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

What is the relationship between the book value of a plant asset, the market value of the plant asset, and the salvage value of a plant asset? Explain.

Central National Bank recently acquired a new computer system. Which of the following costs associated with the computer should not increase the Equipment account?

Crimson Corp. constructed equipment to manufacture a new line of home products during 2015. The average balance of accumulated expenditures on the equipment during September through December 2015 was $500,000. Construction started on September 1, 2015 and was still in progress at the end of 2015. If Crimson borrowed $500,000 for one year on September 1, 2015, to finance the construction, and the interest rate on the construction loan was 6%, how much interest can Crimson capitalize as part of the equipment cost for 2015?

Moore, Inc. purchased slot machines at the beginning of 2015 for $20,000. The machines have an estimated residual value of $2,000 and an estimated life of 5 years or 20,000 hours of operation. Moore is looking at alternative depreciation methods for the equipment. Calculate the following: A. Accumulated depreciation at December 31, 2016, using the straight-line depreciation method. B. Depreciation expense for 2015 using the units-of-production depreciation method. Assume that the machines are operated for 5,000 hours in 2015 and 2,000 hours in 2016. C. Book value of the equipment at December 31, 2016, using the double-declining-balance depreciation method. D. What are the advantages of using straight-line depreciation for financial reporting purposes?

Select the account that would be increased to show each of the following costs. -The transportation charges related to the acquisition costs of a new piece of machinery.

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. -Which method should be used?

A company uses the same depreciation method as other firms in the same industry. Because of this, investors will have enhanced comparability of the financial reporting results.

Daytona Beach Company purchased a car for a salesman for $23,500 at the beginning of 2015. The car had an estimated life of 5 years, and an estimated residual value of $3,500. Daytona Beach used the straight-line depreciation method. At the beginning of 2016, Daytona Beach incurred $2,500 to replace the car's transmission. This resulted in a 2-year extension of the car's useful life, but no change in the residual value. A. What type of cost is the $2,500? Explain. B. Calculate the book value of the car at the end of 2015. C. Find the depreciation expense on the car for 2016. A. The $2,500 cost is a capital expenditure. It increases the plant asset's useful life so it must be capitalized.

All of the following statements are true except:

Distinguish between capital and revenue expenditures.

Plant assets are depreciated because

You have just received an email from the new staff person, Jennifer Lark. She has just started working in the Fixed Assets Department of your company. She would like to know under what circumstances should she capitalize interest as part of the cost of an asset. In a brief memo, explain the issues to Ms. Lark.

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. Bing's is comparing the straight­line and double­declining­balance depreciation methods. Of these two methods, Which method creates the larger expense and larger tax savings in 2015?

Which of the following factors is not related to the decline in the usefulness of plant and equipment assets, and therefore does not need to be considered in selecting an appropriate depreciation method?

On January 1, 2014, Humansville Company purchased a piece of equipment with a list price of $80,000. The following amounts were related to the equipment purchase: • Terms of the purchase were 2/10, net 30. Humansville paid for the purchase on January 8. • Freight costs of $1,250 were incurred. • A state agency required that a pollution control device be installed on the equipment at a cost of $3,300. • During installation, the equipment was damaged and repair costs of $4,200 were incurred. • Architect's fees of $6,100 were paid to redesign the work space to accommodate the new equipment. • Humansville purchased liability insurance to cover possible damage to the asset. The three­year policy cost $8,700. • Humansville financed the purchase with a bank loan. Interest of $4,600 was paid on the loan during 2014. REQUIRED: Determine the acquisition cost of the equipment.

Mega Industries has an intangible asset is being amortized over a ten-year time period. However, a competitor has just introduced a new product that will have a serious negative impact on the asset's value. Should the company continue to amortize the intangible asset over the ten-year life? Explain.

Given the following list of methods of depreciation, select the method that is best for the situation or purpose given. Some answers may be used more than once, while others may not be used at all. -This method minimizes taxable income early in the asset's life

For each of the following items, indicate whether each would be treated as a -Costs incurred after putting the asset into service which would extend the asset's useful life

Please complete the following sentences: a. Accumulated amortization is used with ______________________________________. b. Accumulated depreciation is used with ______________________________________.

Calhoun, Inc. purchased equipment at the beginning of 2015 for $180,000. Calhoun decided to depreciate the equipment over a 5-year period using the double-declining-balance method. Calhoun estimated the equipment's residual value at $30,000. Which of the following statements is correct concerning Rose's financial statements at December 31, 2015?