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Exam 9: Plant Assets, Natural Resources, and Intangible Assets

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Question 161

True/False

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When an entire business is purchased, goodwill is the excess of cost over the book value of the net assets acquired.

A) True
B) False

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Question 162

Multiple Choice

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The book value of an asset is equal to the

A) asset's fair value less its historical cost.
B) blue book value relied on by secondary markets.
C) replacement cost of the asset.
D) asset's cost less accumulated depreciation.

E) B) and C)
F) All of the above

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Question 163

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Able Towing Company purchased a tow truck for $180,000 on January 1, 2017. It was originally depreciated on a straight-line basis over 10 years with an assumed salvage value of $36,000. On December 31, 2019, before adjusting entries had been made, the company decided to change the remaining estimated life to 4 years (including 2019) and the salvage value to $5,000. What was the depreciation expense for 2019?

Physician Reference Service (PRS) provides services to physicians including research assistance, diagnosis coding and medical practice software including an advanced medical record cross-referencing system. PRS is aggressive in monitoring other firms' offerings and ensuring that its services are comparable to all others. Because of its need to stay abreast of new product offerings, PRS spends a lot of money sending professionals to trade shows. In addition, PRS has agreements with several clients whereby the client requests a presentation of a competitor's services. A PRS employee poses as an employee of the client's office and attends the presentation, obtaining as much data and sample information as possible. The cost of the travel and attending presentations is charged to Product Development and expensed during the current year. In April of this year, PRS began selling a software product substitute before the competitor's software was released. The competitor, Compu-Med, sued for copyright infringement and won. PRS had to withdraw its product from the market and pay $1.5 million in damages. PRS immediately negotiated an agreement with Compu-Med to sell Compu-Med's product (since it was prohibited from offering its own version for five years.) This agreement cost an additional $1.3 million, but it allowed PRS to continue to offer a full line of services. PRS's accountant, Jill Linsey, initially recorded the cash payments as "Loss from Lawsuit" and "Product Development," respectively. However, Jack Meyer, the controller, instructed Jill to create an intangible asset, named "Goodwill" and charge both costs to this account. "We're protected from another lawsuit as long as this agreement is in effect," he says. "It's about as close to goodwill as we'll ever get from our competitors. We might as well amortize the cost rather than take the full hit to income, anyway." Required: 1. What are the ethical issues? 2. What should Jill do?

The declining-balance method of depreciation produces

Which of the following is not an intangible asset arising from a government grant?

Carey Company buys land for $50,000 on 12/31/17. As of 3/31/18, the land has appreciated in value to $50,700. On 12/31/18, the land has an appraised value of $51,800. By what amount should the Land account be increased in 2018?

What are the similarities and differences between the terms depreciation, depletion, and amortization?

Ordinary repairs are expenditures to maintain the operating efficiency of a plant asset and are referred to as

Frank White the new controller of Youngman Company, has reviewed the expected useful lives and salvage values of selected depreciable assets at the beginning of 2018. His findings are as follows. All assets are depreciated by the straight-line method. Youngman Company uses a calendar year in preparing annual financial statements. After discussion, management has agreed to accept Frank's proposed changes. Instructions (a) Compute the revised annual depreciation on each asset in 2018. (Show computations.) (b) Prepare the entry (or entries) to record depreciation on the building in 2018.