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

Amanda Company purchased a computer that cost $10,000. It had an estimated useful life of five years and a residual value of $1,000. The computer was depreciated by the straight-line method and was sold at the end of the third year of use for $5,000 cash. Which of the following statements correctly describes the computer sale?

Which of the following properly describes the accounting for goodwill?

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 correct with respect to the accounting for the mine?

Which of the following is correct when recording the disposal of equipment for a gain?

A company purchased equipment for $800,000 and has depreciated it using the straight-line method for the past 5 years when its original life was estimated to be 10 years with a $200,000 residual value. The equipment's utility to the company has declined because they expects the equipment to generate net cash flows over the remaining years of $300,000. The asset's fair value at the end of the fifth year is $200,000. Required: If the asset has been impaired, record the journal entry to record the impairment.

Which of the following costs associated with a land purchase is not a component of the land cost reported on a balance sheet?

Which of the following properly describes the accounting for a patent?

The method of depletion used to allocate the cost of natural resources to future periods is most similar to the straight-line depreciation method.

The following information is available for Coca-Cola and PepsiCo: Coca-Cola PepsiCo Net fixed assets (beginning of year) \ 4,168 \ 5,266 Net fixed assets (end of year) 4,435 5,438 Net sales for the year 19,889 20,438 Net income for the year 2,177 2,183 Required: Compute the fixed asset turnover ratio for both Coca Cola and PepsiCo. Round your answers to two decimal places.

Spa Sources Corporation purchased a machine that had an original cost of $60,000 and an estimated residual value of $10,000. The useful life was expected to be 8 years and straight-line depreciation is used. At the end of 2014, the book value of the machine was $35,000. Spa Sources sold the machine for $32,000 cash on October 1, 2015. Required: A. Prepare the journal entry to record depreciation for 2015 up to the date of sale. B. Prepare the journal entry to record the sale of the machine.

Hubbard Company purchased a truck on January 1, 2013, at a cost of $34,000. The company estimated that the truck would have a useful life of 4 years and a residual value of $4,000. Required: A. Calculate depreciation expense under straight line and double declining balance for 2013-2016. B. Which of the two methods would result in lower net income in 2013 and 2016?

Which of the following statements is false?

On January 1, 2014, Woodstock, Inc. purchased a machine costing $40,000. Woodstock also paid $1,000 for transportation and installation. The expected useful life of the machine is 6 years and the residual value is $5,000. How much is the annual depreciation expense assuming use of the straight-line depreciation method?

The Wilson Company has provided the following information: • Net sales, $200,000 • Net operating income, $40,000 • Net income, $20,000 • Average total assets, $125,000 • Average net fixed assets; $80,000 What is Wilson's fixed asset turnover ratio?

Which of the following is correct?

Salvia Company recently purchased a truck. The price negotiated with the dealer was $40,000. Salvia also paid sales tax of $2,000 on the purchase, shipping and preparation costs of $3,000, and insurance for the first year of operation of $4,000. At what amount should the truck be recorded on the balance sheet prior to recording depreciation expense?

On January 1, 2014, Gordon Company purchased a patent for $420,000 from an inventor who had developed a new manufacturing process. At the time of the purchase, the patent had a remaining useful life of 10 years. Required: A. Prepare the journal entry to record Gordon's purchase of the patent. B. Prepare the journal entry to record amortization of the patent on December 31, 2014. C. At the end of 2017, after amortization had been recorded through December 31, 2017, Gordon concluded that the estimated future cash flows from the patent to be $250,000. The patent's estimated fair value on December 31, 2017 was $200,000. Prepare the journal entry to record the patent impairment, if necessary.

In most cases, the depreciation method chosen for financial reporting purposes (GAAP) must also be utilized for income tax reporting (IRS).

What is the effect on the 2014 financial statements when a capital expenditure during 2014 was incorrectly recorded as a repairs and maintenance expense?

Which of the following would not be classified as property, plant and equipment on a balance sheet?