Book 2 - Chapter 28

Multiple Choice
1.	b
2.	a
3.	c
4.	b	However, the double-declining-balance method calculates the depreciation expense on the full asset cost until the final year of use.
5.	d	Total appraised value is $800,000. Equipment is 10%, building is 81.25%, and truck is 8.75%. These percentages are then multiplied by the cost of $600,000.
6.	a	$82,000 + $5,330 + $900 + $2,700 + $2,000 = $92,93
7.	d
8.	a
9.	d
10.	d	There is an economic gain of $500 [$18,000 – ($15,000 cash plus $2,500 book value given up)], but this gain cannot be recorded. The new asset is recorded at the cost of the resources given up: cash of $15,000 plus book value of $2,500.
11.	a	$5,000,000/100,000 tons = $50 per ton cost.
12.	c	Unearned revenue is a liability.
13.	b	Note: Intangible assets are amortized, not depreciated.
14.	c
15.	d
16.	a

Discussion Questions and Brief Exercises
1.	For long-term asset acquisitions, all expenditures normally required to acquire an asset and put it into initial normal operating condition are capitalized and become part of the cost of the asset.
2.	A business does not have to do anything. It just keeps using the asset! What this means in terms of the matching principle is that the asset was depreciated too quickly. The estimate of the useful life was too low, so too much depreciation expense was charged each year of the asset’s estimated useful life. The matching should have been spread over a longer period.
3.	(1) Retire (discard) an asset. (2) Sell an asset. (3) Exchange an asset. Gain or loss is always calculated as the difference between the value of what is received and the value (on the books) of what is given up. In exchange transactions that do not have commercial substance, gain is not recorded.
4.	A normal repair maintains an asset in its normal operating condition. An extraordinary repair materially improves the function or extends the life of a plant asset. An expenditure for a normal repair is recorded as an operating expense in the period the repair is made. An expenditure for an extraordinary repair is debited to the accumulated depreciation account for the related asset, thereby increasing its book value.

Learning Goal 28

SOLUTIONS

Learning Goal 28: Record, Report, and Control Fixed Assets and Intangibles

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