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Exam 8: Accounting for Long-Term Operational Assets

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Question 61

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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

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

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Question 62

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How does the recognition of depletion expense affect the elements of the financial statements?

A) Decreases assets and stockholders' equity and decreases cash flow from investing expenses under the direct approach.
B) Decreases cash flow from operating activities, and does not affect the amount of total assets.
C) Increases assets, equity, and cash flow from operating activities.
D) Decreases assets and equity, and does not affect cash flow.

E) All of the above
F) B) and C)

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Question 63

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Which method of depreciation is used by most U.S.companies for financial reporting purposes?

On January 1,Year 2 Boothe Company paid $12,000 cash to extend the useful life of a machine.Which of the following statements is true regarding the financial statement effects of this expenditure?

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 elements of the financial statements?

Which of the following is an asset that has an identifiable useful life?

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 the current accounting period,what would be the amount of depreciation expense for the year?

Grant Company acquired Lee Company for $600,000 cash.The fair value of Lee's assets was $520,000,and the company had $40,000 in liabilities.Which of the following choices would reflect the acquisition on the horizontal financial statements model?

[The following information applies to the questions displayed below.] 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 Vanguard's purchase of the copyright on the elements of the financial statements?

[The following information applies to the questions displayed below.] Farmer Company purchased machine on January 1, Year 1 for $82,000. The machine is estimated to have a 5-year life and a salvage value of $4,000. The company uses the straight-line method. -At the beginning of Year 4,Farmer revised the expected life to eight years.What is the annual amount of depreciation expense for each of the remaining years in the machines life?

On January 1,Year 1,Dalen Company purchased office equipment that cost $3,500.The equipment had an estimated five-year useful life and an estimated salvage value of $750.The company uses the straight-line method.What is the depreciation expense shown on the income statement and the related cash flow from operating activities shown on the statement of cash flows,respectively,for Year 1?

Indicate whether each of the following statements is true or false.

[The following information applies to the questions displayed below.] 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?

Late in a plant asset's useful life,the amount of depreciation that would be recorded with the double-declining-balance method is less than the amount that would be recognized with the straight-line method.

Anton Company paid cash to extend the life of one of its assets.Which of the following choices accurately reflects how this event would affect the elements of the financial statements?

On January 1,Year 1,Eller Company purchased an asset that had cost $24,000.The asset had an 8-year useful life and an estimated salvage value of $1,000.Eller depreciates its assets on the straight-line basis.On January 1,Year 5,the company spent $6,000 to improve the quality of the asset.How does the Year 5 depreciation expense impact the elements of the financial statements?

Which of the following would be classified as a long-term operational asset?

Pierce Corporation,a U.S.business,is a direct competitor of Zeiss Company,a German firm.The two firms not only compete for customers,but also for investment capital.In Year 1,each company spent about $35,000 U.S.dollars or the equivalent on research and development.U.S.GAAP requires the entire amount to be expensed,while Germany requires its businesses to record R&D expenditures as an asset and then to expense it over its useful life.Assuming the treatment of R&D is the only difference between the two firms,which of the following is correct?

The purchase of a new delivery truck for cash is an asset use transaction.

The cost of natural resources includes the purchase price,as well as exploration costs and surveys.