Question 1

All intangible assets must be amortized.

Accepted Answer

Not all intangible assets must be amortized. Some intangible assets such as goodwill and indefinite-lived intangible assets are not amortized but rather tested for impairment annually or when there is a triggering event.

Question 2

Natural resources are reported in the Intangible Assets section of the balance sheet.

Accepted Answer

Natural resources are reported in the Tangible Assets section of the balance sheet, as they are physical assets that can be touched and have a finite lifespan. Intangible assets refer to non-physical assets such as patents, trademarks, and copyrights.

Question 3

A purchaser is willing to pay for goodwill when the purchaser buys a company that has abnormal earning power.

Accepted Answer

Goodwill represents the premium paid by a purchaser for a business's reputation, customer base, brand recognition, and other intangible assets. When a company has abnormal earning power or a unique competitive advantage that sets it apart from its competitors, a purchaser may be willing to pay for the goodwill associated with these intangible assets. Hence, statement is true.

Question 4

Beck Company trades in old equipment for new equipment. The old equipment has a cost of $10,000 and accumulated depreciation of $8000. Beck Company pays cash of $24,000. The fair value of the new equipment is $25,000. What is the gain or loss for Beck Company on the exchange of equipment?

Accepted Answer

The gain or loss on the exchange of equipment is calculated as the difference between the fair value of the new equipment and the net book value of the old equipment. The net book value of the old equipment is calculated as the cost of the old equipment minus the accumulated depreciation. In this case, the net book value of the old equipment is $10,000 - $8,000 = $2,000. The gain or loss on the exchange of equipment is therefore $25,000 - $2,000 = $23,000.

Question 5

Equipment with a historical cost of $105,000 and Accumulated Depreciation of $20,000 is junked. No cash is received upon disposal. Which journal entry is necessary?

Accepted Answer

The equipment is disposed of with no cash received, resulting in a loss. The entry should remove the equipment's cost and accumulated depreciation from the books and recognize the loss.

Question 6

When recording a nonmonetary exchange of two plant assets, what information is NOT needed?

Accepted Answer

The book value of the asset received is not needed because it can be calculated using the fair value of the asset given up and any cash paid or received in the exchange. The other three options are needed to properly record the transaction.

Question 7

Goodwill is recorded only when the purchase price exceeds the market value of the net liabilities in the acquisition of another company.

Accepted Answer

Goodwill is recorded when the purchase price exceeds the fair value of the net assets acquired in the acquisition of another company, not just the net liabilities.

Question 8

Willis Company trades in a printing press for a newer model. The cost of the old printing press was $61,000, and accumulated depreciation up to the date of the trade-in is $44,000. The company also pays $42,000 cash for the newer printing press. The fair market value of the newer printing press is $72,000. The journal entry to acquire the new printing press will require a debit to Printing Press for:

Accepted Answer

The fair market value of the newer printing press is $72,000, which is the amount that will be debited to the Printing Press account.

Question 9

The Pizza Store trades in a delivery car for a newer model. The old delivery car has a cost of $9000 and accumulated depreciation of $8000. The Pizza Store pays cash of $5000. The fair value of the newer car is $20,000. What is the gain or loss for the Pizza Store on the exchange of vehicles?

Accepted Answer

The Pizza Store has a book value of $1000 for the old car ($9000 cost - $8000 accumulated depreciation). The Pizza Store pays $5000 cash and receives a new car worth $20,000. The Pizza Store has a gain of $14,000 ($20,000 - $1000 - $5000).

Question 10

Equipment with a historical cost of $70,000 and Accumulated Depreciation of $70,000 is junked. Which journal entry is necessary?

Accepted Answer

The equipment is fully depreciated, so the entry removes both the equipment and its accumulated depreciation from the books.

Question 11

Tom's Roadside Burger Stand has a beginning balance in the Accumulated Depreciation-Equipment account of $260,000. The depreciation expense on the equipment for the year was $60,000. At the end of the year, the balance in the Accumulated Depreciation-Equipment account was $150,000. What was the accumulated depreciation on the equipment sold during the year?

Accepted Answer

The answer of Tom's Roadside Burger Stand has a beginning...

Question 12

A company exchanges an old machine for a new machine and cash is paid for the new machine. Assume there is a Gain on Exchange of Machine. In the journal entry to record the exchange by the owner of the old machine, which accounts will be debited?

Accepted Answer

The answer of A company exchanges an old machine for...

Question 13

Intangible assets can have either finite or indefinite lives.

Accepted Answer

Intangible assets such as patents, trademarks or copyrights can have either finite or indefinite lives. For example, a patent has a limited life, while a trademark can continue indefinitely if it is renewed and its value remains intact.

Question 14

At the beginning of the year, the balance in the Buildings account was $1,200,000. At the end of the year, the balance in the Buildings account was $2,100,000. During the year, a building was purchased for $1,400,000. This was the only purchase of buildings during the year. What was the cost of the building or buildings sold during the year?

Accepted Answer

The beginning balance was $1,200,000, and a building was purchased for $1,400,000, making the total $2,600,000. The ending balance was $2,100,000, indicating that buildings costing $500,000 were sold.

Question 15

Tony Company sells equipment for $20,000 cash. The equipment has a historical cost of $60,000 and accumulated depreciation of $54,000. What is the gain or loss on sale of the equipment?

Accepted Answer

The gain or loss on sale of the equipment is calculated as the difference between the selling price and the book value of the equipment. The book value of the equipment is the historical cost minus the accumulated depreciation, which is $60,000 - $54,000 = $6,000. The gain on sale of the equipment is therefore $20,000 - $6,000 = $14,000.

Question 16

Sullivan Sales purchased a machine on January 1, 2015 which cost $450,000. The machine had a residual value of $50,000 and a useful life of 10 years. Sullivan Sales can replace this machine with one that is more efficient and decides to sell the old machine for $100,000 on July 1, 2017.
Required:
Prepare the appropriate journal entry to record the sale of this machine, assuming the company uses the double-declining-balance method of depreciation. The fiscal year ends on December 31.

Accepted Answer

The answer of Sullivan Sales purchased a machine on January...

Question 17

A computer, with a cost of $10,000 is sold on July 1. Accumulated depreciation up to the date of sale is $5,000. Journalize the entries for the disposal of the computer under the following INDEPENDENT scenarios:
1. The computer was sold for $6,000.
2. The computer was sold for $1,000.
3. The computer is obsolete and was junked.

Accepted Answer

The answer of A computer, with a cost of $10,000...

Question 18

Kolonas, Inc., sold equipment for $5400 cash. The equipment cost $73,400 and had accumulated depreciation through the date of sale of $72,000. At the date of sale, the journal entry to record the sale will have:

Accepted Answer

The answer of Kolonas, Inc., sold equipment for $5400 cash....

Question 19

Excalibur Company sells equipment for $20,000 cash. The gain or loss on the sale of equipment equals:

Accepted Answer

The gain or loss on the sale of equipment equals the difference between the cash received on sale and the book value of the equipment. This is because the book value of the equipment represents its carrying value on the balance sheet, and any difference between the book value and the cash received represents a gain or loss on the sale. Therefore, the correct choice is D.

Question 20

Remini Company sells equipment for $20,000 cash. The equipment has a historical cost of $87,000 and accumulated depreciation of $55,000. What is the journal entry to record the sale of the equipment?

Accepted Answer

The book value of the equipment is $32,000 ($87,000 cost - $55,000 accumulated depreciation). Selling it for $20,000 results in a $12,000 loss ($32,000 - $20,000). The journal entry reflects this loss, cash received, accumulated depreciation, and the removal of the equipment's cost.

Quiz 7: Plant Assets, Natural Resources, Intangibles