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Exam 8: Accounting for Long-Term Operational Assets

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Question 71

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Emir Company purchased equipment that cost $110,000 cash on January 1, Year 1. The equipment had an expected useful life of six years and an estimated salvage value of $8,000. Emir depreciates its assets under the straight-line method. What are the amounts of depreciation expense during Year 3 and the accumulated depreciation at December 31, Year 3, respectively?

A) $17,000 and $17,000
B) $17,000 and $68,000
C) $68,000 and $17,000
D) $17,000 and $51,000

E) A) and B)
F) None of the above

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Question 72

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Mays Corporation purchased a new truck on January 1, Year 1 for $65,000 cash. The salvage value was estimated to be $10,000 at the end of the useful life of 5 years. On January 1, Year 3, Mays had to replace the engine of the truck paying $4,000 cash. At that time, Mays estimates that the truck will continue a productive life for another four years. The company uses the straight-line method. Required: a)Calculate the depreciation expense for Year 3.

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Question 73

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On May 4, Year 1, Steger Company purchased a tract of land as a factory site for $1,600,000. An existing building on the property was demolished, and construction was begun on a new factory building in July Year 1 and completed December 15, Year 1. Cost data are shown below. Required:1)What is the capitalized cost of the land?2)What is the capitalized cost of the factory building?

Farmer Company purchased machine on January 1, Year 1 for $141,000. The machine is estimated to have a 5-year life and a salvage value of $22,000. 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 machine's life?

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

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

Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts.Increase = I Decrease = D Not Affected = NAShelton Robotics Company amortized $30,400 of patent cost. How does this event affect Shelton's financial statements?

Explain the meaning of the terms "tangible" and "intangible" and discuss how these terms are used in describing assets.

Glick Company purchased oil rights on July 1, Year 1 for $2,800,000. A total of 200,000 barrels of oil are expected to be extracted over the asset's life, and 50,000 barrels are extracted and sold in Year 1. Which of the following correctly summarizes the effect of the Year 1 depletion expense on the financial statements?

Assume that the estimate of an asset's useful life is changed at the beginning of Year 2. Explain the implications of revising that estimate on previous, current, and future calculations of deprecation and how depreciation using the straight-line method would be computed in Year 2.

Schubert Company owned equipment that originally cost $48,000. On January 1, Year 6, the company sold the equipment for $16,000 cash. Accumulated depreciation on the day of sale amounted to $34,000. Based on this information, indicate whether each of the following statements is true or false.a)The sale will increase Schubert's net income, but it will not affect the company's operating income.b)Schubert would show a $16,000 cash inflow in the operating activities section of the cash flow statement.c)The sale would result in a decrease in total assets.d)The sale would increase Schubert's stockholders' equity by $2,000.e)The sale would increase cash by $16,000, increase gain on sale of equipment by $2,000, and decrease equipment by $14,000.

Indicate whether each of the following statements is true or false.a)A trademark has an identifiable legal lifetime.b)U.S. GAAP requires that research and development costs be capitalized as assets and then expensed over a reasonable period of time.c)A patent is amortized over the longer of its legal or useful life.d)Recording the amortization of a patent includes increasing Amortization Expense and decreasing the Patent account.e)The capitalized cost of a trademark includes the cost to develop the trademark and to defend it.

For what type of assets is the recognition of expense called "amortization"?

Give three examples of property, plant and equipment.

Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts.Increase = I Decrease = D Not Affected = NAOn January 1, Year 1, the Baker Company purchased an asset for $200,000. The asset had a $50,000 salvage value and a 10-year life. Baker uses the straight-line method. At the beginning of Year 3, the asset was sold for $174,000. Show how the sale will affect Baker's financial statements, assuming that Baker uses straight-line depreciation.

Gillock, Incorporated uses modified accelerated cost recovery system (MACRS) for its income tax return and the straight-line method for its financial statements. On January 1, Year 1, the company purchased a long-term asset that cost $130,000 and has a $10,000 salvage value and an expected 8-year useful life. MACRS specifies a 5-year life for that asset and a depreciation rate of 20% for the first year of its life. Which of the following would the company show on its financial records?

Flagler Company purchased equipment that cost $90,000. The equipment had a useful life of 5 years and a $10,000 salvage value. Flagler uses the double-declining-balance method. Which of the following choices accurately reflects how the recognition of the first year's depreciation would affect the financial statements?

What term is used to describe the process of allocating the cost of natural resources to expense?

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

Accumulated Depreciation is reported on the income statement.