Exam 7: Operating Assets

Falling Leaves Lawn Care ​ This company purchased new excavating equipment at the beginning of 2019. The equipment has a cost of $37,000, an estimated life of 5 years, and an estimated residual value of $7,000. A full year's depreciation expense is to be recorded in 2019. The equipment was used 20,000 hours during 2019 and 24,000 hours during 2020. The number of expected hours over 5 years is 100,000. -Refer to Falling Leaves Lawn Care. By what amount would double-declining-balance depreciation exceed straight-line depreciation over the 5-year life of the equipment?

Fleet Rentals purchased equipment with a cost of $200,000 at the beginning of the year. The equipment has an estimated life of 10 years or 100,000 units of product. The estimated residual value is $20,000. During the year, 11,000 units of product were produced with this machinery. Determine the following: A)Amount of total accumulated depreciation at the end of the year, using units-of-production depreciation B)Book value at the end of the year using straight-line depreciation C)Why would the company choose units-of-production depreciation instead of straight-line?

Furniture Barn and Furniture World purchased identical equipment having an estimated useful life of 5 years. Furniture Barn uses the straight-line depreciation method whereas Furniture World uses the double-declining-balance method of depreciation. Assuming the two entities are similar in all other respects, which of the following statements is correct concerning the equipment? Hint: Without worrying about amounts, graph depreciation expense over the 5 years.

A company should choose a depreciation method that

Current accounting standards indicate that the costs of intangible assets with an indefinite life, such as goodwill, should

Identify where each of the following accounts would be reported on the financial statements. (Choices may be used more than once.) -Copyright

Match these terms with their correct definition. -Any expenditure necessary to acquire an asset and to prepare it for use

Operating assets with no physical properties are called

Match these terms with their correct definition. -The process of allocating the cost of a natural resource to each period in which the resource is used

For each of the following items, indicate whether each would be treated as capital expenditure or revenue expenditure. (Choices may be used more than once.) -Costs incurred prior to using the asset, such as installation and other costs to prepare the asset for use.

Distinguish between tangible and intangible operating assets.

Future Foundations purchased equipment on January 1, 2019, for $50,000, with an estimated useful life of 5 years and an estimated residual value of $5,000. The company uses the straight-line method of depreciation. On July 1, 2021, the equipment was sold for $17,500 cash. Prepare journal entries for the following: A) Depreciation expense for 2019; B) Depreciation expense for 2020; and C) Sale of the equipment in 2021.

Given the following list of methods of depreciation, select the method that is best for the situation or purpose given. (Choices may be used more than once.) -This method is the easiest to use.

Fantasy Cruise Lines ​ On January 1, 2019 the company purchased a ship for $1,000,000. It has a 10-year useful life and a residual value of $100,000. The company uses the double-declining-balance method. -Refer to Fantasy Cruise Lines. What is the depreciation expense for the year ended December 31, 2020?

Given the following list of methods of depreciation, select the method that is best for the situation or purpose given. (Choices may be used more than once.) -This method is the best for management bonus plans.

An oil company purchased 10,000 acres of land on January 1, 2019, for $5,000,000, on which it developed an underground oil site. The company spent $11,000,000 to prepare the site for operation but believes that 500,000 barrels of oil can be extracted from the site over 5 years after drilling begins. The land has a residual value of $250,000. Assuming 50,000 barrels of oil were extracted from the land in 2021, how much depletion would be recorded?

All intangible assets are subject to amortization.

The reason some major intangible assets are not in the financial statements is because they cannot be measured.

Identify where each of the following accounts would be reported on the financial statements. (Choices may be used more than once.) -Depreciation expense

To revise depreciation expense, the accountant should compute depreciation expense using the asset's remaining book value and useful life and its new residual value.