3. Under GAAP, which of the following costs are normally expensed in the year in

Question

3. Under GAAP, which of the following costs are normally expensed in the year incurred, regardless of the expected economic benefit? A) Goodwill created as a result of a business combination B) Software development costs before technological feasibility is achieved C) A patent purchased from an independent third party 4. East Company purchased a new truck at th of eight years or 150,000 miles and an estimated salvage value of $3,000. If the truck is drive this year, method? A) $2,970 B) $3,300 C) $3,375 e beginning of this year for $30,000. The truck has a useful life n 16,500 miles how much depreciation expense will East Company report under the units of production Using the information in question (4) above, suppose East Company used double-declining balance method for depreciation instead. How much depreciation expense would East report on its income statement this year? A) $7,500 B) $6,750 c) $3,375 5.

Explanation / Answer

3 The Correct option is A) Goodwill created as a result of a Business Combination As per GAAP , Goodwill is recognised in a business combination and is capitalised. 4 Cost of the Asset $ 30000 Estimated Salvage Value $ 3000 Useful Life 150000 miles Truck driven in Current Year 16500 miles Depreciation for Current Year = (($ 30000 - $ 3000)/150000 miles )* 16500 miles = $ 2970 The Correct option is A ) $ 2970 5 Cost of the Assets $30,000 Estimated Residual Value $3,000 Life of the Asset 8 Depreciation per year under Starigt Line Method =(Cost-Residual Value) / Life of the Asset = (30000-3000) / 8 = $ 3375 Straigt Line Depreciation Rate = 3375/30000 = 11.25 % DDB Method Net book value, beginning of year Depreciation (2* Straight Line Rate *Beginig NBV) Accumulated Depreciation Net book value at the end of the year 30000.00 6750.00 6750.00 23250.00 The Correct option is B) $ 6750

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