Exam 6: Accounting for Long-Term Operational Assets

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?

Indicate whether each of the following statements is true or false. _____ a) Plant assets are classified as long-term assets, while intangible assets are treated as current assets. _____ b) Intangible assets include patents, copyrights, and natural resources. _____ c) Intangible assets with indefinite useful lives will be not be amortized. _____ d) The cost of land should be depleted over its useful life. _____ e) The cost of a natural resource should be expensed (depleted) over its useful life.

On January 1, Year 1, Warren Co. purchased a machine for $120,000. Warren estimated the useful life of the machine to be 10 years and the salvage value to be $20,000. Indicate whether each of the following statements is true or false. _____ a) Depreciation expense for Year 1 under the straight-line method would be $12,000. _____ b) Depreciation expense for Year 1 under the double declining method would be $24,000. _____ c) The accumulated depreciation at the end of Year 2 under the straight-line method would be $20,000. _____ d) The accumulated depreciation at the end of Year 2 under the double declining method would be $48,000. _____ e) The book value of the machine under both the double declining method and the straight-line method at the end of 10 years would be $20,000.

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?

Which of the following assets does not have an indefinite useful live?

Depletion of a natural resource is usually calculated using the straight-line basis.

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

An expenditure that improves the quality of service provided by a plant asset is added to the historical cost of the asset.

What term is used to describe the situation where the value of an intangible asset may be significantly diminished?

When depreciation is recorded on equipment, Depreciation Expense is increased and Equipment is decreased.

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

Goodwill may be recorded in which of the following circumstances?

The recognition of depletion expense:

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:

Anchor Company purchased a manufacturing machine with a list price of $160,000 and received a 2% cash discount on the purchase. The machine was delivered under terms FOB shipping point, and freight costs amounted to $2,400. Anchor paid $3,000 to have the machine installed and tested. Insurance costs to protect the asset from fire and theft amounted to $3,600 for the first year of operations. Based on this information, the amount of cost recorded in the asset account would be:

Indicate whether each of the following statements is true or false. _____ a) Straight-line depreciation is the most widely used method in the U.S. _____ b) An accelerated depreciation method provides a lower depreciation charge in the early years of an asset's life cycle than does the straight-line method. _____ c) The units-of-production depreciation method allocates the cost of a plant asset in proportion to the asset's usage. _____ d) Total depreciation expense recognized over the asset's life is not affected by the choice of depreciation methods. _____ e) The entry to record depreciation affects the income statement and the statement of cash flows but not the balance sheet or statement of changes in stockholders' equity.

Land differs from other property because it is not subject to depreciation.

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. If the original expected life remained the same (i.e., 5-years), but at the beginning of Year 4, the salvage value was revised to $8,000, the annual depreciation expense for each of the remaining years would be:

Indicate whether each of the following statements is true or false. _____ a) Sales taxes paid on the purchase of equipment would be expensed in the year of the purchase. _____ b) Real estate fees and attorney's fees related to the purchase of a building would be added to the cost of the building. _____ c) Payment of a fine for improper burning of a demolished building would be added to the land account. _____ d) Delivery charges on equipment would be expensed in the year of the purchase. _____ e) The matching concept requires that plant assets be recorded at the amount paid for the assets.

Glick Company purchased oil rights on July 1, Year 1 for $2,400,000. If 200,000 barrels of oil are expected to be extracted over the asset's life, and 30,000 barrels are extracted and sold in Year 1, the recognition of depletion expense on December 31, Year 1 would cause: