Exam 8: Accounting for Long-Term Assets

A company purchased a cooling system on January 2 for $225,000.The system had an estimated useful life of 15 years.After using the system for 13 full years,the company completed a renovation of the system at a cost of $33,000 and now expects the system to be more efficient and last 8 years beyond the original estimate.The company uses the straight-line method of depreciation. (a)Prepare the journal entry at January 3,to record the renovation of the cooling system. (b)Prepare the journal entry at December 31,to record the revised depreciation for the thirteenth year.

Total depreciation expense over an asset's useful life will be identical under all methods of depreciation.

Match each of the following terms with the appropriate definitions. -A right granted that gives its owner the exclusive privilege to publish and sell musical,literary,or artistic work during the life of the creator plus 70 years.

When a company constructs a building,the cost of the building includes materials and labor but not design fees,building permits,or insurance during construction.

A company needed a new building.It found a suitable location with an existing old building on the land.The company reached an agreement to buy the land and the building for $960,000 cash.The old building was demolished to make way for the needed new building.Following is information regarding the demolition of the old building and construction of the new one: Construction cost of new building \ 8,900,000 Cost for parking lot \ 260,000 Denolition of old building 200,000 Proceeds fron sale of salvaged materials from old building 70,000 Prepare a single journal entry to record the above costs assuming all transactions are paid in cash.

On April 1 of the current year,a company disposed of a truck that had cost $20,000.The truck had a salvage value of $2,000,and a useful life of 5 years.The accounting records showed accumulated depreciation for this truck of $8,100 as of April 1 of the current year.The asset was discarded after an accident,and $10,500 cash was received from an insurance claim.Prepare the journal entry to record the disposal of the truck.

The calculation of total asset turnover is:

The double-declining balance method is applied by (1)computing the asset's straight-line depreciation rate, (2)doubling it, (3)subtracting salvage value from cost,and (4)multiplying the rate times the net value.

A company traded an old forklift for a new forklift,receiving a $13,500 trade-in allowance and paying the remaining $47,200 in cash.The old forklift had cost $43,000,a 5-year useful life and a $5,000 salvage value.Straight-line accumulated depreciation of $27,200 had been recorded as of the exchange date. 1.What was the book value of the old forklift on the date of the exchange? 2.What amount of gain or loss (indicate which)should be recognized in recording the exchange,assuming the transaction has commercial substance? 3.What amount should be recorded as the cost of the new forklift?

Natural resources are assets that include standing timber,mineral deposits,and oil and gas fields.

How is the cost principle applied to plant asset acquisitions,including lump-sum purchases?

Revenue expenditures to keep an asset in normal,good operating condition; they are necessary if an asset is to perform to expectations over its useful life are called ________.

A company's property records revealed the following information about its plant assets: Machine No. Cost Salvage Value Purchase Date Estimated Life Depreciation Method 1 \ 42,000 \ 3,000 10/1 3 years Straight-line 2 86,000 8,600 7/01 5 years Double-declining balance Calculate the depreciation expense for each machine in Year 1 and Year 2 for the year ended December 31. Machine 1: Year 1 $\underline{\quad\quad\quad\quad}$ $\quad$ $\quad$ Year 2 $\underline{\quad\quad\quad\quad}$ Machine 2: Year 1 $\underline{\quad\quad\quad\quad}$ $\quad$ $\quad$ Year 2 $\underline{\quad\quad\quad\quad}$

A company purchased a tract of land for its natural resources at a cost of $1,000,000.It expects to harvest 5,000,000 board feet of timber from this land.The salvage value of the land is expected to be $200,000.The depletion expense per board foot of timber is:

Amortization is:

Ordinary repairs meet all of the following criteria except:

If a machine is damaged during unpacking,the repairs are added to its cost.

The depreciation method that uses a depreciation rate that is a multiple of the straight-line rate and applies it to an asset's beginning-of-period book value is ________.

Phoenix Agency leases office space for $7,000 per month.On January 3,Phoenix incurs $65,000 to improve the leased office space.These improvements are expected to yield benefits for 8 years.Phoenix has 5 years remaining on its lease.Compute the amount of expense that should be recorded the first year related to the improvements.

Depletion is the process of allocating the cost of natural resources to periods when they are consumed.