Reference no: EM13997342
The following questions dealing with property, plant, and equipment and intangible assets are adapted from questions that previously appeared on Certified Management Accountant (CMA) examinations. The CMA designation sponsored by the Institute of Management Accountants (www.imanet.org) provides members with an objective measure of knowledge and competence in the field of management accounting. Determine the response that best completes the statements or questions.
1. WD Mining Company purchased a section of land for $600,000 in 2000 to develop a zinc mine. The mine began operating in 2002. At that time, management estimated that the mine would produce 200,000 tons of quality ore. A total of 100,000 tons of ore was mined and processed from 2002 through December 31, 2009. During January 2010, a very promising vein was discovered. The revised estimate of ore still to be mined was 250,000 tons. Estimated salvage value for the mine land was $100,000 in both 2002 and 2010. Assuming that 10,000 tons of ore was mined in 2010, the computation WD Mining Company should use to determine the amount of depletion to record in 2010 would be
a. (($600,000 - $100,000)/450,000 tons) × 10,000 tons.
b. (($600,000 - $100,000)/350,000 tons) × 10,000 tons.
c. (($600,000 - $100,000 - $250,000)/350,000 tons) × 10,000 tons.
d. (($600,000 - $100,000 - $250,000)/250,000 tons) × 10,000 tons.
2. On September 1, year 1, for $4,000,000 cash and $2,000,000 notes payable, Norbend Corporation acquired the net assets of Crisholm Company, which had a fair value of $5,496,000 on that date. Norbend's management is of the opinion that the goodwill generated has an indefinite life. During the year-end audit for year 3 after all adjusting entries have been made, the goodwill is determined to be worthless. The amount of the write-off as of December 31, year 3 should be
a. $504,000.
b. $478,800.
c. $466,200.
d. $474,600.
3. Costs that are capitalized with regard to a patent include
a. Legal fees of obtaining the patent, incidental costs of obtaining the patent, and costs of successful patent infringement suits.
b. Legal fees of obtaining the patent, incidental costs of obtaining the patent, and research and development costs incurred on the invention that is patented.
c. Legal fees of obtaining the patent, costs of successful patent infringement suits, and research and development costs incurred on the invention that is patented.
d. Incidental costs of obtaining the patent, costs of successful and unsuccessful patent infringement suits, and the value of any signed patent licensing agreement.