Exam 9: Reporting and Analyzing Long-Lived Assets

Identify the following expenditures as capital expenditures or revenue expenditures. (a) Replacement of worn out gears on factory machinery. (b) Construction of a new wing on an office building. (c) Painting the exterior of a building. (d) Oil change on a company truck. (e) Replacing an old computer chip with a faster chip, which increases productive capacity. No extension of useful life expected. (f) Overhaul of a truck motor. One year extension in useful life is expected. (g) Purchased a wastebasket at a cost of $10. (h) Painting and lettering of a used truck upon acquisition of the truck.

A plant asset with a cost of $480,000 and accumulated depreciation of $456,000 is sold for $56,000. What is the amount of the gain or loss on disposal of the plant asset?

Nichols Company purchased a new machine for $250,000. It is estimated that the machine will have a $25,000 salvage value at the end of its 5-year useful service life. The double-declining-balance method of depreciation will be used. Instructions Prepare a depreciation schedule that shows the annual depreciation expense on the machine for its 5-year life.

Using the units-of-activity method of depreciating factory equipment will generally result in more depreciation expense being recorded over the life of the asset than if the straight-line method had been used.

Prepare the journal entries to record the following transactions for Reese Company, which has a calendar year end and uses the straight-line method of depreciation. (a) On September 30, 2014, the company sold old equipment for $46,000. The equipment was purchased on January 1, 2012, for $96,000 and was estimated to have a $16,000 salvage value at the end of its 5-year life. Depreciation on the equipment has been recorded through December 31, 2013. (b) On June 30, 2014, the company sold old equipment for $24,000. The equipment originally cost $36,000 and had accumulated depreciation to the date of disposal of $15,000.

In general, how does one determine whether or not an expenditure should be included in the acquisition cost of property, plant, and equipment?

Nicholson Company purchased equipment on January 1, 2012, for €28,000 with an estimated residual value of €7,000 and estimated useful life of 8 years. On January 1, 2014, Nicholson decided the equipment will last 12 years from the date of purchase. The residual value is still estimated at €7,000. Using the straight-line method the new annual depreciation will be:

Equipment was purchased for $90,000. Freight charges amounted to $4,200 and there was a cost of $12,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $18,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be

The Accumulated Depreciation account represents a cash fund available to replace plant assets.

A company has the following assets: The total amount reported under Property, Plant, and Equipment would be

Given the following account balances at year end, compute the total intangible assets on the balance sheet of Janssen Enterprises.

Which of the following assets does not decline in service potential over the course of its useful life?

The declining-balance method is an accelerated method of depreciation. Briefly explain what is meant by an accelerated method of depreciation and justify the choosing of an accelerated method.

Jamison, Inc. is a regional air cargo carrier. Jamison made a $4,500 improvement to one of its airplanes. If Jamison's accountant expensed this amount, which of the following statements is true?

The following information is available from the annual reports of Reser Company and Trent Company Instructions (a) Based on the preceding information, compute the following values for each company: 1. Asset turnover ratio 2. Return on assets (b) What conclusion concerning the management of plant assets can be drawn from these data?

All leases are classified as either

Railsback Company purchased a machine on January 1, 2014, at a cost of $72,000. The machine is expected to have an estimated salvage value of $4,000 at the end of its 5-year life. The company capitalized the machine and depreciated it in 2014 using the double-declining-balance method of depreciation. The company has a policy of using the straight-line method to depreciate equipment but the company accountant neglected to follow company policy when he used the double-declining-balance method. Net income for the year ended December 31, 2014, was $45,000 before taxes as the result of depreciating the machine incorrectly. Instructions Using the method of depreciation that the company normally follows, prepare the correcting entry and determine the corrected net income for 2014. (Show computations.)

Comment on the validity of the following statements: "As an asset loses its ability to provide services, cash needs to be set aside to replace it. Depreciation accomplishes this goal."

Revson Corporation purchased land adjacent to its plant to improve access for trucks making deliveries. Expenditures incurred in purchasing the land were as follows: purchase price, $55,000; broker's fees, $6,000; title search and other fees, $5,000; demolition of an old building on the property, $5,700; grading, $1,200; digging foundation for the road, $3,000; laying and paving driveway, $25,000; lighting $7,500; signs, $1,500. List the items and amounts that should be included in the Land account.

A plant asset was purchased on January 1 for $45,000 with an estimated salvage value of $5,000 at the end of its useful life. The current year's Depreciation Expense is $5,000 calculated on the straight-line basis and the balance of the Accumulated Depreciation account at the end of the year is $25,000. The remaining useful life of the plant asset is