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Exam 6: Accounting for Long-Term Operational Assets

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Question 21

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Benton Corporation acquired real estate that contained land, building and equipment. The property cost Benton $825,000. Benton paid $175,000 in cash and issued a Note Payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $85,000; Building, $625,000; and Equipment, $250,000. Assume that Benton uses the units-of-production method when depreciating its equipment. Benton estimates that the purchased equipment will produce 1,200,000 units over its 5 years useful life and has salvage value of $7,500. Benton produced 265,000 units with the equipment by the end of the first year of purchase. The equipment costs 214,841.89. What amount will Benton record for depreciation expense on the equipment in the first year?

A) $8,408
B) $41,469
C) $45,788
D) $82,938

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

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Question 22

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Describe what is meant by the term "Goodwill."

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In accounting, goodwill is an asset that...

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Question 23

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

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. $\text { Increase } = \mathrm { I } \quad \text { Decrease } = \mathrm { D } \quad \text { No Effect } = \mathrm { N }$ The Minneapolis Company spent $8,000 to improve the quality of one of its assets. $\begin{array}{|l|l|l|l|l|l|}\text { Assets Liabilities } & \text { Equity } & \text { Revenues } & \text { Expenses } & \begin{array}{c}\text { Net } \\\text { Income }\end{array} & \begin{array}{c}\text { Cash } \\\text { Flow }\end{array}\\\hline&&&\end{array}$

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. $\text { Increase } = \mathrm { I } \quad \text { Decrease } = \mathrm { D } \quad \text { No Effect } = \mathrm { N }$ The Chandler Company purchased equipment for $16,000 on January 1, 2010. The equipment had an estimated useful life of four years and an estimated salvage value of $4,000. At the beginning of 2014, the equipment was sold for $7,000. Show how the sale affected the financial statements for 2014. $\begin{array}{|l|l|l|l|l|l|}\text { Assets Liabilities } & \text { Equity } & \text { Revenues and gains} & \text { Expenses and losses } & \begin{array}{c}\text { Net } \\\text { Income }\end{array} & \begin{array}{c}\text { Cash } \\\text { Flow }\end{array}\\\hline&&&\end{array}$

Which of the following terms is applied to long-term assets that have no physical substance and provide rights, privileges and special opportunities to businesses?

On January 1, 2014, Snyder Company spent $820 on an asset (a machine) to improve its quality. The machine had been purchased on January 1, 2010 for $4,200 and had an estimated salvage value of $600 and a useful life of five years. Which of the following correctly shows the effects of the 2014 expenditure on the financial statements?

Which of the following would be classified as a tangible asset?

An asset with a book value of $19,000 is sold for $16,000. Which of the following answers would accurately represent the effects of the sale on the financial statements? (Note: The answers show the net effect on the total amount under each category. For example, if cash increased by $100 and Accounts Receivable decreased by $70, a net $30 increase would be shown in the assets column.)

Benton Corporation acquired real estate that contained land, building and equipment. The property cost Benton $825,000. Benton paid $175,000 in cash and issued a Note Payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $85,000; Building, $625,000; and Equipment, $250,000. What value will be recorded for the building?

The depreciable cost of a long-term asset is the difference between its original cost and its salvage value.

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. $\text { Increase } = \mathrm { I } \quad \text { Decrease } = \mathrm { D } \quad \text { No Effect } = \mathrm { N }$ In 2014, Harvest Corporation recognized an impairment loss of $20,000 of goodwill. The goodwill was originally recorded two years earlier in connection with the purchase of another company. Show how the impairment loss affected the financial statements in 2014.

What term is used for the process of expense allocation of natural resources?

On January 1, 2014, Rubens Company made a basket purchase including land, a building and equipment for $380,000. The appraised values of the assets are $20,000 for the land, $340,000 for the building and $40,000 for equipment. Rubens uses the double declining balance method of depreciation for the equipment which is estimated to have a useful life of five years and a salvage value of $5,000. For 2014, the depreciation expense on the equipment is:

Define "accelerated depreciation method" and give an example of such a method.

Which of the following assets is considered to have an indefinite useful life?

An expenditure that improves the quality of service provided by a plant asset is added to the balance in the asset account.

What factors affect the amount of depreciation recorded on a building in a given year?

In 2014, Albert Mining Co. purchased a coal mine that contained an estimated 1,000,000 tons of coal for a cash price of $7,500,000. The company mined 250,000 tons of coal in 2014. Required: a) What is the depletion charge per ton of coal? b) What is the amount of depletion expense for 2014?

Evenbeck Company purchased Ferguson Company for $500,000 cash. The fair market value of Ferguson's assets was $320,000 and the company had no liabilities. Which of the following choices would reflect the purchase on Evenbeck's financial statements?