The following questions are used in the Kaplan CPA Review Course to study property, plant, and equipment and intangible assets while preparing for the CPA examination. Determine the response that best completes the statements or questions.
1. Slovac Company purchased a machine that has an estimated useful life of eight years for $7,500. Its salvage value is estimated at $500. What is the depreciation for the second year of the asset's life, assuming Slovac uses the double-declining balance method of depreciation?
2. Calculate depreciation for year 2 based on the following information:
3. A company pays $20,000 for the rights to a well with 5 million gallons of water. If the company extracts 250,000 gallons of water in the first year, what is the total depletion in year 1?
a. $ 400
4. Black, Inc., purchased another company for $5,000,000. The fair value of all identifiable tangible and intangible assets was $4,500,000. Black will amortize any goodwill over the maximum number of years allowed. What is the annual amortization of goodwill for this acquisition?
5. On January 2, 2011, Rafa Company purchased a franchise with a useful life of 10 years for $50,000. An additional franchise fee of 3% of franchise operating revenues also must be paid each year to the franchisor. Revenues during 2011 totaled $400,000. In its December 31, 2011, balance sheet, what net amount should Rafa report as an intangible asset-franchise?
6. JME acquired a depreciable asset on January 1, 2009, for $60,000 cash. At that time JME estimated the asset would last 10 years and have no salvage value. During 2011, JME estimated the remaining life of the asset to be only three more years with a salvage value of $3,000. If JME uses straight-line depreciation, what is the depreciation for 2011?
a. $ 6,000
7. The following information concerns Franklin Inc.'s stamping machine:
As of December 31, 2011, the stamping machine is expected to generate $1,500,000 per year for five more years and will then be sold for $1,000,000. The stamping machine is
a. Impaired because expected salvage value has declined.
b. Not impaired because annual expected revenue exceeds annual depreciation.
c. Not impaired because it continues to produce revenue.
d. Impaired because its book value exceeds expected future cash flows.
8. During 2010, Yvo Corp. installed a production assembly line to manufacture furniture. In 2011, Yvo purchased a new machine and rearranged the assembly line to install this machine. The rearrangement did not increase the estimated useful life of the assembly line, but it did result in significantly more efficient production. The following expenditures were incurred in connection with this project:
What amount of the above expenditures should be capitalized in 2011?
a. $ 75,000
b. $ 89,000