Exam 8: Accounting for Long-Term Operational Assets

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

Use the following to answer questions Jing Company was started on January 1,2016 when it issued common stock for $50,000 cash.Also,on January 1,2016 the company purchased office equipment that cost $34,000 cash.The equipment was delivered under terms FOB shipping point,and transportation cost was $2,000.The equipment had a five-year useful life and a $12,000 expected salvage value. -Assume that Jing Company earned $30,000 cash revenue and incurred $19,000 in cash expenses in 2018.Using straight-line depreciation and assuming that the office equipment was sold on December 31,2018 for $16,000,the amount of net income or (loss)appearing on the December 31,2018 income statement would be:

Use the following to answer questions Harding Corporation acquired real estate that contained land,building and equipment.The property cost Harding $1,900,000.Harding paid $350,000 and issued a note payable for the remainder of the cost.An appraisal of the property reported the following values: Land,$374,000;Building,$1,100,000 and Equipment,$726,000. -What journal entry would be used to record the purchase of the above assets?

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

Indicate whether each of the following statements is true or false. _____ a)A trademark has an identifiable legal lifetime. _____ b)U.S.GAAP requires that research and development costs be capitalized as assets and then expensed over a reasonable period of time. _____ c)A patent is amortized over the longer of its legal or useful life. _____ d)The entry to record the amortization of a patent includes a debit to Amortization Expense,Patent and a credit to Patent. _____e)The capitalized cost of a trademark includes the cost to develop the trademark and to defend it.

Emir Company purchased equipment that cost $110,000 cash on January 1,2015.The equipment had an expected useful life of six years and an estimated salvage value of $8,000.Assuming that Emir depreciates its assets under the straight-line method,the amount of depreciation expense appearing on the 2018 income statement and the amount of accumulated depreciation appearing on the December 31,2018 balance sheet would be:

Goodwill is the value attributable to a business's ability to generate a high return.

In choosing a depreciation method for financial reporting,a company should use the method that most closely approximates the amount of depreciation on the tax return.

Indicate whether each of the following statements regarding accounting for long-term assets is true or false. _____ a)Other things being equal,the lower a company estimates the salvage value of a plant asset to be,the higher the company's net income will be. _____ b)Depreciation expense is an example of a "non-cash" expense. _____ c)For tax purposes the most desirable depreciation method is the one that produces the lowest amount of depreciation expense. _____ d)The book value of an asset is the amount a company believes it is worth (its fair value)as of the date of the balance sheet. _____ e)A company that uses straight-line depreciation for financial statement reporting and MACRS for tax reporting will show a deferred tax liability in an asset's early life.

The Hoover Company acquired the Burgess Company for $1,200,000 cash.The fair value of Burgess's assets was $1,040,000,and the company had liabilities of $60,000.Which of the following choices would reflect the purchase on Hoover's financial statements?

Tangible assets include land,equipment,and goodwill.

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?

Gillock,Inc.uses MACRS for its income tax returns and straight line depreciation for its financial statements.The company purchased 5 year property on January 1,2016 that cost $130,000 and has a $10,000 salvage value and an expected 8 year useful life.There is a depreciation percentage of 20% for the first year for 5-year property,for tax purposes.The company would show which of the following on its financial records?

The Grant Company acquired the Lee Company for $600,000 cash.The fair value of Lee's assets was $520,000,and the company had $40,000 in liabilities.Which of the following choices would reflect the acquisition on Grant's financial statements?

Generally accepted accounting principles require that,when the estimated useful life of a long-term asset is changed,previously-issued financial statements should not be revised.

In January 2016,Rainey Co.purchased a machine that cost $150,000.The equipment is estimated to have a 5-year life and a salvage value of $30,000. Required: a)Compute the amount of depreciation expense for 2016 and 2017 using the double declining balance method. b)Compute the amount of MACRS depreciation for the above equipment for 2016 assuming the property is 5 year property and the MACRS percentage is 20%.

On January 1,2016,Phillips Company made a basket purchase including land,a building and equipment for $380,000.The appraised values of the assets are $20,000 for the land,$340,000 for the building and $40,000 for equipment.Phillips uses the double declining balance method of depreciation for the equipment which is estimated to have a useful life of four years and a salvage value of $5,000.The depreciation expense for 2016 for the equipment is:

On January 1,2016,Friedman Company purchased a truck that cost $48,000.The truck had an expected useful life of 100,000 miles over 8 years and an $8,000 salvage value.During 2017,Friedman drove the truck 18,500 miles.The amount of depreciation expense recognized in 2017 assuming that Friedman uses the units of production method is:

Which of the following terms is applied to long-term assets that have no physical substance and provide rights,privileges and special opportunities to businesses?

A trademark is a tangible asset with an indefinite useful life.