Test Bank, Intermediate Accounting, 14

th
ed. 235
CHAPTER 13
Investments in Noncurrent Operating
AssetsUtiliation and !etirement
MULTIPLE CHOICE QUESTIONS
Theory/Definition! Q"e#tion#
1 "urpose o# depreciation
$ %epreciation as s&stematic and rational allocation
' In#ormation necessar& to compute depletion per unit
4 (omposite depreciation method
) %etermine #raction #or #ourth &ear under #ive*&ear +,%
- %epreciation using +,% method
. Assumptions o# straight*line depreciation
/ %%B ignores salvage value
0 !eporting and disclosure re1uirements o# assets2depreciation
13 %epreciation o# natural resources
11 (onsiderations in determining use#ul li#e o# intangi4le asset
1$ +traight*line amortiation recommended #or intangi4le assets
1' %epreciation method that applies a uni#orm depreciation rate
14 5ort&*&ear amortiation #or intangi4le assets i# inde#inite 4ene#it
1) Theoretical support #or accelerated depreciation
1- 6##ect o# changing the estimate o# an asset7s use#ul li#e
1. "roductive output depreciation same as depletion
1/ 8hen sale o# deprecia4le asset results in loss
10 The e9change o# similar assets that involves a gain
$3 %epreciation e9pense #or the dou4le*declining*4alance method
$1 (apitaliation o# legal #ees to de#end patents
$$ (omposite and group depreciation 4oth use straight*line
$' %epreciation under productive output, +,%, and %%B*(omparison
$4 The e9change o# similar assets that involves a loss
$) (arr&ing amount o# group assets upon retirement o# one
$- :ournal entr& #or trade o# assets
$. ;A(!+ and optional straight*line ta9 depreciation
Co$%"ttion! Q"e#tion#
$/ (omputation o# %%B depreciation e9pense
$0 (omputation o# %%B depreciation e9pense
23& (hapter 1' Investments in Noncurrent Operating AssetsUtiliation and !etirement
'3 Amortiation o# organiational costs
'1 (omputation o# %%B depreciation e9pense
'$ (omputation o# cost o# ne< product <ith trade*in
'' (omputation o# 1)3= %B accumulated depreciation 4alance
'4 Amortiation o# trademark
') (omputation o# cost o# ne< product <ith e9change
'- (omputation o# +,% accumulated depreciation
'. (omputation o# +,% accumulated depreciation 4alance
'/ (omputation o# +,% depreciation e9pense
'0 (omputation o# gain2loss on disposition
43 (omputation o# +,% depreciation e9pense
41 (omputation o# +,% depreciation e9pense
4$ (omputation o# value o# truck on 4ooks
4' (omputation o# +,% depreciation e9pense
44 +traight*line depreciation e9pense
4) (omputation o# recognied pro#it on e9change
4- +traight*line depreciation e9pense <ith e9tension o# li#e
4. +,% depreciation e9pense
4/ (omputation o# straight*line depreciation e9pense
40 >i#e o# assets under straight*line composite method
)3 (omputation o# straight*line depreciation e9pense
)1 +traight*line accumulated depreciation
)$ +,% depreciation e9pense
)' %%B depreciation e9pense
)4 Units*o#*production depreciation e9pense
)) +,% depreciation and the e9change o# assets
)- +,% depreciation and the e9change o# assets
). (omputation o# patent amortiation e9pense
)/ (omputation o# ne< asset7s value <ith trade*in
)0 (omputation o# ne< asset7s value <ith trade*in
-3 (omputation o# patent amortiation e9pense
-1 (omputation o# trademark amortiation e9pense
-$ (omputation o# depletion charge per ton
-' (omputation o# ne< asset7s value <ith trade*in
-4 (omputation o# depletion included in (O?+
-) (omputation o# depletion rate per ton
-- (omputation o# ne< asset7s value <ith trade*in
-. @alue o# machine ac1uired 4& e9change
-/ (omputation o# gain2loss on disposal
-0 (omputation o# gain on #orced sale
.3 (omputation o# loss on machine sale
.1 @alue o# machine ac1uired 4& e9change
.$ @alue o# land ac1uired 4& e9change
.' :ournalie e9change o# land
Test Bank, Intermediate Accounting, 14
th
ed. 23'
.4 (omputation o# gain on e9change

PRO(LEMS
1 (omputation o# e9pense under %%B, +,%, straight*line, service hours
$ (omputation o# e9pense under %%B, +,%, straight*line
' (omputation o# composite li#e and depreciation rate
4 (omputation o# annual rate and charge under straight*line, service
hours, productive*output
) (omputation o# amortiation #or #our &ears
- (omputation o# depletion charge
. "repare intangi4le assets section o# 4alance sheet
/ :ournalie e9change on 4oth partiesA 4ooks
0 :ournalie e9change on similar, dissimilar assets
13 :ournalie e9change on similar, dissimilar assets
11 !ecording an impairment loss
1$ !ecording an impairment loss <ith good<ill
1' Impairment and revaluation under international accounting standards
14 ;A(!+ computation
1) Impairment o# assets

MULTIPLE CHOICE QUESTIONS
4 1. %epreciation o# noncurrent operating assets is an accounting process #or
the
>O1 purpose o#
a. reporting declining asset values on the 4alance sheet.
4. allocating asset costs over the periods 4ene#itted 4& use o# the assets.
c. accounting #or costs to re#lect the change in general price levels.
d. setting aside #unds to replace assets <hen their economic use#ulness
e9pires.
c $. 8hich o# the #ollo<ing principles 4est descri4es the conceptual rationale #or
>O1 the methods o# matching depreciation e9pense <ith revenuesB
a. "artial recognition
4. Immediate recognition
c. +&stematic and rational allocation
d. Associating cause and e##ect
a '. In#ormation needed to compute a depletion charge per unit includes the
23) (hapter 1' Investments in Noncurrent Operating AssetsUtiliation and !etirement
>O' a. estimated total amount o# resources availa4le #or removal.
4. amount o# resources removed during the period.
c. cumulative amount o# resources removed.
d. amount o# resources sold during the period.
c 4. The composite depreciation method
>O1 a. is applied to a group o# homogeneous assets.
4. is an accelerated method o# depreciation.
c. does not recognie gain or loss on the retirement o# speci#ic assets in
the group.
d. e9cludes salvage value #rom the 4ase o# the depreciation calculation.
d ). The sum*o#*the*&ears7*digits method o# depreciation is 4eing used #or a
>O1 machine <ith a #ive*&ear estimated use#ul li#e. 8hat <ould 4e the #raction
applied to the cost to 4e depreciated in the #ourth &earB
a. 42)
4. $2)
c. 421)
d. $21)
d -. In order to calculate the third &ear7s depreciation on an asset using the
sum*o#*
>O1 the*&earsA*digits method, <hich o# the #ollo<ing must 4e kno<n a4out the
assetB
a. Its ac1uisition cost
4. Its estimated salvage value
c. Its estimated use#ul li#e
d. All the a4ove must 4e kno<n.
4 .. 8hich o# the #ollo<ing statements is the assumption on <hich straight*line
>O1 depreciation is 4asedB
a. The operating e##icienc& o# the asset decreases in later &ears.
4. +ervice value declines as a #unction o# time rather than use.
c. +ervice value declines as a #unction o# o4solescence rather than time.
d. "h&sical <ear and tear are more important than economic
o4solescence.
d /. A method that ignores salvage value in calculating periodic depreciation
>O1 e9pense is the
a. productive*output method.
4. group composite method.
c. sum*o#*the*&ears7*digits method.
d. dou4le*declining*4alance method.
Test Bank, Intermediate Accounting, 14
th
ed. 23*
4 0. 8hich o# the #ollo<ing is not re1uired to 4e reported in the #inancial
statements
>O1 or disclosed in the accompan&ing notesB
a. Balances o# maCor classes o# noncurrent operating assets at the 4alance
sheet date
4. ?ross historical cost and accumulated amortiation #or intangi4le assets
at the 4alance sheet date
c. ?ross historical cost and accumulated depreciation #or tangi4le
noncurrent operating assets at the 4alance sheet date
d. A general description o# the cost allocation methods used <ith respect to
maCor classes o# noncurrent operating assets
d 13. 8hich o# the #ollo<ing depreciation methods most closel& appro9imates the
>O' method used to deplete the cost o# natural resourcesB
a. +traight*line method
4. %ou4le*declining*4alance method
c. +um*o#*the*&ears7*digits method
d. Units*o#*production method
d 11. 8hich o# the #ollo<ing is not a consideration in determining the use#ul li#e o#
>O$ an intangi4le assetB
a. >egal, regulator&, or contractual provisions
4. "rovisions #or rene<al or e9tension
c. 69pected actions o# competitors
d. ;inimum amortiation period prescri4ed 4& generall& accepted
accounting principles #or all intangi4le assets
4 1$. In accordance <ith generall& accepted accounting principles, <hich o# the
>O$ #ollo<ing methods o# amortiation is normall& recommended #or intangi4le
assetsB
a. +um*o#*the*&ears7*digits
4. +traight*line
c. ?roup composite
d. %ou4le*declining*4alance
c 1'. 8hich o# the #ollo<ing depreciation methods applies a uni#orm depreciation
>O1 rate each period to an asset7s 4ook valueB
a. +traight*line
4. Units*o#*production
c. %eclining*4alance
d. +um*o#*the*&ears7*digits
2+, (hapter 1' Investments in Noncurrent Operating AssetsUtiliation and !etirement
4 14. 8hat is the proper time or time period over <hich to match costs o# an
>O$ intangi4le asset <ith revenues i# it is likel& that the 4ene#it o# the asset <ill
last #or an indeterminate 4ut ver& long period o# timeB
a. 5i#t& &ears
4. 5ort& &ears
c. T<ent& &ears
d. 5ive &ears
a 1). 8hich o# the #ollo<ing reasons provides the 4est theoretical support #or
>O1 accelerated depreciationB
a. Assets are more e##icient in earl& &ears and initiall& generate more
revenue.
4. 69penses should 4e allocated in a manner that DsmoothsE earnings.
c. !epairs and maintenance costs <ill pro4a4l& increase in later periods,
so depreciation should decline.
d. Accelerated depreciation provides easier replacement 4ecause o# the
time value o# mone&.
c 1-. 8hen the estimate o# an asset7s use#ul li#e is changed,
>O4 a. depreciation e9pense #or all past periods must 4e recalculated.
4. there is no change in the amount o# depreciation e9pense recorded #or
#uture &ears.
c. onl& the depreciation e9pense in the remaining &ears is changed.
d. None o# the a4ove are true.
d 1.. 8hich o# the #ollo<ing depreciation methods is computed in the same <a&
as
>O' depletionB
a. +traight*line
4. +um*o#*the*&ears7*digits
c. %ou4le*declining*4alance
d. "roductive*output
d 1/. The sale o# a deprecia4le asset resulting in a loss indicates that the
proceeds
>O- #rom the sale <ere
a. less than current market value.
4. greater than cost.
c. greater than 4ook value.
d. less than 4ook value.
Test Bank, Intermediate Accounting, 14
th
ed. 2+1
c 10. 8hen an e9change o# similar assets involves a gain,
>O- a. the recorded amount o# the ne< asset is the cost o# the old asset plus
an& cash paid.
4. the recorded amount o# the ne< asset is its #air market value less an&
cash paid.
c. the recorded amount o# the ne< asset is the net 4ook value o# the old
asset plus an& cash paid.
d. None o# the a4ove are true.
c $3. On :anuar& 1 +tockton (ompan& ac1uired a machine <ith a #our*&ear
use#ul
>O1 li#e. +tockton estimates the salvage value o# the machine <ill 4e e1ual to
ten percent o# the ac1uisition cost. The compan& is de4ating 4et<een
using either the dou4le*declining*4alance method or the
sum*o#*the*&earsA*digits method o# depreciation. (omparing the
depreciation e9pense #or the #irst t<o &ears computed using these methods,
the depreciation e9pense #or the dou4le*declining*4alance method
Fcompared to the sum*o#*the*&earsA*digits methodG <ill match <hich o# the
patterns sho<n 4elo<B
5irst +econd
,ear ,ear
a. >o<er >o<er
4. >o<er Higher
c. Higher >o<er
d. Higher Higher
4 $1. >egal #ees incurred in success#ull& de#ending a patent suit should 4e
>O$ capitalied <hen the patent has 4een
Internall& "urchased #rom
%eveloped an Inventor
a. ,es No
4. ,es ,es
c. No ,es
d. No No
a $$. 8hich o# the #ollo<ing utilies the straight*line depreciation methodB
>O1 (omposite ?roup
%epreciation %epreciation
a. ,es ,es
4. ,es No
c. No ,es
d. No No
2+2 (hapter 1' Investments in Noncurrent Operating AssetsUtiliation and !etirement
4 $'. A deprecia4le asset has an estimated 1) percent salvage value. At the end
>O1 o# its estimated use#ul li#e, the accumulated depreciation <ould e1ual the
original cost o# the asset under <hich o# the #ollo<ing depreciation
methodsB
"roductive* +um*o#*the* %ou4le*
Output ,ears7*%igits %eclining*Balance
a. ,es No No
4. No No No
c. No ,es No
d. ,es ,es ,es
c $4. 8hen similar assets are e9changed at a loss, the 4asis o# the ne< asset is
>O- usuall&
a. the list price o# the ne< asset.
4. the 4ook value o# the old asset plus an& cash paid on the trade*in.
c. the #air market value o# the ne< asset.
d. 6ither 4 or c.
c $). A compan& using the group depreciation method #or its deliver& trucks
retired
>O- one o# the trucks a#ter the average service li#e o# the group <as reached.
(ash proceeds <ere received #rom a salvage compan&. The net carr&ing
amount o# these group asset accounts <ould 4e decreased 4& the
a. original cost o# the truck.
4. original cost o# the truck less the cash proceeds.
c. cash proceeds received.
d. cash proceeds received and original cost o# the truck.
a $-. In recording the trade o# one asset #or another, <hich o# the #ollo<ing
accounts
>O- is usuall& de4itedB
a. Accumulated %epreciationOld Asset
4. (ash
c. ?ain on 69change o# Asset
d. None o# the a4ove
4 $.. 8hich o# the #ollo<ing is correctB
>O/ a. Use o# the ;A(!+ ta4les re1uires that salvage value 4e deducted in
computing depreciation deductions.
4. Use o# the optional straight*line method re1uires that salvage value not
4e
Test Bank, Intermediate Accounting, 14
th
ed. 2+3
considered in computing depreciation deductions.
c. The use o# 4oth the ;A(!+ ta4les and the optional straight*line method
re1uires that salvage value 4e deducted in computing depreciation
deductions.
d. None o# the a4ove are true.
4 $/. %e<e& (ompan& purchased a machine that <as installed and placed in
service
>O1 on :anuar& $, $331, at a total cost o# I4/3,333. !esidual value <as
estimated at I/3,333. The machine is 4eing depreciated over ten &ears 4&
the dou4le*declining*4alance method. 5or the &ear $33$, %e<e& should
record depreciation e9pense o#
a. I-4,333.
4. I.-,/33.
c. I/3,333.
d. I0-,333.
c $0. On :ul& 1, $331, 6<ell (orporation purchased #actor& e1uipment #or
I133,333.
>O. +alvage value <as estimated at I4,333. The e1uipment <ill 4e depreciated
over ten &ears using the dou4le*declining*4alance method. (ounting the
&ear o# ac1uisition as one*hal# &ear, 6<ell should record $33$ depreciation
e9pense o#
a. I1),'--.
4. I1-,333.
c. I1/,333.
d. I10,$33.
d '3. ;acka&, Inc. <as organied late in $331 and 4egan operations on :anuar&
1,
>O$ $33$. "rior to the start o# operations, the #ollo<ing costs <ere incurredJ
Attorne&7s #ees #or incorporating........................................... I1/,333
+tate incorporation #iling #ees............................................... 1$,333
;acka& amorties organiation costs over the ma9imum period allo<a4le
under ?AA". Ho< much amortiation should ;acka& record #or the &ear
ended %ecem4er '1, $33$B
a. I.)3
4 I',-33
c. I-,333
d. I'3,333
4 '1. >uther +oaps purchased a machine on :anuar& 1, $333, #or I1/,333 cash.
2++ (hapter 1' Investments in Noncurrent Operating AssetsUtiliation and !etirement
>O1 The machine has an estimated use#ul li#e o# #our &ears and a salvage value
o# I4,.33. >uther uses the dou4le*declining*4alance method o#
depreciation #or all its assets. 8hat <ill 4e the machine7s 4ook value as o#
%ecem4er '1, $331B
a. I),133
4. I4,.33
c. I4,)33
d. I4,'33
c '$. ;alone (ompan& traded in an old machine <ith a 4ook value o# I1),333 on
>O- a ne< similar machine. The ne< machine, <hich had a cash price o#
I.),333, <as purchased #or I-4,333 cash plus the old machine. ;alone
should record the cost o# the ne< machine as
a. I-4,333.
4. I.1,333.
c. I.),333.
d. I.0,333.
d ''. Over4erg (ompan& purchased a machine on :anuar& $, $331, #or
I1,333,333.
>O1 The machine has an estimated use#ul li#e o# #ive &ears and a salvage value
o# I133,333. %epreciation <as computed 4& the 1)3= declining*4alance
method. The accumulated depreciation 4alance at %ecem4er '1, $33$,
should 4e
a. I'-3,333.
4. I4)0,333.
c. I403,333.
d. I)13,333.
d '4. Ku#elt (ompan& 4ought a trademark #rom Basin (orporation on :anuar& 1,
>O$ $33$, #or I1-/,333. An independent consultant retained 4& Ku#elt
estimated that the remaining use#ul li#e is )3 &ears. Its unamortied cost on
Basin7s accounting records <as I/4,333. Ku#elt decided to <rite o## the
trademark over the ma9imum period allo<ed. Ho< much should 4e
amortied #or the &ear ended %ecem4er '1, $33$B
a. I1,-/3
4. I$,133
c. I','-3
d. I4,$33
a '). :ordan (ompan& e9changed a used autograph*signing machine <ith
!odman
>O- (ompan& #or a similar machine <ith less use. :ordan7s old machine
originall& cost I)3,333 and had accumulated depreciation o# I43,333, as
Test Bank, Intermediate Accounting, 14
th
ed. 2+5
<ell as a market value o# I43,333, at the time o# the e9change. !odman7s
old machine originall& cost I-3,333 and at the time o# the e9change had a
4ook value o# I'3,333 and a market value o# I'$,333. !odman gave
:ordan I/,333 cash as part o# the e9change. :ordan should record the cost
o# the ne< machine at
a. I/,333.
4. I13,333.
c. I1-,333.
d. I'$,333.
2+& (hapter 1' Investments in Noncurrent Operating AssetsUtiliation and !etirement
c '-. L,K (orporation 4ought a machine on :anuar& 1, $33$. In purchasing the
>O1 machine, the compan& paid I)3,333 cash and signed an interest*4earing
note #or I133,333. The estimated use#ul li#e o# the machine is #ive &ears,
a#ter <hich time the salvage value is e9pected to 4e I1),333. ?iven this
in#ormation, ho< much depreciation e9pense <ould 4e recorded #or the
&ear ending %ecem4er '1, $33', i# the compan& uses the sum*o#*the*
&ears7*digits depreciation methodB
a. I4),333
4. I43,333
c. I'-,333
d. I'4,333
c '.. On :anuar& 1, $33$, (arson (ompan& purchased e1uipment at a cost o#
>O1 I4$3,333. The e1uipment <as estimated to have a use#ul li#e o# #ive &ears
and a salvage value o# I-3,333. (arson uses the sum*o#*the*&ears7*digits
method o# depreciation. 8hat should the accumulated depreciation 4e at
%ecem4er '1, $33$B
a. I$43,333
4. I$//,333
c. I''-,333
d. I'-3,333
c '/. On +eptem4er '3, $33$, Ira "art& +upplies purchased catering e1uipment
#or
>O. I4,-/3. The e1uipment is estimated to have a use#ul li#e o# eight &ears and
no salvage value. I# Ira selected the sum*o#*the*&ears7*digits method, <hat
<ill 4e the depreciation e9pense #or $33$B
a. I1,343
4. I'4.
c. I$-3
d. I1'3
d '0. On :une '3, $33$, a #ire in Oak (ompan&7s plant caused the total loss o# a
>O- production machine. The machine <as 4eing depreciated at I$3,333
annuall& and had a carr&ing amount o# I1-3,333 at %ecem4er '1, $331.
On the date o# the #ire, the #air value o# the machine <as I$$3,333, and
"ine received insurance proceeds o# I$33,333 in Octo4er $33$. In its
income statement #or the &ear ended %ecem4er '1, $33$, <hat amount
should Oak recognie as a gain or loss on dispositionB
a. I3
4. I$3,333 loss
c. I43,333 gain
d. I)3,333 gain
Test Bank, Intermediate Accounting, 14
th
ed. 2+'
a 43. On :anuar& 1, $333, Malos (o. purchased a ne< machine #or I$,)33,333.
The
>O1 ne< machine has an estimated use#ul li#e o# #ive &ears and the salvage
value <as estimated to 4e I$)3,333. Malos uses the sum*o#*the*&ears7*
digits method o# depreciation. The amount o# depreciation e9pense #or
$33$ is
a. I4)3,333.
4. I-33,333.
c. I---,--..
d. I.)3,333.
4 41. On +eptem4er '3, $331, Ira "art& +upplies purchased catering e1uipment
#or
>O. I4,-/3. The e1uipment is estimated to have a use#ul li#e o# eight &ears and
no salvage value. Assuming that the sum*o#*the*&ears7*digits method is
used, <hat <ill 4e the depreciation e9pense #or $33$B
a. I1,343.33
4. I1,33..)3
c. I04).)3
d. I013.33
c 4$. On %ecem4er $, $331, "art (ompan&, <hich operates a #urniture rental
>O- 4usiness, traded in a used deliver& truck <ith a carr&ing amount o# I),433
#or a ne< deliver& truck having a list price o# I1-,333 and paid a cash
di##erence o# I.,)33 to the dealer. The used truck had a #air value o#
I-,333 on the date o# the e9change. At <hat amount should the ne< truck
4e recorded on "art7s 4ooksB
a. I13,-33
4. I1$,033
c. I1',)33
d. I1-,333
4 4'. On :anuar& 1, $33$, (arson (ompan& purchased e1uipment at a cost o#
>O1 I4$3,333. The e1uipment <as estimated to have a use#ul li#e o# #ive &ears
and a salvage value o# I-3,333. (arson uses the sum*o#*the*&ears7*digits
method o# depreciation. 8hat should the accumulated depreciation 4e at
%ecem4er '1, $331B
a. I$43,333
4. I$//,333
c. I''-,333
d. I'-3,333
a 44. In :anuar&, Hunter (orporation entered into a contract to ac1uire a ne<
>O1 machine #or its #actor&. The machine, <hich had a cash price o# I'33,333,
<as paid #or as #ollo<sJ
%o<n pa&ment....................................................................... I '3,333
Note pa&a4le in 13 e1ual monthl& installments.................... $43,333
1,333 shares o# Hunter common stock <ith an agreed
value o# I)3 per share.................................................... )3,333
Total....................................................................................... I'$3,333
"rior to the machine7s use, installation costs o# I/,333 <ere incurred. The
machine has an estimated use#ul li#e o# ten &ears and an estimated salvage
value o# I13,333. 8hat should Hunter record as depreciation e9pense #or
the #irst &ear under the straight*line methodB
a. I$0,/33
4. I'3,333
c. I'1,333
d. I'1,/33
4 4). ;elvin ;otor +ales e9changed a car #rom its inventor& #or a computer to 4e
>O- used as a noncurrent operating asset. The #ollo<ing in#ormation relates to
this e9change that took place on :ul& '1, $33$J
(arr&ing amount o# the car.................................................... I'3,333
>isted selling price o# the car................................................ 4),333
5air value o# the computer.................................................... 4',333
(ash di##erence paid 4& ;elvin............................................. ),333
On :ul& '1, $33$, ho< much pro#it should ;elvin recognie on this
e9changeB
a. I3
4. I/,333
c. I13,333
d. I1',333
4 4-. The Bucol (ompan& purchased a tooling machine in 100$ #or I1$3,333.
The
>O4 machine <as 4eing depreciated on the straight*line method over an
estimated use#ul li#e o# $3 &ears, <ith no salvage value. At the 4eginning o#
$33$, <hen the machine had 4een in use #or ten &ears, the compan& paid
I$3,333 to overhaul the machine. As a result o# this improvement, the
compan& estimated that the use#ul li#e o# the machine <ould 4e e9tended
an additional #ive &ears. 8hat <ould 4e the depreciation e9pense recorded
#or the a4ove machine in $33$B
a. I4,333
4. I),'''
c. I-,333
d. I.,'''
c 4.. Tillman (ompan& o<ns a machine that <as 4ought on :anuar& $, 1000, #or
>O4 I'.-,333. The machine <as estimated to have a use#ul li#e o# #ive &ears
and a salvage value o# I$4,333. Tillman uses the sum*o#*the*&ears7*digits
method o# depreciation. At the 4eginning o# $33$, Tillman determined that
the use#ul li#e o# the machine should have 4een #our &ears and the salvage
value I'),$33. 5or the &ear $33$, Tillman should record depreciation
e9pense on this machine o#
a. I10,$33.
4. I44,433.
c. I)0,$33.
d. I.3,433.
4 4/. Hendricks (onstruction purchased a crane on :anuar& 1, $331, #or
I13$,.)3.
>O4 At the time o# purchase, the crane <as estimated to have a li#e o# si9 &ears
and a residual value o# I-,.)3. In $33', Hendricks determined that the
crane had a total use#ul li#e o# seven &ears and a residual value o# I4,)33.
I# Hendricks uses the straight*line method o# depreciation, <hat <ill 4e the
depreciation e9pense #or the crane in $33'B
a. I1-,333
4. I1',$)3
c. I0,4-4
d. I/,333
4 40. At the start o# its 4usiness, +nell (orp. decided to use the composite
method
>O1 o# depreciation and prepared the #ollo<ing schedule o# machiner& o<ned.
Total 6stimated 6stimated >i#e
(ost +alvage @alue in ,ears
;achine A I$.),333 I$),333 $3
;achine B 133,333 13,333 1)
;achine ( $3,333 ** )
+nell computes depreciation on the straight*line method. Based on the
in#ormation presented, the composite li#e o# these assets Fin &earsG should
4e
a. 1'.'.
4. 1-.3.
c. 1/.3.
d. 10./.
c )3. A truck that cost I/,333 <as originall& 4eing depreciated over #our &ears
using
>O4 the straight*line method <ith no salvage value. I# a#ter one &ear, it <as
decided that the truck <ould last an additional #our &ears For a total o# #ive
&earsG, the second &ear7s depreciation <ould 4e
a. I$,333.
4. I1,333.
c. I1,)33.
d. I$,)33.
d )1. Andre<s ;anu#acturing (ompan& purchased a ne< machine on :ul& 1,
$331.
>O. It <as e9pected to produce $33,333 units o# product over its estimated
use#ul li#e o# eight &ears. Total cost o# the machine <as I-33,333, and
salvage value <as estimated to 4e I-3,333. Actual units produced 4& the
machine in $331 and $33$ are sho<n 4elo<.
$331...................................................................... 1-,333 units
$33$...................................................................... '3,333 units
Andre<s reports on a calendar*&ear 4asis and uses the straight*line
method o# depreciation, computed to the nearest month. The amount o#
accumulated depreciation on this machine at %ecem4er '1, $33$ <ould 4e
a. I1)3,333.
4. I1'),333.
c. I11$,)33.
d. I131,$)3.
c )$. Andre<s ;anu#acturing (ompan& purchased a ne< machine on :ul& 1,
$331.
>O. It <as e9pected to produce $33,333 units o# product over its estimated
use#ul li#e o# eight &ears. Total cost o# the machine <as I-33,333, and
salvage value <as estimated to 4e I-3,333. Actual units produced 4& the
machine in $331 and $33$ are sho<n 4elo<.
$331...................................................................... 1-,333 units
$33$...................................................................... '3,333 units
Andre<s reports on a calendar*&ear 4asis and uses the sum*o#*the*&ears7*
digits method o# depreciation, computed to the nearest month. The amount
o# depreciation e9pense #or this machine in $33$ <ould 4e
a. I1'),333.
4. I1$),333.
c. I11$,)33.
d. I13),333.
a )'. Andre<s ;anu#acturing (ompan& purchased a ne< machine on :ul& 1,
$331.
>O. It <as e9pected to produce $33,333 units o# product over its estimated
use#ul li#e o# eight &ears. Total cost o# the machine <as I-33,333, and
salvage value <as estimated to 4e I-3,333. Actual units produced 4& the
machine in $331 and $33$ are sho<n 4elo<.
$331...................................................................... 1-,333 units
$33$...................................................................... '3,333 units
Andre<s reports on a calendar*&ear 4asis and uses the dou4le*declining*
4alance method o# depreciation, computed to the nearest month. The
amount o# depreciation e9pense #or this machine in $33$ <ould 4e
a. I1'1,$)3.
4. I11/,1$).
c. I11$,)33.
d. I131,$)3.
c )4. Andre<s ;anu#acturing (ompan& purchased a ne< machine on :ul& 1,
$331.
>O. It <as e9pected to produce $33,333 units o# product over its estimated
use#ul li#e o# eight &ears. Total cost o# the machine <as I-33,333, and
salvage value <as estimated to 4e I-3,333. Actual units produced 4& the
machine in $331 and $33$ are sho<n 4elo<.
$331...................................................................... 1-,333 units
$33$...................................................................... '3,333 units
Andre<s reports on a calendar*&ear 4asis and uses the units*o#*production
method o# depreciation. The amount o# depreciation e9pense #or this
machine in $33$ <ould 4e
a. I1$4,$33.
4. I03,333.
c. I/1,333.
d. I.4,)$3.
a )). On :anuar& 1, $331, Herschel >ocks (orporation purchased drilling
e1uipment
>O- #or I11,)33. The e1uipment has an estimated use#ul li#e o# #our &ears and a
salvage value o# I$33. ?iven this in#ormation, i# Herschel uses the sum*o#*
the*&ears7*digits method o# depreciation and then trades the e1uipment #or
ne<, dissimilar e1uipment <ith a #air market value o# I1-,333 on %ecem4er
'1, $33$, and pa&s I/,333 cash in the e9change, the ne< e1uipment
should 4e recorded at
a. I1-,333.
4. I1$,4.).
c. I11,)03.
d. I/,113.
d )-. On :anuar& 1, $331, Herschel >ocks (orporation purchased drilling
e1uipment
>O- #or I11,)33. The e1uipment has an estimated use#ul li#e o# #our &ears and a
salvage value o# I$33. Assuming that Herschel uses the straight*line
method o# depreciation, i# it trades the e1uipment #or ne< similar e1uipment
<ith a list price o# I1),)33 on %ecem4er '1, $33$, and pa&s I4,3)3 in the
e9change, the ne< e1uipment should 4e recorded at
a. I1),)33.
4. I11,4)3.
c. I0,/)3.
d. I0,033.
c ).. "astel (o. purchased a patent on :anuar& 1, 1000, #or I.14,333. The
patent
>O4 <as 4eing amortied over its remaining legal li#e o# 1) &ears e9piring on
:anuar& 1, $33/. %uring $33$, "astel determined that the economic
4ene#its o# the patent <ould not last longer than 13 &ears #rom the date o#
ac1uisition. 8hat amount should 4e charged to patent amortiation
e9pense #or the &ear ended %ecem4er '1, $33$B
a. I4.,-33
4. I.1,433
c. I/1,-33
d. I14$,/33
4 )/. Hart<ell Trucking traded a used truck <ith a 4ook value o# I1,.33 and a #air
>O- market value o# I$,'33 #or a ne< similar truck <ith a list price o# I1.,/33.
Hart<ell agreed to pa& I1',333 in cash #or the e9change in addition to
giving up the used truck. At <hat amount should the ne< truck 4e
recordedB
a. I1.,/33
4. I1),'33
c. I14,.33
d. None o# the a4ove
c )0. ;onier (arpet traded cleaning e1uipment <ith a cost o# I1.,333 and
>O- accumulated depreciation o# I',$)3 #or ne< similar e1uipment <ith a #air
market value o# I11,)33. ;onier should record the ne< e1uipment at
a. I14,.)3.
4. I1',.)3.
c. I11,)33.
d. I.,)33.
4 -3. %uring 100., @olvo ;achine (ompan& spent I')$,333 on research and
>O$ development costs #or an invention. This invention <as patented on
:anuar& $, 100/, at a nominal cost that <as e9pensed in 100/. The patent
has a legal li#e o# 1. &ears and an estimated use#ul li#e o# / &ears. In
:anuar& $33$, @olvo paid I'$,333 #or legal #ees in a success#ul de#ense o#
the patent. Amortiation #or $33$ should 4e
a. I$,4-$.
4. I/,333.
c. I'$,333.
d. I)$,333.
c -1. On :anuar& 1, 100/, Barr& (ompan& purchased #or I-33,333, a trademark
>O$ <ith an estimated use#ul li#e o# 1- &ears. In :anuar& $33$, Barr& paid
I03,333 #or legal #ees in a success#ul de#ense o# the trademark. Trademark
amortiation e9pense #or the &ear ended %ecem4er '1, $33$, should 4e
a. I'.,)33.
4. I4',1$).
c. I4),333.
d. I03,333.
4 -$. :oseph (ompan& ac1uired a tract o# land containing an e9tracta4le natural
>O' resource. :oseph is re1uired 4& the purchase contract to restore the land
to a condition suita4le #or recreational use a#ter it has e9tracted the natural
resource. ?eological surve&s estimate that the recovera4le reserves <ill
4e $,)33,333 tons and that the land <ill have a value o# I1,333,333 a#ter
restoration. !elevant cost in#ormation #ollo<sJ
>and....................................................................................... I0,333,333
6stimated restoration costs................................................... 1,)33,333
8hat should 4e the depletion charge per ton o# e9tracted materialB
a. I4.33
4. I'./3
c. I'.-3
d. I'.$3
c -'. Bunker (onstruction (ompan& recentl& e9changed an old truck, <hich cost
>O- I13/,333 and <as one*third depreciated, and paid I.3,333 cash #or a used
crane having a current #air value o# I1'3,333. At <hat amount should the
crane 4e recorded on the 4ooks o# BunkerB
a. I.3,333
4. I13/,333
c. I1'3,333
d. I14$,333
c -4. In :anuar& $33$, @ance ;ining (orporation purchased a mineral mine #or
>O' I.,$33,333 <ith remova4le ore estimated 4& geological surve&s at
4,'$3,333 tons. The propert& has an estimated value o# I.$3,333 a#ter the
ore has 4een e9tracted. @ance incurred I$,1-3,333 o# development costs
preparing the propert& #or the e9traction o# ore. %uring $33$, )43,333 tons
<ere removed and 4/3,333 tons <ere sold. 5or the &ear ended %ecem4er
'1, $33$, @ance should include <hat amount o# depletion in its cost o#
goods soldB
a. I.$3,333
4. I/13,333
c. I0-3,333
d. I1,3/3,333
a -). In $331, Ne<man (ompan& paid I1,333,333 to purchase land containing a
>O' total estimated 1-3,333 tons o# e9tracta4le mineral deposits. The estimated
value o# the propert& a#ter the mineral has 4een removed is I$33,333.
69traction activities 4egan in $33$, and 4& the end o# the &ear, $3,333 tons
had 4een recovered and sold. In $33', geological studies indicated that the
total amount o# mineral deposits had 4een underestimated 4& $),333 tons.
%uring $33', '3,333 tons <ere e9tracted, and $/,333 tons <ere sold. 8hat
is the depletion rate per ton Frounded to the nearest centG in $33'B
a. I4.$4
4. I4.'$
c. I4./)
d. I).10
4 --. In :anuar& $33$, Bevis (ompan& e9changed an old machine, <ith a 4ook
>O- value o# I1)-,333 and a #air value o# I1-3,333, and paid I43,333 cash #or
a similar used machine having a #air value o# I$33,333. At <hat amount
should the machine ac1uired in the e9change 4e recorded on Bevis7
4ooksB
a. I1)-,333
4. I10-,333
c. I$33,333
d. I$34,333
c -.. 6llis (onstruction (ompan& recentl& e9changed an old truck, <hich cost
>O- I13/,333 and <as one*third depreciated, and paid I.3,333 cash #or a
similar truck having a current #air value o# I1'3,333. At <hat amount
should the truck 4e recorded on the 4ooks o# 6llisB
a. I.3,333
4. I13/,333
c. I1'3,333
d. I14$,333
4 -/. "ost (ompan&7s depreciation polic& on machiner& and e1uipment is as
#ollo<sJ
>O.
A #ull &ear7s depreciation is taken in the &ear o# an asset7s ac1uisition.
No depreciation is taken in the &ear o# an asset7s disposition.
The estimated use#ul li#e is #ive &ears.
The straight*line method is used.
On :une '3, $33$, "ost sold #or I$'3,333 a machine ac1uired in 1000 #or
I4$3,333. The accumulated depreciation #or this machine <as I$1-,333 at
%ecem4er '1, $331, and the original estimated salvage value <as I-3,333.
Ho< much gain or FlossG on the disposal should "ost record in $33$B
a. A I14,333 gain
4. A I$-,333 gain
c. A I$-,333 loss
d. A I'4,333 loss
d -0. On :ul& 1, "hoeni9 (orporation, a calendar*&ear compan&, received a
>O- condemnation a<ard o# I1)3,333 as compensation #or the #orced sale o# a
plant located on compan& propert& that stood in the path o# a ne< high<a&.
On this date, the plant 4uilding had a depreciated cost o# I.),333 and the
land cost <as I$),333. On Octo4er 1, "hoeni9 purchased a parcel o# land
#or a ne< plant site at a cost o# I-$,)33. Ignoring income ta9es, "hoeni9
should report in its income statement #or the &ear ended %ecem4er '1 a
gain o#
a. I3.
4. I1$,)33.
c. I'.,)33.
d. I)3,333.
c .3. The :ohn (ompan& purchased a machine on Novem4er 1, 100', #or
I14/,333.
>O- At the time o# ac1uisition, the machine <as estimated to have a use#ul li#e
o# ten &ears and an estimated salvage value o# I4,333. :ohn has recorded
monthl& depreciation using the straight*line method. On :ul& 1, $33$, the
machine <as sold #or I1',333. 8hat should 4e the loss recognied #rom
the sale o# the machineB
a. I4,333
4. I),333
c. I13,$33
d. I1',333
d .1. In :anuar& $33$, But (ompan& e9changed an old machine, <ith a 4ook
value
>O- o# I1)-,333 and a #air value o# I143,333, and paid I43,333 cash #or a
similar used machine having a list price o# I$33,333. At <hat amount
should the machine ac1uired in the e9change 4e recorded on But7s
4ooksB
a. I$33,333
4. I10-,333
c. I1/4,333
d. I1/3,333
4 .'. 6agle (ompan& o<ns a tract o# land that it purchased in 1000 #or I$33,333.
>O- The land is held as a #uture plant site and has a #air market value o#
I$/3,333 on :ul& 1, $33$. Hall (ompan& also o<ns a tract o# land held as
a #uture plant site. Hall paid I'-3,333 #or the land in $331 and the land has
a #air market value o# I'/3,333 on :ul& 1, $33$. On this date, 6agle
e9changed its land and paid I133,333 cash #or the land o<ned 4& Hall. At
<hat amount should 6agle record the land ac1uired in the e9changeB
a. I$/3,333
4. I'33,333
c. I'$3,333
d. I'/3,333
4 .4. A compan& o<ns a piece o# land that originall& cost I13,333 and has a #air
>O- market value o# I/,333. It is e9changed along <ith I),333 cash #or another
piece o# land having a #air value o# I1',333. The proper Cournal entr& to
record this transaction is
a. >and Fne<G............................................................ 1),333
>and FoldG......................................................... 13,333
(ash................................................................. ),333
4. >and Fne<G............................................................ 1',333
>oss on 69change................................................. $,333
>and................................................................. 13,333
(ash................................................................. ),333
c. >and Fne<G............................................................ 1/,333
>and FoldG......................................................... 13,333
(ash................................................................. ),333
?ain on 69change........................................... ',333
d. >and Fne<G............................................................ 1',333
!etained 6arnings................................................ $,333
>and FoldG......................................................... 13,333
(ash................................................................. ),333
d .). In Octo4er $33$, %ar&l (ompan& e9changed a used packaging machine
>O- having a 4ook value o# I$43,333 #or a dissimilar ne< machine and paid a
cash di##erence o# I'3,333. The market value o# the used packaging
machine <as determined to 4e I$/3,333. In its income statement #or the
&ear ended %ecem4er '1, $33$, ho< much gain should %ar&l recognie on
this e9changeB
a. I3
4. I13,333
c. I'3,333
d. I43,333
PRO(LEMS
Problem 1
Burton 69cavating purchased a 4ulldoer on :une 1, $33$. The #ollo<ing
in#ormation regarding this asset and its ac1uisition is availa4leJ
(ost .......................................................................................... I'/3,333
!esidual value.......................................................................... I'3,333
6stimated use#ul li#e................................................................. / &ears
6stimated service hours........................................................... -3,333
The 4ulldoer <as operated #or a total o# -,133 hours in $33$ and /,$33 hours in
$33'. It is compan& polic& to take a hal#*&ear7s depreciation on all assets in the
&ear o# ac1uisition.
(ompute the depreciation e9pense #or $33$ and $33' under each o# the #ollo<ing
methodsJ
F1G %ou4le*declining*4alance
F$G +um*o#*the*&ears7*digits
F'G +traight*line
F4G +ervice hours Fround rate to the nearest centG
Solution 1
>O.
F1G %ou4le*declining*4alance F$33=G
$33$J $)= 9 I'/3,333 9 N O I4.,)33
$33'J $)= FI'/3,333 * I4.,)33G O I/',1$)
F$G +um*o#*the*&ears7*digitsJ P/F/Q1G2$R O '-
$33$J F/2'- 9 I')3,333 9 12$G O I'/,//0
$33'J F/2'- 9 I')3,333 9 12$G O I'/,//0
F.2'- 9 I')3,333 9 12$G O '4,3$/
I.$,01.
F'G +traight*line
$33$J FI')3,3332/G 9 N O I$1,/.)
$33'J I')3,3332/ O I4',.)3
F4G +ervice hours FI')3,333G
%epreciation e9pense per hour O FI')3,3332-3,333G O I)./' FroundedG
$33$J -,133 9 I)./' O I'),)-'
$33'J /,$33 9 I)./' O I4.,/3-
Problem 2
On ;a& 1, $33$, !eginald Inc. purchased e1uipment at a cost o# I$/3,333. The
e1uipment has an estimated salvage value o# I1$,333 and is 4eing depreciated
over an estimated li#e o# si9 &ears. The compan&7s polic& is to recognie
depreciation to the nearest <hole month.
(ompute the charge #or depreciation on this e1uipment #or the &ears ended
%ecem4er '1, $33$ and $33', under the #ollo<ing methodsJ
F1G %ou4le*declining*4alance
F$G +um*o#*the*&ears7*digits
F'G +traight*line
Solution 2
>O.
F1G %ou4le*declining*4alance
$33$J I$/3,333 9 '' 12'= 9 /21$ O I-$,$$$
$33'J FI$/3,333 * I-$,$$$G 9 '' 12'= O I.$,)0'
F$G +um*o#*the*&ears7*digitsJ P-F.G2$R O $1
$33$J I$-/,333 9 -2$1 9 /21$ O I)1,34/
$33'J I$-/,333 9 -2$1 9 421$ O I$),)$4
I$-/,333 9 )2$1 9 /21$ O 4$,)43
I-/,3-4
F'G +traight*line
$33$J I$-/,3332- 9 /21$ O I$0,../
$33'J I$-/,3332- O I44,--.
Problem 3
The #ollo<ing is a schedule o# machiner& o<ned 4& ;artin ;anu#acturing
(ompan&.
6stimated 6stimated
Total +alvage >i#e in
(ost @alue ,ears
;achine A I -33,333 I113,333 $3
;achine B '1),333 '3,333 13
;achine ( /4,333 3 1)
;achine % 13.,333 .,333 )
I1,13-,333
;artin computes depreciation on the straight*line 4asis. Based on the in#ormation
presented, compute theJ
F1G (omposite li#e o# these assets Fin &earsG.
F$G (omposite depreciation rate.
Solution 3
>O1 +alvage %eprecia4le 6stimated Annual
Asset (ost @alue (ost >i#e %epreciation
A I -33,333 I113,333 I403,333 $3 I$4,)33
B '1),333 '3,333 $/),333 13 $/,)33
( /4,333 3 /4,333 1) ),-33
% 13.,333 .,333 133,333 ) $3,333
I1,13-,333 I14.,333 I0)0,333 I./,-33
F1G I0)0,3332I./,-33 O 1$.$3 &ears
F$G I./,-332I1,13-,333 O ..11=
Problem 4
Hearsa ;anu#acturing Inc. purchased a ne< machine on :anuar& $, $33$, that <as
4uilt to per#orm one #unction on its assem4l& line. %ata pertaining to this machine
areJ
Ac1uisition cost..................................................................... I''3,333
!esidual value....................................................................... I'3,333
6stimated service li#eJ
,ears................................................................................ )
+ervice hours................................................................... $)3,333
"roduction output............................................................. '33,333
Using each o# the #ollo<ing methods, compute the annual depreciation rate and
charge #or the &ears ended %ecem4er '1, $33$ and $33'J
F1G +traight*line
F$G +ervice hours Fassume '$,333 hours #or $33$ and '-,333 hours #or $33'G.
F'G "roductive*output Fassume '1,333 units #or $33$ and '.,333 units #or $33'G.
Solution 4
>O1
F1G +traight*lineJ
$33$J FI''3,333 * I'3,333G2) O I-3,333
$33'J I-3,333
F$G +ervice hoursJ FI''3,333 * I'3,333G2$)3,333 O I1.$3 per hour depreciation
rate
$33$J I1.$3 9 '$,333 O I'/,433
$33'J I1.$3 9 '-,333 O I4',$33
F'G "roductive*outputJ FI''3,333 * I'3,333G2'33,333 O I1.33 per unit depreciation
rate
$33$J I1.33 9 '1,333 O I'1,333
$33'J I1.33 9 '.,333 O I'.,333
Problem 5
The 5itsimmons (ompan& applied #or and received numerous patents at a total
cost o# I$/-,)33 at the 4eginning o# 1000. It is assumed the patents <ill 4e use#ul
evenl& during their #ull legal lives. At the 4eginning o# $331, the compan& paid
I4/,-33 in legal #ees #or success#ul de#ense in a patent in#ringement suit. At the
4eginning o# $33$, in#ormation 4ecame availa4le that caused the compan& to
reduce the remaining li#e o# the patents to #ive &ears.
(alculate the amortiation e9pense #or the &ears 1000, $333, $331, and $33$.
!ound to the nearest dollar.

Solution 5
>O$
1000J I$/-,)3321. O I1-,/)'
$333J I$/-,)3321. O I1-,/)'
$331J Ac1uisition cost I$/-,)33
>essJ amortiation to date '',.3-
(arr&ing value I$)$,.04
+uccess#ul de#ense 4/,-33
Ne< carr&ing value I'31,'04
!emaining li#e O 1) &ears
I'31,'0421) O I$3,30'
$33$J (arr&ing value, :an. 1, $331 I'31,'04
Amortiation #or $331 $3,30'
(arr&ing value, :an. 1, $33$ I$/1,'31
!emaining li#e O ) &ears
I$/1,'312) O I)-,$-3
Problem 6
In $331, +ilverspur ;ining Inc. purchased land #or I),-33,333 that had a natural
resource suppl& estimated at 4,333,333 tons. 8hen the natural resources are
removed, the land has an estimated value o# I-43,333. The re1uired restoration
cost #or the propert& is estimated to 4e I/33,333.
%evelopment and road construction costs on the land <ere I)-3,333, and a
4uilding <as constructed at a cost o# I//,333 <ith an estimated I/,333 salvage
value <hen all the natural resources have 4een e9tracted.
%uring $33$, additional development costs o# I$.$,333 <ere incurred, 4ut
additional resources <ere not discovered. "roduction #or $331 and $33$ <as
.33,333 tons and 033,333 tons, respectivel&.
(ompute the depletion charge #or $331 and $33$. FInclude depreciation on the
4uilding, i# an&, as a depletion charge.G !ound depletion charge to the nearest
cent.
Solution 6
>O'
Ac1uisition costs.................................................................... I),-33,333
!estoration costs................................................................... /33,333
!esidual value**land............................................................. F-43,333G
%evelopment costs................................................................ )-3,333
Building................................................................................. //,333
+alvage value**4uilding......................................................... F/,333G
I-,433,333
I-,433,33324,333,333 tons O I1.-3 per ton
$331J .33,333 tons 9 I1.-3 O I1,1$3,333
$33$J Original cost I-,433,333
Additional costs**$33$ $.$,333
-,-.$,333
6stimated depletion**$331 F1,1$3,333G
Balance su4Cect to depletion I),))$,333
I),))$,3332','33,333 tons O I1.-/ per ton FroundedG
033,333 tons 9 I1.-/ O I1,)1$,333
Problem 7
In#ormation concerning Thomas (orporation7s intangi4le assets is as #ollo<sJ
Thomas incurred I')$,333 o# e9perimental and development costs in its la4orator&
to develop a patent that <as granted on :anuar& $, $33$. >egal #ees and other
costs associated <ith registration o# the patent totaled I-),-33. Thomas estimates
that the use#ul li#e o# the patent <ill 4e eight &ears.
A trademark <as purchased #rom :ohnson (ompan& #or I1-3,333 on :ul& 1, 1000.
69penditures #or success#ul litigation in de#ense o# the trademark totaling I43,333
<ere paid on :ul& 1, $33$. Thomas estimates that the use#ul li#e o# the trademark
<ill 4e $3 &ears #rom the date o# ac1uisition.
"repare a schedule sho<ing the intangi4le assets section o# Thomas7 4alance
sheet at %ecem4er '1, $33$.
Solution 7
>O$
Thomas (orporation
Balance +heet FpartialG
%ecem4er '1, $33$
"atent, net o# accumulated amortiation o# I/,$33..................... I ).,433 S
Trademark, net o# accumulated amortiation o# I$0,1.-............ 1.3,/$4
SS
I $$/,$$4
S "atent
(apitalied cost o# patent at :anuar& $, $33$......................... I -),-33
Amortiation FI-),-332/ &earsG...................................................... F/,$33G
BalanceJ %ecem4er '1, $33$................................................. I ).,433
Accumulated
SS Trademark (ost Amortiation
(ost o# Trademark...................................... I1-3,333
Amortiation F:ul& 1, 1000 * %ec. '1, $331G
FI1-3,3332$3 9 $ 12$G................................ I$3,333
Amortiation F:an. 1, 1000 * :une '3, $33$G
FI/,333 9 12$G.......................................... 4,333
(ost o# success#ul de#ense........................ 43,333
I$33,333 I$4,333
Amortiation F:ul& 1, $33$ * %ec. '1, $33$G
PFI$33,333 * I$4,333G21.R 9 N...................... ),1.-
I$33,333
I$0,1.-
%educt accumulated amortiation.............. $0,1.-
Trademark 4alance.................................... I1.3,/$4
Problem 8
!ile& (ompan& o<ns a machine that cost I)-3,333, has a 4ook value o# I$43,333,
and an estimated #air value o# I4/3,333. 5ier (ompan& has a machine that cost
I.$3,333, has accumulated depreciation o# I433,333, and an estimated #air value
o# I-43,333. The machines o# 4oth companies are o# the same t&pe and per#orm
the same #unction. !ile& and 5ier, 4oth in the same line o# 4usiness, trade
assets and !ile& pa&s 5ier cash o# I1-3,333.
F1G !ecord the e9change on !ile& (ompan&7s 4ooks.
F$G !ecord the e9change on 5ier (ompan&7s 4ooks.
Solution 8
>O-
F1G !ile& (ompan&7s 4ooks
;achiner&................................................................... -43,333
Accumulated %epreciation......................................... '$3,333
;achiner&........................................................... )-3,333
(ash................................................................... 1-3,333
?ain on 69change o# Asset................................ $43,333 S
S Because cash e1uals $)= or more o# the #air value o# the e9change.
F$G 5ier (ompan&7s 4ooks
(ash............................................................................ 1-3,333
;achiner&................................................................... 4/3,333
Accumulated %epreciation......................................... 433,333
;achiner&........................................................... .$3,333
?ain on 69change o# Asset................................ '$3,333 S
S (ost.......................................................................... I.$3,333
Accumulated depreciation........................................ 433,333
Book value................................................................ I'$3,333
5air value.................................................................. -43,333
?ain.......................................................................... I'$3,333
Problem 9
The (hase (ompan& e9changed e1uipment costing I$43,333 <ith accumulated
depreciation o# I03,333 #or e1uipment o<ned 4& :ones (orporation. The :ones
e1uipment cost I''3,333 <ith accumulated depreciation o# I1$3,333. The #air
value o# 4oth pieces o# e1uipment <as I'33,333.
"rovide the necessar& entries to record the transaction on 4oth companies7 4ooks
assumingJ
F1G The assets e9changed are similar and (hase and :ones are in the same line
o# 4usiness.
F$G The assets e9changed are dissimilar.
Solution 9
>O-
F1G (haseJ 61uipment.................................................. 1)3,333
Accumulated %epreciation......................... 03,333
61uipment............................................. $43,333
:onesJ 61uipment.................................................. $13,333
Accumulated %epreciation......................... 1$3,333
61uipment............................................. ''3,333
F$G (haseJ 61uipment.................................................. '33,333
Accumulated %epreciation......................... 03,333
61uipment............................................. $43,333
?ain on 69change o# 61uipment.......... 1)3,333
:onesJ 61uipment.................................................. '33,333
Accumulated %epreciation......................... 1$3,333
61uipment............................................. ''3,333
?ain on 69change o# 61uipment.......... 03,333
Problem 10
+eaver Inc. e9changed a machine costing I433,333 <ith accumulated depreciation
o# I$/3,333 #or a machine #rom the ?oodin (ompan&. ?oodin paid I$3,/33 cash
in addition to its machine F<hich cost I$33,333 <ith accumulated depreciation o#
I-/,333G #or the +eaver machine. The ?oodin machine has a #air value o#
I1-3,333.
"rovide the necessar& entries to record the transactions on 4oth companies7 4ooks
assuming the machines are similar and +eaver and ?oodin are in the same line o#
4usiness.
Solution 10
>O-
?oodinJ ;achiner&........................................................... 1)$,/33
Accumulated %epreciation................................. -/,333
;achiner&................................................... $33,333
(ash........................................................... $3,/33
+eaverJ ;achiner&........................................................... 13-,10)
Accumulated %epreciation................................. $/3,333
(ash................................................................... $3,/33
;achiner&................................................... 433,333
?ain on 69change o# ;achiner&................ -,00) S
S PI$3,/332FI$3,/33 Q I1-3,333GR 9 FI1/3,/33 * I1$3,333G O I-,00)
Problem 11
:ohnson (ompan& purchased e1uipment / &ears ago #or I1,333,333. The
e1uipment has 4een depreciated using the straight*line method <ith a $3*&ear
use#ul li#e and 13= residual value. :ohnson7s operations have e9perienced
signi#icant losses #or the past $ &ears and, as a result, the compan& has decided
that the e1uipment should 4e evaluated #or possi4le impairment. The
management o# :ohnson (ompan& estimates that the e1uipment has a remaining
use#ul li#e o# . &ears. Net cash in#lo< #rom the e1uipment <ill 4e I/3,333 per &ear.
The #air value o# the e1uipment is I$43,333. No good<ill <as associated <ith the
purchase o# the e1uipment.
F1G %etermine i# an impairment loss should 4e recognied.
F$G %etermine the amount o# the loss and prepare the Cournal entr& to record the
loss.
F'G Ho< <ould &our ans<er to F1G change i# the #air value o# the 4uilding <as
I)33,333B
Solution 11
>O)
F1G Annual depreciation #or the e1uipment has 4een I4),333 FI1,333,333 *
I133,333G2$3 &ears. (urrent 4ook value o# the e1uipment isJ
Original cost....................................................... I1,333,333
Accumulated depreciation FI4),333 9 / &earsG. '-3,333
Book value.......................................................... I -43,333
The 4ook value o# I-43,333 is compared to the undiscounted sum o# the #uture
cash #lo<s to determine <hether the e1uipment is impaired. The sum o# the
#uture cash #lo<s is less, so an impairment loss should 4e recognied.
F$G The impairment loss is e1ual to the I433,333 FI-43,333 * I$43,333G di##erence
4et<een the 4ook value o# the e1uipment and its #air value. The impairment
loss <ould 4e recorded as #ollo<sJ
Accumulated %epreciation**61uipment ...........................'-3,333
>oss on Impairment o# 61uipment.....................433,333
61uipment FI1,333,333 * I$43,333G.......... .-3,333
F'G The ans<er to F1G is una##ected 4& the #air value o# the asset. The e9istence o#
an impairment loss is determined solel& 4& using the undiscounted sum o#
estimated #uture cash #lo<, not the #air value o# the asset.
Problem 12
:ohnson (ompan& purchased e1uipment / &ears ago #or I1,333,333. The
e1uipment has 4een depreciated using the straight*line method <ith a $3*&ear
use#ul li#e and 13= residual value. :ohnson7s operations have e9perienced
signi#icant losses #or the past $ &ears and, as a result, the compan& has decided
that the e1uipment should 4e evaluated #or possi4le impairment. The
management o# :ohnson (ompan& estimates that the e1uipment has a remaining
use#ul li#e o# . &ears. Net cash in#lo< #rom the e1uipment <ill 4e I/3,333 per &ear.
The #air value o# the e1uipment is I$43,333. ?ood<ill o# I/3,333 <as associated
<ith the purchase o# the e1uipment.
F1G %etermine i# an impairment loss should 4e recognied.
F$G %etermine the amount o# the loss and prepare the Cournal entr& to record the
loss.
Solution 12
>O)
F1G Annual depreciation #or the e1uipment has 4een I4),333 FI1,333,333 *
I133,333G2$3 &ears. (urrent 4ook value o# the e1uipment isJ
Original cost....................................................... I1,333,333
Accumulated depreciation FI4),333 9 / &earsG. '-3,333
Book value.......................................................... I -43,333
In addition to the 4ook value o# the e1uipment, the remaining 4ook value o# the
good<ill is computed as #ollo<sJ
Original cost.......................................................I/3,333
Accumulated amortiationJ
FI/3,3332$3 O I4,333T I4,333 9 /G............ '$,333
Book value..........................................................I4/,333
The total 4ook value o# I-//,333 FI-43,333 Q I4/,333G is compared to the
undiscounted sum o# the #uture cash #lo<s o# I)-3,333 FI/3,333 9 .&earsG to
determine <hether the e1uipment is impaired. The sum o# the #uture cash
#lo<s is less, so an impairment loss should 4e recognied.
F$G The impairment loss is e1ual to the I44/,333 FI-//,333 * I$43,333G di##erence
4et<een the 4ook value o# the e1uipment and its #air value. The impairment
loss <ould 4e recorded as #ollo<sJ
Accumulated %epreciation**61uipment ............ '-3,333
>oss on Impairment o# 61uipment..................... 44/,333
61uipment FI1,333,333 * I$43,333G.......... .-3,333
?ood<ill...................................................... 4/,333
Problem 13
:ohnson (ompan& is located in Hong Mong and uses international accounting
standards. :ohnson (ompan& purchased e1uipment / &ears ago #or I1,333,333.
The e1uipment has 4een depreciated using the straight*line method <ith a $3*&ear
use#ul li#e and 13= residual value. :ohnson7s operations have e9perienced
signi#icant losses #or the past $ &ears and, as a result, the compan& has decided
that the e1uipment should 4e evaluated #or possi4le impairment. The management
o# :ohnson (ompan& estimates that the e1uipment has a remaining use#ul li#e o# .
&ears. Net cash in#lo< #rom the e1uipment <ill 4e I/3,333 per &ear. The #air value
o# the e1uipment is I$43,333. No good<ill <as associated <ith the purchase o#
the e1uipment. :ohnson (ompan& has chosen to recognie increases in the value
o# long*term operating assets in accordance to the allo<a4le alternative under IA+
1-.
F1G %etermine i# an impairment loss should 4e recognied.
F$G %etermine the amount o# the loss and prepare the Cournal entr& to record the
loss.
F'G 8hat Cournal entr& should :ohnson (ompan& make i# the #air value o# the
4uilding <as I0/3,333B
2', (hapter 1' Investments in Noncurrent Operating AssetsUtiliation and !etirement
Solution 13
>O)
F1G Annual depreciation #or the e1uipment has 4een I4),333 FI1,333,333 *
I133,333G2$3 &ears. (urrent 4ook value o# the e1uipment isJ
Original cost....................................................... I1,333,333
Accumulated depreciation FI4),333 9 / &earsG. '-3,333
Book value.......................................................... I -43,333
According to IA+ '-, the e9istence o# impairment is determined 4& comparing
4ook value o# I-43,333 to the #air value o# I$43,333. The #air value is lo<er,
so an impairment loss should 4e recognied. In this case, the determination o#
the e9istence o# an impairment loss is 4ased on is 4ased on a comparison o#
4ook value and #air valueT under U.+. ?AA", the test is 4ased on a comparison
o# 4ook value and the undiscounted sum o# #uture cash #lo<s.
F$G The impairment loss is e1ual to the I433,333 FI-43,333 * I$43,333G di##erence
4et<een the 4ook value o# the e1uipment and its #air value. The impairment
loss <ould 4e recorded as #ollo<sJ
Accumulated %epreciation**61uipment ............ '-3,333
>oss on Impairment o# 61uipment..................... 433,333
61uipment FI1,333,333 * I$43,333G.......... .-3,333
F'G +ince the #air value o# I0/3,333 is greater than the 4ook value o# I-43,333,
:ohnson (ompan& <ill recognie I'43,333 FI0/3,333 * I-43,333G as an
up<ard asset revaluation. The up<ard revaluation is recorded as #ollo<sJ
Accumulated %epreciation**61uipment............. '-3,333
!evaluation 61uit& !eserve...................... '43,333
61uipment FI1,333,333 * I0/3,333G.......... $3,333
Problem 14
The ;c(loud (ompan& purchased a ne< piece o# #actor& e1uipment on ;a& $3,
$33$,
#or I43,333. 5or income ta9 purposes, the e1uipment is classi#ied as a .*&ear
asset. +ince the ta9 li#e is similar to the estimated economic li#e o# the asset,
;c(loud decides to use ta9 depreciation #or #inancial reporting purposes. The
e1uipment is not e9pected to have an& residual value at the end o# the . &ears.
"repare a depreciation schedule #or the li#e o# the asset using the ;A(!+ method
o# cost recover&.
Test Bank, Intermediate Accounting, 14
th
ed 2'1
Solution 14
>O/
%epreciation +chedule
(ost Asset
,ear (omputation !ecover& Amount Book @alue
I43,333
$33$ I43,333 9 .$/). 9 N I),.14 '4,$/-
$33' I'4,$/- 9 .$/). 0,.0- $4,403
$334 I$4,$03 9 .$/). -,00. 1.,40'
$33) I1.,40' 9 .$/). 4,00/ 1$,40)
$33- I1$,40) 9 .$/). ',)-0 /,0$-
$33. I /,0$- $.)
S
',).3 ),')-
$33/ I ),')- 1.) ',).3 1,./-
$330 1,./- *3*
+<itched to straight*line depreciation since depreciation o# I',).3
e9ceeds the dou4le*declining*4alance depreciation o# I$,))3 FI/,0$- 9 .
$/).G.
Problem 15
A recentl& issued 5A+B standard re1uires that an impairment loss 4e recognied i#
the sum o# the e9pected #uture net cash in#lo<s Fundiscounted and <ithout interest
chargesG is less than the carr&ing value o# the asset. The amount o# the
impairment loss recognied is the amount 4& <hich the carr&ing amount o# the
asset e9ceeds the #air value o# the asset.
"rovide e9amples o# events or changes in circumstances that indicate that the
recovera4ilit& o# the carr&ing amount o# an asset ma& have 4een impaired.
6valuate the recognition criterion proposed 4& the 5A+B, speci#icall& addressing
the issue o# using the undiscounted sum o# the #uture net cash #lo<s.
Solution 15
>O)
The #ollo<ing are e9amples o# events or changes in circumstances that ma&
indicate that the carr&ing amount o# an asset ma& not 4e recovera4leJ
a. A signi#icant decrease in the market value o# an asset.
4. A signi#icant change in the e9tent or manner in <hich an asset is
used.

c. A signi#icant adverse change in legal #actors or in the 4usiness
climate that a##ects the value o# an asset.
2'2 (hapter 1' Investments in Noncurrent Operating AssetsUtiliation and !etirement
d. An accumulation o# costs signi#icantl& in e9cess o# the amount
originall&
e9pected to ac1uire or construct an asset.
e. A proCection or #orecast that demonstrates continuing losses
associated <ith an asset.
The use o# the sum o# the e9pected #uture net cash #lo<s Fundiscounted and
<ithout interest chargesG as a criterion #or impairment appears to contradict
modern theories 4oth o# accounting and
#inance. The time value o# mone& should 4e considered at a minimum as an
element o# cost recover&.
The 5A+B, ho<ever, 4elieves that including the time value o# mone& in the test #or
impairment poses some signi#icant pro4lems. The #irst is the di##icult& o#
associating the actual outstanding de4t <ith individual assets. The onl& practical
application <ould 4e the use o# an incremental 4orro<ing rate <hich ma& result in a
ver& close appro9imation o# the present values o# the cash #lo<s. The second
pro4lem relates to the #act that each entit& has a di##erent incremental 4orro<ing
rate 4ecause di##erent entities have di##erent de4t capacities. The result o# these
entit&*uni1ue 4orro<ing rates is that di##erent present values <ould result #or similar
impaired assets 4ecause the assets are o<ned 4& di##erent entities having di##erent
de4t capacities. The 5A+B7s solution o# using the sum o# the e9pected #uture net
cash #lo<s Fundiscounted and <ithout interest chargesG avoids not onl& the
pro4lems associated <ith the discount rate 4ut also the necessit& o# proCecting the
timing o# cash #lo<s. This approach uses in#ormation that is generall& availa4le to
the entit& and allo<s a more e9peditious evaluation o# an asset7s compliance <ith
the esta4lished recognition criterion.


Test Bank, Intermediate Accounting, 14
th
ed 2'3
CHAPTER 13 -- QUI. A
Name UUUUUUUUUUUUUUUUUUUUUUUUU
+ection UUUUUUUUUUUUUUUUUUUUUUUU
T 5 1. The cost o# propert& less the e9pected residual value, i# an&, is called the
deprecia4le 4ase.
T 5 $. %epreciation is the s&stematic and rational allocation o# asset cost over the
periods 4ene#itted 4& the use o# the asset.
T 5 '. The residual FsalvageG value o# an asset is de#ined as the estimated amount
that can 4e realied upon retirement o# the asset.
T 5 4. The ph&sical #actors limiting the lives o# noncurrent operating assets are
inade1uac& and o4solescence.
T 5 ). The 5A+B re1uires disclosure o# 4oth cost and accumulated depreciation #or
propert& on the 4alance sheet or notes to the #inancial statements.
T 5 -. The modi#ied accelerated cost recover& s&stem F;A(!+G is an e9ample o# a
group rate depreciation method.
T 5 .. (omposite depreciation is not an allo<a4le depreciation method under
generall& accepted accounting principles.
T 5 /. The sum*o#*the*&ears7*digits method is an e9ample o# a decreasing*charge
depreciation method.
T 5 0. In the sum*o#*the*&ears7*digits method, residual value is not used in the
computations o# depreciation e9pense.
T 5 13. +traight*line depreciation assumes e1ual use#ulness in each time period, and
the periodic charge is not a##ected 4& asset productivit& or e##icienc&
variations.
CHAPTER 13 -- QUI. (
Name UUUUUUUUUUUUUUUUUUUUUUUUU
+ection UUUUUUUUUUUUUUUUUUUUUUUU
T 5 1. Under A(!+ and ;A(!+, no depreciation is recognied on ac1uisitions
during the &ear, 4ut depreciation #or a #ull &ear is recognied on retirements.
T 5 $. ;ost companies use the straight*line depreciation method #or #inancial
reporting purposes.
T 5 '. %ecreasing*charge methods o# depreciation are reasona4le approaches to
cost allocation <hen the 4ene#its provided 4& an asset increase and
maintenance and repair costs decrease as the asset gets older.
T 5 4. 8hen group depreciation is used and an asset is retired #rom the group, no
gain or loss is recognied.
T 5 ). 8hen appl&ing the composite depreciation method, a ne< rate is usuall&
calculated each period 4ased on the assets currentl& included in the group.
T 5 -. According to A"B Opinion No. 1., the straight*line method o# amortiation
should 4e applied unless a compan& demonstrates that another s&stematic
method is more appropriate.
T 5 .. 8hen similar assets are e9changed, at least part o# an& gain can al<a&s 4e
de#erred as long as the assets are also #or a similar line o# 4usiness.
T 5 /. 8hen 4uildings and improvements are constructed in connection <ith the
removal o# natural resources and their use#ulness is limited to the duration o#
the proCect, the depreciation should 4e recognied on an output 4asis similar
to the one used #or the natural resource itsel#.
T 5 0. The ac1uisition cost o# <asting assets includes the purchase price and
developmental costs, such as drilling costs, sinking mine sha#ts, and
constructing roads.
T 5 13. AdCustments #or the change in estimated use#ul lives o# 4oth propert&, plant,
and e1uipment and intangi4le assets are reported as a cumulative e##ect o# a
change in accounting principle.
$.4
CHAPTER 13 -- QUI. C
Name UUUUUUUUUUUUUUUUUUUUUUUUU
+ection UUUUUUUUUUUUUUUUUUUUUUUU
A. (omposite depreciation
B. +traight*line depreciation
(. Time #actor
%. +um*o#*the*&ears7*digits depreciation
6. (ost recover& period
5. Amortiation
?. Indicated loss
H. "h&sical #actor
I. %epreciation
:. +imilar assets
M. Involuntar& conversion
>. Unit depreciation
;. %eclining*4alance depreciation
N. (urrent cost
O. !esidual value
". Natural resources
V. Use #actor
!. Impairment
+. ?roup depreciation
+elect the term that 4est #its each o# the #ollo<ing de#initions and descriptions. Indicate
&our ans<er 4& placing the appropriate letter in the space provided.
UUUUU 1. A depreciation method providing decreasing periodic charges #or depreciation 4&
appl&ing a constant percentage to a declining asset 4ook value.
UUUUU $. "eriodic cost allocation process #or intangi4le assets.
UUUUU '. A method under <hich like assets are grouped together and depreciation is
computed
#or the group rather than #or individual assets.
UUUUU 4. The depreciation method that recognies e1ual periodic depreciation charges #or
each &ear o# an asset7s li#e.
UUUUU ). !etirement o# assets caused 4& uncontrolla4le events such as #ire, earth1uake,
#lood, or condemnation.
UUUUU -. ;ost popular depreciation methods, such as straight*line and declining*4alance,
are
4ased on this #actor.
UUUUU .. 6stimated amount that can 4e realied upon the retirement o# an asset.
UUUUU /. A #actor related to the use o# an asset that limits its use#ul li#e.
UUUUU 0. The units*o#*production method is the most common depreciation method
emphasiing this #actor.
UUUUU 13. A method under <hich dissimilar assets are aggregated and depreciation is
computed #or the aggregation 4ased on a <eighted average li#e e9pectanc&.
UUUUU 11. A period o# time de#ined 4& ta9 legislation over <hich the cost o# noncurrent
operating assets ma& 4e allocated against revenue.
UUUUU 1$. The e9cess o# the 4ook value over the market value o# the asset given up in an
e9change o# assets.
UUUU1'. "eriodic cost allocation process #or tangi4le noncurrent operating assets #or
#inancial
reporting purposes.
UUUUU 14. Une9pected reduction in the value o# an asset that signi#icantl& reduces its
current
value 4elo< its value reported on the #inancial statements.
$.)
UUUUU 1). 8asting assets such as oil, gas, tim4er, and ore deposits are all e9amples.
CHAPTER 13 -- QUI. SOLUTIONS
Vui A
1. T
$. T
'. T
4. 5
). T
-. 5
.. 5
/. T
0. 5
13. T
Vui B
1. 5
$. T
'. 5
4. T
). 5
-. T
.. 5
/. T
0. T
13. 5
Vui (
1. ;
$. 5
'. +
4. B
). M
-. (
.. O
/. H
0. V
13. A
11. 6
1$. ?
1'. I
14. !
1). "
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