Chapter 9 – Long-Term Assets: Fixed and Intangible
163. Carter Co. acquired drilling rights for $18,550,000. The oil deposit is estimated at 74,200,000 gallons. During the
current year, 6,000,000 gallons were drilled. Journalize the adjusting entry at December 31 to recognize the depletion
expense.
Journal
Date
Description
Post.
Ref.
Debit
Credit
Depletion Expense
164. Chasteen Company acquired mineral rights for $9,100,000. The mineral deposit is estimated at 65,000,000
tons. During the current year, 18,375,000 tons were mined and sold.
Required:
(a)
Determine the amount of depletion expense for the current year.
(b)
Journalize the adjusting entry to recognize the depletion expense.
(a)
$9,100,000 / 65,000,000 tons = $0.14 depletion per ton
18,375,000 × $0.14 = $2,572,500 depletion expense
(b)
Depletion Expense
2,572,500
Depletion of mineral deposit.
Chapter 9 – Long-Term Assets: Fixed and Intangible
165. On December 31, Bowman Company estimated that goodwill of $80,000 was impaired. On June 1, a patent with an
estimated useful economic life of 10 years was acquired for $252,000.
Required:
(a) Journalize the adjusting entry on December 31 for the impaired goodwill.
(b) Journalize the adjusting entry on December 31 for the amortization of the patent rights.
(a)
Loss from Impaired Goodwill
80,000
Goodwill
80,000
(b)
Dec.31
Amortization Expense—Patents
14,700
Patents
14,700
166. On December 31, it was estimated that goodwill of $65,000 was impaired. On July 1, a patent with an estimated
useful economic life of 10 years was acquired for $60,000.
(a)
Journalize the adjusting entry on December 31 for the impaired goodwill.
(b)
Journalize the adjusting entry on December 31 for the amortization of the patent rights.
Loss from Impaired Goodwill
Amortization Expense—Patents
Chapter 9 – Long-Term Assets: Fixed and Intangible
167. On July 1, Sterns Co. acquired patent rights for $36,000. The patent has a useful life of 6 years and a legal life of 15
years. Journalize the adjusting entry on December 31 to recognize the amortization.
Journal
Date
Description
Post.
Ref.
Debit
Credit
Amortization Expense
168. Identify the following as a fixed asset (FA), or intangible asset (IA), natural resource (NR), or none of these(N)
(a)
computer
(b)
patent
(c)
oil reserve
(d)
goodwill
(e)
U.S. Treasury note
(f)
land used for employee parking
(g)
gold mine
(a) (f)
IA
(b) (d)
(c) (g)
N
(e)
Chapter 9 – Long-Term Assets: Fixed and Intangible
169. The following information was taken from a recent annual report of Harrison Company (in millions):
Current Year
Preceding Year
Land and buildings
$726
$361
Machinery, equipment, and internal-use software
595
470
Office furniture and equipment
94
81
Other fixed assets related to leases
760
569
Accumulated depreciation and amortization
894
644
Required:
(a)
Compute the book value of the fixed assets for the current year and the preceding year
and explain the differences, if any.
(b)
Would you normally expect the book value of fixed assets to increase or decrease during
the year?
Property, plant, and equipment (in millions):
Land and buildings
Machinery, equipment, and internal-use software
Office furniture and equipment
Other fixed assets related to leases
Less accumulated depreciation
Book value
Chapter 9 – Long-Term Assets: Fixed and Intangible
170. Fill in the missing numbers using the formula for fixed asset turnover:
Company A
Company B
Company C
Company D
Sales
$5,000,000
$720,000
$900,000
?
Beginning fixed assets
$450,000
$275,000
?
$380,000
Ending fixed assets
$800,000
?
$310,000
$420,000
Fixed asset turnover
?
2.4 times
3 times
2.6 times
Sales
$5,000,000
$1,040,000
Beginning fixed assets
Ending fixed assets
Fixed asset turnover
171. Financial statement data for the years ended December 31 for Parker Corporation are as follows:
Current Year
Prior Year
Sales
$2,595,600
$2,409,498
Fixed assets (net):
Beginning of the year
$901,070
$820,000
End of the year
829,330
901,070
(a) Determine the fixed asset turnover for the current and prior years.
(b) Does the change in fixed asset turnover from the prior year to the current year indicate a favorable or
unfavorable trend?
Average fixed assets
fixed assets to generate sales.
Chapter 9 – Long-Term Assets: Fixed and Intangible
172. Computer equipment (office equipment) purchased 6 1/2 years ago for $170,000, with an estimated life of 8 years
and a residual value of $10,000, is now sold for $60,000 cash. (Appropriate entries for depreciation had been made for the
first six years of use.) Journalize the following entries:
(a)
Record the depreciation for the one-half year prior to the sale, using the straight-line method.
(b)
Record the sale of the equipment.
(c)
Assuming that the equipment had been sold for $25,000 cash, prepare the entry to record the sale.
(a)
Depreciation Expense—Office Equipment
[($170,000 – $10,000) / 8] /2 = $10,000
(b)
Cash
Accumulated Depreciation—Office Equipment
130,000
Office Equipment
170,000
Gain on Sale of Equipment
[Accumulated depreciation at the time of sale =
[($170,000 – $10,000) / 8] × 6.5 = $130,000
Book value at the time of sale = $170,000 –
$130,000 = $40,000
Gain on sale = Selling price – Book value of asset
at the time of sale = $60,000 – $40,000 = $20,000]
(c)
Cash
Accumulated Depreciation—Office Equipment
130,000
Loss on Sale of Equipment
Office Equipment
170,000
173. Equipment was acquired at the beginning of the year at a cost of $75,000. The equipment was depreciated using the
straight-line method based upon an estimated useful life of 6 years and an estimated residual value of $7,500.
(a)
What was the depreciation expense for the first year?
(b)
Assuming the equipment was sold at the end of the second year for $59,000, determine
the gain or loss on sale of the equipment.
(c)
Journalize the entry to record the sale.
Cash
Accumulated Depreciation
Gain on Sale Equipment
Chapter 9 – Long-Term Assets: Fixed and Intangible
174. On the first day of the fiscal year, a new walk-in cooler with a list price of $58,000 was acquired in exchange for an
old cooler and $44,000 cash. The old cooler had a cost of $25,000 and accumulated depreciation of $16,000.
Assume the transaction has commercial substance.
(a)
Determine the gain to be recorded on the exchange.
(b)
Journalize the entry to record the exchange.
List price
Book value of old cooler
Cash paid
Equipment (new)
Accum. Depreciation
Equipment (old)
175. Equipment acquired on January 2, Year 1, at a cost of $525,000 has an estimated useful life of eight years and an
estimated residual value of $45,000.
Required:
(a)
What is the annual amount of depreciation for the first three years, assuming the
straight-line method of depreciation is used?
(b)
What is the book value of the equipment on January 1, Year 4?
(c)
Assuming that the equipment is sold on January 2, Year 4, for $326,000, journalize the
entry to record the sale.
(d)
Assuming that the equipment is sold on January 2, Year 4, for $394,000, journalize the
entry to record the sale.
Chapter 9 – Long-Term Assets: Fixed and Intangible
176. On October 1, Sebastian Company acquired new equipment with a fair market value of $458,000. Sebastian
received a trade-in allowance of $92,000 on the old equipment of a similar type and paid cash of $366,000. The following
information about the old equipment is obtained from the account in the equipment ledger: Cost, $336,000; accumulated
depreciation on December 31, the end of the preceding fiscal year, $220,000; annual depreciation, $20,000. Assuming the
exchange has commercial substance, journalize the entries to record: (a) the current depreciation of the old equipment to
the date of trade-in and (b) the exchange transaction on October 1.
Chapter 9 – Long-Term Assets: Fixed and Intangible
177. Williams Company acquired machinery on July 1, Year 1, at a cost of $130,000. The estimated useful life of the
machinery was 10 years and the estimated residual value was $10,000. Williams uses the double-declining-balance
method of depreciation. On October 1, Year 4, Williams sold the equipment for $75,000.
(a) Record the journal entry for the depreciation on this machinery for Year 4.
(b) Record the journal entry for the sale of the machinery.
178. Machinery acquired at a cost of $80,000 and on which there is accumulated depreciation of $55,000 (including
depreciation for the current year to date) is exchanged for similar machinery. Assume that the transaction has commercial
substance. For financial reporting purposes, present entries to record the exchange of the machinery under each of the
following assumptions:
(a)
Price of new, $120,000; trade-in allowance on old, $4,000; balance paid in cash.
(b)
Price of new, $120,000; trade-in allowance on old, $34,000; balance paid in cash.
(a)
Accumulated Depreciation—Machinery
Machinery
Loss on Disposal of Fixed Assets
(b)
Accumulated Depreciation—Machinery
Machinery
Cash
Chapter 9 – Long-Term Assets: Fixed and Intangible
179. Equipment acquired at a cost of $126,000 has a book value of $42,000. Journalize the disposal of the equipment
under the following independent assumptions.
(a)
The equipment had no market value and was discarded.
(b)
The equipment is sold for $54,000.
(c)
The equipment is sold for $24,000.
(d)
The equipment is traded-in for a similar asset. The list price of the new equipment is
$63,000. The buyer gave no cash in the exchange. The transaction lacks commercial
substance.
Journal
Date
Description
Post.
Ref.
Debit
Credit
Chapter 9 – Long-Term Assets: Fixed and Intangible
(a)
Loss on Disposal of Equipment
Loss on Sale of Equipment
Equipment (new equipment)
DIFFICULTY:
Bloom’s: Remembering
Moderate
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.13 – Long–term Assets Reporting
ACCT.AICPA.FN.03 – Measurement
Classify each of the following as:
a.
Ordinary maintenance and repairs
b.
Asset improvements
c.
Extraordinary repairs
DIFFICULTY:
Bloom’s: Remembering
Moderate
LEARNING OBJECTIVES:
FNMN.WARD.17.09-02 – LO: 09–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.13 – Long–term Assets Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
180. Overhauling an engine in a large truck
181. Exterior and interior painting
Chapter 9 – Long-Term Assets: Fixed and Intangible
182. Paving a new parking lot
183. New landscaping
184. Installing a new air conditioning system in an old building
185. Resurfacing a pool in an apartment building
186. Adding refrigerant to an air conditioning system
187. Fixing damage due to a car accident
Classify each of the following costs associated with long-lived assets as one of the following:
a.
Buildings
b.
Machinery and equipment
c.
Land
d.
Land improvements
DIFFICULTY:
Easy
Bloom’s: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.09-01 – LO: 09–01
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.13 – Long–term Assets Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
188. Fees paid to architect to design new office building
189. Cost of insurance during the construction of new office building
190. Interest on money borrowed to finance construction of new office building
191. Sales taxes paid on new factory equipment
192. Freight costs paid on purchase of new equipment
193. Repairs made to used office equipment
Chapter 9 – Long-Term Assets: Fixed and Intangible
194. Costs to survey a new piece of land for a new business location
195. Costs of government permits required to develop land for a new business location
196. Purchase price of land purchased for new business site
197. Landscaping at new business location
Classify each of the following costs associated with long-lived assets as one of the following:
a.
Land improvements
b.
Buildings
c.
Land
d.
Machinery and equipment
DIFFICULTY:
Easy
Bloom’s: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.09-01 – LO: 09–01
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.13 – Long–term Assets Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
198. Fences around land at new business location
199. Paved parking areas at new business location
200. Outdoor lighting at new business location
201. Walkways to surround new business location
202. Modifying a building purchased for new business location
203. Supplies (materials) used to test new equipment
204. Cost of installing new equipment
205. Cost of grading and leveling land to be used for a new business site
Chapter 9 – Long-Term Assets: Fixed and Intangible
206. Cost of removing an existing building to ready land for use as a new business site
207. Cost assessed by city for paving a public street that borders land on which a new business location will be
constructed
Match the intangible assets described with their proper classification (a-d).
a.
Patent
b.
Copyright
c.
Trademark
d.
Goodwill
DIFFICULTY:
Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.09-05 – LO: 09–05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.13 – Long–term Assets Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
208. Rights to sell a book and make a profit
209. McDonald’s golden arches
210. A new kitchen gadget that can be produced by only one company
211. Location of a company
212. I-Tunes music
213. Reputation of a company
214. Nike swoosh
215. Mickey Mouse
Chapter 9 – Long-Term Assets: Fixed and Intangible
Match each account name to the financial statement section (a–i) in which it would appear.
a.
Current Assets
b.
Fixed Assets
c.
Intangible Assets
d.
Current Liability
e.
Long-Term Liability
f.
Owners’ Equity
g.
Revenues
h.
Operating Expenses
i.
Other Income/Expense
DIFFICULTY:
Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.09-06 – LO: 09–06
FNMN.WARD.17.09-APP – LO: 09-APP
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.13 – Long–term Assets Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
216. Accumulated Depreciation—Buildings
217. Depreciation Expense
218. Amortization Expense
219. Land Improvements
220. Gain on Sale of Equipment
221. Loss on Disposal of Asset
222. Loss from Impaired Goodwill
223. Research and Development Costs