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Exam 6: Accounting for Long-Term Operational Assets

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Question 51

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On January 1, Year 1, Jefferson Manufacturing Company purchased equipment for $212,000. Jefferson paid $4,000 to have the machine installed. The equipment is expected to have a 5-year useful life and a salvage value of $26,000. Required:At what dollar amount should this equipment be recorded in Jefferson's accounting records?Compute depreciation expense for Year 1 and Year 2 using straight-line depreciation.What is the book value at the beginning of Year 3?Assume the equipment was sold on January 1, Year 3, for $135,000. Compute the amount of gain or loss from the sale.

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$212,000 + $4,000 = $216,000 = the amoun...

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Question 52

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Dinkins Company purchased a truck that cost $93,000. 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 $14,500. If the truck is driven 35,500 miles in the current accounting period, what would be the amount of depreciation expense for the year? (Do not round intermediate calculations.)

A) $33,015.
B) $27,868.
C) $15,700.
D) $37,200.

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

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Question 53

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On January 6, Year 1, the Mount Jackson Corporation purchased a tract of land for a factory site for $1,500,000. An existing building on the site was demolished and the construction of the new factory building was completed on October 11, Year 1. Additional cost data are shown below: $\begin{array}{llr} \text { construction cost of new building } &\$1,760,000\\ \text {Realtor's and attorney's fees } &15,400\\ \text { Architect's fees relating to construction of new} &138,000\\ \text { building } &\\ \text { Cost to demolish old building} &133,200\\ \text { Salvage recovery from old building } &(11,000) \\\end{array}$ Which of the following correctly states the capitalized cost of the land and the new factory building, respectively?

On September 10, Year 5, Farmer Company sold a piece of equipment for $6,000 cash. The equipment had an original cost of $34,000 and accumulated depreciation of $31,000 at the time of the sale. Which of the following correctly shows the effect of the sale on the Year 5 financial statements?

On January 1, Year 1, Milton Manufacturing Company purchased equipment with a list price of $28,000. A total of $2,200 was paid for installation and testing. During the first year, Milton paid $3,300 for insurance on the equipment and another $610 for routine maintenance and repairs. Milton uses the units-of-production method of depreciation. Useful life is estimated at 100,000 units, and estimated salvage value is $4,400. During Year 1, the equipment produced 12,000 units. What is closest to the amount of depreciation for the year? (Do not round intermediate calculations.)

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 straight-line depreciation.

Indicate how each event affects the horizontal financial statements model. 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 amounts.Increase = IDecrease = DNot Affected = NAShelton Robotics Company amortized $30,400 of patent cost. How does this entry affect Shelton's financial statements?

The term used to recognize expense for property, plant, and equipment assets is depletion.

Alaska Energy Corporation paid cash to acquire land to be used for oil production. The costs incurred by Alaska Energy were the following: $\begin{array}{llr} \text { Exploration of proposed land } &\$150,000\\ \text { Geologic surveys of land} &250,000\\ \text { Estimated oil reserves} &870,000\\ \text { Cost of purchase land } &6,500,000\end{array}$ Estimates were made that 3,885,000 gallons of crude oil can be extracted from the site over the life of the asset. Required:Calculate the total cost of the oil field.Given that Alaska Energy was able to extract 230,000 gallons in the first year, 675,000 gallons in the second year, and 554,000 gallons in the third year, calculate the depletion charge for each year.

Flagler Company purchased equipment that cost $90,000. The equipment had a useful life of 5 years and a $10,000 salvage value. Flagler 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?

Indicate how each event affects the horizontal financial statements model. 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 amounts.Increase = IDecrease = DNot Affected = NAThe Baker Company purchased an asset on January 1, Year 1 for $200,000. The asset had a $50,000 salvage value and a 10-year life. The asset was sold on January 1, Year 3 for $174,000. Show how the sale will affect Baker's financial statements, assuming that Baker uses straight-line depreciation.

A machine with a book value of $38,000 is sold for $32,000 cash. Which of the following answers would accurately represent the effects of the sale on the financial statements?

Which financial statement(s) is (are) affected when depreciation expense is recognized?

A copyright is an intangible asset with an indefinite useful life.

Anchor Company purchased a manufacturing machine with a list price of $96,000 and received a 2% cash discount on the purchase. The machine was delivered under terms Free On Board shipping point, and freight costs amounted to $4,400. Anchor paid $6,300 to have the machine installed and tested. Insurance costs to protect the asset from fire and theft amounted to $8,200 for the first year of operations. Based on this information, the amount of cost recorded in the asset account would be:

Accumulated Depreciation is a temporary account that is closed each year.

Indicate how each event affects the horizontal financial statements model. 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 amounts.Increase = IDecrease = DNot Affected = NAThe Benitez Company purchased an asset for $50,000 on January 1, Year 1. The asset had a zero salvage value and an 8-year estimated useful life. On January 1, Year 3, the company spent $2,400 cash on routine repairs and maintenance. What effect will the Year 3 expenditure have on the company's financial statements?

Madison Company owned an asset that had cost $44,000. The company sold the asset on January 1, Year 4, for $16,000. Accumulated depreciation on the day of sale amounted to $32,000. Based on this information, the sale would result in:

On January 1, Year 1, Milton Manufacturing Company purchased equipment with a list price of $88,000. A total of $4,000 was paid for installation and testing. During the first year, Milton paid $6,000 for insurance on the equipment and another $2,200 for routine maintenance and repairs. Milton uses the units-of-production method of depreciation. Useful life is estimated at 100,000 units, and estimated salvage value is $8,000. During Year 1, the equipment produced 13,000 units. What is closest to the amount of depreciation for the year?

On January 1, Year 1, the City Taxi Company purchased a new taxi cab for $39,000. 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 48,000 miles the first year and 50,800 the second year. What would be the depreciation expense reported on the Year 2 income statement and the book value of the taxi, respectively, at the end of Year 2?