Exam 9: Reporting and Interpreting Liabilities

Foghorn Ltd. has an asset with an original cost of $16,000 and a carrying amount (net book value) today of $4,400. The Company no longer needs the asset and has decided to sell it today for $3,000 cash. The journal entry Foghorn will use to record the sale includes:

Sure Company purchased a machine on January 1, 20A, at a cash cost of $12,000. The estimated useful life is 10 years, and the estimated residual value is $3,000. The company will use the declining-balance method based on a 150 percent acceleration rate. What will be the depreciation expense for the second year?

A machine, acquired for a cash cost of $6,000, is being depreciated on a straight-line basis of $900 per year. The residual value was estimated to be 10% of cost. What is the estimated useful life?

Depreciation expense is a non-cash expense that has no effect on cash.

Impairment losses on goodwill are never reversed.

On the statement of cash flows, cash flows from the purchase and sale of long-lived assets are shown in which section?

When events or changes in circumstances reduce the estimated future cash flows of long-lived assets below their book value, the book values should be written down (by recording a loss) to the fair value of the assets.

Only the actual acquisition cost, the estimated useful life, and the method of depreciation of an operational asset are required to compute the depreciation expense for a period.

Nadler Inc. purchased equipment for $48,000, and estimated that the equipment will have a $4,000 residual value at the end of its 8-year useful life. Using the double-declining-balance method, the depreciation expense for the third year would be

An asset is always sold for its residual value at the end of the asset's useful life.

A depreciable asset that cost $100,000 had an estimated useful life of 5 years and estimated residual value of $10,000. What is the first year for which depreciation would be greater under the straight-line method than under the declining-balance method with an acceleration rate of 200%?

Amortization is about valuation rather than allocation.

Operational assets do not include which of the following kinds of assets?

If the proceeds from the sale of equipment exceed its carrying amount, a gain on disposal is reported.

Because of depreciation, the net carrying amount of an asset declines over time and profit is reduced by the amount of the expense.

The depreciable amount is:

Carpenter Corporation purchased a mineral deposit, making payment as follows: Cash $10,000 and 6,000 Carpenter Corporation common shares. On the date of the purchase, the mineral deposit had an appraised value of $75,000; the common shares were quoted on the market at $11 per share. Other acquisition costs amounted to $3,000 cash. What was the cost recorded for the mineral deposit?

Yell Company made a lump sum purchase of an office building, including the land and some fixture for cash of $160,000. The tax assessments for the past year reflected the following: Land, $22,500; Building, $58,500; and Fixtures, $9,000. Complete the following entry for the acquisition:

Sutter Company purchased a machine on January 1, 20A, for $16,000. The machine has an estimated useful life of 5 years and a $1,000 residual value. It is now December 31, 20B, and Sutter is in the process of preparing financial statements. Complete the following schedule assuming declining-balance method of depreciation with a 150% acceleration rate.

Depreciation and depletion conceptually are different because they apply to different kinds of operational assets.