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Exam 6: Accounting for Long-Term Operational Assets

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Question 71

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Recognizing depreciation expense on equipment or a building is an asset use transaction.

A) True
B) False

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Question 72

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Give an example of a type of industry that requires a company to have a large amount of operational assets.

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Some businesses use more depreciable ass...

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Question 73

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Describe what is meant by the term "Goodwill."

Hamilton Mining Company recognized $2,000,000 of depletion expense.

In 2012,Harvest Corporation recognized an impairment loss of $20,000 of goodwill.The goodwill was originally recorded two years earlier in connection with the purchase of another company.Show how the impairment loss affected the financial statements in 2012.

Generally accepted accounting principles require that,when the estimated useful life of a long-term asset is changed,previously-issued financial statements are not revised.

On April 1,2012,Marlin Company purchased a producing oil well at a cash cost of $3,500,000.It is estimated that 500,000 barrels of oil can be produced over the remaining life of the well.By December 31,2012,25,000 barrels of oil had been produced and sold.The amount of depletion expense on this well for 2012 would be:

On March 1,Zane Company purchased a new stamping machine with a list price of $24,000.The company paid cash for the machine; therefore,it was allowed a 3% discount.Other costs associated with the machine were: transportation costs,$1,270; sales tax paid,$1,680; installation costs,$450; routine maintenance during the first month of operation,$500.The cost recorded for the machine was:

Stanton Company recognized $5,000 of depreciation expense.

What is meant by a "basket purchase" and what method is normally used to determine the cost?

Which of the following assets is not considered to have an indefinite useful life?

On January 1,2012,Rubens Company made a basket purchase including land,a building and equipment for $380,000.The appraised values of the assets are $20,000 for the land,$340,000 for the building and $40,000 for equipment.Rubens uses the double declining balance method of depreciation for the equipment which is estimated to have a useful life of five years and a salvage value of $5,000.For 2012,the depreciation expense on the equipment is:

The choice of depreciation methods for long-term assets affects the results of financial analysis for a company.

Explain the meaning of "impairment" as used in accounting for goodwill.

An expenditure that improves the quality of service provided by a plant asset is added to the balance in the asset account.

Which of the following statements is true with regard to depreciation expense?

On January 1,2012,Hanson Manufacturing Company purchased equipment for $95,000.Hanson paid $2,000 to have the machine installed.The equipment is expected to have a 5 year useful life and a salvage value of $7,000. Required: a)Compute depreciation expense for 2012 and 2013 using straight line depreciation. b)What is the book value at the beginning of 2014? c)Assume the equipment was sold on January 1,2014,for $65,000.Compute the amount of gain or loss from the sale.

In 2012,Harold Corporation Co.acquired a patent from a competitor for $65,000.At the time of purchase,it had 12 years of its legal life remaining; however,Harold believes that the patent will only be useful for 7 years.Compute the amortization expense for 2012.

Expenditures that extend the useful life of a plant asset are added to the asset account.

What are the life cycle phases for a plant asset?