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Exam 8: Accounting for Long-Term Operational Assets

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Question 1

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On April 1,Year 1,Fossil Energy Company purchased an oil producing well at a cash cost of $12,000,000.It is estimated that the oil well contains 600,000 barrels of oil,of which only 500,000 can be profitably extracted.By December 31,Year 1,25,000 barrels of oil were produced and sold.What is depletion expense for Year 1 on this well?

A) $800,000
B) $600,000
C) $480,000
D) $500,000

E) C) and D)
F) None of the above

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Question 2

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In choosing a depreciation method for financial reporting,a company should use the method that most closely approximates the amount of depreciation on the tax return.

A) True
B) False

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Question 3

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Laramie Co.paid $800,000 for a purchase that included land,building,and office furniture.An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: Land,$100,000,Building,$740,000,and Office Furniture,$160,000.What is the cost that should be allocated to the land?

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

Indicate whether each of the following statements regarding accounting for long-term assets is true or false.

Chubb Company paid cash to purchase equipment on January 1,Year 1.Select the answer that shows how the recognition of depreciation expense in Year 2 would affect assets,liabilities,equity,net income,and cash flows.

With an accelerated depreciation method,an asset can be depreciated below its salvage value.

What term is used to describe the situation where the value of an intangible asset may be significantly diminished?

Indicate whether each of the following statements is true or false.

An impairment of an intangible asset decreases assets,stockholders' equity,and net income.

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 the amount of depreciation for Year 1?

On January 1,Year 1,Zach Company purchased equipment that cost $50,000.The equipment had a useful life of 5 years and a $10,000 salvage value.Zach Company used the double-declining-balance method to depreciate its assets.What is the accumulated depreciation at the end of Year 2?

Which of the following measurements would not be affected by the choice of depreciation methods?

Farmer Company sold a piece of equipment for $6,000.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 elements of the financial statements?

How is depreciation expense reported in the financial statements?

When depreciation is recorded on equipment,Depreciation Expense is increased and the Equipment account is decreased.

Tyler Company purchased equipment that cost $260,000 cash on January 1,Year 1.The equipment had an expected useful life of five years and an estimated salvage value of $10,000.Tyler depreciates its assets under the straight-line method.What is the amount of depreciation expense appearing on the Year 1 income statement?

Which of the following would most likely not be expensed using the straight-line method?

Good Company paid cash to purchase mineral rights on a large parcel of land.Which of the following choices accurately reflects how this event would affect the horizontal financial statements model?

Title search and transfer document costs incurred to purchase a building are expensed in the period the building is acquired.