1. The price is equal to the fair market value of the asset given up or the fair value of the asset received. in service 2. With the exception of land, plant assets experience a potential over their useful lives. 3. When vacant land is acquired, expenditures for clearing, draining, filling, and grading should be charged to the account. 4. The cost of demolishing an old building on land that has been acquired so that a new building can be constructed should be charged to the account 5. The cost of paving, fencing, and lighting a new company parking lot is charged to account. 6. Equipment with an invoice price of $20,000 was purchased and freight costs were $900. The cost of the equipment would be $ is the process of allocating the cost of a plant asset to expense 7 over its service life in a rational and systematic manner. 8. The book value of a plant asset is obtained by subtracting, of the plant asset. from the 9. Three factors that affect the computation of periodic depreciation expense are (1) , and (3) (2) 10. The method of computing depreciation expense results in an equal amount of periodic depreciation throughout the useful life of the plant asset. 11. The declining-balance method of computing depreciation method. depreciation is known as an 12. Ordinary repairs that maintain operating efficiency and expected productive life are called 13. Additions and improvements are costs incurred to increase the operating efficiency, productive capacity, or expected useful life and are referred to as 14. A decline in the market value of an asset is referred to as an impairment 15. If disposal of a plant asset occurs at any time during the for the fraction of the year to the date of disposal must be year, recorded. a gain on 16. If the proceeds from the sale ofa plant asset exceed its disposal will occur. 17. A plant asset originally cost $64,000 and was estimated to have a $4,000 salvage value at the end of its 5-year useful life. If at the end of three years, the asset was sold for $12,000, and had accumulated depreciation recorded of $36,000, the company should recognize on disposal in the amount of a life or its 18. The cost of a patent should be amortized over its life, whichever is shorter 19. In recording the purchase of a business, goodwill should be recorded for the excess of over the of the net assets acquired. 20. The process of allocating to expense the cost of an asset over its useful life is called for tangible plant assets and for intangible assets. I. The following information is available from the annual reports of Reser Company and Trent Company (Amounts in millions) Reser Trent $ 1,271 $ Net Income 965 Sales 22,653 33,812 21,188 Total Assets (average) 36,167 Instructions (a) Based on the preceding information, compute the following values for each company: 1. Asset turnover 2. Return on assets (b) What conclusion concerning the management of plant assets can be drawn from these data? II. The Rowland Clinic purchased a new surgical laser for $84,000. The estimated salvage value is $4,000. The laser has a useful life of five years and the clinic expects to use it 10,000 hours. It was used 1,600 hours in year 1; 2,100 hours in year 2; 2,400 hours in year 3; 1,900 hours in year 4; 2,000 hours in year 5. Instructions (a) Compute the annual depreciation for each of the five years under each of the following methods: (1) straight-line. (2) units-of-activity. (b) If you were the administrator of the clinic, which method would you deem as most appropriate? Justify your answer (c) Which method would result in the lower reported income in the first year? Which method would result in the lower total reported income over the five-year period