Exam 7: Operating Assets

If new equipment purchased during the year is reported on the balance sheet at December 31 as a long-term asset, there will be no related item on the income statement for the year ended December 31.

Double-declining-balance depreciation is most commonly used by businesses for financial reporting purposes.

Research and Development costs should be added to the cost of patents.

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

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 after putting the asset into service which would extend the asset's useful life.

You are an entrepreneur with a great idea for a new business. In order to obtain financing, the loan officer at First Second Third National Bank has requested a budgeted set of financial statements. An accountant friend of yours has mentioned that there are several options associated with plant assets that are available to help you improve your budgeted income. Describe several decisions concerning property, plant, and equipment that have an impact on reported net income. Are there any ethical concerns in this area?

A company purchased land and incurred the following costs: What is the cost of the land?

Distinguish between capital and revenue expenditures.

Explain how the costs associated with operating assets are reported on the balance sheet.

The accounting life of intangible assets is determined by

Acquisition cost includes all of the costs that are normal and necessary to acquire and maintain a plant asset over its useful life.

Fireworks City Information for 2020 and 2019 is presented below for this company which uses the straight-line depreciation method. -Refer to Fireworks City. During the year, the company sold some equipment that had an original cost of $60,000. Which statement is true concerning transactions that must have occurred during the period?

Match these terms with their correct definition. -Right to exclusive use of a distinctive name, phrase, or symbol

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 maximizes net income.

A construction company purchased a piece of equipment with a price of $100,000 on March 1 of the current year. The amounts are related to the equipment purchase. Match the items and explain how each item should be accounted for. (Choices may be used more than once.) -It was necessary for an architect to redesign the work space to accommodate the new equipment. A fee of $6,000 was paid.

A company purchased a patent for $100,000 at the beginning of the current year which it believes has an expected useful life of 5 years. Fortunately, the patent has a legal life of 20 years. How much amortization expense should be recorded in the current year?

Fabian Woodworks ​ This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2019, and was used 27,000 hours in 2019 and 26,000 hours in 2020. -Refer to Fabian Woodworks. If the company uses the double-declining-balance depreciation method, what amount is the depreciation expense for 2020?

A company bought machinery on January 1, 2019, for $200,000. On January 2, 2021, the machinery had a book value of $100,000. It is estimated that the machine will generate future cash flows of $70,000 and its current fair value is $60,000. How much impairment loss should be recorded?

Why do many companies use MACRS (Modified Accelerated Cost Recovery System) depreciation for tax purposes? If a company uses MACRS for depreciation for tax purposes, can it use a different method for financial reporting? Explain why or why not.

Match these terms with their correct definition. -Cost less residual value