Select the appropriate response.
1. Cross Country Trucking Company recently replaced the oil filter on one of its cross country rigs. How should one account for this cost?
2. On January 1, 20X2, Lynn Corporation purchased a machine for $100,000. Lynn paid shipping expenses of $1,000 as well as installation costs of $2,400. The machine was estimated to have a useful life of ten years and an estimated salvage value of $6,000. In January 20X3, additions costing $7,200 were made to the machine. These additions significantly improved the quality of output, but did not change the life or salvage value of the machine. If Lynn records depreciation under the straight-line method, depreciation expense for 20X3 is:
3. If an asset is impaired, and future cash flows will not allow recovery of the recorded amount, then the firm should reduce the asset in the accounts. In addition,
a. a loss should be recognized.
b. an intangible asset should be recorded.
c. the asset should be discarded.
d. depreciation should cease.
4. A machine that cost $18,000, with a book value of $4,000, is sold for $3,400. Which of the following is true concerning the journal entry to record the sale?
5. The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were:
a. Less than current market value.
b. Greater than cost.
c. Greater than book value.
d. Less than book value.
6. Equipment costing $3,000 with accumulated depreciation of $2,125 is exchanged for another asset with a fair value of $625. The exchange has commercial substance. How much is the gain or loss on this transaction?
a. A gain of $250 should be recognized.
b. A loss of $250 should be recognized.
c. A loss of $500 should be recognized.
d. No gain or loss should be recognized.
7. Deep Gold Mining Company recognizes $4 of depletion for each ton of ore mined. This year, 300,000 tons of ore were mined but only 180,000 were sold. The amount of depletion which should be deducted from revenue this year is:
9. On January 5, 20X1, a corporation was granted a patent on a product. On January 2, 20X9, to protect its patent, the corporation purchased a patent on a competing idea that was originally issued on January 10, 20X5. Because of its unique nature, the corporation does not feel the competing patent can be used in producing a product. The cost of the competing patent should be:
a. Amortized over a maximum period of 20 years.
b. Amortized over a maximum period of 13 years.
c. Amortized over a maximum period of 12 years.
d. Expensed in 20X9.
10. Which of the following statements regarding goodwill is false?
a. The difference between the price paid to purchase a particular company, and the fair value of the underlying identifiable assets received (less liabilities assumed) is goodwill.
b. Goodwill should not be amortized, but should be evaluated for impairment.
c. Goodwill is an intangible asset.
d. Goodwill may be recorded for a company whether it is internally generated or purchased.