Exam 10: Long Term Assets

Match each definition with the correct term below. -Amortization A)Enlargements of a plant's physical layout. B)A right to occupy land or buildings under a long-term contract. C)The portion of an asset's acquisition cost that a company expects to recover when it disposes of the asset. D)The proportional allocation of the cost of a natural resource to the units extracted. E)A registered symbol that can be used only by its owner to identify a product or service. F)The excess of the amount paid for a business over the fair market value of the business's net assets. G)The periodic allocation of the cost of an intangible long-lived asset to the periods it benefits. H)Improvements to a plant asset that do not add to the plant's physical layout. I)The total number of service units expected from a long-term asset. J)The periodic allocation of the cost of a tangible long-lived asset over its estimated useful life.

A capital expenditure is an expenditure that benefits several future accounting periods.

Leasehold improvements become the property of the lessor at the end of the lease.

Installation of an air-conditioning system is considered a betterment.

An intangible asset with a determinable useful life should be amortized over the legal life of the asset.

Inventory is not classified as a long-term asset.

Bob Quinn is in the gravel business and has engaged you to assist in evaluating his company,Quinn Gravel Company.Your first step is to collect the facts about the company's operations.On January 3,2013,Bob purchased a piece of property with gravel deposits for $3,155,000.He estimated that the gravel deposits contained 4,700,000 cubic yards of gravel.The gravel is used for making roads.After the gravel is gone,the land,which is in the desert,will be worth only about $100,000. The equipment required to extract the gravel cost $726,000.In addition,Bob had to build a small frame building to house the mine office and a small dining hall for the workers.The building cost $76,000 and will have no residual value after its estimated useful life of ten years.It cannot be moved from the mine site.The equipment has an estimated useful life of six years (with no residual value)and also cannot be moved from the mine site. Trucks for the project cost $154,000 (estimated life,six years; residual value,$10,000).The trucks,of course,can be used at a different site. Bob estimated that in five years all the gravel would be mined and the mine would be shut down.During 2013,1,175,000 cubic yards of gravel were mined.The average selling price during the year was $1.33 per cubic yard,and at the end of the year 125,000 cubic yards remained unsold.Operating expenses were $426,000 for labor and $116,000 for other expenses. a.Prepare adjusting entries to record depletion and depreciation for the first year of operation (2013).Assume that the depreciation rate is equal to the percentage of the total gravel mined during the year,unless the asset is movable.For movable assets,use the straight-line method.(Omit explanations.) b.Prepare an income statement for 2013 for Quinn Gravel Company. c.What is your evaluation of the company's operations? Explain your evaluation and offer suggestions.Ignore income tax effects.

Danny's Delivery Service purchased a delivery van for $30,000.The van had an estimated useful life of six years and an estimated residual value of $6,000.After four years of use,the total estimated useful life is revised to seven years.Assuming straight-line depreciation,depreciation expense in year 5 would be

Office furniture was purchased for $28,000.It had an estimated residual value of $4,000 and has a current carrying value of $12,000.Its depreciable cost must have been

Leasehold improvements are subject to depreciation because they have a limited life.

The entry to record the sale of equipment costing $80,000,with accumulated depreciation of $68,000 and sale price of $17,600,is:

The replacement of tires on a truck is considered an ordinary repair.

Which of the following would not be debited to the Machinery account?

Which of the following would be considered a revenue expenditure?

A leasehold is a payment

In the calculation of free cash flow,dividends and purchases of plant assets are both deducted.

According to generally accepted accounting principles,most expenditures for intangible assets acquired from others should be treated as revenue expenditures when incurred.

Match each definition with the correct term below. -Depletion A)Enlargements of a plant's physical layout. B)A right to occupy land or buildings under a long-term contract. C)The portion of an asset's acquisition cost that a company expects to recover when it disposes of the asset. D)The proportional allocation of the cost of a natural resource to the units extracted. E)A registered symbol that can be used only by its owner to identify a product or service. F)The excess of the amount paid for a business over the fair market value of the business's net assets. G)The periodic allocation of the cost of an intangible long-lived asset to the periods it benefits. H)Improvements to a plant asset that do not add to the plant's physical layout. I)The total number of service units expected from a long-term asset. J)The periodic allocation of the cost of a tangible long-lived asset over its estimated useful life.

Present two arguments in favor of the use of accelerated depreciation.

A truck that cost $24,000 and on which $18,000 of accumulated depreciation has been recorded was disposed of on January 1.Assume that the truck was traded for a similar truck having a price of $26,000,that an $3,600 trade-in was allowed,and that the balance was paid in cash.The amount of the gain or loss recognized on this transaction would be