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Exam 8: Accounting for Long-Term Operational Assets

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Question 21

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Ferris purchased equipment that cost $45,000. The equipment had a useful life of 5 years and a $5,000 salvage value. Ferris used the double-declining-balance method to depreciate its assets. Which of the following choices accurately reflects how the recognition of the first year's depreciation would affect the company's financial statements?

A) Option A
B) Option B
C) Option C
D) Option D

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

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Question 22

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The Rollins Company purchased a delivery van on January 1, 2013 for $30,000. Rollins uses straight-line depreciation for the asset, which has a five year estimated useful life and a salvage value estimated at $6,000. The asset was sold on January 1, 2015 for $22,000 cash. Indicate whether each of the following items related to Rollins Company is true or false. _____ a) Annual depreciation for Rollins' equipment was $6,000. _____ b) Accumulated depreciation on January 1, 2015 was $9,600. _____ c) Book value on January 1, 2015 was $20,400. _____ d) On the date of the sale, Rollins will record a loss of $1,600. _____ e) A gain or loss on the sale of a plant asset is reported on the balance sheet.

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a) False b) True c) True d) False e) Fal...

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Question 23

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

The Garcia Corporation purchased $40,000 of equipment on July 1, 2013. The equipment is expected to be used in the business for five years and has an estimated salvage value of $5,500. Partial MACRS tables are listed below: Required: a) Compute the amount of depreciation that is deductible under MACRS for 2013 and 2014 assuming that the equipment is classified as 5-year property. b) Compute the amount of depreciation that is deductible under MACRS for 2013 and 2014 assuming that the equipment is classified as 7-year property.

Chesapeake Company paid $475,000 for a basket purchase that included office furniture, a building and land. An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: Office furniture - $95,000; Building - $370,000, Land - $66,000. Based on this information the amount of cost that would be allocated to the office furniture is closest to:

Which of the following terms is used to identify the process of expense recognition for property, plant and equipment?

The Parks Corporation, a U.S. business, is a direct competitor of the Rhine Company, a German firm. The two firms not only compete for customers, but also for investment capital. In 2013, 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?

On January 1, 2013, Flintstone Company purchased Rubble Company, paying $600,000 cash. The fair value of Rubble's assets was $540,000, and it had liabilities of $50,000. Required: a) Prepare Flintstone's journal entry to record the acquisition of Rubble Company. b) At the end of 2015, Flintstone concluded that the value of its goodwill (associated with the acquisition of Rubble) had declined by $65,000. Prepare the journal entry to record this decrease in value.

On January 1, 2012 Eastwood Company purchased an asset that had cost $48,000. The asset had a 8-year useful life and an estimated salvage value of $2,000. Eastwood depreciates its assets on the straight-line basis. On January 1, 2016 the company spent $12,000 to improve the quality of the asset. Based on this information, the recognition of depreciation expense in 2016 would

On January 1, 2013, Fritz Company purchased a truck that cost $38,000. The truck had an expected useful life of 8 years and an $8,000 salvage value. The book value of the truck at the end of 2013, assuming that Fritz uses the double declining balance method, is:

A substantial amount spent to improve the quality or extend the life of a long-term asset is called a revenue expenditure.

The Bugs Company purchased the Daffy Company in January of 2013. Daffy's balance sheet included $350,000 of assets, $125,000 of liabilities and equity of $225,000. Bugs agrees to assume the liabilities and pay $240,000 to purchase Daffy. An independent appraiser assessed the fair market value of Daffy's assets to be $315,000. Indicate whether each of the following statements about this transaction is true or false. _____ a) Bugs' entry to record the transaction includes a debit to the assets for $350,000. _____ b) Bugs' entry to record the transaction includes a credit to liabilities for $125,000. _____ c) Bugs will recognize $50,000 of goodwill in recording the purchase of Daffy. _____ d) It is impossible for Bugs to estimate the length of life for goodwill. _____ e) The goodwill will be amortized in the same manner as patents.

Indicate whether each of the following statements is true or false. _____ a) A patent with a useful life of 5 years and a legal life of 10 years is amortized over 10 years. _____ b) Intangible assets with indefinite useful lives must be tested each year for impairment. _____ c) If it is determined that the original value recorded for goodwill is too high, then an entry is made directly to Retained Earnings, reducing the balance in this account. _____ d) The entry to recognize an impairment loss on goodwill includes a debit to Impairment Loss and a credit to Goodwill. _____ e) The recognition of an impairment loss involves a cash outflow classified as a financing activity.

Which of the following would not be classified as a tangible long-term asset?

The Baird Company paid $4,500 to extend the useful life of one of its assets. How will this expenditure affect Baird's financial statements?

On January 1, 2013, Scott Corporation purchased equipment for $60,000. A discount of 2% was granted on the equipment; the shipping terms were FOB shipping point, and the freight cost was $1,500. Installation and testing costs amounted to $2,000. The equipment had an estimated useful life of 4 years and salvage value of $5,000. At the beginning of 2015, Scott revised the expected life of the asset to six years and the salvage value to $6,000. Required: Compute the depreciation expense using straight-line method for each of the six years.

On January 1, 2013, the City Taxi Company purchased a new taxi cab for $36,000. The cab has an expected salvage value of $2,000. The company estimates that the cab will be driven 200,000 miles over its life. It uses the units of production method to determine depreciation expense. The cab was driven 45,000 miles the first year and 48,000 the second year. What would be the depreciation expense reported on the 2014 income statement and the book value of the taxi at the end of 2014?

The Blosser Company purchased an asset on January 1, 2013 for $100,000. The asset had a $25,000 salvage value and a 10 year life. The asset was sold on January 1, 2015 for $82,000. Show how the sale will affect Blosser's financial statements, assuming that Blosser uses straight-line depreciation.

Assume that Bybee uses the units of production method when depreciating its equipment. Bybee estimates that the purchased equipment will produce 1,000,000 units over its 5-year useful life and has salvage value of $17,000. Bybee produced 265,000 units with the equipment by the end of the first year of purchase. Which amount below is closest to the amount Bybee will record for depreciation expense for the equipment in the first year?

Which of the following statements is true concerning the modified accelerated cost recovery system (MACRS) for the recognition of depreciation expense?