Ch16 Capital Resource Process Invest Complete Test Bank

Chapter 16

Recording and Evaluating Capital Resource Process Activities: Investing

MATCHING

1. Match the following with the definitions and descriptions below.

A. Accelerated depreciation

B. Amortization

C. Capital expenditure

D. Double-declining-balance depreciation

E. Depletion

F. Depreciable cost

G. Midyear convention

H. Salvage or residual value

I. Revenue expenditure

J. Straight-line depreciation

K. Units-of-production depreciation

_____ 1. The expected fair value of a plant asset at the end of its useful life

_____ 2. The process of allocating the cost of natural resources to an expense over the

periods they benefit

_____ 3. This assumes, for the purpose of calculating depreciation, all assets are

purchased half-way through the year

_____ 4. An expenditure that is expected to benefit future time periods

_____ 5. A method of calculating depreciation that is based on usage of the asset.

_____ 6. A class of depreciation methods that recognizes more depreciation early in the

life than later in the life of the asset

_____ 7. The portion of the asset’s cost that will be allocated over the useful life of the

asset

_____ 8. The process of allocating the cost of intangible assets over their useful life

_____ 9. This depreciation method allocates the cost of an asset equally over the useful

life of the asset

_____10. An expenditure that provides benefits exclusively during the current

accounting period

_____11. This depreciation method allocates depreciation at a rate twice the straight-line

rate of depreciation

2. Match the following terms with the descriptions and definitions below.

A. Capitalize

B. Copyright

C. Extraordinary repairs and betterments

D. Franchise

E. Goodwill

F. Leasehold

G. Leasehold improvement

H. Natural resources

I. Patent

J. Plant asset

K. Trademark

_____ 1. An intangible asset that gives its owner exclusive legal rights to a product or

process

_____ 2. To classify the cost of an expenditure as an asset

_____ 3. Nonrenewable assets such as coal deposits

_____ 4. An intangible asset that gives its owners the exclusive right to use of a sign or

label that identifies its product or company

_____ 5. Tangible assets that make up the company’s operating infrastructure

_____ 6. An intangible asset that gives its owner the exclusive legal right to the

reproduction and sale of a literary or artistic work

_____ 7. An intangible asset representing the amounts paid by a lessee to make

physical improvements that are an integral part of leased property

_____ 8. An intangible asset representing the exclusive right to operate or sell a brand

name product in a specified territory

_____ 9. An expenditure that improves the productive capacity of an asset or extends

its useful life

_____10. An intangible asset representing the value assigned to a purchased company’s

ability to generate an above–average return on invested capital

_____11. An intangible asset conveyed by a lease to use equipment, land, and /or

building for a specified period of time

4. Match the following financial statement classifications with the accounts listed below:

A. Income Statement

B. Property, Plant, and Equipment

C. Intangible Assets

D. Natural Resources

E. Investments

_____ 1. Common stock of Microsoft

_____ 2. Accumulated depreciation

_____ 3. Franchise

_____ 4. Patent

_____ 5. Land – held for speculation

_____ 6. Oil rights

_____ 7. Equipment

_____ 8. Depreciation expense

Answers: 1. E; 2. B; 3. C; 4. C; 5. E; 6. D; 7. B; 8. A

MULTIPLE CHOICE

5. All of the following are characteristics of plant assets except:

A) tangible.

B) used in the business.

C) held as an investment.

D) life longer than one year.

6. Expenditures that create the expectation of future benefits applicable beyond the current period are called:

A) capital expenditures.

B) revenue expenditures.

C) ordinary expenditures.

D) accelerated expenditures.

7. Revenue expenditures:

A) include expenditures for betterments.

B) include expenditures for extraordinary repairs.

C) are expenditures that provide benefits only during the current accounting period.

D) are expenditures that extend the remaining useful life of an operational investment.

8. Architect’s fees during construction of a building should be:

A) capitalized.

B) expensed immediately.

C) treated as a revenue expenditure.

D) expensed at the completion of construction.

9. Which of the following would be considered a capital expenditure?

A) Oil change on a truck

B) Repair fender damage during shipping

C) Cost of custom paint job on truck at time of purchase

D) Repair of radiator

10. Cost to repair damage to machine incurred when installing the machine should be:

A) capitalized.

B) expensed immediately.

C) capitalized once machine is in use.

D) expensed at the end of the life of the machine.

11. Which of the following would be considered a revenue expenditure?

A) Cost to install a new machine

B) Sales tax on the cost of a new machine

C) Cost the ship the machine to factory

D) Cost to repair the machine, which was damaged during installation

12. Which of the following would be considered a revenue expenditure?

A) Cost to install a new machine

B) Sales tax on the cost of a new machine

C) Cost the ship the machine to factory

D) Costs incurred during test run the new machine

E) All the above

13. Kenyon Company purchased land and a building for $270,000. The appraised values of the land and building were $100,000 and $200,000, respectively. The purchase price allocated to the land should be:

A) $270,000.

B) $180,000.

C) $100,000.

D) $ 90,000.

14. Kenyon Company purchased land and a building for $270,000. The appraised values of the land and building were $100,000 and $200,000, respectively. The purchase price allocated to the building should be:

A) $270,000.

B) $200,000.

C) $180,000.

D) $ 90,000.

15. Comptel Corporation purchased land, a building and equipment for a total cost of $525,000. The appraised values of the land, building and equipment were $150,000, $375,000 and $75,000, respectively. The purchase price allocated to the land should be:

A) $525,000.

B) $150,000.

C) $131,250.

D) $ 65,625.

16. Comptel Corporation purchased land, a building, and equipment for a total cost of $525,000. The appraised values of the land, building, and equipment were $150,000, $375,000 and $75,000, respectively. The purchase price allocated to the building should be:

A) $131,250.

B) $328,125.

C) $375,000.

D) $428,57.1

17. Comptel Corporation purchased land, a building and equipment for a total cost of $525,000. The appraised values of the land, building, and equipment were $150,000, $375,000 and $75,000, respectively. The purchase price allocated to the equipment should be:

A) $ 65,625.

B) $ 75,000.

C) $131,250.

D) $150,000.

18. Affiliated Industries purchased a piece of equipment for $5,500, FOB shipping point. The company paid freight of $225 and installation costs of $485. During installation, the equipment was damaged requiring $195 in repair costs. The total cost assigned to the equipment should be:

A) $5,500.

B) $5,725.

C) $6,210.

D) $6,405.

19. To calculate depreciation, all the following must be determined except:

A) useful life of the asset.

B) salvage value of the asset.

C) acquisition cost of the asset.

D) fair market value of the asset.

20. All the following are based on estimates except:

A) useful life.

B) salvage value.

C) acquisition cost.

D) depreciable cost.

21. Carlton Company acquired a tract of land on June 30, 2008. The total cost of the land was $90,000. Carlton estimated that the land would be used for 10 years and then sold. Assuming the company uses straight-line depreciation, the total depreciation taken on the land for the year ending December 31, 2003 should be:

A) amount cannot be determined without additional information.

B) $ 9,000.

C) $ 4,500.

D) $ 0.

22. On January 1, 2010, Boyd Corporation purchased a piece of equipment for $50,000, will pay $1,500 in property tax during the year, paid $500 to have it delivered, paid $1,000 to have it installed, paid $300 for 1 year of insurance, and paid $1,800 in sales tax. If the equipment has a 10-year life and a $2,000 salvage value, what will be the depreciation of the equipment for 2010 if straight-line depreciation is used?

A) $4,800

B) $5,330

C) $5,130

D) $5,150

23. Ivanhoe Enterprises acquired a piece of equipment on January 3, 2010. The total cost of the equipment was $35,000. Ivanhoe estimated that the equipment would be used for 8 years before being sold for an estimated $7,000. Assuming the use of straight-line depreciation, the total depreciation expense for the year ended December 31, 2010 was:

A) $3,500.

B) $4,000.

C) $4,375.

D) $5,250.

24. Byrons, Inc. acquired a piece of equipment on January 3, 2010. The total cost of the equipment was $28,500. Byrons estimated that the equipment would be used for 6 years before being sold for an estimated $4,500. Assuming the use of straight-line depreciation, the total depreciation expense for the year ending December 31, 2010 was:

A) $ 4,000.

B) $ 4,750.

C) $ 5,500.

D) $20,000.

25. Sportech, Inc. acquired a piece of equipment on January 3, 2010. The total cost of the equipment was $77,500. Sportech estimated that the equipment would be used for 9 years before being sold for an estimated $5,500. Assuming the use of straight-line depreciation, the balance in the accumulated depreciation account on January 2, 2014 will be:

A) $32,000.

B) $34,444.

C) $36,889.

D) $45,500.

26. Edcon Industries acquired a piece of equipment on January 3, 2010. The total cost of the equipment was $43,700. Edcon estimated that the equipment would be used for 7 years before being sold for an estimated $5,200. Assuming the use of straight-line depreciation, the carrying value of the equipment on January 2, 2015 will be:

A) $12,486.

B) $16,200.

C) $21,400.

D) $27,500.

27. Windstreamers, Inc. acquired a piece of machinery on January 3, 2010. The total cost of the machinery was $68,400. Windstreamers estimated that the machinery would be used to produce 100,000 units of product before being sold for an estimated $11,600. Windstreamers uses the units-of-production method of depreciation. Assuming the machine produced 18,500 units during the year ending December 31, 2010, the 2008 depreciation expense was:

A) $18,500.

B) $14,800.

C) $12,654.

D) $10,508.

28. Dynatech Corporation acquired a piece of machinery on January 3, 2010. The total cost of the machinery was $172,500. Dynatech estimated that the machinery would be used for 60,000 hours before being sold for an estimated $7,500. Dynatech uses the units-of-production method of depreciation. Assuming the machine was used for 18,750 hours during the year ended December 31, 2010, the depreciation expense rate per hour for 2010 was:

A) $9.20.

B) $8.92.

C) $2.88.

D) $2.75.

29. Brookside Enterprises acquired a piece of machinery on January 3, 2010. The total cost of the machinery was $138,600. Brookside estimated that the machinery would be used for 77,000 hours before being sold for an estimated $3,850. Brookside uses the units-of-production method of depreciation. Assuming the machine was used for 15,800 hours during 2010, 18,300 hours during 2011, and 17,400 hours during 2012, the balance in the accumulated depreciation account on January 2, 2013 would be:

A) $45,900.

B) $48,475.

C) $90,125.

D) $92,700.

30. Overhead Industries acquired a piece of machinery on January 3, 2010. The total cost of the machinery was $255,000. Overhead estimated that the machinery would be used for 68,000 hours before being sold for an estimated $10,200. Overhead uses the units-of-production method of depreciation. Assuming the machine was used for 12,700 hours during 2010, 14,100 hours during 2011, and 13,400 hours during 2012, the carrying value of the machinery on January 2, 2013 would be:

A) $104,250.

B) $110,280.

C) $144,720.

D) $150,750.

31. Chippawa Industries acquired a delivery truck on January 4, 2010. The total cost of the truck was $145,000. Chippawa estimated that the truck would be used for 8 years before being sold for an estimated $23,500. Chippawa uses the double-declining balance method of depreciation. The total depreciation expense for the year ending December 31, 2010 was:

A) $36,250.

B) $30,375.

C) $18,125.

D) $15,188.

32. Oxford Enterprises acquired a delivery truck on January 4, 2010. The total cost of the truck was $87,000. Oxford estimated that the truck would be used for 5 years before being sold for an estimated $16,500. Oxford uses the double-declining balance method of depreciation. The depreciation expense for the year ended December 31, 2012 was:

A) $34,800.

B) $28,200.

C) $12,528.

D) $ 8,880.

33. Tucker Truck Company acquired a delivery truck on January 4, 2010. The total cost of the truck was $71,000. Tucker estimated that the truck would be used for 4 years before being sold for an estimated $7,500. Tucker uses the double-declining balance method of depreciation. The balance in the accumulated depreciation account on January 2, 2013 will be:

A) $63,500.

B) $62,125.

C) $55,563.

D) $41,047.

34. Wilkens Corporation acquired a delivery truck on January 4, 2010. The total cost of the truck was $138,000. Wilkens estimated that the truck would be used for 10 years before being sold for an estimated $28,500. Wilkens uses the double-declining balance method of depreciation. The carrying value of the truck on January 2, 2014 will be:

A) $56,525.

B) $45,271.

C) $44,851.

D) $35,921.

35. Horizons, Inc. purchased a machine 3 years ago at a price of $64,500. At that time, useful life was estimated at 12 years with a $6,900 salvage value, and straight-line depreciation was used. After recording depreciation for the third year, Horizons decided that for future years it would revise its original estimates from 12 to 8 years and from $6,900 to $5,500. The depreciation expense to be recorded in year 4 of the machine’s life is:

A) $4,800.

B) $5,575.

C) $8,640.

D) $8,920.

36. Advanced Systems, Inc. purchased a machine 4 years ago at a price of $82,800. At that time, useful life was estimated at 10 years with a $13,500 salvage value, and straight-line depreciation was used. After recording depreciation for the fourth year, Advanced decided that for future years it would revise its original estimates from 10 to 14 years and from $13,500 to $8,500. The depreciation expense to be recorded in year 5 of the machine’s life is:

A) $4,658.

B) $4,968.

C) $5,508.

D) $6,930.

37. Cooper Resources, Inc. owns some equipment with an original cost of $53,800 and accumulated depreciation of $26,350. If the equipment is sold for $28,500, the gain or loss recognized on the sale would be:

A) $2,150 loss.

B) $1,050 loss.

C) $2,150 gain.

D) $1,050 gain.

38. Spataro Industries owns some equipment with an original cost of $53,800 and accumulated depreciation of $26,350. If the equipment is sold for $25,500, the gain or loss recognized on the sale would be:

A) $ 850 gain.

B) $ 850 loss.

C) $1,950 gain.

D) $1,950 loss.

39. Eric Lynd Industries sold equipment with an original cost of $80,000 and accumulated depreciation of $35,000. If the sale of the equipment generated a gain of $10,000, how much cash was received from the sale?

A) $ 90,000

B) $ 45,000

C) $55,000

D) $70,000

40. Golden Eagle Golf Corp sold equipment with an original cost of $160,000 and accumulated depreciation of $95,000. If the sale of the equipment generated a loss of $15,000, how much cash was received from the sale?

A) $145,000

B) $50,000

C) $85,000

D) $70,000

41. Harold Lynd Corporation sold equipment with an original cost of $90,000 for $55,000 cash and recorded a gain of $5,000. What was the book value of the equipment on the date of the sale?

A) $50,000

B) $90,000

C) $60,000

D) $70,000

42. Galloway Corporation sold equipment with an original cost of $120,000 for $55,000 cash and recorded a loss of $15,000. What was the balance in the accumulated depreciation account on the date of the sale?

A) $60,000

B) $70,000

C) $55,000

D) $50,000

43. Cowboy Enterprises owns some equipment with an original cost of $59,000 and a book value of $19,000 that is exchanged for a $20,000 notes receivable and $5,000 cash. Which of the following is not part of the entry to record this transaction?

1. Debit Notes Receivable $20,000
2. Debit Accumulated Depreciation $40,000
3. Credit Equipment for $19,000
4. Credit Gain for $6,000

44. Irmelas Enterprises owns some equipment with an original cost of $84,700 and accumulated depreciation of $41,650. If the equipment is sold for $9,500 in cash plus a 9-month $30,000 note receivable with a stated 12% interest rate, the gain or loss recognized on the sale would be:

A) $3,550 loss.

B) $3,550 gain.

C) $2,150 loss.

D) $2,150 gain.

45. Safeco, Inc. owns a jet airplane with an original cost of $958,500 and accumulated depreciation of $644,800. The company exchanged the airplane for 50,000 shares of stock held by another company as an investment. The stock is valued at $7 per share. The gain or loss recognized on the exchange would be:

A) $294,800 loss.

B) $313,700 gain.

C) $ 36,300 gain.

D) no gain or loss should be recognized.

46. Manhattan Corporation owns a jet airplane with an original cost of $958,500 and accumulated depreciation of $644,800. The company exchanged the airplane for 50,000 shares of stock held by another company as an investment. The stock is valued at $5 per share. The gain or loss recognized on the exchange would be:

A) $394,800 loss.

B) $ 63,700 loss.

C) $313,700 gain.

D) no gain or loss should be recognized.

47. Laguna Enterprises is trading in its old schooner for a new model. The old schooner is on the books at a cost of $535,000 with accumulated depreciation of $384,300. The new schooner has a list price of $765,000 but the manufacturer has agreed to reduce this by $125,000 in return for Laguna’s old schooner. The new schooner should be recorded on the books at a cost of:

A) $640,000.

B) $739,300.

C) $765,000.

D) $790,700.

48. When an exchange is deemed to have no economic substance, the gain is not recognized and is subtracted from which of the following to determine the cost of the new asset?

A) The book value of the asset given

B) The book value of the asset received

C) The cash given

D) The fair value of the asset received

49. Operational investments in nonrenewable assets are referred to as:

A) plant assets.

B) intangible assets.

C) natural resources.

D) long-term investments.

50. The legal life of a patent is:

A) 5 years.

B) 7 years.

C) 17 years.

D) 40 years.

51. The intangible asset representing the difference between the purchase price paid for a going concern and the fair market value of the purchased company’s identifiable net assets is referred to as:

A) a patent.

B) goodwill.

C) a franchise.

D) a leasehold.

52. Offshore Oil Company owns oil reserves estimated to contain 6,500,000 barrels of oil. The oil reserves originally cost $75,000,000 with an estimated salvage value of $3,500,000. During the current period, 1,200,000 barrels of oil were extracted. The depletion rate per barrel was:

A) $11.00 .

B) $11.54.

C) $59.58.

D) $62.50.

53. The gain or loss recognized on the exchange would be:

A) $49,400 loss.

B) $25,600 gain.

C) $75,000 gain.

D) no gain or loss should be recognized.

54. The new fishing vessel should be recorded on the books at a cost of:

A) $538,000.

B) $512,400.

C) $463,000.

D) $488,600.

55. Which of the following would be classified as a plant asset?

A) Land held for future use

B) Machinery

C) Trademark

D) Inventory

56. Which of the following would be classified as an intangible asset?

A) Land held for future use

B) Machinery

C) Trademark

D) Inventory

57. Which of the following is different for straight-line depreciation and declining balance depreciation?

A) Cost of asset

B) Salvage value

C) Economic life

D) Amount of depreciation per year

58. Which of the following describes depreciable cost?

A) Original cost minus accumulated depreciation

B) Depreciation expense times the income tax rate

C) Original cost minus salvage value

D) Accumulated depreciation

59. Mallory Technical Services obtained a new machine. Which of the following would not be included in the cost of the machine?

A) Penalty for failure to obtain transport permit

B) Cost of installation

C) Cost of testing

D) Invoice price

60. O’Conner Corporation purchased land with a building on it. It removed the old building and constructed a new one. Which of the following costs would not be included in the cost of the building?

A) Constructing the new building

B) Removing the old building

C) Building permits

D) Foundation

E) All would be included

61. At December 31, 2010, Edgar Enterprises had equipment with a book value of $40,000. On December 31, 2009, the book value was $55,000. The original cost of the equipment was $75,000. Assuming straight-line depreciation and no salvage value, what is the estimated economic life of the asset?

A) 5 years

B) 4 years

C) 3 years

D) 2 years

62. Orkney Company has 2-year-old machinery with a book value of $300,000, based on straight-line depreciation. The machinery has a 5-year economic life and $30,000 salvage value. What was the original cost?

A) $480,000

B) $500,000

C) $530,000

D) Unable to determine from the information given

63. Abernethy Corporation is depreciating an asset using the double declining balance method and a 40 percent depreciation rate. What is the estimated economic life of the asset?

A) 40 years

B) 20 years

C) 10 years

D) 5 years

64. B&V Enterprises exchanged a used crane with an original cost of $200,000 and accumulated depreciation of $140,000 for a truck with a fair market value of $100,000. B&V also paid cash of $25,000. What amount of gain should B&V report on this transaction?

A) $0

B) $15,000

C) $40,000

D) $100,000

65. Which of the following statements about interest costs is correct?

A) Interest on money specifically borrowed to finance construction of an asset should be capitalized.

B) A proportionate share of all interest incurred during the life of an asset should be capitalized.

C) Interest cost incurred during construction of an asset can be capitalized.

D) No interest should be capitalized.

66. Blythe Company has equipment with an original cost of $150,000 and accumulated depreciation of $40,000. What is the current fair value of the equipment?

A) $150,000

B) $110,000

C) $40,000

D) Unable to determine from the information given

67. Gorham Company has equipment with an original cost of $250,000 and accumulated depreciation of $140,000. If the equipment were sold, it would generate a $15,000 gain. What is the current fair value of the equipment?

A) $150,000

B) $110,000

C) $140,000

D) $125,000

68. Ivy, Incorporated, purchased all the common stock of Harrell Company for $2,000,000. Harrell’s net assets had a book value of $1,200,000 and a fair market value of $1,500,000. What amount of goodwill should Ivy record as a result of this transaction?

A) $0

B) $300,000

C) $500,000

D) $700,000

69. Which of the following statements is correct?

A) Firms must use the same depreciation methods for tax and financial reporting.

B) Return on assets based on reported values tends to be overstated.

C) All the assets a firm owns are reported on its balance shee.t

D) Plant assets are reported at fair market value.

70. Which of the following is the correct entry for the sale of equipment at a loss?

A) Cash

Loss

Accumulated Depreciation

Equipment

1. Cash

Loss

Equipment

1. Cash

Accumulated Depreciation

Equipment

Loss

D) Cash

Equipment

Loss

70. A loss due to impairment is recorded when:

A) the asset is sold for less than its book value.

B) an asset’s fair value temporarily drops below its book value.

C) an asset is damaged during operations.

D) an asset’s fair value permanently drops below its book value

71. What is a company’s primary objective when reporting depreciation in its annual financial statements? What is the primary objective for tax reporting purposes? Is depreciation expense always the same for tax and financial reporting purposes? Explain.

Answers:

The primary purpose of depreciation for financial reporting purposes is to systematically allocate the net cost of a plant asset to the various periods receiving benefits from the use of that asset, to obtain a proper matching of revenue and related expense. This helps a company properly measure and communicate the amount of income earned during a given time period.

For tax-reporting purposes, companies use depreciation primarily as a tax shield that reduces income taxes paid. Since depreciation expense requires no current cash payment, but at the same time it reduces the amount of taxes otherwise owed, it has a positive impact on a company’s cash situation.

Depreciation expense does not have to be the same for financial reporting and tax purposes. In their annual financial statements, companies should select the method of depreciation (S/L, DDB, etc.) that best matches benefits derived from the use of an asset with the amount of depreciation expense recognized for that asset. For tax purposes, companies generally select whichever allowable depreciation method has the most favorable impact on their cash flows.

72. Explain why gains and losses are not recorded when a noncash exchange is not economic substance.

73. "Intangible assets are consistently unreported and underreported." Explain this statement.

74. Why might the returns on assets of two firms in the same industry not be useful in comparing the firms?

75. Would a firm prefer straight-line or accelerated depreciation for financial reporting purposes? For tax purposes? Explain.

76. Comment on this statement: "Salvage value is ignored when the declining balance depreciation method is used."

77. Olympic Products, Inc. acquired some land, several buildings, and various pieces of equipment at a total cost of $5,600,000. Independent appraisals valued the land at $2,100,000, the buildings at $3,400,000, and the equipment at $500,000. The owner of the company thinks the land should be valued at $1,000,000, the buildings at $3,850,000 and the equipment at $750,000. Using the most appropriate method, what dollar amount should be assigned to each category of asset? Is there any reason the owner might want a higher or lower value assigned to any of the three asset categories?

78. Visonic Corporation purchased a delivery truck at a total cost of $65,000. The truck will be used for 5 years, during which time it is expected to be driven 100,000 miles, and then it will be sold for an estimated $7,000. During the first two years of the truck’s life it was driven 16,000 miles and 21,500 miles, respectively. Calculate the depreciation expense for the first two years of the truck’s life using the:

(a) straight-line method.

(b) units-of-production method.

(c) double-declining balance method.

79. Technonerds, Inc. owns a piece of lab equipment with an original cost of $39,500, and a current carrying value of $17,450. Determine the gain or loss for each of the following situations:

(a) The equipment is sold for $23,800 cash.

(b) The equipment is sold for scrap and $750 in cash is received.

(c) The equipment is sold for a 12-month $25,000 note receivable with a stated 9 percent interest rate.

80. Nanotech Inc owns a machine with an original cost of $200,000 and a book value of $60,000. Give the entries to record the following:

1. Sold the machine for $72,000 cash.
2. Discarded the machine.
3. Sold the machine for $5,000 cash and a $40,000 note.

Answers:

(a) Cash $72,000

Accumulated Depreciation 140,000

Machine $200,000

Gain 12,000

(b) Loss $60,000

Accumulated Depreciation 140,000

Machine $200,000

(c) Cash $ 5,000

N/R 40,000

Loss 15,000

Accumulated Depreciation 140,000

Machine $200,000

81. Wynn Distributing wants to trade in its old delivery truck for a new one. The old truck is on the books at a cost of $84,500, and it has a carrying value of $19,300. The new truck has a list price of $108,700. Determine the gain or loss to be recognized on the disposal of the delivery truck, as well as the dollar amount recorded on the books for the new truck under each of the following situations:

(a) The dealer has agreed to reduce the price of the new truck by $10,000 in exchange for the old truck.

(b) The dealer has agreed to reduce the price of the new truck by $30,000 in exchange for the old truck.

82. Calculate the depreciation for a $186,000 asset with a $2,000 salvage value that can produce 235,000 units over its 10-year life using the following methods. Assume the asset was purchased January 10, 2009. During 2009, the asset produced 13,000 units, in 2010 it produced 28,000 units, and in 2011 it produced 25,000 units. How much depreciation expense will be recorded for 2009 and 2011? Write answers in the spaces below. YOU MUST SHOW YOUR WORK TO RECEIVE ANY CREDIT!

2009

2011

1.

Straight-line

__________

__________

2.

Double-declining balance

__________

__________

3.

Units of Production

__________

__________

Answers:

(1.) ($186,000 – $2,000) / 10 = $18,400 for both 2009 and 2011

(2.) $186,000 × 0.2 = $37,200 depreciation in 2009

($186,000 – $37,200) 0.2 = $29,760 depreciation in 2010

($148,800 – $29,760) 0.2 = $23,808 depreciation in 2011

(3.) ($186,000 – $2,000) / 235,000 = 0.783 depreciation cost per unit

13,000 × 0.783 = $10,179 depreciation in 2009

25,000 × 0.783 = $19,575 depreciation in 2011

83. Klocke Corporation purchased a truck for its delivery service. The list price of the truck was $32,000, but Klocke paid $5,000 cash and signed a $24,000 five-year installment note to buy the truck. Before the truck was put into service, the company logo was printed on the doors at a cost of $300. Because the truck will be making many deliveries to off-road locations, Klocke installed special shock absorbers that cost $300, however, $50 of the cost was due to damage repaired when one of shocks was installed incorrectly. Sales tax on the truck was $1,200, and property tax for the first year was $600. What is the cost of the new truck?

84. Gfeller Corporation had a machine, which initially cost $25,000 and had accumulated depreciation of $11,000 when it decided to sell the machine for $8,000 cash. Make the entry to record the sale of the machine.

85. Jackson Corporation has a forklift that it paid $40,000 for and that has a book value today of $14,000. Jackson is going to trade this forklift for a newer forklift with a market value of $55,000. Jackson Corporation is going to give its old forklift and $25,000 cash to acquire the newer forklift. Make the entry to record the acquisition of the new forklift.

86. Julia Corp has three assets whose market values differ from their book values.

Book Value Market Value

Asset #1 $100,000 $124,000

Asset #2 $200,000 $165,000

Asset #3 $180,000 $105,000

The market value of the first asset is expected to remain above the book value of Asset #1

for the life of the asset.

The market value of the second asset moves above and below the book value from year to

year.

The market value of the last asset is viewed as a permanent decline below the book value

of the asset.

Required:

1. Make the entry(ies) necessary to record the differences between the market and book values of the assets.
2. If the book values are adjusted to market values what impact will this have on the depreciation of the adjusted asset?

87. Healy Fabrication Corp. wants to trade in its old drill press for a new one. The old drill press is on the books at a cost of $44,500, and it has a carrying value of $9,300. The new drill press has a list price of $78,700. Make the entry for Healy to acquire the new drill press under each of the following situations:

(a) Healy accepts the dealers offer to buy the new drill press by trading in the old drill press and paying the difference in cash. The dealer values the old drill press at $8,000.

(b) Healy will trade in the old drill press with a trade in allowance of $30,000 and pay the difference in cash.

88. Calculate the depreciation for a $246,000 asset with a $10,000 salvage value that can produce 400,000 units over its 10-year life using the following methods. Assume the asset was purchased October 1, 2009. During 2009, the asset produced 13,000 units, and in 2010 it produced 28,000 units. How much depreciation expense will be recorded for 2009 and 2010? Write answers in the spaces below. YOU MUST SHOW YOUR WORK TO RECEIVE ANY CREDIT!

2009

2010

1.

Straight-line

__________

__________

2.

Double-declining balance

__________

__________

3.

Units of Production

__________

__________