Exam 9: Reporting and Interpreting Long-Lived Tangible and Intangible Assets

Assuming no additions, replacements, or extraordinary repairs, the book value of any long-lived asset with a limited life is always less than or equal to its acquisition cost.

A company acquired property that included land, building and equipment for a total cost of $163,000. The land was appraised at $87,500, the building at $35,000, and the equipment at $52,500. What should be the allocation of the total cost in the accounting records?

During 2011, Company X sells 500,000 units for $8 each. Sales discounts are $100,000 and sales returns and allowances are $300,000. The company reported a total of $710,000 in fixed assets on January 1, 2011 and $890,000 in fixed assets on December 31, 2011. a. Calculate net sales revenue. b. Calculate average fixed assets. c. Calculate the fixed asset turnover ratio. d. Assume the 2011 fixed asset turnover ratio was lower than the 2010 ratio. Describe one circumstance where this change would indicate bad news and one circumstance where this change would be consistent with good news.

Goodwill

The primary difference between ordinary repairs and extraordinary repairs is:

Accumulated depreciation is classified as an expense.

If net sales revenue and the average book value of fixed assets both rise 5%:

If an asset is depreciated with the straight-line method and it has a salvage (residual) value, the depreciation will be a level amount over the asset's life until the last year when it will be lower.

The straight-line depreciation method and the double-declining-balance depreciation method

When originally purchased, a vehicle had an estimated useful life of 8 years. The vehicle cost $25,000 and its estimated residual value is $3,000. After 3 years of straight-line depreciation, the asset's total estimated useful life was revised from 8 years to 5 years and there was no change in the estimated residual value. The depreciation expense in year 4 is

The book value of a depreciable asset can never be less than its

After the early years of an asset's life, accelerated depreciation methods:

A company paid $500,000 to purchase equipment and $15,000 to have the equipment delivered to and installed in the company's production facilities. Commercial use of the equipment began on May 1, 2011. The estimated residual value of the equipment is $5,000. The equipment is expected to be used a total of 28,000 hours throughout its estimated useful life of six years. The company has an October 31, 2011 year-end and had used the equipment a total of 11,200 hours prior to the year-end. Using the units- of- production method, what amount of depreciation expense (to the nearest thousand) would the company report for this equipment in the income statement prepared for the year-ended October 31, 2011?

In recording the acquisition cost of an entire business:

Recall that the Fixed Asset Turnover Ratio equals Net Sales Revenue divided by Average Net Fixed Assets. Assume that, prior to preparing adjusting entries at the end of the year, Caterpillar Corporation has a fixed asset turnover ratio of 3.4 based on average net fixed assets of $500,000,000. Which of the following year-end adjustments would cause Caterpillar's fixed asset turnover ratio to increase?

Extraordinary repairs, replacements, and additions are added to the appropriate asset accounts rather than being recorded as expenses.

How many of the following statements regarding intangible assets are true? Goodwill is an example of a self-created intangible asset and is measured by estimating the excess of fair value of the company's assets over their book value. Goodwill is amortized using the straight-line method. Intangible assets are not adjusted for asset impairment losses. Only goodwill purchased from another company can be reported on the balance sheet as an intangible asset.

The calculation for depletion of natural resources is similar to the calculation for units-of-production depreciation.

A company sells a piece of equipment half-way through the accounting period. The straight-line rate of depreciation on the equipment is $40,000 a year. Before recording the asset sale, the company should debit:

A declining fixed asset turnover ratio can actually be caused by acquiring additional assets in the current period in preparation for greater future sales.