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Exam 8: Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles

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Question 41

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On January 1,2010 equipment was purchased for $80,000; the equipment's estimated residual value is $15,000 and its estimated useful life is 8 years.During 2010,the depreciation expense under the double-declining balance method is $16,250.

A) True
B) False

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Question 42

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Allison Company purchased a machine for $1,200,000 at the beginning of 2009.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 2010,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?

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To calculate the impairment loss, we nee...

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Question 43

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Amanda Company purchased a computer that cost $10,000.It had an estimated useful life of five years and a residual value of $1,000.The computer was depreciated by the straight-line method and was sold at the end of the third year of use for $5,000 cash.Which of the following statements correctly describes the computer sale?

When determining cash flow from operations using the direct method,depreciation and amortization expense are deducted from net income.

Which of the following statements is incorrect with respect to the sale of a depreciable asset for a loss?

The cash-equivalent cost of an asset received is measured as any cash paid plus the current market value of the non-cash consideration given up.If this value is not determinable,the current market value of what is received should be used instead.

On August 1,Red Company purchased computer equipment for $10,000 cash and also gave 100 shares of White common stock held by Red Company as an investment.The White common stock cost Red Company $5,000 and on August 1 had a market value of $4,200.Installation costs were $700 and shipping costs were $500.What amount should be the total amount debited to the computer equipment account?

Which of the following statements about asset impairment is false?

The book value of a depreciable asset equals its acquisition cost minus the depreciation expense recorded to date.

Waterloo Corporation purchased factory equipment for a cost of $1,800,000.It cost $100,000 for its delivery,$220,000 for its installation and modifications to the production building,and $60,000 in interest costs on borrowed funds used to acquire the equipment.What is the acquisition cost of the new equipment?

Hi-Crest Company purchased a machine on January 1,2010,for $300,000.The machine has an estimated useful life of 5 years and a $10,000 residual value.Calculate depreciation expense and the year-end book value for 2010 and 2011 using the double declining-balance method of depreciation.

Ordinary repairs and maintenance costs are incurred to maintain a long-lived asset and are expensed as incurred.

Lue Company sold used equipment for $450,000 cash.The equipment was purchased 5 years ago for a cost of $800,000.It has been depreciated using the straight-line method over an estimated useful life of 10 years with an estimated residual value of $50,000.Record the journal entry at the end of year five for the asset's disposal assuming the fifth year's depreciation had been recorded.

Which of the following is correct for Smith Company when Smith issues 10,000 shares of $10 par value common stock and pays $20,000 cash in exchange for a building? The market price of the Smith stock on the exchange date was $35 per share and the building's book value on the books of the seller was $200,000.

Hubbard Company purchased a truck on January 1,2009,at a cost of $34,000.The company estimated that the truck would have a useful life of 4 years and a residual value of $4,000. Requirements: A.Calculate depreciation expense under straight line and double declining balance for 2009-2012. B.Which of the two methods would result in lower net income in 2010 and 2012?

Depreciation is the process of allocating a long-lived asset's cost over its productive life.

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

Bennett Corporation sold a piece of equipment on June 30,2012 for $50,000 cash.The equipment had been purchased on January 1,2008 for $150,000.It had an estimated useful life of 6 years and a $30,000 residual value.Bennett Corp.has been using the straight-line method of depreciation and has a year-end of December 31st.Prepare any necessary journal entries on June 30,2012 assuming that 2012 depreciation expense has not been recorded.

Which of the following is most likely to be an intangible asset with an indefinite life?

If an expenditure related to a depreciable asset is incorrectly treated as a capital expenditure,instead of as a revenue expenditure,which of the following statements is true?