Long Term Assets

Problem 1

ABC Company purchases a machine on January 1, 2012 for $45,000 with an estimated residual value of $3,000 and useful life of seven years. Use the straight-line method.

Prepare the journal entry to record depreciation for 2014.

If possible, compute the net book value at the end of 2014.

If the machine is sold for $24,000 at the end of 2014, prepare the journal entry to record the disposal.

Problem 2

DEF Company purchases a vehicle on January 1, 2013 for $60,000 with an estimated residual value of $6,000 and useful life of 90,000 miles. Use the units-of-activity method.

Prepare the journal entry to record depreciation for 2015 if the truck is driven 10,000 miles in that year.

If possible, compute the net book value at the end of 2015.

If possible, compute the net book value at the end of 2015 if the vehicle was driven 20,000 and 30,000 miles in 2013 and 2014, respectively.

Problem 3

XYZ Company purchases a machine On January 1, 2014 for $100,000 with an estimated residual value of $10,000 and useful life of four years. Use the double-declining balance method.

Prepare the journal entry to record depreciation for 2016.

If possible, compute the net book value at the end of 2016.

Determine the amount of depreciation expense in 2017.

Problem 4

LMN Company purchased another company on January 1, 2015, resulting in the recording of goodwill of $2,000,000 and a patent valued at $120,000. The patent has a remaining life of 10 years. At December 31, 2015, it was determined that an impairment in the value of the goodwill of $500,000 had occurred.

Prepare any necessary journal entries affecting the goodwill and patent accounts at December 31, 2015.

Additional Questions:

Which costs are initially capitalized as the cost of an asset (vs. expense)? Please provide examples.

What are the two criteria for a Capital Expenditure (vs. Revenue Expenditure)? Please provide examples.

Describe how the matching principle applies to depreciation.