Exam 8: Receivables, Bad Debt Expense, and Interest Revenue

In conformity with the historical cost principle, cost (less any estimated residual value) is allocated to periodic expense over the periods benefited.

If a building is sold at a gain, the gain on disposal should be reported in the non-operating section of the cash flow statement.

What is an extraordinary repair to a building?

Which of the following would be an example of a land improvement?

The fixed asset turnover ratio is computed by dividing profit by the average fixed assets amount.

Kovacic Company purchased a computer that cost $10,000. It had an estimated useful life of five years and residual value of $0. The computer was depreciated by the straight-line method and was sold at the end of the fourth year of use for $3,000 cash. What should Kovacic record?

Sutter Company purchased a machine on January 1, 20X1, for $16,000. The machine has an estimated useful life of 5 years and a $1,000 residual value. It is now December 31, 20X2, and Sutter is in the process of preparing financial statements. Complete the following schedule assuming declining-balance method of depreciation with a 150% acceleration rate. Date Depreciation Expense (for the year) Book Value (end of the year) 12/31/20X1 12/31/20X2

Operating expenditures are expensed as incurred.

Raco Inc. purchased two used machines together to get a lower total cash price of $90,000. The machines were different, although of the same general type. They were designated as Machines A and B. New machines of the same type could be purchased as follows: Machine A, $25,000; Machine B, $75,000. Prepare the journal entry to record the purchase and show your computations.

Which of the following is not a likely indicator of possible asset impairment?

On January 1, 20X3, Stacy Company purchased the College Book Store for $350,000. At the date of purchase, it was determined the recorded assets had a total market value of $325,000, comprised of inventory (books), $275,000; fixtures, $30,000; and other assets $20,000. It is estimated that the goodwill (if any) has an economic useful life of 20 years. What is the amount of amortization expense for goodwill for 20X3?

Ordinary repairs and maintenance of operational assets should be capitalized and depreciated over the remaining useful life of the related asset.

When assets are disposed of through sale or abandonment, we record additional depreciation since the last adjustment was made.

When may a company include interest costs as part of the cost of the asset?

Accelerated depreciation methods are not desirable from the income tax point of view because the asset will produce a greater profit when it is new (the early years) than when it is older (the later years).

Recording depreciation expense does which of the following?

Listed below are various methods of allocating the cost of certain capital assets over their useful lives, each followed by a descriptive statement. Match the methods to the statements by placing the appropriate letter in the space provided. METHODS A. Capitalized and depreciated/amortized/depleted B. Capitalized C. Evaluated for impairment D. Expensed E. None of these methods 1.Purchased patent 2.Basket purchase of two commercial buildings 3.Advertising costs 4.Intangible assets with indefinite live 5.Legal costs incurred to defend a copyright from infringement 6.Research costs incurred internally 7.Cost of timberland 8.Five-acre parcel of land where a firm's headquarters is located 9.Purchased drilling equipment 10.Goodwill acquired in a business combination 11.Interest on self-constructed assets 12.Development costs for a proven new product

Because of depreciation, the net carrying amount of an asset declines over time and profit is reduced by the amount of the expense.

Jeffers Inc. purchased a warehouse and the land upon which it was located. The total price was $450,000. The land was appraised for $180,000 while the warehouse was appraised for $360,000. What account balances should Jeffers show in its general ledger?

Behren Company purchased a building and the parcel of land on which the building was located for a total purchase price of $810,000. To record the acquisition, the account, Building, should be debited for $810,000.