Exam 8: Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Which of the following is correct for Smith Company when Smith issues 10,000 shares of $10 par value common stock and pays $20,000 cash in exchange for a building? The market price of the Smith stock on the exchange date was $35 per share and the building's book value on the books of the seller was $250,000.

Hill Inc. purchased an asset on January 1, 2014. Hill chose an accelerated depreciation method to depreciate the asset. Which of the following is correct if Hill would have chosen the straight-line depreciation method instead?

Which of the following journal entries is correct for Smith Company when Smith issues 10,000 shares of $20 par value common stock and pays $20,000 cash in exchange for a building? The market price of the Smith stock on the exchange date was $35 per share and the building's book value on the books of the seller was $200,000. a. Building 220,000 Cash 20,000 Common stock 200,000 b. Building 370,000 Cash 20,000 Common Stock 350,000 c. Building 370,000 Cash 200,000 Common stock 20,000 Additional paid-in capital 150,000 d. Building 370,000 Common stock 370,000

During 2014, a company purchased a mine at a cost of $3,000,000. The company spent an additional $600,000 getting the mine ready for its intended use. It is estimated that 300,000 tons of mineral can be removed from the mine and the residual value of the mine will be $600,000. During 2014, 45,000 tons of mineral were removed from the mine and 35,000 tons were sold. Which of the following statements is incorrect with respect to the accounting for the mine?

If a long-lived asset has been impaired, the journal entry will require a debit to a loss account and a credit to the long-lived asset account.

Which statement is false?

Allison Company purchased a machine for $1,200,000 at the beginning of 2013. Allison was using the double-declining-balance (200%) method to depreciate the asset and its useful life was estimated to be 5 years with a residual value of $200,000. At the end of 2014, Allison Co. estimates the future cash flows from the asset to be equal to $500,000 and the fair value to be $450,000. Required: What is the amount of the impairment loss?

Benson Mining Company purchased a site containing a mineral deposit during 2014. The purchase price was $820,000, and the site is estimated to contain 400,000 tons of extractable ore. Benson constructed a building at the site, at a cost of $500,000, to be used while the ore is being extracted. When the ore reserves are gone, the building will have no further value. Requirements: A. Explain the objective of recording depletion on natural resources. B. Determine Benson's depletion rate per ton of ore. C. Prepare the journal entry to record depletion for the year 2014, when Benson mined and sold 150,000 tons of ore. D. Prepare the journal entry to record depreciation on the building for 2014 Benson calculates depreciation on the building using the units-of-production method based on the amount of ore extracted (150,000 tons in 2014).

Beckworth Company purchased a truck on January 1, 2013, at a cash cost of $10,600. The estimated residual value was $400 and the estimated useful life 4 years. The company uses straight-line depreciation computed monthly. On July 1, 2016, the company sold the truck for $1,900 cash. Required: A. What was the depreciation expense amount per month? B. What was the amount of accumulated depreciation at July 1, 2016? C. Prepare the required journal entries on the date of disposal, July 1, 2016. (Assume no 2016 depreciation had yet been recorded)

Which of the following best describes the objective of depreciation?

Which of the following statements is incorrect?

On January 1, 2014, equipment was purchased for $100,000. The equipment's estimated residual value is $20,000, and its estimated useful life is 8 years. On December 31, 2014, the book value using the straight-line method of depreciation is $90,000.

On January 1, 2014, Trenton Company purchased a machine costing $50,000. Trenton also incurred the following costs: transportation, $1,000; installation, $2,000; and sales tax, $3,000. Required: Prepare the journal entry to record the machine acquisition assuming cash was paid.

Augie Corporation purchased a truck at a cost of $60,000. It has an estimated useful life of five years and estimated residual value of $5,000. At the beginning of year three, Augie's managers concluded that the total useful life would be four years, rather than five years. There was no change in the estimated residual value. What is the amount of depreciation that Augie should record for year 3 under the straight-line depreciation method?

Bennett Corporation sold a piece of equipment on June 30, 2016, for $50,000 cash. The equipment had been purchased on January 1, 2012, for $150,000. The equipment had an estimated useful life of 6 years and a $30,000 residual value. Bennett Corp. has been using the straight-line method of depreciation and has a year-end of December 31^st. Required: Prepare any necessary journal entries on June 30, 2016, assuming that 2016 depreciation expense has not been recorded.

Carter Company disposed of an asset at the end of the eighth year of its estimated life for $10,000 cash. The asset's life was originally estimated to be 10 years. The original cost was $50,000 with an estimated residual value of $5,000. The asset was being depreciated using the straight-line method. What was the gain or loss on the disposal?

If a company has an asset with a book value of $5.0 million and estimates the future cash flows to be received over the asset's remaining life to be $5.5 million, no impairment has occurred and no loss would be recognized.

If an expenditure related to a depreciable asset is incorrectly treated as a capital expenditure, instead of as repairs and maintenance expense, which of the following statements is true?

The financial statements of Franklin Company contained the following errors: Item December 31.2013 December 31.2014 Depreciation expense on office equipment \ 1,000 understated \ 900 overstated Required: A. Was net income for 2013 understated or overstated? Briefly explain your answer. B. 1. Considering the effect of the errors of both years at December 31, 2014, is retained earnings overstated or understated, and by what amount? 2. Briefly explain your answer to part B(1).

The fixed asset turnover ratio measures the amount of operating income generated per dollar of average fixed assets.