Clayton Company bought real estate, on which there was an old office building, for $300,000. It paid $50,000 in cash as a down payment and signed a 10% mortgage for the remainder. It immediately had the old building razed at a net cost of $35,000. Attorneys were paid $6,000 in connection with the land purchase and an additional $3,000 in connection with permits and zoning variances necessary for Patton's new office building. $20,000 was paid for excavation for the basement of the new building, $1,400,000 was paid for construction of the new building, and $75,000 was paid for a parking lot and necessary walkways and driveways.

1. The new office building should be recorded at a

. $1,400,000. b. $1,423,000. c. $1,420,000. d. $1,458,000.

2. Land should be recorded at a cost of

a. $335,000. b. $341,000. c. $364,000. d. $361,000

3. Mac Creamy Bakery purchased machinery for $60,000 eight years ago. It was expected to have a useful life of ten years, no salvage value, and was depreciated using the straight-line method. At the end of its eighth year of use, it was retired from service and given to a junk dealer. The entry to record the retirement includes a

a. debit to Loss on Disposal for $12,000. b. credit to Depreciation Expense for $6,000. c. debit to Machinery for $60,000. d. credit to Accumulated DepreciationMachinery for $48,000.

4. Which of the following should not be included in the plant assets (property, plant, and equipment) classification?

a. Land on which warehouse sits b. Building housing corporate headquarters c. Parking lot used by visitors d. All of the above should be included

5. Salvage (residual) value is deducted in the computation of depreciation expense in all of the following methods with the exception of

a. straight-line. b. units-of-activity. c. declining-balance. d. All of the above include a deduction of salvage value.

6. When recording exchanges of assets that have commercial substance,

a. both gains and losses are recognized immediately. b. the gain or loss on the old asset is the difference between its cost and its fair market value. c. gains are treated as increases in the cost of the new asset. d. none of the above.

7. The cost of a patent should be amortized over

a. 20 years. b. the shorter of its legal life or its useful life. c. the longer of its legal life or its useful life. d. its useful life

8. On June 30, 2015, Fox Enterprises sold equipment with an original cost of $495,000 for $200,000. The equipment was purchased January 1, 2014, and was depreciated using the straight-line method assuming a five-year useful life and $45,000 salvage value. The necessary entries for 2015 include a

a. debit to Accumulated DepreciationEquipment for $90,000. b. credit to Gain on Sale of Equipment for $160,000. c. credit to Cash for $200,000. d. debit to Depreciation Expense for $45,000

Complete the Following Problems (Show All Calculations)

9. Milan Company purchased land and an office building on March 1 for a combined cash price of $1,600,000. The land had a cost of $940,000 and the building had a book value of $200,000 on the seller's books. The land and building had fair market values of $1,040,000 and $560,000, respectively on March 1. Milan made the following entry at acquisition: Land ........................................................................................... 940,000 Building ...................................................................................... 1,000,000 Gain on Purchase .............................................................. 140,000 Accumulated Depreciation ................................................. 200,000 Cash .................................................................................. 1,600,000

In the space below, prepare the correct entry for the acquisition.

10. Northern Company bought machinery on January 1, 2009 at a cost of $500,000. The machinery had an estimated life of ten years and salvage value of $50,000. On January 1, 2011, Northern estimates that the machinery will have a life of only five more years and a $60,000 salvage value. Northern uses straight-line depreciation. Compute the revised annual depreciation.

11. Bagley Company bought equipment on July 1, 2014 at a total cost of $500,000. The equipment has an estimated useful life of 5 years and salvage value of $100,000. Bagley uses the double-declining-balance method of depreciation. Compute depreciation for 2013 and 2014.

12. Westlake Construction gave up a used crane and $224,000 cash for a new crane. The old crane cost $336,000, had $126,000 of accumulated depreciation, and a fair market value of $238,000. The exchange had commercial substance. In recording this exchange, the new crane should be recorded at