111. Adams Company’s balance sheet shows a trade name acquired as part of a business combination with a carrying value of $30 million. The trade name has an indefinite life and therefore Adams does not amortize it. Negative publicity regarding the product carrying the trade name has reduced its fair value to $24 million and its value in use to $22 million. The entry is as follows:
A. Loss on Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 8,000,000
Trade Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 8,000,000
B. Loss on Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 6,000,000
Trade Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 6,000,000
C. Loss on Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 4,000,000
Trade Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 4,000,000
D. Trade Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 6,000,000
Loss on Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000,000
E. Trade Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 8,000,000
Loss on Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000,000
112. Bush Company’s balance sheet shows a trade name acquired as part of a business combination with a carrying value of $60 million. The trade name has an indefinite life and therefore Bush does not amortize it. Negative publicity regarding the product carrying the trade name has reduced its fair value to $48 million and its value in use to $44 million. The entry is as follows:
A. Loss on Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000,000
Trade Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000,000
B. Loss on Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . .12,000,000
Trade Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000,000
C. Loss on Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000,000
Trade Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 8,000,000
D. Trade Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 12,000,000
Loss on Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000,000
E. Trade Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 16,000,000
Loss on Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16,000,000
113. U.S. GAAP or IFRS require firms to test
A. annually for impairment losses on goodwill.
B. whenever there is an indication of impairment due to changes in the legal or economic climate.
C. whenever there is an indication of impairment due to adverse regulatory conditions.
D. whenever there is an indication of impairment due to loss of key personnel.
E. all of the above
114. Taylor Company office equipment costs $10,000, has an expected life of four years and a salvage value of $400. The firm has depreciated this asset on a straight-line basis. The firm has recorded depreciation for two years and sells the equipment at midyear in the third year.
What is the entry to record depreciation charges up to the date of sale.
A. Depreciation Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200
B. Depreciation Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,400
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,400
C. Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200
Depreciation Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200
D. Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,400
Depreciation Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,400
E. Salvage Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200
115. Taylor Company office equipment costs $10,000, has an expected life of four years and a salvage value of $400. The firm has depreciated this asset on a straight-line basis. The firm has recorded depreciation for two years and sells the equipment at midyear in the third year.
If the firm sells the equipment for cash at 4,000, the entry to record the sale would be as follows:
A. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4,000
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . 10,000
B. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6,000
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . 10,000
C. Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000
Accumulated Depreciation .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
D. Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
Accumulated Depreciation .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000
E. Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
Salvage Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000
116. Taylor Company office equipment costs $10,000, has an expected life of four years and a salvage value of $400. The firm has depreciated this asset on a straight-line basis. The firm has recorded depreciation for two years and sells the equipment at midyear in the third year.
If the firm sells the equipment for $4,600 cash, the entry to record the sale would be as follows:
A. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,600
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6,000
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Gain on Sale of Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600
B. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,600
Salvage Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Gain on Sale of Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600
C. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,600
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6,000
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Salvage Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600
D. Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Gain on Sale of Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,600
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6,000
E. Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Salvage Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,600
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6,000
117. Taylor Company office equipment costs $10,000, has an expected life of four years and a salvage value of $400. The firm has depreciated this asset on a straight-line basis. The firm has recorded depreciation for two years and sells the equipment at midyear in the third year.
If the firm sells the equipment for $3,000 cash, the entry to record the sale would be as follows:
A. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6,000
Loss on Sale of Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,000
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
B. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000
Salvage Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
Loss on Sale of Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
C. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000
Salvage Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6,000
Loss on Sale of Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
D. Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6,000
Loss on Sale of Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000
E. Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6,000
Loss on Sale of Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000
118. Which of the following is true regarding asset abandonment?
A. Firms will sometimes abandon assets if there is no market for the asset.
B. The firm eliminates the carrying value of the asset and recognizes a loss in an amount equal to the carrying value.
C. Firms will sometimes abandon assets if an automobile is severely damaged in an accident
D. Firms will sometimes abandon assets if a machine requires an overhaul that is not cost effective.
E. all of the above
119. A firm may retire an asset from service by trading it in on a new asset. U.S. GAAP and IFRS require that firms record trade-in transactions at _____ unless they lack commercial substance.
A. present value of future cash flows
B. replacement value
C. liquidation value
D. fair value
E. undiscounted cash flows
120. A firm may retire an asset from service by trading it in on a new asset. U.S. GAAP and IFRS require that firms record a trade-in that lacks commercial substance at
A. present value of future cash flows.
B. replacement value.
C. liquidation value.
D. the carrying value of the exchanged asset.
E. undiscounted cash flows.
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