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Exam 8: Accounting for Long-Term Assets

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Question 131

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Holding a copyright:

A) Gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 70 years.
B) Gives its owner an exclusive right to manufacture and sell a patented item or to use a process for 20 years.
C) Gives its owner an exclusive right to manufacture and sell a device or to use a process for 50 years.
D) Indicates that the value of a company exceeds the fair market value of a company's net assets if purchased separately.
E) Gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 20 years.

F) C) and D)
G) A) and C)

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Question 132

Multiple Choice

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To capitalize an expenditure is to:

A) Debit an expense account.
B) Credit an expense account.
C) Credit the owner's capital account.
D) Credit an asset account.
E) Debit an asset account.

F) B) and D)
G) D) and E)

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Question 133

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Revenue expenditures,also called income statement expenditures,are additional costs of plant assets that do not materially increase the assets' life or productive capabilities.

Amortization is the process of allocating the cost of natural resources to periods when they are consumed.

Explain the purpose of and method of depreciation for partial years.

Crestfield leases office space for $7,000 per month.On January 3,the company incurs $12,000 to improve the leased office space.These improvements are expected to yield benefits for 10 years.Crestfield has 4 years remaining on its lease.What journal entry would be needed to record the expense for the first year related to the improvements?

Betterments are:

If an asset is sold above its book value,the selling company records a loss.

The depreciation method that recognizes equal amounts of annual depreciation over the life of an asset is ________.

One characteristic of plant assets is that they are:

The term inadequacy,as it relates to the useful life of an asset,refers to:

Explain how to calculate total asset turnover.Describe what it reveals about a company's financial condition,whether a higher or lower ratio is desirable,and how it is best applied for comparative purposes.

Fortune Drilling Company acquires a mineral deposit at a cost of $5,900,000.It incurs additional costs of $600,000 to access the deposit,which is estimated to contain 2,000,000 tons and is expected to take 5 years to extract. -What journal entry would be needed to record the expense for the first year assuming 418,000 tons were mined?

On September 30 of the current year,a company acquired and placed in service a machine at a cost of $700,000.It has been estimated that the machine has a service life of five years and a salvage value of $40,000.Using the double-declining-balance method of depreciation,complete the schedule below showing depreciation amounts for all six years (round answers to the nearest dollar).The company closes its books on December 31 of each year.

Since goodwill is an intangible asset,it is amortized each year using the straight-line method.

Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $87,000.The machine's useful life is estimated to be 5 years,or 400,000 units of product,with a $7,000 salvage value.During its second year,the machine produces 84,500 units of product. -Determine the machines' second year depreciation under the units-of-production method.

The useful life of a plant asset is:

Hunter Sailing Company exchanged an old sailboat for a new one.The old sailboat had a cost of $160,000 and accumulated depreciation of $100,000.The new sailboat had an invoice price of $270,000.Hunter received a trade in allowance of $70,000 on the old sailboat,which meant the company paid $200,000 in addition to the old sailboat to acquire the new sailboat.If this transaction has commercial substance,what amount of gain or loss should be recorded on this exchange?

A company made the following expenditures in connection with the construction of a new building: $\begin{array} { l l } \text { Architect's fees } & \$ 12,000 \\\text { Cash paid for land and unusable building on the land } & 300,000 \\\text { Removal of old building } & 18,000 \\\text { Salvage from sale of old building materials } & ( 4,000 ) \\\text { Construetion survey } & 1,500 \\\text { Legal fees for title search } & 3,000 \\\text { Excavation for basement construction } & 25,000 \\\text { Machinery purchased for operations } & 100,000\end{array}$ Storage and delivery charges on machinery because building $\begin{array}{ll}\text { Was not ready when machinery was delivered } & 900 \\\text { Freight on machinery purchased } & 1,600 \\\text { Construction costs of new building } & 1,000,000 \\\text { Tnstallation of machinery } & 2,500\end{array}$ Prepare a schedule showing the amounts to be recorded as Land,Buildings,and Machinery.

A company purchased equipment on June 28 of the current year and placed it in service on August 1.The following costs were incurred in acquiring the equipment: $\begin{array} { l l } \text { Purchase (invoice) price } & \$ 215,600 \\\text { Transportation } & 1,400 \\\text { Insurance during shipping } & 200 \\\text { One-year fire insurance beginning August 1 of the current year } & 1,200 \\\text { Installation cost } & 4,500 \\\text { Raw materials and direct labor used to test the equipment. } & 1,500\end{array}$ Determine the amount to be recorded as cost for the equipment.