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Exam 8: Accounting for Long-Term Operational Assets

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Question 81

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On January 1, Year 1, Hardwick Company purchased a truck that cost $53,000. The company expected to drive the truck 200,000 miles over its 5-year useful life, and the truck had an estimated salvage value of $3,000. If the truck is driven 30,000 miles during Year 1, what would be the amount of depreciation expense for the year?

A) $7,500
B) $10,000
C) $10,600
D) $12,000

E) C) and D)
F) All of the above

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Question 82

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Which of the following statements is true regarding depreciation expense?

A) Different companies in the same industry always depreciate similar assets by the same methods.
B) A company using the straight-line method will show a smaller book value for assets than if the same company uses the double-declining-balance method.
C) Choosing the double-declining balance method over the straight-line method will produce a greater total depreciation expense over the asset's life.
D) A company should use the depreciation method that best matches expense recognition with the use of the asset.

E) A) and B)
F) A) and C)

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Question 83

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On January 1, Year 1, Jing Company purchased office equipment that cost $34,125 cash. The equipment was delivered under terms free on board (FOB) shipping point, and transportation cost was $2,125. The equipment had a five-year useful life and a $12,070 expected salvage value.Assume that Jing Company earned $30,100 cash revenue and incurred $19,100 in cash expenses in Year 3. The company uses the straight-line method. The office equipment was sold on December 31, Year 3 for $16,200. What is the company's net income (loss) for Year 3?

On January 1, Year 1, Jing Company purchased office equipment that cost $34,000 cash. The equipment was delivered under terms free on board (FOB) shipping point, and transportation cost was $2,000. The equipment had a five-year useful life and a $12,000 expected salvage value. At the end of Year 5, the equipment was still owned by Jing Company. What is the book value of the office equipment using the straight-line method and double-declining-balance method, respectively?

Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts.Increase = I Decrease = D Not Affected = NAThe Greer Company purchased equipment on account on January 1, Year 1.

What is meant by a "basket purchase"? What method is commonly used to determine the cost of individual assets?

Depletion of a natural resource is usually calculated using the straight-line method.

Pierce Corporation, a U.S. business, is a direct competitor of Zeiss Company, a German firm. The two firms not only compete for customers, but also for investment capital. In Year 1, each company spent about $35,000 U.S. dollars or the equivalent on research and development. U.S. generally accepted accounting principles (GAAP) requires the entire amount to be expensed, while Germany requires its businesses to record research and development expenditures as an asset and then to expense it over its useful life. Assuming the treatment of research and development is the only difference between the two firms, which of the following is correct?

On January 1, Year 3, Dartmouth Corporation paid $18,000 for major improvements on a two-year-old manufacturing machine. Although the expenditure did not change the expected useful life, it greatly increased the productivity of the machine. Prior to this transaction, the machine account in the general ledger was listed at $84,000, and the accumulated depreciation account was $20,000. Dartmouth uses the straight-line method. The estimated useful life was six years, and the estimated salvage value was $4,000. Required: a)Immediately after the January 1, Year 3 transaction, what is the book value of the asset on Dartmouth books?b)Compute the depreciation for the machine for Year 3.

Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts.Increase = I Decrease = D Not Affected = NABenitez Company purchased an asset for $50,000. The asset has an estimated salvage value of zero and an 8-year useful life. On January 1, Year 3, the company spent $2,400 cash on routine repairs and maintenance. What effect will the Year 3 expenditure have on the company's financial statements?

How is depreciation expense reported in the financial statements?

Chico Company paid $950,000 for a basket purchase that included office furniture, a building and land. An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: Office furniture, $190,000; Building, $740,000; and Land, $132,000. Based on this information, what is the cost that should be allocated to the office furniture? (Round allocation percentage to two decimal places.)

Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts.Increase = I Decrease = D Not Affected = NAAn asset purchased for $24,000 with a $6,000 salvage value and a 5-year life has been depreciated using the straight-line method for two years. At the beginning of Year 3, the useful life of the asset was revised to 4 years with no change in salvage value. Show how the revision of depreciation expense in the third year of the asset's life will affect the financial statements in year 3 (compared to the financial statements if the revision in estimate had not been made).

On January 1, Year 1, Parker Company purchased an asset costing $20,000. The asset had an expected five-year life and a $2,000 salvage value. The company uses the straight-line method. What are the amounts of depreciation expense and accumulated depreciation, respectively, that will be reported in the Year 2 financial statements?

A substantial amount spent to improve the quality or extend the life of a long-term asset is called a revenue expenditure.

On January 1, Year 1, Ballard company purchased a machine for $44,000. On January 1, Year 2, the company spent $15,000 to improve its quality. The machine had a $9,200 salvage value and a 6-year life, which are unchanged. Ballard uses the straight-line method. What is the book value of the machine on December 31, Year 4?

Anchor Company purchased a manufacturing machine with a list price of $100,000 and received a 2% cash discount on the purchase. The machine was delivered under terms free on board (FOB) shipping point, and transportation costs amounted to $5,200. Anchor paid $7,500 to have the machine installed and tested. Insurance costs to protect the asset from fire and theft amounted to $9,800 for the first year of operations. What is the cost of the machine?

Tally Company paid cash to purchase a long-term operational asset. The cost of the asset will be expensed (depreciated)

Harding Corporation acquired real estate that contained land, building and equipment. The property cost Harding $2,090,000. Harding paid $595,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $629,000; Building, $1,870,000 and Equipment, $1,241,000.What value will be reported for the land on the balance sheet? (Round intermediate percentage values to a whole percentage.)

On January 1, Year 1, Raven Limo Service, Incorporated paid $74,000 cash to purchase a limousine. The limo was expected to have a five-year useful life and a $14,000 salvage value. On January 1, Year 3 the limo was sold for $54,000 cash. Assuming Raven uses straight-line depreciation, the Company would recognize a