Exam 6: Accounting for Long-Term Operational Assets

Clampett Corporation paid cash to acquire land to be used for oil production. The costs incurred by Clampett were the following: Estimates were made that 12,500,000 gallons of crude oil can be extracted from the site over the life of the asset. Required: Given that Clampett was able to extract a) 230,000 gallons in the first year, b) 975,000 gallons in the second year, and c) 854,000 gallons in the third year, calculate the depletion charge for each year

On January 1, 2010, Desmet Company purchased office equipment that cost $15,000 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $1,000. The equipment had a five year useful life and a $1,200 expected salvage value. Assume that Desmet Company sold the office equipment on December 31, 2014 for $6,000, the amount of net income or (net loss) appearing on the December 31, 2014 income statement would be

The cost of natural resources includes the purchase price, as well as exploration costs and surveys.

Flynn 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 Flynn's statements?

Teague Company purchased a new machine on January 1, 2014, at a cost of $150,000. The machine is expected to have an eight-year life and a $15,000 salvage value. The machine is expected to produce 675,000 finished products during its eight-year life. Smith produced 70,000 units in 2014 and 110,000 units during 2015. Required: Determine the amount of depreciation expense to be recorded on the machine for the years 2014 and 2015 under each of the following methods:

On January 1, 2014, Rugh Company purchased equipment with a list price of $12,000 with a 2% cash discount. The equipment was delivered under terms of FOB destination and freight costs amounted to $400. A total of $1,000 was paid for installation and testing. During the first year, Rugh paid $300 for insurance on the equipment and another $250 for routine maintenance and repairs. Rugh uses the units-of-production method of depreciation. Useful life is estimated at 5 years or 300,000 units and estimated salvage value is $2,000. During 2014, the equipment produced 60,000 units. What is the amount of depreciation for 2014?

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. $\text { Increase } = \mathrm { I } \quad \text { Decrease } = \mathrm { D } \quad \text { No Effect } = \mathrm { N }$ Hamilton Mining Company recognized $2,000,000 of depletion expense. Assets Liabilities Equity Revenues Expenses Net Income Cash Flow

Title search and document costs incurred to purchase a building are expensed in the period the building is acquired.

Laurens Company purchased equipment that cost $10,000 on January 1, 2014. The asset had an expected useful life of five years and an estimated salvage value of $2,000. Laurens uses the straight-line method for the recognition of depreciation expense. At the beginning of the fourth year of usage, the company revised its estimated salvage value to $1,000. Based on this information, the amount of depreciation expense to be recognized at the end of 2015 is:

Which of the following measurements would not be affected by the choice of depreciation methods?

What are the life cycle phases for a plant asset?

The fair value of the assets and liabilities for Zane's Restaurant were $450,000 and $160,000, respectively. If Reiner Company pays $325,000 cash for the restaurant and assumes its existing liabilities, what amount of goodwill would Reiner record?

Explain the meaning of "impairment" as used in accounting for goodwill.

How does the treatment of goodwill differ between the US and the United Kingdom?

Rouse Company owned an asset that had cost $32,000. The company sold the asset on January 1, 2014 for $8,000. Accumulated depreciation on the day of sale amounted to $26,000. Based on this information, the sale would result in:

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

How is the book value of an asset computed?

On January 1, 2014 Morgan Co. purchased a truck that cost $32,000. The truck had an expected useful life of 10 years and a $5,000 salvage value. The amount of depreciation expense recognized in 2015 assuming that Morgan uses the double declining-balance method is:

Driscoll Company purchased equipment on January 1, 2010 for $26,000. Driscoll uses straight-line depreciation for the asset, which has a five year estimated useful life and a salvage value estimated at $4,000. The asset was sold on January 1, 2014 for $12,000 cash. Indicate whether each of the following items related to Driscoll Company is true or false. 1. A gain or loss on a sale of equipment is reported on the balance sheet 2. Book value on January 1, 2014 was $21,600 3. On the date of the sale, Driscoll would record a loss of $800 4. Accumulated depreciation on January 1, 2014 was $8,800 5. Annual depreciation for Driscoll's equipment was $5,200

The choice of depreciation methods for long-term assets affects the results of financial analysis for a company.