Exam 6: Accounting for Long-Term Operational Assets

What is meant by a "basket purchase" and what method is normally used to determine the cost?

Remsen, Inc. purchased equipment that cost $48,000. The equipment had a useful life of 5 years and a $5,000 salvage value. Remsen used the double-declining-balance method to depreciate its assets. Which of the following choices accurately reflects how the recognition of the first year's depreciation would affect the company's financial statements?

Which of the following terms is used to identify the process of expense recognition for buildings and equipment?

Clark Company paid cash to purchase equipment on January 1, 2014. Select the answer that shows how the recognition of depreciation expense in 2014 would affect assets, liabilities, equity, net income, and cash flow (+ means increase, - decrease, and NA not affected).

Explain how the gain or loss is computed on the sale of a piece of equipment.

Accumulated Depreciation is a temporary account that is closed each year.

Sweetwater Company paid cash to prolong the useful life of one of its assets. Which of the following choices accurately reflects how this event would affect Sweetwater's financial statements?

Which of the following industries would most likely have the highest ratio of sales revenue to property, plant and equipment?

On January 2, 2012, Brimm Corporation purchased a delivery truck for $20,000. The estimated useful life of the truck is 5 years, with an estimated salvage value of $4,000. The truck is expected to be driven 200,000 miles during the five year estimated useful life. a) If Brimm uses double-declining balance depreciation, what is the amount of depreciation for 2013? What is the balance of the accumulated depreciation account at the end of 2013 after adjusting entries have been made? b) Refer to part a. Assume Brimm used the double declining balance method for depreciation and sold the truck at the beginning of 2014 for $12,000. What is the amount of the gain or loss on the sale of the delivery van? c) Assume that Brimm used units-of-production depreciation. The delivery van was driven 50,000 miles the first year and 40,000 miles the second year. What is the amount of depreciation expense for 2012 and for 2013? What is the balance of the accumulated depreciation account at the end of 2013 after adjusting entries have been made?

On January 1, 2014, the Falbo Company purchased a copyright for $12,000. Falbo estimates the remaining useful life of the copyright to be 6 years. Which of the following correctly shows the effect of Falbo's purchase of the copyright on its financial statements?

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. $\text { Increase } = \mathrm { I } \quad \text { Decrease } = \mathrm { D } \quad \text { No Effect } = \mathrm { N }$ Bowen Company amortized $3,000 of patent cost. Assets Liabilities Equity Revenues Expenses Net Income Cash Flow

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. $\text { Increase } = \mathrm { I } \quad \text { Decrease } = \mathrm { D } \quad \text { No Effect } = \mathrm { N }$ The Borger Company purchased an asset for $20,000 on January 1, 2007. The asset had a zero salvage value and an 8-year estimated useful life. On January 1, 2014 the company spent $2,000 cash on routine repair and maintenance. What effect will recording the 2014 expenditure have on the company's financial statements for the year? Assets Liabilities Equity Revenues Expenses Net Income Cash Flow

When several long-term assets are purchased in a single transaction, the purchase price is allocated among the assets based on their relative fair values.

Hines Co. owned an asset (equipment) that originally cost $24,000. The company sold the asset on January 1, 2014 for $8,000 cash. Accumulated depreciation on the day of sale amounted to $18,000. Based on this information, indicate whether each of the following statements is true or false. 1. The sale would result in a decrease in total assets for Hines 2. The final stage in the life cycle of a tangible asset is its disposal 3. In 2014, Hines would show an $8,000 cash inflow in the investing activities section of the cash flow statement 4. In 2014, Hines would recognize a $2,000 cash inflow in the operating activities section of the statement of cash flows 5. The sale of the asset would result in a $2,000 gain on the income statement

In January 2014, Rogers Co. purchased a machine that cost $65,000. The equipment is estimated to have a 5-year life and a salvage value of $15,000. Required: a) Compute the amount of depreciation expense for 2014 and 2015 using the double declining balance method. b) How does salvage value affect the calculation of depreciation by the double declining balance method?

On January 1, 2014, Gray Company purchased a new company car for $36,000. The car has an expected salvage value of $6,000. The company estimates that the car will be driven 100,000 miles over its life and uses units of production to determine depreciation expense. The car was driven 20,000 miles in 2014. At the beginning of 2015 the company revised the estimated total life to 120,000 miles. If 26,000 miles were driven in 2015, the amount of depreciation expense for the year would be

On January 1, 2014, Ziskin Company spent $3,000 on an asset (equipment) to improve its quality. The asset had been purchased on January 1, 2009 for $14,000. The asset had a $2,000 salvage value and a 6-year life. Ziskin uses straight-line depreciation. What would be the amount of depreciation expense for 2014?

Which of the following is considered an accelerated depreciation method?

Filemyr Corporation, a U.S. business, is a direct competitor of the Hyakawa Company, a Japanese firm. The two firms not only compete for customers, but also for investment capital. In 2014, each company spent about $3,000,000 U.S. dollars or the equivalent on research and development. US GAAP requires the entire amount to be expensed, while Japan requires its businesses to capitalize R&D and expense it over its useful life. Assuming the treatment of R&D is the only difference between the two firms, which of the following is correct?

Explain the meaning of the terms "tangible" and "intangible" and discuss how these terms are used in describing assets.