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Exam 8: Accounting for Long-Term Operational Assets

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Question 51

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Land differs from other property because it is not subject to depreciation.

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Question 52

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On January 1, Year 1, Friedman Company purchased a truck that cost $48,000. The truck had an expected useful life of 8 years and an $8,000 salvage value. Friedman uses the double-declining-balance method. What is the book value of the truck at the end of Year 1?

A) $43,000
B) $38,000
C) $40,000
D) $36,000

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Question 53

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Give examples of three types of common cost components of a building that is purchased.

On April 1, Year 1, Fossil Energy Company purchased an oil producing well at a cash cost of $14,740,000. It is estimated that the oil well contains 980,000 barrels of oil, of which only 880,000 can be profitably extracted. By December 31, Year 1, 44,000 barrels of oil were produced and sold. What is depletion expense for Year 1 on this well?

Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts.Increase = I Decrease = D Not Affected = NAOn May 16, Year 5, Zinke Corporation recognized an impairment loss of $50,000 of goodwill. The goodwill was originally recorded two years earlier in connection with the acquisition of another company. Show how the impairment loss affected the financial statements in Year 5.

Byrd Company experienced an accounting event that affected its financial statements as indicated below: Which of the following accounting events could have caused these effects?

On January 1, Year 1 Missouri Company purchased a truck that cost $47,000. The truck had an expected useful life of 10 years and a $5,000 salvage value. Missouri uses the double declining-balance method. What is the amount of depreciation expense recognized in Year 2?

A machine with a book value of $38,000 is sold for $32,000. Which of the following answers would accurately represent the effects of the sale on the financial statements?

Which of the following statements is correct regarding accounting treatment of goodwill?

On July 1, Year 1, Glover Corporation purchased $80,000 of equipment. The equipment is expected to be used in the business for five years and has an estimated salvage value of $11,000. Partial MACRS tables are listed below: Required:a)Compute the amount of depreciation that is deductible under MACRS for Year 1 and Year 2 if the equipment is classified as 5-year property.b)Compute the amount of depreciation that is deductible under MACRS for Year 1 and Year 2 if the equipment is classified as 7-year property.

Z Company purchased an asset for $24,000 on January 1, Year 1. The asset was expected to have a four-year life and a $4,000 salvage value. What is the amount of depreciation expense for Year 1 using the double-declining-balance method?

What accounts are affected by a capital expenditure that extends the life of a plant asset?

Harding Corporation acquired real estate that contained land, building and equipment. The property cost Harding $1,900,000. Harding paid $350,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $374,000; Building, $1,100,000 and Equipment, $726,000.Assume that Harding uses the units-of-production method when depreciating its equipment. Harding estimates that the purchased equipment will produce 1,000,000 units over its 5-year useful life and has a salvage value of $34,000. Harding produced 265,000 units with the equipment by the end of the first year of purchase. Which amount below is closest to the amount Harding will record for depreciation expense for the equipment in the first year?

On January 1, Year 1, Vanguard Company purchased a copyright for $12,000. Vanguard estimated the remaining useful life of the copyright to be 6 years.Which of the following correctly shows the effect of the first year's amortization of Vanguard's copyright?

On January 1, Year 1, Dinkins Company purchased a truck that cost $46,000. The company expected to drive the truck 100,000 miles over its 5-year useful life, and the truck had an estimated salvage value of $8,000. If the truck is driven 26,000 miles in Year 1, what would be the amount of depreciation expense for the year?

Indicate whether each of the following statements is true or false.a)Plant assets are classified as long-term assets, while intangible assets are treated as current assets.b)Intangible assets include patents, copyrights, and natural resources.c)Intangible assets with indefinite useful lives will be not be amortized.d)The cost of land should be depleted over its useful life.

Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA.You do not need to enter dollar amounts.Increase = I Decrease = D Not Affected = NAThe Fisher Company paid $28,000 to improve the quality of a manufacturing machine.

On January 6, Year 1, Mount Jackson Corporation purchased a tract of land for a factory site for $1,500,000. An existing building on the site was demolished and the new factory was completed on October 11, Year 1. Additional cost data are shown below: Which of the following are the capitalized costs of the land and the new building, respectively?

On January 1, Year 1, Golden Company purchased a new computer system for $50,000. Management estimates that the system will have a 5-year life and a salvage value of $7,500. Jane Golden, the company president, knows that the system can be depreciated using either the straight-line method or the double-declining-balance method. She is concerned as to the possible effect on various financial statement analyses if the company uses one method versus the other. Required: a)Indicate which method will have the larger negative effect (in other words, the less favorable effect)on each of the following ratios in Year 1:(1)Debt-to-equity ratio(2)Return-on-salesb)Indicate which method will have the larger negative effect on each of the following ratios in Year 4:(1)Debt-to-equity ratio(2)Return-on-sales

Which financial statement reports the amount of accumulated depreciation?