Exam 8: Accounting for Long-Term Operational Assets

Good Company paid cash to purchase mineral rights on a large parcel of land. Which of the following choices accurately reflects how this event would affect the horizontal financial statements model?

On January 1, Year 1, the City Taxi Company purchased a new taxi cab for $36,000. The cab has an expected salvage value of $2,000. The company estimates that the cab will be driven 200,000 miles over its life. It uses the units-of-production method to determine depreciation expense. The cab was driven 45,000 miles the first year and 48,000 the second year. What is the amount of depreciation expense reported on the Year 2 income statement and the book value of the taxi at the end of Year 2, respectively?

What type of account is Accumulated Depreciation?

What term is used to describe the situation where the value of an intangible asset may be significantly diminished?

Give (1)an example of a type of industry in which a company would invest in a relatively small amount of property, plant, and equipment, and (2)an example of a type of industry that requires a heavy investment in property, plant, and equipment.

On January 1, Year 1, Stiller Company paid $192,000 to obtain a patent. Stiller expected to use the patent for 5 years before it became technologically obsolete. The remaining legal life of the patent was 8 years. Based on this information, what is the amount of amortization expense during Year 3 and the book value of the patent as of December 31, Year 3, respectively?

Which of the following would not be classified as property, plant and equipment?

Chubb Company paid cash to purchase equipment on January 1, Year 1. Select the answer that shows how the recognition of depreciation expense in Year 2 would affect the financial statements.

Late in a plant asset's useful life, the amount of depreciation that would be recorded with the double-declining-balance method is less than the amount that would be recognized with the straight-line method.

The use of estimates and revision of estimates are uncommon in financial reporting.

On January 1, Year 1, the City Taxi Company purchased a new taxi cab for $63,000. The cab has an expected salvage value of $20,000. The company estimates that the cab will be driven 200,000 miles over its life. It uses the units-of-production method to determine depreciation expense. The cab was driven 45,000 miles the first year and 75,000 the second year. What is the amount of depreciation expense reported on the Year 2 income statement and the book value of the taxi at the end of Year 2, respectively?

On January 1, Year 1, Marino Moving Company paid $64,000 cash to purchase a truck. The truck was expected to have a four year useful life and a $4,000 salvage value. If Marino uses the straight-line method, the accumulated depreciation shown on the Year 2 balance sheet is

Hoover Company acquired Burgess Company for $1,200,000 cash. The fair value of Burgess' assets was $1,040,000, and the company had liabilities of $60,000. How much goodwill did Hoover Company acquire in the purchase?

On January 1, Year 1, Raven Limo Service, Incorporated paid $74,000 cash to purchase a limousine. The limo was expected to have a five-year useful life and a $14,000 salvage value. On January 1, Year 3 the limo was sold for $46,000 cash. Assuming Raven uses straight-line depreciation, the Company would recognize a

Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts.Increase = I Decrease = D Not Affected = NABaltimore Company acquired Chesapeake Company for $650,000 cash. Chesapeake's assets had been appraised at $660,000. At the time of sale, Chesapeake's accounting records showed total assets of $590,000, liabilities of $180,000 and stockholders' equity of $410,000. How would the purchase affect Baltimore's financial statements?

Indicate whether each of the following statements is true or false.a)Sales taxes paid on the purchase of equipment would be expensed in the year of the purchase.b)Real estate fees and attorney's fees related to the purchase of a building would be added to the cost of the building.c)Payment of a fine for improper burning of a demolished building would be added to the land account.d)Delivery charges on equipment would be expensed in the year of the purchase.e)The matching concept requires that plant assets be recorded at the amount paid for the assets.

On January 1, Year 2 Boothe Company paid $12,000 cash to extend the useful life of a machine. Which of the following statements is true regarding the financial statement effects of this expenditure?

On January 1, Year 1 Missouri Company purchased a truck that cost $57,000. The truck had an expected useful life of 10 years and a $6,000 salvage value. Missouri uses the double declining-balance method. What is the amount of depreciation expense recognized in Year 2?

Title search and transfer document costs incurred to purchase a building are expensed in the period the building is acquired.

On January 1, Year 1, Monroe Minerals Company purchased a copper mine for $120,000,000. The mine was expected to produce 50,000 tons of copper over its useful life. During Year 1, the company extracted 6,000 tons of copper. The copper was sold for $4,500 per ton. Assume that the company incurred $8,040,000 in operating expenses during Year 1. What is the amount of net income for Year 1?