Exam 8: Operating Assets: Property, Plant, and Equipment, and Intangibles

Royal Company purchased a dump truck at the beginning of 2012 at a cost of $60,000.The truck had an estimated life of 6 years and an estimated residual value of $24,000.On January 1, 2014, the company made major repairs of $20,000 to the truck that extended the life 1 year.Thus, starting with 2014, the truck has a remaining life of 5 years and a new salvage value of $8,000.Royal uses the straight-line depreciation method.What amount should be recorded as depreciation expense each year starting in 2014?

When land and building are acquired for a lump sum, the purchase amount should be allocated on the basis of the market values of the two assets.

Paulson Transport Company On January 1, 2015, Paulson Transport Company purchased a ship for $2,000,000.It has a ten-year useful life and a residual value of $50,000.The company uses the double-declining-balance method. -What was the depreciation expense for Paulson Transport for the year ended December 31, 2016?

A company uses the same depreciation method as other firms in the same industry.Because of this, investors will have enhanced comparability of the financial reporting results.

Norwood, Inc. Norwood, Inc.purchased a crane at a cost of $80,000.The crane has an estimated residual value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation.The crane was purchased on January 1, 2015 and was used 2,700 hours in 2015 and 2,600 hours in 2016. -Refer to the information about Norwood, Inc. If Norwood uses the double-declining-balance depreciation method, what amount is the depreciation expense for 2016?

When plant assets are reported, the current period's depreciation expense is subtracted from the original cost on the balance sheet.

Why is depreciation added to net income in the Operating Activities category of the statement of cash flows when the indirect method is used?

If a company is concerned about minimizing its income tax burden, it would use the straight-line depreciation method to accomplish this objective.

Blanket Airlines acquires a new aircraft.It has an estimated life of 15 years and should be used for 15,000 hours of flight.What is the most appropriate method of depreciation to properly match revenues and expenses?

Research and development costs should be presented as intangible assets.

Land is not depreciated because it

Depreciation has no effect on income taxes, since it only reduces a plant asset's book value.

is are) the right to produce or sell a published work.

Capitalizing an expenditure rather than recording it as a revenue expenditure

Crimson Corp.constructed equipment to manufacture a new line of home products during 2015.The average balance of accumulated expenditures on the equipment during September through December 2015 was $500,000.Construction started on September 1, 2015 and was still in progress at the end of 2015.If Crimson borrowed $500,000 for one year on September 1, 2015, to finance the construction, and the interest rate on the construction loan was 6%, how much interest can Crimson capitalize as part of the equipment cost for 2015?

All of the following are intangible assets except

Farley River Inc. Use the information presented below for Farley River, Inc.for 2015 and 2014 to answer the questions that follow.Farley River uses the straight-line depreciation method. -Refer to the information for Farley River, Inc. What is the asset turnover ratio for Farley River for 2015?

If a company's asset turnover ratio decreased from 2014 to 2015, which of the following conclusions can be made?

Which of the following factors is not related to the decline in the usefulness of plant and equipment assets, and therefore does not need to be considered in selecting an appropriate depreciation method?

When plant assets are purchased in a group, each asset increases the respective plant asset account for its fair market value at the time of acquisition.