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Exam 8: Accounting for Long-Term Operational Assets

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Question 71

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Chubb Company paid cash to purchase equipment on January 1,2016.Select the answer that shows how the recognition of depreciation expense in 2017 would affect assets,liabilities,equity,net income,and cash flow (+ means increase,- decrease,and NA not affected).

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Question 72

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

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Question 73

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

On January 1,2016 Missouri Co.purchased a truck that cost $57,000.The truck had an expected useful life of 10 years and a $6,000 salvage value.The amount of depreciation expense recognized in 2017 assuming that Missouri uses the double declining-balance method is:

On May 4,2016,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 2016 and completed December 15,2016.Cost data are shown below. Required: Compute the capitalized cost of (1)the land and (2)the factory building.

The Glover Corporation purchased $80,000 of equipment on July 1,2016.The equipment is expected to be used in the business for five years and has an estimated salvage value of $11,000.Partial MACRS tables are listed below: Required: a)Compute the amount of depreciation that is deductible under MACRS for 2016 and 2017 assuming that the equipment is classified as 5-year property. b)Compute the amount of depreciation that is deductible under MACRS for 2016 and 2017 assuming that the equipment is classified as 7-year property.

Recognizing depreciation expense on equipment or a building is an asset use transaction.

State the reason that goodwill is not amortized as some other intangible assets are.

On January 1,2016,Ruiz Company spent $850 on a plant asset to improve its quality.The asset had been purchased on January 1,2014 for $8,400 and had an estimated salvage value of $1,200 and a useful life of five years.Owens uses the straight-line depreciation method.Which of the following correctly shows the effects of the 2016 expenditure on the financial statements?

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

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.You do not need to enter amounts.Enter only one letter for each element. -The Greer Company purchased equipment on account on January 1,2016.Show how the purchase affected the financial statements of 2016.

What account is debited to record an expenditure that extends the life of a plant asset such as equipment?

Which of the following statements is correct regarding accounting treatment of goodwill?

Schubert Co.owned equipment that originally cost $48,000.The company sold the equipment on January 1,2016 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 equity by $2,000. _____ e)The sale would be recorded as a debit to cash for $16,000,a credit to equipment for $14,000,and a credit to gain on sale of equipment for $2,000.

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 5 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 Amortization Expense and a credit to Goodwill. _____e)The recognition of an impairment loss involves a cash outflow classified as a financing activity.

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

The recognition of depletion expense

Use the following to answer questions Farmer Company purchased equipment on January 1,2015 for $82,000.The machines are estimated to have a 5-year life and a salvage value of $4,000.The company uses the straight-line depreciation method. -At the beginning of 2018,Furst revised the expected life to eight years.The annual amount of depreciation expense for each of the remaining years would be:

Use the following to answer questions On January 1,2016,the Vanguard Company purchased a copyright for $12,000.Vanguard estimated the remaining useful life of the copyright to be 6 years. -Which of the following correctly shows the effect of the first year's amortization of Vanguard's copyright?

When a building is purchased simultaneously with land,the purchase price must be allocated between the building and the land.