
101. Which of the following is an intangible asset?
102. Using the straight-line depreciation method will cause a company to incur ____ tax expense in the early
years of an asset’s life than they would experience using an accelerated method of depreciation.
103. A company purchased a building for $900,000 on January 1, 2013. The building is being depreciated over
40 years with an estimated residual value of $100,000. What will be the book value of the building in ten
years?
104. Fantasy Cruise Lines
On January 1, 2012, the company purchased a ship for $1,000,000. It has a ten-year useful life and a residual
value of $100,000. The company uses the double-declining-balance method.
Refer to Fantasy Cruise Lines. Compute the amount of depreciation expense for the year ended December 31,
2012.
105. Fantasy Cruise Lines
On January 1, 2012, the company purchased a ship for $1,000,000. It has a ten-year useful life and a residual
value of $100,000. The company uses the double-declining-balance method.
Refer to Fantasy Cruise Lines. What is the depreciation expense for the year ended December 31, 2013?
106. Fantasy Cruise Lines
On January 1, 2012, the company purchased a ship for $1,000,000. It has a ten-year useful life and a residual
value of $100,000. The company uses the double-declining-balance method.
Refer to Fantasy Cruise Lines. What will be the book value of the ship after ten years?
107. Fantasy Cruise Lines
On January 1, 2012, the company purchased a ship for $1,000,000. It has a ten-year useful life and a residual
value of $100,000. The company uses the double-declining-balance method.
Refer to Fantasy Cruise Lines. What will be the book value of the ship at the end of its useful life?
108. A company bought machinery on January 1, 2010, for $200,000. On January 2, 2012, the machinery had a
book value of $100,000. It is estimated that the machine will generate future cash flows of $70,000 and its
current fair value is $60,000. How much impairment loss should be recorded?
109. An oil company purchased 10,000 acres of land on January 1, 2011, for $5,000,000, on which it developed
an underground oil site. The company spent $11,000,000 to prepare the site for operation but believes that
500,000 barrels of oil can be extracted from the site over five years after drilling begins. The land has a residual
value of $250,000. Assuming 50,000 barrels of oil were extracted from the land in 2012, how much depletion
would be recorded?
110. Which of the following is not a reason to revise the amount of depreciation expense?
111. Company A has equipment that cost $5,250,000 which has accumulated depreciation of $500,000 while
Company B has equipment that costs $4,600,000 and has accumulated depreciation of $4,400,000. Assuming
both companies use straight line depreciation and estimated useful lives of 40 years with $100,000 residual
values, which of the following statements is true?
112. You have determined that a company uses straight line depreciation. However, the depreciation expense is
different than you expected it to be. What could be the reason for this difference?
113. Future Foundations purchased equipment on January 1, 2012, for $50,000, with an estimated useful life of
five years and an estimated residual value of $5,000. The company uses the straight-line method of
depreciation. On July 1, 2014, the equipment was sold for $17,500 cash.
Prepare journal entries for the following:
A) Depreciation expense for 2013;
B) Depreciation expense for 2014; and
C) Sale of the equipment in 2014.
114. Fuzziwig’s Candles has two intangible assets. Information concerning each is provided in the following
table:
Goodwill
Trademark
Date of purchase
June 30, 2012
January 1, 2012
Cost
$500,000
$250,000
Legal life
None
10 years
Useful life
40 years
5 years
Calculate the amount of amortization expense that should be reported for 2012.
Goodwill
Trademark
2012 Amortization expense
$250,000 / 5 years = $50,000
115. Given below are several accounts and balances:
2013
2012
Accumulated depreciation
$278,125
$258,750
Gain on disposal of plant assets
28,125
Equipment (Equipment with book value of $36,875 was sold)
893,750
993,750
Land
250,000
250,000
Cash received from sale of plant asset
65,000
A) Prepare the property plant and equipment section of the balance sheet at December 31,
2013 in the space provided below.
Balance Sheet
B) By how much will net income increase or decrease during 2013 as a result of the above
information?
Less: Accumulated depreciation 278,125
$615,625
Land
250,000
Net property, plant, and equipment
$865,625
116. Below are several accounts and balances from the 2012 financial statements for Fripp, Inc. Prepare the
intangible asset section of the company’s balance sheet, as well as a partial income statement in the space
provided below using the accounts provided.
Amortization expense
$ 22,000
Amortization since inception
88,000
Loss on sale of Trademark
31,000
Patents
270,200
Land
180,000
Goodwill
250,000
Research and development costs
320,000
Balance Sheet
Income Statement
Balance Sheet
Intangible Assets:
Patents
182,200
Total Intangible assets (net)
$432,200
Income Statement
Operating Expenses:
Amortization expense
$ 22,000
Research and development costs
320,000
342,000
Other Income and Expenses
Loss on disposal of Trademark
($31,000)
117. Given below are costs incurred during 2012 and 2013 by a company that follows the policy of decreasing
the intangible asset account directly as amortized.
Research was conducted to discover a new product and costs of $400,000 in 2012 and $800,000 in 2013 were
incurred. After several months, a product was created and a patent secured for a cost of $180,000, effective as
of July 1, 2013. The company expects to have increased revenues of $500,000 over the next several years. The
patent is expected to be useful for the next 10 years.
A)
Prepare a partial income statement for the year ended December 31, 2013.
B)
How should the $800,000 cost incurred in 2013 be reported on the financial statements?
118. Fleet Rentals purchased equipment with a cost of $200,000 at the beginning of 2012. The equipment has
an estimated life of 10 years or 100,000 units of product. The estimated residual value is $20,000. During 2012,
11,000 units of product were produced with this machinery. Determine the following:
A)
Amount of total accumulated depreciation at December 31, 2012, using units–of-production depreciation
B)
Book value at the end of 2012 using straight-line depreciation
C)
Why would the company choose units-of-production depreciation instead of straight-line?
A)
($200,000 – $20,000) / 100,000 ´ 11,000 = $19,800
B)
($200,000 – $20,000) / 10 = $18,000
$200,000 – $18,000 = $182,000
A)
Operating expenses:
Research and development costs
$800,000
Patent amortization expense
9,000
(($180,000 cost / 10 years) ´ 1/2 year)
119. Futronics purchased a truck at the beginning of 2012 for $41,500 and decided to depreciate it over a 6-year
period using the straight-line method. The estimated residual value was $5,500. At the beginning of 2013, the
company determined that a 4-year life should have been used to depreciate the truck. The estimated residual
value was not affected by the revision in the asset’s life.
A)
Determine the amounts to be recorded as depreciation expense for 2012 and 2013.
B)
What factors may have influenced the change in useful life?
120. Flott Corp. purchased a machine on January 1, 2012, for $60,000. The company decided to depreciate the
machine over a 8-year period using the straight-line method. The company estimated its residual value at
$4,000. Show how the costs should be presented on the balance sheet and income statement for the full year
ended June 30, 2014. Label the statements properly.
Property, plant, and equipment:
Machinery
$60,000
Less: Accumulated depreciation*
(17,500)
Net property, plant, and equipment
$42,500
*
[($60,000 – $4,000) / 8] ´ 2.5 years = $17,500
Operating expenses:
Depreciation expense*
$ 7,000
*
($60,000 – $4,000) / 8
2012:
($41,500 – $5,500) / 6 = $6,000
2012:
[($41,500 – $5,500) – $6,000] / 3 = $10,000
121. Finicky Freight purchased a truck at the beginning of 2012 for $80,000. The company decided to
depreciate the truck over a 5-year period using the double-declining-balance method. The company estimated
the equipment’s salvage value at $8,000. Show how the costs should be presented on the financial statements at
December 31, 2013. Label the statements properly.
2012 Depreciation:
$80,000 ´ .40 =
$32,000
2013 Depreciation:
$48,000 ´ .40 =
19,200
Accumulated depreciation
$51,200
Property, plant, and equipment:
Truck
$80,000
Less: Accumulated depreciation
(51,200)
Net property, plant, and equipment
$28,800
Operating expenses:
Depreciation expense
$19,200
122. Fabulous Creations
The assets section of the company’s balance sheets for the years ended December 31, 2013 and 2012, is
provided below.
Fabulous Creations
Assets Section of Consolidated
Balance Sheets (in millions)
at December 31,
Assets
2013
2012
Current Assets
Cash and equivalents
$ 719
$ 2,610
Short-term investments
0
886
Receivables, less allowances of $1,889 and $97
6,054
464
Inventories
1,791
0
Prepaid expenses and other current assets
1,710
711
Total Current Assets
$10,274
$ 4,671
Noncurrent inventories & film costs
6,853
0
Investments
6,886
3,824
Land and buildings
$ 2,107
$ 440
Cable television equipment
9,966
0
Furniture, fixtures, and equipment
4,329
1,297
Property, plant, and equipment
$16,402
$1,737
Less: Accumulated depreciation
(3,718)
(696)
Property, plant, & equipment (net)
12,684
1,041
Music catalogue, and copyrights
2,927
0
Cable television and sport franchises
27,109
0
Brands and trademarks
10,684
0
Goodwill and other intangibles
128,338
713
Other assets
2,804
578
Total assets
$208,559
$10,827
Refer to Fabulous Creations. The company recorded depreciation expense of $344 million for 2012. Calculate the following ratios for 2013.
A)
If Net Sales were $60,000 for 2013, what would be the fixed asset turnover ratio?
B)
Average age of property, plant, and equipment
Fixed asset turnover = Net Sales / Average Fixed Assets
$60,000 / ($12,684 + $1,041) / 2 = 8.74
Average Age = Accumulated Depreciation / Depreciation Expense
$696 / $344 = 2.0 years
123. Fabulous Creations
The assets section of the company’s balance sheets for the years ended December 31, 2013 and 2012, is
provided below.
Fabulous Creations
Assets Section of Consolidated Balance
Sheets (in millions)
at December 31,
Assets
2013
2012
Current Assets
Cash and equivalents
$ 719
$ 2,610
Short-term investments
0
886
Receivables, less allowances of $1,889 and $97
6,054
464
Inventories
1,791
0
Prepaid expenses and other current assets
1,710
711
Total Current Assets
$10,274
$ 4,671
Noncurrent inventories & film costs
6,853
0
Investments
6,886
3,824
Land and buildings
$ 2,107
$ 440
Cable television equipment
9,966
0
Furniture, fixtures, and equipment
4,329
1,297
Property, plant, and equipment
$16,402
$1,737
Less: Accumulated depreciation
(3,718)
(696)
Property, plant, & equipment (net)
12,684
1,041
Music catalogue, and copyrights
2,927
0
Cable television and sport franchises
27,109
0
Brands and trademarks
10,684
0
Goodwill and other intangibles
128,338
713
Other assets
2,804
578
Total assets
$208,559
$10,827
Refer to Fabulous Creations. Determine the book value of the company’s property, plant and equipment at December 31, 2013 and 2012.
What types of transaction(s) could have caused the change in book value of property, plant, and equipment during 2013?
Book Value at December 31, 2013
$12,684
Book Value at December 31, 2012
$ 1,041