Question 1: Jenks Co. takes a full year's depreciation expense in the year of an asset's acquisition and no depreciation expense in the year of disposition. Data relating to one of Jenks' depreciable assets at December 31, 2007 are as follows:
Acquisition year 2005
Cost $350,000
Residual value 50,000
Accumulated depreciation 240,000
Estimated useful life 5 years
Using the same depreciation method (it is not straight line) as used in 2005, 2006, and 2007, how much depreciation expense should Jenks record in 2008 for this asset? (it is not straight line)
a. $40,000
b. $60,000
c. $70,000
d. $80,000
Question 2: Carr Co. purchased a machine on July 1, 2009, for $700,000. The machine has an estimated useful life of five years and a salvage value of $140,000. The machine is being depreciated from the date of acquisition by the 150% declining-balance method. For the year ended December 31, 2009, Carr should record depreciation expense on this machine of
a. $210,000.
b. $140,000.
c. $105,000.
d. $84,000.
Question 3: Bruman, Inc. purchased equipment in 2007 at a cost of $1,400,000. Two years later it became apparent to Bruman, Inc. that this equipment had suffered an impairment of value. In early 2009, the book value of the asset is $840,000 and it is estimated that the fair value is now only $560,000. The entry to record the impairment is
a. No entry is necessary as a write-off violates the historical cost principle.
b. Retained Earnings 280,000
Accumulated Depreciation—Equipment 280,000
c. Loss on Impairment of Equipment 280,000
Accumulated Depreciation—Equipment 280,000
d. Retained Earnings 280,000
Reserve for Loss on Impairment of Equipment 280,000
Question 4: Byson Co. incurred the following costs during 2009:
Modification to the formulation of a chemical product $360,000
Trouble-shooting in connection with breakdowns during commercial production 450,000
Costs of testing prototype and design modifications 600,000
Seasonal or other periodic design changes to existing products 555,000
Laboratory research aimed at discovery of new technology 675,000
In its income statement for the year ended December 31, 2009, Byson should report research and development expense of
a. $1,635,000.
b. $2,085,000.
c. $1,275,000.
d. $1,035,000.
Question 5: January 2, 2005, Zoll, Inc. purchased a patent for a new consumer product for $270,000. At the time of purchase, the patent was valid for 15 years; however, the patent’s useful life was estimated to be only 10 years due to the competitive nature of the product. On December 31, 2008, the product was permanently withdrawn from sale under governmental order because of a potential health hazard in the product. What amount should Zoll charge against income during 2008, assuming amortization is recorded at the end of each year?
a. $27,000
b. $133,000
c. $189,000
d. $216,000
Question 6: Gomer Corp. incurred $350,000 of research and development costs to develop a product for which a patent was granted on January 2, 2003. Legal fees and other costs associated with registration of the patent totaled $100,000. On March 31, 2007, Gomer paid $150,000 for legal fees in a successful defense of the patent. The total amount capitalized for the patent through March 31, 2007 should be:
a. $250,000.
b. $450,000.
c. $500,000.
d. $600,000
Question 7: Mall Co. incurred research and development costs in 2008 as follows:
Materials used in research and development projects $ 540,000
Equipment acquired that will have alternate future uses in future research and development projects 3,600,000
Depreciation for 2008 on above equipment 360,000
Personnel costs of persons involved in research and development projects 660,000
Consulting fees paid to outsiders for research and development projects 180,000
Indirect costs reasonably allocable to research and development projects 270,000
$5,610,000
The amount of research and development costs charged to Hall's 2008 income statement should be
a. $1,560,000.
b. $1,740,000.
c. $2,010,000.
d. $4,620,000.
Question 8: The following information is available for Griend Company’s patents:
Cost $1,290,000
Carrying amount 645,000
Expected future net cash flows 600,000
Fair value 480,000
Griend would record a loss on impairment of
a. $810,000
b. $165,000
c. $120,000
d. $45,000
Depreciation methods. Use the following information to answer Questions 9 & 10
On July 1, 2008, Goland Company purchased for $1,440,000 snow-making equipment having an estimated useful life of 5 years with an estimated salvage value of $60,000. Depreciation is taken for the portion of the year the asset is used.
Question 9: Determining the depreciation expense for 2008 using the sum-of-the-years'-digits method.
a. $230,000
b. $240,000
c. $460,000
d. $480,000
Question 10: Determining the depreciation expense for 2009 using the double-declining-balance method.
a. $331,200
b. $345,600
c. $441,600
d. $460,800
Question 11. A plant asset purchased for $270,000 has an estimated life of 10 years and a residual value of $21,000. Depreciation for the second year of use, determined by the declining-balance method at twice the straight-line rate is
a. $27,000
b. $39,840
c. $43,200
d. $48,600
Question 12: A plant asset with a cost of $86,000 and accumulated depreciation of $24,000, is given together with cash of $32,000 in exchange for a similar asset worth $88,000. The gain or loss recognized on the disposal is
a. $ 0
b. $6,000 loss
c. $6,000 gain
d. $2,000 gain
Question 13: A plant asset with a cost of $96,000, estimated life of 5 years, and residual value of $16,000, is depreciated by the straight-line method. This asset is sold for $65,000 at the end of the second year of use. The gain or loss on the is .
a. $ 1,000 gain
b. $ 10,000 gain
c. $ 15,000 loss
d. $ 31,000 loss