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152.
Maple Inc. has the following information regarding its assets:
Book
Value
Estimated
Cash Flows
Fair
Value
Equipment
$35,000
$30,000
$28,000
Building
$68,000
$70,000
$65,000
Patent
$30,000
$34,000
$32,000
What amount of loss should be recorded due to asset impairments?
Matching Questions
153.
Match the following
1. Improvement
Recording an expenditure as an asset.
4
2. Addition
3
5
Expenses after acquisition that maintain a given level of
2
Occurs when we add a new major component to an existing
5. Repairs and
Large enough to influence an investor or creditor’s decision.
154.
Match the following
3
1. Straight-line
5
1
2. Activity-based
Allocates an equal amount of depreciation to each year of the
4
4. Declining-
An accelerated depreciation method that records more
155.
Match the following
Payment for the exclusive right to use the company’s name and to
A word, slogan, or symbol that distinctively identifies a company,
An exclusive right of protection given to the creator of a published
work such as a song, film, painting, photograph, book, or computer
The purchase price of a company less the fair value of the net
156.
Match the following
1. Accumulated
A contra-asset account representing the total depreciation
Equal to the original cost of the asset minus the current
The amount the company expects to receive from selling the
How long the company expects to receive benefits from the
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157.
Match the following
1. Impairment
2
Net income divided by average total assets; measures the amount
5
2. Return on
Net income divided by net sales; indicates the earnings per dollar of
3. Asset
turnover
Net sales divided by average total assets; measures the sales per
dollar of assets invested.
3
4. Big bath
Occurs when the future cash flows (future benefits) generated for a
long-term asset fall below its book value (cost minus accumulated
depreciation).
1
margin
4
5. Profit
Essay Questions
158.
Soccer Wholesale purchased land and a warehouse for $800,000. In addition to the
purchase price, Soccer Wholesale makes the following expenditures related to the
acquisition: broker’s commission, $48,000; title insurance, $3,000; and miscellaneous
closing costs, $8,000. The warehouse is immediately demolished at a cost of $80,000 in
anticipation of building a new warehouse. Determine the amount Soccer Wholesale should
record as the cost of the land.
159.
Holiday Laboratories purchased a high speed industrial centrifuge at a cost of $420,000.
Shipping costs totaled $15,000. Foundation work to house the centrifuge cost $8,000. An
additional water line had to be run to the equipment at a cost of $3,000. Labor and testing
costs totaled $6,000. Materials used up in testing cost $3,000. What is the total cost of the
equipment? How much of this amount should be expensed immediately?
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160.
Little King Sandwiches made the following expenditures related to its restaurant:
1. Replaced the heating and air conditioning equipment 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.
Little King credits cash for each of these expenditures. Indicate the account to be debited
for each of these expenditures.
161.
Suddenly Salad had the following expenditures related to developing its trademark.
General advertising costs
$300,000
Advertising specifically focused on trademark development
120,000
Legal fees to register trademark
52,000
Registration and design fees for the trademark
38,000
Legal fees for successful defense of the new trademark
33,000
Total
$543,000
Legal fees to register trademark
Registration and design fees for the trademark
38,000
Legal fees for successful defense of the new trademark
33,000
Total costs capitalized
$123,000
2. Expense in the income statement:
General advertising costs
$300,000
Advertising specifically focused on trademark development
120,000
Total costs expensed
$420,000
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 the company capitalize to the Trademark account in
the balance sheet?
2. Which of the above costs should the company report as expense in the income
statement?
Topic: Intangible Assets
162.
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:
Book Value
Fair Value
Current assets
$24,000
$30,000
Property, plant, and equipment
44,000
56,000
Other assets
4,000
6,000
Current liabilities
16,000
16,000
Long-term liabilities
24,000
22,000
Calculate the amount paid for goodwill.
Less: fair value of liabilities assumed
Fair value of identifiable net assets
163.
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?
164.
Taco Hut purchased equipment on May 1, 2018, 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 2018 and 2019, assuming a December 31 year–end.
165.
China Dragon purchased new restaurant equipment on September 1, 2018, 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 2018 and 2019,
assuming a December 31 year-end.
166.
Mountainview 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.
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167.
Chubbyville purchases a delivery van for $23,500. Chubbyville estimates a four-year
service life and a residual value of $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. Actual miles driven each year were 24,000 miles in Year 1; 26,000 miles
in Year 2; 22,000 miles in Year 3; and 25,000 miles in Year 4. Note that actual total miles
of 97,000 fall short of expectations by 8,000 miles.
168.
Burger Chef acquired a delivery truck on March 1, 2018 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 2018 and 16,000 miles in 2019. Calculate
depreciation expense using the activity-based method for 2018 and 2019, assuming a
December 31 year-end.
169.
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.
170.
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?
171.
On January 1, 2018, 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 2019, 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 31. Record the
purchase and amortization in 2018 and the legal fees and amortization in 2019. What is
the balance in the Patents account at the end of 2019?
172.
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.
173.
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.
174.
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.