Exam 6: Accounting for Long-Term Operational Assets

Farmer Company purchased equipment on January 1, Year 1 for $76,000. The equipment is estimated to have a 5-year life and a salvage value of $9,000. The company uses the straight-line depreciation method.At the beginning of Year 4, Farmer revised the expected life to eight years. The annual amount of depreciation expense for each of the remaining years would be:

On January 1, Year 1, the 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 depreciation method. The estimated useful life was six years, and the estimated salvage value was $4,000. Required:Immediately after the January 1, Year 1 transaction, what is the book value of the asset on Dartmouth books?Compute the depreciation for the machine for December 31, Year 1.

Indicate how each event affects the horizontal financial statements model. 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 amounts.Increase = IDecrease = DNot Affected = NAAn asset purchased for $24,000 with a $6,000 salvage and a 5-year life is depreciated using straight-line depreciation for two years. At the beginning of the third year the useful life of the asset is 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).

Abbott Company opened for business on January 1, Year 1. Also, on January 1, Year a, the company purchased office equipment that cost $20,700 cash. The equipment had a five-year useful life and a $6,600 expected salvage value. Required: Compute the depreciation expense using straight-line method for each of the five years.

Byrd Company experienced an accounting event that affected its financial statements as indicated below: Which of the following accounting events could have caused these effects on Byrd's statements?

Indicate how each event affects the horizontal financial statements model. 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 amounts.Increase = IDecrease = DNot Affected = NAThe Boothe Company paid $9,000 to extend the useful life of one of its machines. How will this expenditure affect Boothe's financial statements?

On January 1, Year 1, the Vanguard Company purchased a copyright for $12,000. Vanguard estimated the remaining useful life of the copyright to be 6 years. Which of the following correctly shows the effect of Vanguard's purchase of the copyright on the financial statements?

Which of the following terms is used to identify the process of expense recognition for property, plant and equipment?

What type of account is Accumulated Depreciation?

On January 1, Year 1, Phoenix Corporation purchased a delivery truck for $45,000. The estimated useful life of the truck is 5 years, with an estimated salvage value of $9,000. The truck is expected to be driven 200,000 miles during its useful life. Required:If Phoenix uses double-declining-balance depreciation, what is the amount of depreciation for Year 2? What is the balance of the accumulated depreciation account at the end of Year 2?Refer to part a. Assume Phoenix used double-declining-balance depreciation and sold the truck at the beginning of Year 3 for $18,000. What is the amount of the gain or loss on the sale of the delivery van?Assume that Phoenix used units-of-production depreciation instead. The delivery van was driven 50,000 miles the first year and 40,000 miles the second year. What is the amount of depreciation expense for Year 1 and for Year 2? What is the book value of the van at the end of Year 2?

On January 1, Year 1, Dinwiddie Company purchased a car that cost $45,000. The car had an expected useful life of 6 years and a $10,000 salvage value. Based on this information alone:

Name three examples of property, plant and equipment.

On January 1, Year 3, Ruiz Company spent $850 in cash on a plant asset to improve its quality. The asset had been purchased on January 1, Year 1 for $8,400 and had an estimated salvage value of $1,200 and a useful life of five years. Ruiz uses the straight-line depreciation method. Which of the following correctly shows the effects of the Year 3 expenditure on the financial statements?

Pioneer Corporation purchased for $450,000 land and a building that will be used in farming operations. The appraised value of the land is $100,000 and the appraised value of the building is $400,000. Required: What amount of the purchase price will be allocated to the land and what amount will be allocated to the building? $\quad$ $\quad$ $\quad$ $\quad$$\text { Appraised value \% }$ Land \ 100,000 20\% Building 400,000 80\% Total \ 500,000 100\%

Glick Company purchased an oil reserve on July 1, Year 1 for $2,400,000. A total of 200,000 barrels of oil are expected to be extracted over the asset's life. During Year 1, 30,000 barrels are extracted and sold., The depletion charge for Year 1 would cause:

Gains and losses are reported as non-operating items on the income statement.

In Year 1, Hinkle Corporation Company acquired a patent from a competitor for $275,000. At the time of purchase, it had 12 years of its legal life remaining; however, due to competition, Hinkle believes that the patent will only be useful for 8 years. Required: Calculate the amount of amortization expense for Year 1.

Dinkins Company purchased a truck that cost $46,000. The company expected to drive the truck 100,000 miles over its 5-year useful life, and the truck had an estimated salvage value of $8,000. If the truck is driven 26,000 miles in the current accounting period, what would be the amount of depreciation expense for the year?

Which of the following terms is used to identify the expense recognition for intangible assets?

Indicate how each event affects the horizontal financial statements model. 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 amounts.Increase = IDecrease = DNot Affected = NAOn May 16, Year 1, Zirkle Corporation found it necessary to recognize an impairment loss of $50,000 of goodwill. The goodwill was originally recorded two years earlier in connection with the acquisition of another company. Show how the impairment loss affected the financial statements in Year 1.