Exam 6: Accounting for Long-Term Operational Assets

Which of the following should be the main determinant in the selection of the depreciation method for long-term operational assets?

Zabrinski Company purchased oil rights on July 1, 2014 for $3,200,000. 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 2014, the amount of depletion expense recorded on December 31, 2014 would be:

The Harlow Company purchased the Hampton Company for $600,000 cash. The fair market value of Hampton's assets was $520,000 and the company had liabilities of $30,000. What amount of goodwill should Harlow record related to the purchase of Hampton Company?

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

On January 1, 2014, Racine Company purchased equipment that cost $55,000 cash. The equipment had an expected useful life of six years and an estimated salvage value of $4,000. Assuming that Racine depreciates its assets under the straight-line method, the amount of depreciation expense appearing on the December 31, 2015 income statement and the amount of accumulated depreciation appearing on the December 31, 2015 balance sheet would be:

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

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. $\text { Increase } = \mathrm { I } \quad \text { Decrease } = \mathrm { D } \quad \text { No Effect } = \mathrm { N }$ An asset purchased for $14,000 that had a $4,000 salvage and a 4-year life was depreciated using straight line depreciation for two years. At the beginning of the third year, the total useful life of the asset is revised to 5 years. Show how the revised depreciation expense will affect the financial statements. Assets Liabilities Equity Revenues Expenses Net Income Cash Flow

Indicate whether each of the following statements is true or false. 1. The entry to recognize an impairment loss would decrease a company's net income and total assets. 2. Intangible assets with indefinite useful lives are amortized over 5 years 3. A franchise is an intangible asset 4. Intangible assets with indefinite useful lives must be tested each year for impairment 5. If a company determines that the value recorded for goodwill is too high, an impairment loss must be recognized

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 the first year's amortization of Falbo's copyright?

Which of the following would most likely not be depreciated or amortized using the straight-line method?

On January 1, 2014, Rowley Company purchased a truck that cost $22,000. The truck had an expected useful life of 5 years and a $4,000 salvage value. The amount of depreciation expense recognized in 2014 assuming that Rowley uses the double declining balance method is:

Indicate whether each of the following statements is true or false. 1. Straight-line depreciation is the depreciation method most widely used in the U.S. 2. Units-of-production depreciation method allocates cost of an asset in proportion to asset usage 3. Accumulated depreciation is classified as a liability 4. 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 5. Recording depreciation affects the income statement but not the balance sheet

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. $\text { Increase } = \mathrm { I } \quad \text { Decrease } = \mathrm { D } \quad \text { No Effect } = \mathrm { N }$ Baird Enterprises purchased equipment on account on January 1, 2014. Show how the purchase affected the financial statements. Assets Liabilities Equity Revenues Expenses Net Income Cash Flow

Which one of the following would not be classified as an intangible operational asset?

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. $\text { Increase } = \mathrm { I } \quad \text { Decrease } = \mathrm { D } \quad \text { No Effect } = \mathrm { N }$ Graettinger Manufacturing Company spent $4,000 to extend the useful life of one of its assets. Assets Liabilities Equity Revenues Expenses Net Income Cash Flow

Philips Corporation purchased a truck that cost $26,000. The company expected to drive the truck 100,000 miles. The truck had an estimated salvage value of $2,000. If the truck is driven 36,000 miles in the current accounting period, which of the following amounts should be recognized as depreciation expense?

Name three examples of property, plant and equipment.

On January 1, 2014, Stetson Company paid $160,000 to obtain a patent. Stetson expected to use the patent for 5 years before it became technologically obsolete. Based on this information, the amount of amortization expense on the December 31, 2014 income statement and the book value of the patent on the December 31, 2014 balance sheet would be:

What items are included in the cost of a newly purchased building?

The recognition of depletion expense acts to