Exam 8: Accounting for Long-Term Operational Assets

Indicate whether each of the following statements is true or false.a)Straight-line depreciation is the most widely used method in the U.S.b)An accelerated depreciation method provides a lower depreciation charge in the early years of an asset's life cycle than does the straight-line method.c)The units-of-production method allocates the cost of a plant asset in proportion to the asset's usage.d)Total depreciation expense recognized over the asset's life is not affected by the choice of depreciation methods.e)Recording depreciation expense affects the income statement and the statement of cash flows but neither the balance sheet nor the statement of changes in stockholders' equity.

On January 1, Year 1, Phillips Company made a basket purchase including land, a building and equipment for $1,075,000. The appraised values of the assets are $76,000 for the land, $1,040,000 for the building and $224,000 for equipment. Phillips uses the double-declining-balance method for the equipment which is estimated to have a useful life of four years and a salvage value of $10,000. What is the depreciation expense for the equipment for Year 1? (Round your intermediate calculations to 4 decimal places.)

Grant Company acquired Lee Company for $600,000 cash. The fair value of Lee's assets was $520,000, and the company had $40,000 in liabilities. Which of the following choices would reflect the acquisition on the horizontal financial statements model?

On January 1, Year 1, Li Company purchased an asset that cost $80,000. The asset had an expected useful life of five years and an estimated salvage value of $16,000. Li uses the straight-line method for the recognition of depreciation expense. At the beginning of the fourth year, the company revised its estimated salvage value to $8,000. What is the amount of depreciation expense to be recognized during Year 4?

Indicate whether each of the following statements regarding accounting for long-term assets is true or false.a)Other things being equal, the lower a company estimates the salvage value of a plant asset to be, the higher the company's net income will be.b)Depreciation expense is an example of a "non-cash" expense.c)For tax purposes, the most desirable depreciation method is the one that produces the lowest amount of depreciation expense.d)The book value of an asset is the amount a company believes it is worth (its fair value)as of the date of the balance sheet.e)A company that uses the straight-line method for financial statement reporting and MACRS for tax reporting will show a deferred tax liability in an asset's early life.

On January 1, Year 1, Scott Company purchased a new machine for $220,000. The machine is expected to have an eight-year life and a $20,000 salvage value. The machine is expected to produce 800,000 finished products during its eight-year life. Production during Year 1 was 70,000 units and during Year 2 was 110,000 units. Required: Determine the amount of depreciation expense to be recorded on the machine for Year 1 and Year 2, respectively, using each of the following methods:1)Straight-line2)Units-of-production3)Double-declining-balance

Which of the following intangible assets does not convey a specific legal right or privilege?

On January 1, Year 1, Woolly Company purchased a truck that cost $64,000. The truck had an expected useful life of 120,000 miles over 8 years and a $4,000 salvage value. During Year 2, Woolly drove the truck 20,000 miles. Woolly uses the units-of-production method. What is the amount of depreciation expense recognized in Year 2?

On January 1, Year 1, Sheffield Corporation purchased equipment for $100,000. Sheffield used the straight-line method of depreciation with a $12,000 salvage value and a useful life of 5-years. On January 1, Year 3, Sheffield sold this equipment for $70,000. Required: a)Calculate the gain or loss Sheffield should recognize from this sale.

On January 1, Year 1, Stewart Corporation purchased equipment with a list price of $120,000. A discount of 2% was granted on the equipment; the shipping terms were FOB shipping point, and the transportation cost was $3,000. Installation and testing costs amounted to $4,000. The equipment had an estimated useful life of 4 years and salvage value of $10,000. At the beginning of Year 3, Stewart revised the expected life of the asset to six years and the salvage value to $12,000. Required: Compute the depreciation expense using straight-line method for each of the six years and in total.

For Year 1, Oscar Company records depreciation expense of $12,000 on its income statement and $9,000 of modified accelerated cost recovery system (MACRS)depreciation on its tax return. Which of the following answers is correct regarding the difference between the two figures?

Recognizing depreciation expense on equipment or a building is an asset use transaction.

Which of the following measurements would not be affected by the choice of depreciation methods?

Jackson Incorporated purchased a truck for $36,000. The truck had a useful life of 150,000 miles over 4 years and a $6,000 salvage value. Jackson drove the truck 40,000 miles in Year 1 and 24,000 miles in Year 2. If Jackson uses the units-of-production method, what is the accumulated depreciation at the end of Year 2?

Harding Corporation acquired real estate that contained land, building and equipment. The property cost Harding $1,900,000. Harding paid $350,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $374,000; Building, $1,100,000 and Equipment, $726,000.What value will be reported for the land on the balance sheet?

Alaska Energy Corporation paid cash to acquire land to be used for oil production. The costs incurred by Alaska Energy were the following The company estimated that 3,885,000 gallons of crude oil could be extracted from the site over the life of the asset. The company was able to extract 230,000 gallons in Year 1, 675,000 gallons in Year 2, and 554,000 gallons in Year 3. Required:a)Calculate the depletion charge for:(1)Year 1(2)Year 2(3)Year 3

Which of the following would be classified as a long-term operational asset?

Which method of depreciation generally allocates the largest amount of depreciation to the first year of the asset's life?

On January 1, Year 1, Monroe Minerals Company purchased a copper mine for $129,500,000. The mine was expected to produce 50,000 tons of copper over its useful life. During Year 1, the company extracted 7,900 tons of copper. The copper was sold for $6,400 per ton. Assume that the company incurred $9,065,000 in operating expenses during Year 1. What is the amount of net income for Year 1?

On April 1, Year 1, Fossil Energy Company purchased an oil producing well at a cash cost of $12,000,000. It is estimated that the oil well contains 600,000 barrels of oil, of which only 500,000 can be profitably extracted. By December 31, Year 1, 25,000 barrels of oil were produced and sold. What is depletion expense for Year 1 on this well?