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

Eastern Fisheries Co. purchased equipment on January 1, 20X1 for $22,500. The equipment had an estimated useful life of 10 years and an estimated residual value of $2,500. The company uses double-declining-balance depreciation. -Assuming Eastern uses double-declining-balance depreciation, what would be the depreciation expense for 20X1?

Angstrom Corporation purchased a truck at a cost of $60,000. It has an estimated useful life of five years and estimated residual value of $5,000. At the beginning of year three, Angstrom's managers concluded that the total useful life would be four years, rather than five. There was no change in the estimated residual value. What is the amount of depreciation that Angstrom should record for year 3 under the straight-line method?

Upon the disposal of an asset, if the proceeds are greater than the carrying value of the asset the company must:

Acquiring and disposing of long-lived assets are financing activities on the cash flow statement.

Foghorn Ltd. has an asset with an original cost of $16,000 and a carrying amount (net book value) today of $4,400. The Company no longer needs the asset and has decided to sell it today for $3,000 cash. The journal entry Foghorn will use to record the sale includes:

On the statement of cash flows, cash flows from the purchase and sale of long-lived assets are shown in which section?

When an asset is retired, a gain or loss must be recorded.

Depreciation and depletion conceptually are different because they apply to different kinds of operational assets.

The book value of an operational asset initially declines less rapidly under the straight-line method than under the declining-balance method.

On April 1, 20X4, Michal Company sold equipment for $11,400 cash. The equipment had originally been purchased at a cost of $24,000 on January 1, 20X0. The equipment was expected to a useful life of 8 years with no residual value. As of January 1, 20X4, had accumulated depreciation of $12,000. The entry to record the sale of the equipment was: a) Cash 11,400 Accumulated Depreciation 12,750 Gain on Sale of Machine 150 Machine 24,000 b) Cash 11,400 Accumulated Depreciation 12,000 Loss on Sale of Machine 600 Machine 24,000 c) Cash 11,400 Depreciation Expense 750 Accumulated Depreciation 12,000 Gain on Sale of Machine 150 Machine 24,000 d) Cash 11400 Loss on Sale of Machine 600 Machine 12,000

Yella Company made a lump sum purchase of an office building, including the land and some fixtures, for cash of $160,000. The tax assessments for the past year reflected the following: Land, $22,500; Building, $58,500; and Fixtures, $9,000. Prepare the journal entry to record the acquisition:

Weaver Mining Company purchased a site containing a mineral deposit in 20X3. The purchase price was $820,000, and the site is estimated to contain 400,000 tons of extractable ore. Weaver constructed a building at the site, at a cost of $500,000, to be used while the ore is being extracted. When the ore reserves are gone, the building will have no further value. Required: 1. Explain the purpose for recording depletion on natural resources. 2. Calculate Weaver's depletion rate per ton of ore for this deposit. 3. Make the journal entry to record depletion for the year 20X3, when W eaver mined and sold 150,000 tons of ore. 4. Make the journal entry to record depreciation on the building for 20X3. W eaver calculates depreciation on the building using the units of production method based on the amount of ore extracted (150,000 tons in 20X3).

The cash flows from the purchase and sale of long-lived assets are reported in the operating activities section of the cash flow statement.

The financial statements of Betty Company contained the following errors: Item December 31, 20X1 December 31, 20X2 Depreciation expense on office equipment \ 500 understated \ 600 overstated Respond to each of the following (disregard income taxes): A. Profit for 20X1, was understated or overstated (circle one). B. Total combined profit for the two-year period ended December 31, 20X2, was overstated or understated (circle one).

If a plant asset is acquired by the issuance of a public company's common shares, the cost of the plant asset should be measured by the

Natural resources should be depleted (usually by the units-of-production method) usually with the amount of the depletion expense capitalized to a revenue account.

When using the declining-balance method of depreciation, a declining percentage is applied to a constant book value.

Land improvements are not a depreciable asset.

Barnes Company purchased a machine on April 4, 20X1, for $210,000. The machine had an estimated useful life of five years and a salvage value of $30,000. The machine is being depreciated using the double-declining-balance method. Barnes depreciates its assets from the first day of the month nearest the date of purchase. The asset balance, net of accumulated depreciation, at December 31, 20X2, would be:

If an acquired franchise or license is intended to provide benefits for an indefinite time period, then the cost of the asset should not be amortized.