The following expenditures were incurred by Rosenberg Company in purchasing land: cash price $64,000, accrued taxes $3,000, attorneys’ fees $2,500, real estate does not come close to accumulating the cash needed to replace the asset at the end of its useful life.” What is your response to the president?

. Jeremy is studying for the next accounting examination. He asks your help on two questions:

(a) What is salvage value?

(b) Is salvage value used in determining periodic depreciation under each depreciation method? Answer Jeremy’s questions.

. Contrast the straight-line method and the units-ofactivity method as to

(a) useful life, and

(b) the pattern of periodic depreciation over useful life.

. Contrast the effects of the three depreciation methods on annual depreciation expense.

. In the fourth year of an asset’s 5-year useful life, the company decides that the asset will have a 6-year service life. How should the revision of depreciation be recorded? Why?

. Distinguish between revenue expenditures and capital expenditures during useful life.

How is a gain or loss on the sale of a plant asset computed?

Luis Corporation owns a machine that is fully depreciated but is still being used. How should Luis account for this asset and report it in the financial statements?

What are natural resources, and what are their distinguishing characteristics?

Explain what depletion is and how it is computed.

terms depreciation, depletion, and amortization?

Spectrum Company hires an accounting intern who says that intangible assets should always be amortized over their legal lives. Is the intern correct?

Explain.

Goodwill has been defined as the value of all favorable attributes that relate to a business. What types of attributes could result in goodwill?

Mark Gannon, a business major, is working on a case problem for one of his classes. In the case problem, the company needs to raise cash to market a new product it developed. Sara Bates, an engineering major, takes one look at the company’s balance sheet and says, “This company has an awful lot of goodwill.

Why don’t you recommend that they sell some of it to raise cash?” How should Mark respond to Sara?

Under what conditions is goodwill recorded?

19.

20.

PA hs 223 PRN 24.

Psy 26.

P 2a Brief Exercises 453 Often, research and development costs provide companies with benefits that last a number of years. (For example, these costs can lead to the development of a patent that will increase the company’s income for many years.) However, generally accepted accounting principles require that such costs be recorded as an expense when incurred. Why?

McDonald's Corporation reports total average assets of $28.9 billion and net sales of $20.5 billion. What is the company’s asset turnover ratio?

Alpha Corporation and Zito Corporation operate in the same industry. Alpha uses the straight-line method to account for depreciation; Zito uses an accelerated method. Explain what complications might arise in trying to compare the results of these two companies.

Wanzo Corporation uses straight-line depreciation for financial reporting purposes but an accelerated method for tax purposes. Is it acceptable to use different methods for the two purposes? What is Wanzo’s motivation for doing this?

You are comparing two companies in the same industry. You have determined that Lam Corp. depreciates its plant assets over a 40-year life, whereas Shuey Corp. depreciates its plant assets over a 20-year life.

Discuss the implications this has for comparing the results of the two companies.

Zelm Company is doing significant work to revitalize its warehouses. It is not sure whether it should capitalize these costs or expense them. What are the implications for current-year net income and future net income of expensing versus capitalizing these costs?

Pepsico What classifications and amounts are shown in PepsiCo’s Note 4 to explain its total property, plant, and equipment (net) of $19,058 million?

When assets are exchanged in a transaction involving commercial substance, how is the gain or loss on disposal of plant assets computed?

Morris Refrigeration Company trades in an old machine on a new model when the fair value of the old machine is greater than its book value. The transaction has commercial substance. Should Morris recognize a gain on disposal of plant assets? If the fair value of the old machine is less than its book value, should Morris recognize a loss on disposal of plant assets?

Determine the cost of land.

(LO 1)

broker’s commission $2,000, and-clearing and grading $3,800. What is the cost of the land?