Exam 9: Reporting and Interpreting Liabilities

In conformity with the historical cost principle, cost (less any estimated residual value) is allocated to periodic expense over the periods benefited.

On January 1, 20A, Reagan Company purchased a machine. The price quoted by the seller was $10,000 less 2% if paid within 15 days of the invoice date. Paid with cash were: transportation, $300; installation, $600; and sales tax, $200. Give the entry to record the acquisition assuming the discount was taken.

On September 1, 2013, Sitco Limited purchased an asset for $9,000, with a $1,500 estimated residual value, and an 8-year useful life. The 2013 depreciation expense using the double-declining-balance method would be:

On January 2, 20D, Daintry Company purchased a patent for $380,000 from an inventor who had developed a new manufacturing process. At the time of the purchase, the patent had a remaining lega life of 12 years, but Daintry estimated the useful life to the company to only be 10 years. Required: 1. Prepare the journal entry to record Daintry's purchase of the patent. 2. Prepare the journal entry to record amortization of the patent for 20D, assuming that no contra account is used. 3. At the start of 20G, after amortization had been recorded for three years, Daintry concluded that th total useful life of the patent would be 7 years, rather than 10. Record Daintry's amortization expense for 20G.

The financial statements of Betty Company contained the following errors: Respond to each of the following (disregard income taxes): A. Profit for 20A, was understated or overstated (circle one). B. Total combined profit for the two-year period ended December 31, 20B, was overstated or understated (circle one).

Acquisition cost of property, plant, and equipment is the cash-equivalent purchase price plus all reasonable and necessary expenditures made to acquire and prepare the asset for its intended use.

The cost of a major addition to an operational asset should be recorded as an asset and depreciated over its useful life.

WD Company reports profit in 2013 of $1,300 million and depreciation expense of $851 million. They also report investment in new theme parks, resorts, and other property of $2,134 million for 2013. Which of the following disclosures would appear on their statement of cash flows?

Which of the following costs would normally not be included in the cost of equipment?

Operating expenditures are expensed as incurred.

A corporation may choose to list its operational assets in the current assets section of the statement of financial position.

The fixed asset turnover ratio is computed by dividing profit by the average fixed assets amount.

The declining-balance method of depreciation is appropriate for companies that expect their equipment or other assets to become obsolete fairly rapidly.

AA Riser owns machinery for moving and delivering plants to its customers. The recorded cost of the machinery is $38,000. It is estimated that the machinery will be able to move 120,000 plants over its life. The company depreciates the machinery using straight-line depreciation over a useful life of twelve years and an estimated residual value of $2,000. The amount that will be charged annually as depreciation will be:

When a company acquires land by issuing 10,000 of its common shares currently trading for $20 per share, the company must get an appraisal of the land and recognize a gain if the appraised value is more than the $200,000 value of the shares issued.

Which of the following would most likely not be a revenue expenditure?

Which of the following would be classified as an operational (fixed) asset?

The Orser Mining Company acquired a gold mine for $8,000,000. It is estimated that 40,000 ounces of gold can be extracted from the mine. In the first year of operations, 15,000 ounces of gold were extracted. The Orser Mining Company would recognize:

Martinelli Company recently purchased a truck. The price negotiated with the dealer was $85,000. Martinelli also paid sales tax of $6,000 on the purchase, shipping and preparation costs of $950, and insurance for the first year of operation of $2,000. For the truck, what amount should be debited to the asset account Vehicles?

One of the most important challenges facing managers is forecasting the level of productive capacity (fixed assets) needed in the long run to meet customer demand.