Exam 8: Operating Assets: Property, Plant, and Equipment, and Intangibles

Recently, companies have been ordered by governmental agencies to clean up environmental damages caused by business operations. How should costs incurred in these situations be treated?

Using the straight-line depreciation method will cause a company to incur tax expense in the early years of an asset's life than they would experience using an accelerated method of depreciation.

Bing's Export Co. Bing's Export Co. purchased a new delivery truck at the beginning of 2015. The truck 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 2015. The truck was driven 20,000 miles during 2015 and 24,000 miles during 2016. The number of expected miles over five years is 100,000. -Refer to information for Bing's Export Co. By what amount would double-declining-balance depreciation exceed straight-line depreciation over the 5-year life of the truck?

Music Company's only asset as of January 1, 2014, was a copyright. During 2014, only the following three transactions occurred: Royalties earned from copyright use, $510,000 in cash Cash paid for advertising and salaries, $62,500 Amortization, $50,000 Required 1. What amount of income will Music report in 2014? 2. What is the amount of cash on hand at December 31, 2014? 3. Explain how the cash balance increased from zero at the beginning of the year to its year-end balance. Why does the increase in cash not equal the income?

Paulson Transport Company On January 1, 2015, Paulson Transport Company purchased a ship for $2,000,000. It has a ten-year useful life and a residual value of $50,000. The company uses the double-declining-balance method. -What was the depreciation expense for Paulson Transport for the year ended December 31, 2015?

All operating assets, except land, are subject to depreciation, amortization, or depletion.

Many companies use MACRS Modified Accelerated Cost Recovery System depreciation for

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

Norwood, Inc. Norwood, Inc. purchased a crane at a cost of $80,000. The crane has an estimated residual value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation. The crane was purchased on January 1, 2015 and was used 2,700 hours in 2015 and 2,600 hours in 2016. -Refer to the information about Norwood, Inc. What amount will Norwood, Inc. report as depreciation expense over the 8-year life of the equipment?

Craig Inc. purchased a truck on January 1, 2015 for $40,000. The truck had an estimated life of six years and an estimated salvage value of $4,000. Craig uses the straight-line method to depreciate the asset. On July 1, 2017, the truck was sold for $14,000 cash. A. Determine the effect on the accounting equation upon recording the depreciation for 2015. B. Show how the gain or loss on the sale of the asset would be reported on Craig Inc.'s income statement.

Harkin Company purchased a building on a tract of land and allocated the entire cost of the purchase to building. Normally it depreciates buildings over 20 years using the straight-line method with zero residual value and does not depreciate land. Because of its accounting treatment of the purchase, Harkin's income before taxes for the next 20 years will be

Barnhill, Inc. uses straight-line depreciation for its equipment with an estimated useful life of 10 years and zero residual value. The CEO points out that the equipment will last much longer than 10 years, perhaps up to 20 years. What is the impact on earnings per share and net income of depreciating equipment over 20 years rather than 10 years?

For each of the following items, indicate whether each would be treated as a -Costs related to acquiring an asset, such as sales or excise taxes, transportation, insurance during shipment.

Land is not a depreciable asset, but the amount allocated to the building is subject to .

Miguel Foods, Inc. purchased a patent at the beginning of 2013 for $350,000. Economic benefits were expected for 7 years, but the patent's legal life was 20 years. Also during 2013, the company incurred research and development costs of $270,000. Patent amortization expense for 2013 is

Operating assets with no physical properties are called

At the end of 2013, Clock Products, Inc. determined that one of its patents was worthless. The patent had a cost of $300,000. The patent had been amortized for 5 years of its estimated 15-year legal life. Which of the following statements is correct?

Assume that Banker Company purchased a new machine on January 1, 2014, for $96,000. The machine has an estimated useful life of nine years and a residual value of $6,000. Banker has chosen to use the straight-line method of depreciation. On January 1, 2016, Banker discovered that the machine would not be useful beyond December 31, 2019, and estimated its value at that time to be $4,000. REQUIRED: 1. Calculate the depreciation expense, accumulated depreciation, and book value of the asset for each year 2014 to 2019. 2. Was the depreciation recorded in 2014 and 2015 wrong? If so, why was it not corrected?

Explain by what processes the costs of operating assets are allocated to expense.

Depreciation does not describe the increase or decrease in the market value of the asset.