Exam 9: Reporting and Analyzing Long-Lived Assets

Indicate whether each of the following expenditures should be classified as land (L), land improvements (LI), buildings (B), equipment (E), or none of these (X). ___1. Parking lots ___2. Electricity used by a machine ___3. Excavation costs ___4. Interest on building construction loan ___5. Cost of trial runs for machinery ___6. Drainage costs ___7. Cost to install a machine ___8. Fences ___9. Unpaid (past) property taxes assumed ___10. Cost of tearing down a building when land and a building on it are purchased

Redeker Company purchased equipment on January 1, 2013, for $90,000. It is estimated that the equipment will have a $5,000 salvage value at the end of its 5-year useful life. It is also estimated that the equipment will produce 100,000 units over its 5-year life. Instructions Answer the following independent questions. 1. Compute the amount of depreciation expense for the year ended December 31, 2013, using the straight-line method of depreciation. 2. If 16,000 units of product are produced in 2013 and 24,000 units are produced in 2014, what is the book value of the equipment at December 31, 2014? The company uses the units-of-activity depreciation method. 3. If the company uses the double-declining-balance method of depreciation, what is the balance of the Accumulated Depreciation-Equipment account at December 31, 2015?

Indicate in the blank spaces below, the section of the balance sheet where the following items are reported. Use the following code to identify your answer:

A company sells a plant asset that originally cost $225,000 for $75,000 on December 31, 2014. The accumulated depreciation account had a balance of $90,000 after the current year's depreciation of $22,500 had been recorded. The company should recognize a

Additions and improvements are costs incurred to increase the operating efficiency, productive capacity, or expected useful life and are referred to as _________________.

Which of the following statements concerning financial statement presentation is false?

Equipment was acquired on January 1, 2010, at a cost of $75,000. The equipment was originally estimated to have a salvage value of $5,000 and an estimated life of 10 years. Depreciation has been recorded through December 31, 2013, using the straight-line method. On January 1, 2014, the estimated salvage value was revised to $7,000 and the useful life was revised to a total of 8 years. Instructions Determine the depreciation expense for 2014.

A machine costing $132,000 was destroyed when it caught fire. At the date of the fire, the accumulated depreciation on the machine was $60,000. An insurance check for $150,000 was received based on the replacement cost of the machine. The entry to record the insurance proceeds and the disposition of the machine will include a

The cost of paving, fencing, and lighting a new company parking lot is charged to a ______________ account.

On January 1, 2012, Keller Company purchased and installed a telephone system at a cost of $20,000. The equipment was expected to last five years with a salvage value of $3,000. On January 1, 2013, more telephone equipment was purchased to tie-in with the current system for $10,000. The new equipment is expected to have a useful life of four years. Through an error, the new equipment was debited to Utilities Expense. Keller Company uses the straight-line method of depreciation. Instructions Prepare a schedule showing the effects of the error on Utilities Expense, Depreciation Expense, and Net Income for each year and in total beginning in 2013 through the useful life of the new equipment.

For each entry below make a correcting entry if necessary. If the entry given is correct, then state "No entry required." (a) The $70 cost of repairing a printer was charged to Equipment. (b) The $5,500 cost of a major engine overhaul was debited to Maintenance and Repairs Expense. The overhaul is expected to increase the operating efficiency of the truck. (c) The $6,000 closing costs associated with the acquisition of land were debited to Operating Expenses. (d) A $300 charge for transportation expenses on new equipment purchased was debited to Freight-In.

Plant assets are ordinarily presented in the balance sheet

The IRS does not require the taxpayer to use the same depreciation method on the tax return that is used in preparing financial statements.

When an asset is sold, a gain occurs when the

Rodgers Company purchased equipment and these costs were incurred: Rodgers will record the acquisition cost of the equipment as

A patent

Equipment was purchased for $68,000 on January 1, 2013. Freight charges amounted to $2,800 and there was a cost of $8,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $12,000 salvage value at the end of its 5-year useful life. What is the amount of accumulated depreciation at December 31, 2014, if the straight-line method of depreciation is used?

Mark's Repair Service uses the straight-line method of depreciation. The company's fiscal year end is December 31. The following transactions and events occurred during the first three years. 2013 July 1 Purchased equipment from the Equipment Center for $5,500 cash plus sales tax of $305, and shipping costs of $250. Nov. 3 Incurred ordinary repairs on computer of $240. Dec. 31 Recorded 2013 depreciation on the basis of a four-year life and estimated salvage value of $455 2014 Dec. 31 Recorded 2014 depreciation. 2015 Jan. 1 Paid $1,800 for a major upgrade of the equipment. This expenditure is expected to increase the operating efficiency and capacity of the equipment. Instructions Prepare the necessary entries. (Show computations.)

On January 1, a machine with a useful life of five years and a residual value of $15,000 was purchased for $75,000. What is the depreciation expense for year 2 under straight-line depreciation?

The cost of successfully defending a patent in an infringement suit should be