Question

27. 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 a ______________ on disposal in the amount of $____________.

28. The cost of a patent should be amortized over its __________________ life or its _______________ life, whichever is shorter.

29. In recording the purchase of a business, goodwill should be recorded for the excess of ________________ over the _________________ of the net assets acquired.

30. 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.

Answer 1

Answer to Question 27:

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 a loss on disposal in the amount of $16,000.

Book Value of Plant Asset = Cost of Plant Asset - Accumulated Depreciation
Book Value of Plant Asset = $64,000 - $36,000
Book Value of Plant Asset = $28,000

Loss on Disposal = Book Value of Plant Asset - Proceed from Sale
Loss on Disposal = $28,000 - $12,000
Loss on Disposal = $16,000

Answer to Question 28:

The cost of a patent should be amortized over its legal life or its useful life, whichever is shorter.

Answer to Question 29:

In recording the purchase of a business, goodwill should be recorded for the excess of cost over the fair value of the net assets acquired.

Answer to Question 30:

The process of allocating to expense the cost of an asset over its useful life is called depreciation for tangible plant assets and amortization for intangible assets.