205
CHAPTER 7
FIXED ASSETS, NATURAL RESOURCES,
AND INTANGIBLE ASSETS
CLASS DISCUSSION QUESTIONS
1. Fixed assets have the following characteris-
tics:
3. Real estate acquired as speculation should
5. Ordinarily not; if the book values closely
expense does not require an equivalent
decreasing the asset’s accumulated depre-
ciation account. Revenue expenditures are
12. a. An accelerated depreciation method is
reduces income tax payable to the IRS in
the earlier periods of an asset’s life.
b. The cost and accumulated depreciation
206
EXERCISES
E7–1
E7–2
E7–3
Initial cost of land ($200,000 + $375,000) ……………… $575,000
E7–4
E7–5
207
E7–6
E7–7
First Year Second Year
E7–8
E7–9
E7–10
E7–11
208
E7–12
a.
Year 2 Year 1
Vehicles ……………………………………….. $ 7,542 $ 6,762
209
E7–13
a.
Cost of equipment ………………………………………………………….. $ 560,000
b. 1. Update Depreciation
Balance Sheet
Statement of
Assets
=
Liabilities
+
Stockholders’ Equity
Income
Cash Flows
Acc. Depr.—
Retained
Statement
– Equipment
=
Earnings
July 1. Depr. expense
*$26,000 × 6/12
2. Sale of Equipment
Balance Sheet
Statement of
Assets
=
Liabilities
+
Stockholders’ Equity
Income
Cash Flows
Acc.
Statement
Depr.—
Retained
Cash
+
Equip.
–
Equip.
=
Earnings
July 1.
(560,000)
E7–14
210
E7–14, Concluded
c.
Balance Sheet
Statement of
Assets
=
Liabilities
+
Stockholders’ Equity
Income
Cash Flows
Acc.
Statement
Depr.—
Retained
Cash
+
Equip.
–
Equip.
=
Earnings
Jan. 7.
185,000
(280,000)
93,750
Jan. 7.
of fixed assets
(1,250)
d.
Balance Sheet
Statement of
Assets
=
Liabilities
+
Stockholders’ Equity
Income
Cash Flows
Acc.
Statement
Depr.—
Retained
Cash
+
Equip.
–
Equip.
=
Earnings
Jan. 7.
192,400
(280,000)
93,750
6,150
Jan. 7.
of fixed assets
6,150
E7–15
b.
Balance Sheet
Statement of
Assets
=
Liabilities
+
Stockholders’ Equity
Income
Cash Flows
– Acc.
Retained
Statement
Depletion
=
Earnings
Depletion exp.
(26,400,000)
211
E7–16
b.
Balance Sheet
Statement of
Assets
=
Liabilities
+
Stockholders’ Equity
Income
Cash Flows
Retained
Statement
Patents
=
Earnings
E7–17
b.
Balance Sheet
Statement of
Assets
=
Liabilities
+
Stockholders’ Equity
Income
Cash Flows
Retained
Statement
Goodwill
=
Earnings
Dec. 31.