1. When an exchange of similar assets involves a gain,

a. the recorded amount of the new asset is its fair market value less any cash paid.

b. the recorded amount of the new asset is the net book value of the old asset plus any cash paid.

c. the recorded amount of the new asset is the cost of the old asset plus any cash paid.

d. None of these are true.

2. Five years ago, Travers, Inc., purchased a patent for $110,000. Lower demand for the product produced under this patent necessitates that an impairment test be made. On the date of purchase, the patent had an estimated useful life of eleven years. It currently has a remaining useful life of four years. The current fair value of the patent is $43,000. Company management estimates that the patent will generate future cash flows of $12,000 per year for the next four years.

The amount of the impairment loss to be recognized is

a. $60,000.

b. $12,000.

c. $17,000.

d. $50,000.

3. An asset acquired by Carson Inc.has a cost $200,000 and an estimated residual value of $25,000 with an estimated useful life of five years. If Carson uses double-declining balance method of depreciation and the asset was purchased three-fourths of the way through the fiscal year of 2012, how much depreciation will the company report in 2012?

a. $42,500

b. $20,000

c. $17,500

d. $60,000