Exam 7: Operating Assets

If a company's asset turnover ratio decreased from 2012 to 2013, which of the following conclusions can be made?

For Heaven Scapes purchased a trademark at the beginning of 2013 for $200,000. The trademark's legal life is 10 years. How much total amortization expense would have been recorded by January 2014?

Fiona's Italian Market purchased a delivery truck for deliveries for $25,000 at the beginning of 2012. The truck has an estimated life of 5 years, and an estimated residual value of $5,000. The company plans to use the straight-line depreciation method. At the beginning of 2013, the company spent $4000 to replace the truck's transmission. This resulted in a 2-year extension of useful life, but no change in residual value.

-Refer to Fabulous Creations. Explain the impact on net income and cash flows of using straight-line depreciation for financial reporting and accelerated depreciation methods for income tax purposes.

Match these terms with their correct definition. a.Franchise e.Organizational costs b.Intangible operating assets f.Property, plant, and equipment c.Natural resources g.Trademark d.Operating assets h.Voluntary disposal -Occurs when a company determines that an asset is no longer useful

Refer to Fabian Woodworks. If the company uses the straight-line method of depreciation, what is the book value at December 31, 2014?

Match the items and explain how each item should be accounted for. (Choices may be used more than once.) a.This item should be included as part of the cost of the equipment.b.This item should be considered a revenue expenditure. -The company financed the equipment purchase with a bank loan. Interest of $3,000 was paid on the loan during 2013.

How does goodwill arise? How is it accounted for and reported on the financial statements?

Plant assets, current assets, property, plant and equipment, and fixed assets are all tangible assets.

Match these terms with their correct definition. a.Book value e.Depreciation b.Cost f.Impairment c.Depletion g.Involuntary disposal d.Depreciable cost h.Residual value -The process of allocating the cost of a natural resource to each period in which the resource is used

Which of the following accounts would not be reported in the Property, Plant, and Equipment section of a balance sheet?

Why do many companies use MACRS (Modified Accelerated Cost Recovery System)depreciation for tax purposes? If a company uses MACRS for depreciation for tax purposes, can it use a different method for financial reporting? Explain why or why not.

Refer to Falling Leaves Lawn Care. What is the amount by which double-declining-balance depreciation exceeds straight-line depreciation over the 5-year life of the equipment?

Match these terms with their correct definition. a.Franchise e.Organizational costs b.Intangible operating assets f.Property, plant, and equipment c.Natural resources g.Trademark d.Operating assets h.Voluntary disposal -Exclusive right to conduct a certain type of business in some particular geographic area

Identify where each of the following accounts would be reported on the financial statements. (Choices may be used more than once.) a.Balance Sheet--Property, Plant, and Equipment b.Balance Sheet--Intangible Assets c.Balance Sheet--Current Assets d.Balance Sheet--Other Assets e.Income Statement--Operating Section f.Income Statement--Other Revenue and Expense Section -Amortization expense

Future Foundations purchased equipment on January 1, 2013, for $50,000, with an estimated useful life of 5 years and an estimated residual value of $5,000. The company uses the straight-line method of depreciation. On July 1, 2015, the equipment was sold for $17,500 cash.

MATCHING For each of the following items, indicate whether each would be treated as capital expenditure or revenue expenditure. (Choices may be used more than once.) a. capital expenditure b. revenue expenditure -Costs incurred prior to using the asset, such as installation and other costs to prepare the asset for use.

Finnegan's Fixtures purchased molding machines at the beginning of 2012 for $10,000. The machines have an estimated residual value of $2,000 and an estimated life of 5 years or 50,000 hours of operation. The company is considering alternative depreciation methods. Calculate the following:

Finicky Freight purchased a truck at the beginning of 2012 for $80,000. The company decided to depreciate the truck over a 5-year period using the double-declining-balance method. The company estimated the equipment's salvage value at $8,000. Show how the costs should be presented on the financial statements at December 31, 2013. Label the statements properly.

Costs incurred related to plant assets that are already in use are called revenue expenditures if the cost increases the useful life or the asset's productivity.