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Exam 8: Reporting and Interpreting Property,plant,and Equipment;intangibles;and Natural Resources

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Question 1

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Which of the following is not true regarding certain assets?

A) A copyright provides the right to publish,use,and sell equipment.
B) A trademark provides the right to a name,image,or slogan identified with a product.
C) The cost to design a software program for manufacturing equipment will be expensed as research and development expense.
D) A patent on equipment enables the inventor to sell that equipment.

E) A) and B)
F) A) and C)

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Question 2

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During 2019,the Bowtie Company reported net income of $1,872 million,depreciation expense of $1,412 million and $978 million paid for purchases of property,plant,and equipment.Using the indirect method of preparing the statement of cash flows,what would be the effect on cash flows from operating activities during 2019?

A) Cash flows from operating activities would be increased by depreciation expense and decreased by the property,plant,and equipment purchases.
B) Cash flow from operating activities would be increased by depreciation expense and by the property,plant,and equipment purchases.
C) Cash flow from operating activities would be increased by depreciation expense but the property,plant,and equipment purchases would have no effect on cash flow from operating activities.
D) Depreciation is a noncash expense and would not be used to calculate cash flow from operating activities.

E) A) and B)
F) B) and D)

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Question 3

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Which of the following statements regarding the fixed asset turnover ratio is incorrect?

The systematic and rational allocation of the acquisition cost of natural resources to those periods in which the resources contribute to revenue is called depletion.

An expenditure is capitalized when it is reported as an expense on the income statement.

Waterloo Corporation purchased factory equipment for a cost of $1,800,000.There was also the cost of $100,000 for delivery,$220,000 for installation and modifications to the factory building,and $60,000 in interest costs on borrowed funds used to acquire the equipment. Calculate the acquisition cost of the new equipment.

Prepare the required adjusting journal entry at December 31,2019,the end of the annual accounting period for the three items below.Assume that no adjusting entries have been made during the year.If no entry is required,explain why. A.Polk Company acquired a patent that cost $6,000 on January 1,2019.The patent was registered on January 1,2015.The useful life of a patent is 20 years from registration. B.Polk Company acquired a gravel pit on January 1,2019,that cost $24,000.The company estimates that 30,000 tons of gravel can be extracted economically.When all the gravel has been extracted,no residual value is anticipated.During 2019,4,000 tons were extracted and sold. C.On January 1,2019,Polk Company acquired a used dump truck that cost $6,000 to use hauling gravel.The company estimated a residual value of 10% of cost and a useful life 4 years.The company uses straight-line depreciation.

Beckworth Company purchased a truck on January 1,2018,at a cash cost of $10,600.The estimated residual value was $400 and the estimated useful life 4 years.The company uses straight-line depreciation computed monthly.On July 1,2021,the company sold the truck for $1,900 cash. A.What was the depreciation expense amount per month? B.What was the amount of accumulated depreciation at July 1,2021? C.Prepare the required journal entries on the date of disposal,July 1,2021.(Assume no 2021 depreciation had yet been recorded)

The fixed asset turnover ratio measures the amount of operating income generated per dollar of average fixed assets.

Frankel Feed purchased a new machine on January 1,Year 1.Relevant information is as follows: It is now the beginning of year 6 and the management reevaluated the estimates related to the machine. Compute the depreciation expense for year 6 under each of the following independent cases:

Patents,trademarks,and franchises are examples of tangible assets.

Natural resource depletion is recognized on the income statement for all resources removed during the period whether they are sold or not.

On December 31,2019,Hamilton Inc.sold a used industrial crane for $600,000 cash.The original cost of the crane was $5.0 million and its accumulated depreciation equaled $4.2 million on December 31,2019.What is the gain or loss from the December 31,2019 equipment sale?

The Wilson Company has provided the following information: • Net sales,$200,000 • Net operating income,$40,000 • Net income,$20,000 • Average total assets,$125,000 • Average net fixed assets;$80,000 What is Wilson's fixed asset turnover ratio?

Allison Company purchased a machine for $1,200,000 at the beginning of 2018.Allison was using the double-declining-balance (200%)method to depreciate the asset and its useful life was estimated to be 5 years with a residual value of $200,000.At the end of 2019,Allison Co.estimates the future cash flows from the asset to be equal to $500,000 and the fair value to be $450,000. What is the amount of the impairment loss?

Covey Company purchased a machine on January 1,2019,by paying cash of $250,000.The machine has an estimated useful life of five years,is expected to produce 500,000 units,and has an estimated residual value of $25,000. A.Calculate depreciation expense to the nearest whole dollar for each year of the machine's useful life under. 1.Straight-line depreciation method. 2.Double declining-balance method. B.What is the book value of the machine after three years using the double declining-balance method? C.What is the book value of the machinery after three years using the straight-line method? D.If the machine was used to produce and sell 120,000 units in 2019,what would be the depreciation expense using the units-of-production method?

In accounting for depreciation,acquisition cost and useful life usually are known quantities,whereas residual value is an estimate because it relates to an amount in the future.

Which of the following is not true in comparing U.S.GAAP and International Financial Reporting Standards (IFRS) ?

Which of the following statements is correct with respect to the sale of a depreciable asset?

Which of the following journal entries is correct when a company owns its office building for many years and now sells the building?