Exam 8: Reporting and Analyzing Long-Term Assets

A company purchased equipment for $65,000 with a salvage value of $5,000 on April 1,Year 1.It has an estimated useful life of 5 years.Using the straight-line method,how much depreciation expense should the company recognize on December 31,Year 1?

The following information is available on a depreciable asset owned by Mutual Savings Bank: The asset's book value is $70,000 on July 1,Year 3.On that date,management determines that the asset's salvage value should be $5,000 rather than the original estimate of $10,000.Based on this information,the amount of depreciation expense the company should recognize during the last six months of Year 3 would be:

The phrase capital-intensive refers to companies with large amounts invested in plant assets.

Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $87,000.The machine's useful life is estimated to be 5 years,or 400,000 units of product,with a $7,000 salvage value.During its second year,the machine produces 84,500 units of product.Determine the machines' second year depreciation under the double-declining-balance method.

The insufficient capacity of a company's plant asset to meet the company's productive demands is called ________.

Prepare journal entries to record the following transactions of a company during the current year:

The federal income tax rules for depreciating assets are known as ________.

Mohr Company purchases a machine at the beginning of the year at a cost of $24,000.The machine is depreciated using the double-declining-balance method.The machine's useful life is estimated to be 5 years with a $4,000 salvage value.The machine's book value at the end of year 2 is:

Plant assets are used in operations and have useful lives that extend over more than one accounting period.

When plant assets are purchased as a group in a single transaction for a lump-sum price,the cost of the purchase is allocated among the different types of assets acquired based on their relative market (or appraised)values.

A company purchased a tract of land for its natural resources at a cost of $1,500,000.It expects to mine 2,000,000 tons of ore from this land.The salvage value of the land is expected to be $250,000.The depletion expense per ton of ore is:

Plant assets are reported on a balance sheet at their depreciated costs (book value),not at fair (market)values.

Total asset cost less accumulated depreciation equals book value.

Decision makers and other users of financial statements are especially interested in evaluating a company's ability to use its assets in generating sales.

Fields Company purchased equipment on January 1 for $180,000.This system has a useful life of 8 years and a salvage value of $20,000.The company estimates that the equipment will produce 40,000 units over its 8-year useful life.Actual units produced are: Year 1 - 4,000 units; Year 2 - 6,000 units; Year 3 - 8,000 units; Year 4 - 5,000 units; Year 5 - 4,000 units; Year 6 - 5,000 units; Year 7 - 7,000 units; Year 8 - 3,000 units.What would be the depreciation expense for the first year of its useful life using the double-declining-balance method?

Since goodwill is an intangible asset,it is amortized each year using the straight-line method.

Granite Company purchased a machine costing $120,000,terms 1/10,n/30.The machine was shipped FOB shipping point and freight charges were $2,000.The machine requires special mounting and wiring connections costing $10,000.When installing the machine,$1,300 in damages occurred.Compute the cost recorded for this machine assuming Granite paid within the discount period.

The cost of an intangible asset is systematically allocated to depreciation expense over its estimated useful life.

Natural resources may be reported under either plant assets or their own separate category on the balance sheet.

A company exchanged an old automobile for a newer model.The old automobile account had a cost of $36,000 and accumulated depreciation of $25,000 as of the exchange date.The new automobile had a cash price of $34,000,but the company was given a $15,000 trade-in allowance and the balance of $19,000 was paid in cash.Prepare the journal entry to record the exchange,if the transaction has commercial substance.