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Exam 8: Accounting for Long-Term Assets

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Question 1

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A company purchased and installed a machine on January 1, 2010, at a total cost of $72,000. Straight-line depreciation was calculated based on the assumption of a five-year life and no salvage value. The machine was disposed of on July 1, 2013. a. Prepare the general journal entry to update depreciation to July 1, 2013. b. Prepare the general journal entry to record the disposal of the machine under each of these three independent situations: (1) The machine was sold for $22,000 cash. (2) The machine was sold for $15,000 cash. (3) The machine was totally destroyed in a fire and the insurance company settled the claim for $18,000 cash.

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a.
b.(1)...

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Question 2

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Another name for a capital expenditure is:

A) Revenue expenditure
B) Asset expenditure
C) Long-term expenditure
D) Contributed capital expenditure
E) Balance sheet expenditure

F) B) and E)
G) B) and C)

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Question 3

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When the value of plant assets decline after acquisition, but before disposition, both GAAP and IFRS require companies to record those decreases as impairment losses.

Beauty Company purchased a machine valued at $565,000 on September 1. The equipment has an estimated useful life of eight years or 5.5 million units. The equipment is estimated to have a salvage value of $48,300. Assuming the double declining balance method of depreciation is used, what is depreciation expense that needs to be recorded at the end of the second year?

A company purchased a truck on October 1 of the current year at a cost of $40,000. The truck is expected to last six years and have a salvage value of $2,200. The company's annual accounting period ends on December 31. 1. What is the depreciation expense for the current year, assuming the straight-line method is used? 2. What is the depreciation expense for the current year, assuming the double-declining-balance method is used?

Match each of the following terms with the appropriate definitions

Salvage value is an estimate of an asset's value at the end of its benefit period.

A company had average total assets of $897,000. Its gross sales were $1,090,000 and its net sales were $1,000,000. The company's total asset turnover is equal to:

A company purchased equipment valued at $825,000 on January 1. The equipment has an estimated useful life of seven years or 6 million units. The equipment is estimated to have a salvage value of $35,000. Assuming the double-declining-balance method of depreciation, what is depreciation for the second year?

Since goodwill is intangible, it is amortized each year using the straight-line method, the same as other intangibles are amortized.

Ace Company purchased a machine valued at $320,000 on August 1. The equipment has an estimated useful life of five years or 2.5 million units. The equipment is estimated to have a salvage value of $8,200. Assuming the double-declining-balance method of depreciation, what is the amount of depreciation expense that needs to be recorded at the end of the second year?

Treating capital expenditures of a small dollar amount as revenue expenditures is likely to mislead the users of financial statements.

On April 1 of the current year, a company traded an old machine that originally cost $32,000 and that had accumulated depreciation of $24,000 for a similar new machine that had a cash price of $40,000. a. Give the entry to record the exchange under the assumption that a $5,000 trade-in allowance was received and the balance of $35,000 was paid in cash. b. Give the entry to record the exchange under the assumption that instead of a $5,000 trade-in allowance, a $12,500 trade-in allowance was received and the balance of $27,500 was paid in cash.

A depreciable asset currently has a $40,100 book value. The company owning the asset uses straight-line depreciation. They paid $70,000 for this asset and consider it to have a $1,000 salvage value with a 12-year useful life. How long has the company owned this asset?

Endor Fishing Company exchanged an old boat for a new one. The old boat had a cost of $260,000 and accumulated depreciation of $200,000. The new boat had an invoice price of $400,000. Endor received a trade in allowance of $100,000 on the old boat, which meant they paid $300,000 in addition to the old boat to acquire the new boat. What amount of gain or loss should be recorded on this exchange? (The exchange lacks commercial substance.)

Acme Company has a total asset turnover of 1.25 for the current period. What are net sales given that average total assets are $40,000?

Goodwill is the amount by which a company's value exceeds the value of its individual assets and liabilities.

Plant assets are:

On January 2 of the current year, a company purchased a patent for $35,000 with a useful life of 10 years. Prepare the journal entry to amortize the patent at the end of the first year.

A company used straight-line depreciation for an item of equipment that cost $12,000, had a salvage value of $2,000, and had a five-year useful life. After depreciating the asset for three complete years, the salvage value was reduced to $1,200 and its total useful life was increased from five years to six years. Determine the amount of depreciation to be charged against the machine during each of the remaining years of its useful life: