Question 1

When Company X purchases Company Y, X should record Y's assets at their fair market value at the time of the acquisition.

Accepted Answer

A) True 
 B)False

Question 2

Explain how the gain or loss is computed on the sale of a piece of equipment.

Accepted Answer

Gain or loss on the sale of an asset is

Question 3

Chubb Company paid cash to purchase equipment on January 1, Year 1. Select the answer that shows how the recognition of depreciation expense in Year 2 would affect the financial statements (+ means increase, − decrease, and NA not affected).

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D 
A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Question 4

On January 1, Year 1, Stewart Corporation purchased equipment for $120,000. A discount of 2% was granted on the equipment; the shipping terms were Free On Board shipping point, and the freight cost was $3,000. Installation and testing costs amounted to $4,000. The equipment had an estimated useful life of 4 years and salvage value of $10,000. At the beginning of Year 3, Stewart revised the expected life of the asset to six years and the salvage value to $12,000. Required:
Compute the depreciation expense using straight-line method for each of the six years.

Accepted Answer

The cost includes the purchase price (le

Question 5

On January 1, Year 1, Friedman Company purchased a truck that cost $29,000. The truck had an expected useful life of 8 years and a $7,000 salvage value. The company uses the double-declining balance method. The book value of the truck at the end of Year 1 is: (Do not round intermediate calculations.)

Accepted Answer

A)  $14,750. 
B)  $23,500. 
C)  $16,500. 
D)  $21,750. 
A)  $14,750. 
B)  $23,500. 
C)  $16,500. 
D)  $21,750.

Question 6

The recognition of depletion expense:

Accepted Answer

A)  decreases assets and stockholders' equity and decreases cash flow from investing expenses under the direct approach. 
B)  decreases cash flow from operating activities, and does not affect the amount of total assets. 
C)  increases assets, stockholders' equity, and cash flow from operating activities. 
D)  decreases assets and stockholders' equity, and does not affect cash flow. 
A)  decreases assets and stockholders' equity and decreases cash flow from investing expenses under the direct approach. 
B)  decreases cash flow from operating activities, and does not affect the amount of total assets. 
C)  increases assets, stockholders' equity, and cash flow from operating activities. 
D)  decreases assets and stockholders' equity, and does not affect cash flow.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

On January 1, Year 1, Eller Company purchased an asset that had cost $24,000. The asset had an 8-year useful life and an estimated salvage value of $1,000. Eller depreciates its assets on the straight-line basis. On January 1, Year 5, the company spent $6,000 to improve the quality of the asset. Based on this information, the recognition of depreciation expense in Year 5 would:

Accepted Answer

A)  increase total assets by $4,375. 
B)  reduce total stockholders' equity by $4,375. 
C)  reduce total assets by $4,625. 
D)  increase total stockholders' equity by $4,625. 
A)  increase total assets by $4,375. 
B)  reduce total stockholders' equity by $4,375. 
C)  reduce total assets by $4,625. 
D)  increase total stockholders' equity by $4,625.

Question 9

With an accelerated depreciation method, an asset can be depreciated below its salvage value.

Accepted Answer

A) True 
 B)False

Question 10

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 Jenkins Company purchased equipment for $25,000 on January 1, Year 1. The equipment had an estimated useful life of four years and an estimated salvage value of $5,000. At the beginning of Year 3, the equipment was sold for $8,000. Show how the sale affected the financial statements for Year 3, assuming Jenkins uses straight-line depreciation.

Accepted Answer

@#IMG-DLM&
At the beginning of Year 3, the book va

Question 11

On January 1, Year 1, Stiller Company paid $288,000 to obtain a patent. Stiller expected to use the patent for 5 years before it became technologically obsolete. The remaining legal life of the patent was 8 years. Based on this information, the amount of amortization expense on the December 31, Year 3 income statement and the book value of the patent on the December 31, Year 3, balance sheet, respectively, would be:

Accepted Answer

A)  $36,000 and $108,000. 
B)  $36,000 and $180,000. 
C)  $57,600 and $172,800. 
D)  $57,600 and $115,200. 
A)  $36,000 and $108,000. 
B)  $36,000 and $180,000. 
C)  $57,600 and $172,800. 
D)  $57,600 and $115,200.

Question 12

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

Accepted Answer

A)  Goodwill is recorded as an asset and is not written off as an expense unless its fair value is less than its book value. 
B)  Goodwill is recorded as an asset and amortized over 5 years regardless of any change in value. 
C)  Goodwill is recorded as an asset and amortized over 40 years unless its fair value decreases. 
D)  Goodwill is expensed immediately in the year acquired. 
A)  Goodwill is recorded as an asset and is not written off as an expense unless its fair value is less than its book value. 
B)  Goodwill is recorded as an asset and amortized over 5 years regardless of any change in value. 
C)  Goodwill is recorded as an asset and amortized over 40 years unless its fair value decreases. 
D)  Goodwill is expensed immediately in the year acquired.

Question 13

Farmer Company purchased equipment on January 1, Year 1 for $82,000. The equipment is estimated to have a 5-year life and a salvage value of $4,000. 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:

Accepted Answer

A)  $6,240. 
B)  $4,400. 
C)  $7,040. 
D)  $3,900. 
A)  $6,240. 
B)  $4,400. 
C)  $7,040. 
D)  $3,900.

Question 14

On January 1, Year 1, Stiller Company paid $80,000 to obtain a patent. Stiller expected to use the patent for 5 years before it became technologically obsolete. The remaining legal life of the patent was 8 years. Based on this information, the amount of amortization expense on the December 31, Year 3 income statement and the book value of the patent on the December 31, Year 3, balance sheet, respectively, would be:

Accepted Answer

A)  $10,000 and $30,000 
B)  $16,000 and $48,000 
C)  $10,000 and $50,000 
D)  $16,000 and $32,000 
A)  $10,000 and $30,000 
B)  $16,000 and $48,000 
C)  $10,000 and $50,000 
D)  $16,000 and $32,000

Question 15

Describe what is meant by the term "goodwill."

Accepted Answer

Goodwill is the added value of a success

Question 16

Which of the following is considered an accelerated depreciation method?

Accepted Answer

A)  Double-declining-balance 
B)  Units-of-production 
C)  Straight-line 
D)  Both double-declining-balance and units-of-production 
A)  Double-declining-balance 
B)  Units-of-production 
C)  Straight-line 
D)  Both double-declining-balance and units-of-production

Question 17

On January 1, Year 1, Missouri Company purchased a truck that cost $47,000. The truck had an expected useful life of 10 years and a $5,000 salvage value. The amount of depreciation expense recognized in Year 2 assuming that Missouri uses the double declining-balance method is:

Accepted Answer

A)  $7,520. 
B)  $6,720. 
C)  $4,700. 
D)  $9,400. 
A)  $7,520. 
B)  $6,720. 
C)  $4,700. 
D)  $9,400.

Question 18

The purchase of a new delivery truck for cash is an asset use transaction.

Accepted Answer

A) True 
 B)False

Question 19

What term is used to describe the situation where there is a permanent decline in the value of an intangible asset?

Accepted Answer

A)  Amortization 
B)  Impairment 
C)  Depletion 
D)  Depreciation 
A)  Amortization 
B)  Impairment 
C)  Depletion 
D)  Depreciation

Question 20

The depreciable cost of a long-term asset is the difference between the amount paid for the asset and its salvage value.

Accepted Answer

A) True 
 B)False

When Company X purchases Company Y, X should record Y's assets at their fair market value at the time of the acquisition.

Explain how the gain or loss is computed on the sale of a piece of equipment.

Chubb Company paid cash to purchase equipment on January 1, Year 1. Select the answer that shows how the recognition of depreciation expense in Year 2 would affect the financial statements (+ means increase, − decrease, and NA not affected).

The recognition of depletion expense:

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

With an accelerated depreciation method, an asset can be depreciated below its salvage value.

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

Describe what is meant by the term "goodwill."

Which of the following is considered an accelerated depreciation method?

On January 1, Year 1, Missouri Company purchased a truck that cost $47,000. The truck had an expected useful life of 10 years and a $5,000 salvage value. The amount of depreciation expense recognized in Year 2 assuming that Missouri uses the double declining-balance method is:

The purchase of a new delivery truck for cash is an asset use transaction.

What term is used to describe the situation where there is a permanent decline in the value of an intangible asset?

The depreciable cost of a long-term asset is the difference between the amount paid for the asset and its salvage value.

An Introduction to Accounting

Accounting for Accruals and Deferrals

Accounting for Merchandising Businesses

Internal Controls, Accounting for Cash, and Ethics

Accounting for Receivables and Inventory Cost Flow

Accounting for Liabilities

Proprietorships, Partnerships, and Corporations

Financial Statement Analysis

An Introduction to Management Accounting

Cost Behavior, Operating Leverage, and Profitability Analysis

Cost Accumulation, Tracing, and Allocation

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Planning for Capital Investments

Filters

Exam 6: Accounting for Long-Term Operational Assets

When Company X purchases Company Y, X should record Y's assets at their fair market value at the time of the acquisition.

Explain how the gain or loss is computed on the sale of a piece of equipment.

Chubb Company paid cash to purchase equipment on January 1, Year 1. Select the answer that shows how the recognition of depreciation expense in Year 2 would affect the financial statements (+ means increase, − decrease, and NA not affected).

The recognition of depletion expense:

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

With an accelerated depreciation method, an asset can be depreciated below its salvage value.

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

Describe what is meant by the term "goodwill."

Which of the following is considered an accelerated depreciation method?

On January 1, Year 1, Missouri Company purchased a truck that cost $47,000. The truck had an expected useful life of 10 years and a $5,000 salvage value. The amount of depreciation expense recognized in Year 2 assuming that Missouri uses the double declining-balance method is:

The purchase of a new delivery truck for cash is an asset use transaction.

What term is used to describe the situation where there is a permanent decline in the value of an intangible asset?

The depreciable cost of a long-term asset is the difference between the amount paid for the asset and its salvage value.

An Introduction to Accounting

Accounting for Accruals and Deferrals

Accounting for Merchandising Businesses

Internal Controls, Accounting for Cash, and Ethics

Accounting for Receivables and Inventory Cost Flow

Accounting for Liabilities

Proprietorships, Partnerships, and Corporations

Financial Statement Analysis

An Introduction to Management Accounting

Cost Behavior, Operating Leverage, and Profitability Analysis

Cost Accumulation, Tracing, and Allocation

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Planning for Capital Investments

Filters