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Exam 9: Long-Lived Assets

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Question 1

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A company which complains that although their income is quite satisfactory, cash is not available for dividends because of the high cost of replacing fixed assets in operating in an economic environment where:

A) inflation is non-existent.
B) the balance sheet value of long-lived assets is more than their replacement value.
C) the prices of long-lived assets have been decreasing over an extended period of time.
D) expenditures required to replace long-lived assets are greater than depreciation expense.

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

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Question 2

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Rio Grande Company purchased equipment on January 1, 2010 for $75,000. The estimated useful life of the equipment is 5 years, the salvage value is $10,000, and the company uses the double-declining balance method to depreciate fixed assets. Which of the following journal entries would Rio Grande record if the equipment is scrapped after five years?

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Question 3

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On January 1, Mondale Co. paid $92,000 for a new truck. It was estimated that the truck would be driven 200,000 miles during the next 8 years, at which time it would have a salvage value of $7,000. At the end of the first three years, the odometer registered 27,000, 53,000, and 78,000 miles, respectively. What is the book value of the truck using the activity method of depreciation at the end of the third year?

On January 1, Summers Co. purchased equipment with a 10-year life and zero salvage value for $900,000. Summers uses the straight-line method on its financial statements and double-declining-balance method on its income tax returns. By what amount does the tax deduction for depreciation exceed depreciation expense on Summers's income statements for each of the first two years?

How do intangible assets differ from long-lived plant assets?

Farmdale Company's President purchased an extremely used automobile on November 1 by paying $2,000. He immediately had it towed to his mechanic who overhauled the auto in order to get the car ready to be safely driven. The cost of the tow was $40 and the initial overhaul was $1,500. While driving from his mechanic's garage, he ran over a nail that punctured a tire and cost $35 to repair. Calculate the cost of the auto.

Jeter Inc. acquired machinery on January 1, 2004 at a cost of $55,000. The machinery was depreciated over five years using the straight line method and a salvage value of $2,000. In 2010 the machinery was sold for $3,000. The income statement for 2010 will reflect which of the following:

Which one of the following depreciation methods will typically result in the smallest earnings per share during the early periods of an asset's life?

The process of allocating the cost of plant and equipment over the time period of which they are used is referred to as:

On January 1, Weston Company paid $88,000 for a copy machine. It was estimated that the machine would produce 1,000,000 copies over the next 8 years, at which time it would have a salvage value of $8,000. During the first and second years, the copies totaled 180,000 and 300,000, respectively. Calculate depreciation expense using the activity method for each of the first two years.

On January 1, 2009, Tavis Corp. sold a piece of equipment for $10,000 that it had used for several years. The equipment had cost $50,000, and the accumulated depreciation account had a balance of $34,000 at the time of the sale. Describe the effects on the accounting equation of selling the equipment.

On December 1, Douglas Corp. purchased a tract of land for $285,000 to be used as a factory site. An old unusable building on the land was razed (torn down) , and the salvaged materials from the demolition were sold. These cash expenditures and receipts and other costs incurred during December are as follows: What would be the balance in Douglas's Land account on its December 31 balance sheet?

On February 1, 2008, James Co., which uses straight-line depreciation, purchased equipment for $88,000 with a useful life of 12 years and $4,000 salvage value. On February 1, 2012, the equipment was sold for $56,000. Which of the following would James recognize as a result of this disposition?

On September 30, 2010, equipment is purchased for $50,000 with a 4-year life expectancy and salvage value of $2,000. If the double-declining-balance method is used, calculate depreciation expense for the year ending December 31, 2010.

For each transaction numbered 1 through 5 below, identify which effect(s) (a through d) that each transaction would have on the current and debt/equity ratios. You may use each letter more than once or not at all. Some transactions have two answers. ____ 1. Equipment is purchased by incurring a long-term note payable and paying the balance in cash ____ 2. Paid for transportation of equipment shipped from a supplier ____ 3. Depreciated the equipment during the first year of use ____ 4. Paid for lubrication and periodic maintenance of the equipment ____ 5. Sold the equipment, receiving more money than its book value

On April 1, Tarpon Co. made the following expenditures on its printing press: The renovation increased the expected life and the attachment increased the productivity of the press. What are the total expenditures capitalized to the printing press?

On January 1, 2010, Lane Company made a $12,000 expenditure on a fully depreciated machine. The expenditure increased the expected life of the new machine for two years until December 31, 2011. Lane uses straight-line depreciation with no salvage value. However, Lane erroneously expensed this capital expenditure. As a result of this error,

On January 1, Eagle Co. paid $65,000 for a new truck. It was estimated that the truck would be driven 300,000 miles during the next 5 years, at which time it would have a salvage value of $10,000. At the end of the first and second years, the odometer registered 55,000 and 115,000 miles, respectively. What is the book value of the truck using straight-line depreciation at the end of the second year?

During 2009, Erie Inc. developed a new process for packaging products. Erie paid its employees $450,000 over the past five years in developing this process. On January 1, 2009, Erie paid $12,000 to register the packaging patent. The company believes the patent will produce profits for 10 years. The patent has a 17-year legal life. How much amortization expense should be recognized during 2009? a. $27,118 b. $46,200 c. $1,200 d. $647

Monroe Co. purchased a tract of land paying $100,000 in cash and assumed an existing mortgage of $60,000. The municipal tax bill disclosed an assessed valuation of $180,000. The amount Monroe should record as land connected with this acquisition is: