FinancialAccounting-OP_YioY6nY-151

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PB9. 13.4 Prepare the assets section of the balance sheet as of December 31 for Hooper’s International
using the following information:
PB10. 11.4 For each of the following unrelated situations, calculate the annual amortization expense and
prepare a journal entry to record the expense:
A. A patent with a seventeen-year remaining legal life was purchased for $850,000. The patent will be
usable for another six years.
B. A patent was acquired on a new tablet. The cost of the patent itself was only $12,000, but the market
value of the patent is $150,000. The company expects to be able to use this patent for all twenty years
of its life.
PB11. 11.4 On May 1, 2015, Zoe Inc. purchased Branta Corp. for $15,000,000 in cash. They only received
$12,000,000 in net assets. In 2016, the market value of the goodwill obtained from Branta Corp. was valued at
$4,000,000, but in 2017 it dropped to $2,000,000. Prepare the journal entry for the creation of goodwill and the
entry to record any impairments to it in subsequent years.
PB12. 11.4 Farm Fresh Agriculture Company purchased Sunny Side Egg Distribution for $400,000 cash when
Sunny Side had net assets worth $390,000.
A. What is the amount of goodwill in this transaction?
B. What is Farm Fresh Agriculture Company’s journal entry to record the purchase of Sunny Side Egg
Distribution?
C. What journal entry should Farm Fresh Agriculture Company write when the company tests for
impairment and determines that goodwill is worth $1,000 in the year following the purchase of Sunny
Side?
PB13. 11.5 Montezuma Inc. purchases a delivery truck for $20,000. The truck has a salvage value of $8,000
and is expected to be driven for ten years. Montezuma uses the straight-line depreciation method. Calculate
the annual depreciation expense. After five years of recording depreciation, Montezuma determines that the
delivery truck will be useful for another five years (ten years in total, as originally expected) and that the
salvage value will increase to $10,000. Determine the depreciation expense for the final five years of the
asset’s life, and create the journal entry for years 6–10 (the entry will be the same for each of the five years).
Chapter 11 Long-Term Assets 741
PB14. 11.5 Garcia Co. owns equipment that costs $150,000, with accumulated depreciation of $65,000.
Garcia sells the equipment for cash. Record the journal entry for the sale of the equipment if Garcia were to
sell the equipment for the following amounts:
A. $90,000 cash
B. $85,000 cash
C. $80,000 cash
PB15. 11.5 Urquhart Global purchases a building to house its administrative offices for $500,000. The best
estimate of the salvage value at the time of purchase was $45,000, and it is expected to be used for forty years.
Urquhart uses the straight-line depreciation method for all buildings. After ten years of recording
depreciation, Urquhart determines that the building will be useful for a total of fifty years instead of forty.
Calculate annual depreciation expense for the first ten years. Determine the depreciation expense for the final
forty years of the asset’s life, and create the journal entry for year eleven.
Thought Provokers
TP1. 11.1 You are an accounting student at your local university. Your brother has recently managed to
save $5,000, and he would like to invest some of this money in the stock market, so he’s researching various
global corporations that are listed on the stock exchange. He is reviewing a company that has “Goodwill” as an
item on the balance sheet. He is quite perplexed about what this means, so he asks you for help, knowing that
you are taking accounting classes. How would you explain the concept of goodwill to him by comparing it to
other types of resources the company has available?
TP2. 11.2 Speedy delivery service recently hired a new accountant who discovered that the prior accountant
had erroneously capitalized routine repair and maintenance costs on delivery trucks. The costs were added to
the overall trucks’ book values and depreciated over time. How should Speedy have recorded routine
maintenance and repair costs? What effect did the error have on Speedy’s balance sheet and income
statement?
TP3. 11.3 Speedy Delivery has a very lazy accountant. When originally setting up the delivery trucks into the
accounting system, the accountant did not want to calculate the expected salvage value for each vehicle. He
left salvage value at $0 even though this is not the case. Explain what leaving the salvage value at $0 would do
for depreciation. Discuss the differences, if any, between straight-line, double-declining, and units-of-
production methods.
TP4. 11.4 Malone Industries has been in business for five years and has been very successful. In the past
year, it expanded operations by buying Hot Metal Manufacturing for a price greater than the value of the net
assets purchased. In the past year, the customer base has expanded much more than expected, and the
company’s owners want to increase the goodwill account. Your CPA firm has been hired to help Malone
prepare year-end financial statements, and your boss has asked you to talk to Malone’s managers about
goodwill and whether an adjustment can be made to the goodwill account. How do you respond to the owners
and managers?
742 Chapter 11 Long-Term Assets
This OpenStax book is available for free at http://cnx.org/content/col25448/1.4
TP5. 11.5 Your family started a new manufacturing business making outdoor benches for use in parks and
outdoor venues two years ago. The business has been very successful, and sales are soaring. Because of this
success, your family realizes that the equipment purchased to start the business will not last as long as
expected because the company has needed to run twenty-four-hour production shifts for most of the past
year. There has been a lot of wear and tear on the equipment. The original useful lives and salvage values are
not as accurate as your family had hoped. Your aunt, who is the production manager for the family business,
has approached you because she is concerned about this issue, and she knows you have had an accounting
class. What advice do you have for her? How should the company readjust given the realities of the last few
years?
Chapter 11 Long-Term Assets 743
744 Chapter 11 Long-Term Assets
This OpenStax book is available for free at http://cnx.org/content/col25448/1.4
Chapter Outline
12.1 Identify and Describe Current Liabilities
12.2 Analyze, Journalize, and Report Current Liabilities
12.3 Define and Apply Accounting Treatment for Contingent Liabilities
12.4 Prepare Journal Entries to Record Short-Term Notes Payable
12.5 Record Transactions Incurred in Preparing Payroll
Why It Matters
Willow knew from a young age that she had a future in food. She has just transformed her passion into a
thriving business venture as the owner of a small restaurant called Summer Eatery.
To grow her business, Willow has decided to provide both restaurant dining and catering services. When
Summer Eatery accepts catering orders, it requires a client deposit equal to 50% of the total order. Since
Summer Eatery has not yet provided the catering services at the time of deposit, the deposit amount is
recognized as unearned revenue. Once the catering services have been provided, this liability to the client is
reclassified as revenue for the restaurant.
The catering service is a success, and Summer Eatery’s income increases twofold. The increase in business has
allowed Willow to form a strong relationship with her vendors (suppliers). Because of this relationship, some
suppliers will deliver the food and equipment she needs and allow the restaurant to defer payment until a
later date. This helps Summer Eatery because it does not yet have enough cash on hand to pay for the food
and equipment. Rather than incur more debt, or have to delay ordering, this arrangement allows Willow to
Figure 12.1 Summer Eatery. Proper management of short-term obligations can lead to long-term businesssuccess. (credit: modification of “Hands Holding Plate” by unknown/Pixabay, CC0)
12
Current Liabilities
	Chapter 11. Long-Term Assets
	Thought Provokers
	Chapter 12. Current Liabilities
	Table of Contents
	Why It Matters*