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Exam 11: Property, Plant, and Equipment and Intangible Assets: Utilization and Disposition

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Question 101

Multiple Choice

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Clark Oil and Gas incurred costs of $15.3 million for the rights to extract resources from a natural gas deposit. The company expects to extract 8 million cubic feet of natural gas during a six-year period. Natural gas extracted during years 1 and 2 were 800,000 and 1,600,000 cubic feet, respectively. What was total depletion for year 1 and year 2, assuming the company uses the units-of-production method?

A) $5.10 million.
B) $3.06 million.
C) $8.00 million.
D) $4.59 million.

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

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Question 102

Multiple Choice

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A change from the straight-line method to the sum-of-years'-digits method of depreciation is handled as:

A) A retrospective change back to the date of acquisition as though the current estimated life had been used all along.
B) A cumulative adjustment to income in the current year for the difference in depreciation under the new versus old useful life estimate.
C) A prospective change from the current year through the remainder of its useful life.
D) None of these answer choices are correct.

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

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Question 103

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Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Time-based method

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Cost of defending intangible rights

Listed below are 10 terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the correct term. -Service life

According to International Financial Reporting Standards (IFRS), an impairment loss for property, plant, and equipment is required only when an asset's book value exceeds the undiscounted sum of the asset's estimated future cash flows.

In 2017, Antle Inc. had acquired Demski Co. and recorded goodwill of $245 million as a result. The net assets (including goodwill) from Antle's acquisition of Demski Co. had a 2018 year-end book value of $580 million. Antle assessed the fair value of Demski at this date to be $700 million, while the fair value of all of Demski's identifiable tangible and intangible assets (excluding goodwill) was $550 million. The amount of the impairment loss that Antle would record for goodwill at the end of 2018 is:

On February 20, 2018, Genoa Mining Company incurred costs of $3,600,000 to acquire and prepare to extract an estimated 4,000,000 tons of mineral deposits. In 2018, 450,000 tons of ore were mined. At the beginning of 2019, Genoa geologists estimated that 3,900,000 tons of ore still remained. In 2019, 700,000 tons of ore were mined. Required: Compute depletion for 2018 and 2019.

Kentfield Corporation has $260 million of goodwill on its book from the 2015 acquisition of Seaford Shipping. At the end of its 2018 fiscal year, management has provided the following information for a required goodwill impairment test ($ in millions): $\begin{array}{lr}\text { Fair value of Seaford (approximates fair value less costs to sell) } & \$ 810 \\\text { Fair value of Seaford's net assets (excluding goodwill) } & 650 \\\text { Book value of Seaford's net assets (including goodwill) } & 850 \\\text { Present value of estimated future cash flows } & 825\end{array}$ Required: Assuming that Seaford is considered a reporting unit for U.S. GAAP and a cash-generating unit for IFRS, determine the amount of goodwill impairment loss that Kentfield should recognize according to U.S. GAAP and International Financial Reporting Standards (IFRS).

Archie Co. purchased a framing machine for $45,000 on January 1, 2018. The machine is expected to have a four-year life, with a residual value of $5,000 at the end of four years. -Using the sum-of-the-years'-digits method, depreciation for 2018 and book value at December 31, 2018, would be:

Cutter Enterprises purchased equipment for $72,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $6,000. -Using the sum-of-the-years'-digits method, depreciation for 2018 and book value at December 31, 2018, would be:

Cheney Company sold a 20-ton mechanical draw press (equipment) for $60,000. The old draw press cost $77,000 and had a book value of $55,000. Required: Prepare the journal entry to record the disposition.

A major expenditure increased a truck's life beyond the original estimate of life. GAAP permits the expenditure to be debited to:

Cutter Enterprises purchased equipment for $72,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $6,000. - Using the straight-line method, depreciation for 2019 and the equipment's book value at December 31, 2019, would be:

On March 31, 2018, M. Belotti purchased the right to remove gravel from an old rock quarry. The gravel is to be sold as roadbed for highway construction. The cost of the quarry rights was $164,000, with estimated salable rock of 20,000 tons. During 2018, Belotti loaded and sold 4,000 tons of rock and estimated that 16,000 tons remained at December 31, 2018. At January 1, 2019, Belotti estimated that 20,000 tons still remained. During 2019, Belotti loaded and sold 8,000 tons. Belotti uses the units-of-production method. -Belotti would record depletion in 2018 of:

According to International Financial Reporting Standards (IFRS) , biological assets are valued at:

Listed below are five terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term. -Improvements

Ellen's Antiques reported the following in its December 31, 2018, balance sheet: Equipment $4,000,000 Accumulated depreciation-equipment $3,150,000 In a disclosure note, Ellen's indicates that it uses straight-line depreciation over eight years and estimates salvage value at 10% of cost. Required: Compute the average age of Ellen's equipment at 12/31/2017.

Listed below are 10 terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the correct term. -Activity-based method

The factors that need to be determined to compute depreciation are an asset's: