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Exam 6: Accounting for Long-Term Operational Assets

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Question 61

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Indicate whether each of the following statements is true or false. 1. Goodwill is classified as part of Property, Plant, and Equipment 2. Long-term assets having no physical substance are called intangible assets 3. Land is classified separately from other tangible assets because the cost is normally much higher 4. Natural resources are examples of tangible long-term assets 5. Equipment is an example of an intangible asset

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1. False
2...

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Question 62

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Which of the following would be classified as a long-term operational asset?

A) Accounts Receivable.
B) Prepaid Insurance.
C) Office Equipment.
D) Inventory.

E) None of the above
F) A) and B)

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Question 63

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Expenditures that extend the useful life of a plant asset are added to the asset account.

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

Which method of depreciation generally allocates the largest amount of depreciation to the first year of the asset's life?

Indicate whether each of the following statements is true or false. 1. Sales taxes paid on the purchase of equipment would be expensed in the year of purchase 2. Delivery charges on new equipment would be added to the Equipment account 3. The concept that requires that assets be recorded at the amount paid is the matching concept 4. Real estate fees and attorney's fees related to the purchase of a building would be treated as part of the cost of the building 5. When a company purchases land, the cost of removing an old building is appropriately treated as part of the cost of the land

Double-declining-balance depreciation produces more depreciation in the later years of an asset's life than does the straight-line method.

A copyright is an intangible asset with an indefinite useful life.

On January 1, 2014, Studer Corporation paid $6,000 for major improvements on a two-year-old 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 $32,000 and the balance in Accumulated Depreciation was $10,000. Studer uses the straight-line depreciation method. After the improvements, the estimated remaining useful life was four years, and the estimated salvage value was $2,000. Required: a) How would the transaction on January 1, 2014 affect Studer's financial statements? What type of transaction was this (asset source, asset use, asset exchange, or claims exchange)? b) Immediately after the January 1, 2014 transaction, what is the book value of the asset on Studer's books? c) Compute the depreciation for the machine for the year 2014.

On January 1, 2010, Desmet Company purchased office equipment that cost $15,000 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $1,000. The equipment had a five year useful life and a $1,200 expected salvage value. If Desmet Company had used the double-declining balance depreciation method, the depreciation expense appearing on the 2014 income statement would be:

At the end of the current accounting period, Washta Co. recorded depreciation of $25,000 on its equipment. The effect of this entry on the company's balance sheet is to:

Yu Company purchased a producing oil well for $5,000,000. The well was expected to produce 500,000 barrels of oil over its useful life. During 2014 the company extracted 120,000 barrels of oil. The oil was sold for $40 per barrel. Assuming that the company incurred $1,440,000 in operating expenses other than depletion during 2014, how much net income would Yu report in 2014?

On January 1, 2010, Desmet Company purchased office equipment that cost $15,000 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $1,000. The equipment had a five year useful life and a $1,200 expected salvage value. Using straight line depreciation, determine the amount of depreciation expense and the amount of accumulated depreciation that would appear on the December 31, 2014 financial statements.

On January 1, 2014, Hanson Manufacturing Company purchased equipment for $95,000. Hanson paid $2,000 to have the machine installed. The equipment is expected to have a 5 year useful life and a salvage value of $7,000. Required: a) Compute depreciation expense for 2014 and 2015 using straight line depreciation. b) What is the book value at the beginning of 2016? c) Assume the equipment was sold on January 1, 2016, for $65,000. Compute the amount of gain or loss from the sale.

Which of the following is not classified as Property, Plant and Equipment?

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

A trademark is an intangible asset with an indefinite useful life.

On January 1, 2014, St. John Corp. purchased a new truck for $35,000. St. John determined that this truck would be useful for 150,000 miles at which time it would have a salvage value of $5,000. During the next three years the truck was driven for 25,000, 20,000, and 28,000 respectively. At the beginning of the fourth year (2017), St. John had to overhaul the truck's engine at a cost of $7,000. The overhaul increased the life of the truck by adding 20,000 miles of use. During the fourth year the truck was driven for 23,000 miles. Required: a) Calculate depreciation expense for the first three years. (2014, 2015, 2016) b) Calculate depreciation expense for 2017.

On March 1, Zane Company purchased a new stamping machine with a list price of $24,000. The company paid cash for the machine; therefore, it was allowed a 3% discount. Other costs associated with the machine were: transportation costs, $1,270; sales tax paid, $1,680; installation costs, $450; routine maintenance during the first month of operation, $500. The cost recorded for the machine was:

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