Exam 6: Acquisition and Use of Long-Term Assets

Capitalizing a cost means to record the cost as an asset.

Eta Co.experienced the following events during the current year: a.Purchased land at a cost of $134,000 cash. b.Invested in stock as a long-term,strategic position for $289,000 cash. c.Sold an old warehouse with an historical cost of $350,000 and accumulated depreciation of $200,000 for $77,000. d.Sold an old piece of factory equipment for $20,000 cash to a scrap metal dealer.The equipment cost $560,000 ten years ago,and $430,000 of depreciation had been recorded. e.Sold old office furniture for $13,000.The furniture had cost $30,000 to buy seven years ago and $15,000 of depreciation has accumulated. f.Sold land for $220,000 cash.The land was acquired at a cost of $170,000 five years ago. Required: 1.Determine the net amount of cash generated by all of the transactions combined. 2.Determine the net gain or loss from each of the transactions.What is the total net gain or loss from all of the transactions combined?

Identify each of the events listed below as an expense,capital expenditure,or neither one. Use the following code: E = expense C = capital expenditure N = neither _______ 1.Purchased a patent from a start-up company for $9,000 cash _______ 2.Paid $10,400 cash for routine repairs designed to maintain the operating efficiency of a drilling machine _______ 3.Paid $13,600 to a creditor to satisfy a debt _______ 4.Paid $39,000 to put a new roof on a warehouse _______ 5.Purchased rights to a competitor's trademark for $6,200 cash _______ 6.Paid $2,000,000 for research and development costs _______ 7.Paid $8,800 to completely overhaul a factory machine's engine,which extended its useful life by 6 years _______ 8.Purchased a new conveyor belt system for the factory at a cost of $2,300,000 _______ 9.Paid $219 to add memory to the home-office computers _______ 10.Incurred a cost of $2,330,000 to add a new wing to an existing structure _______ 11.Paid $39,000 to change the gears on factory equipment as part of normal monthly maintenance _______ 12.Distributed cash to the owners as a dividend

Depreciation is ________.

Which depreciation method will maximize net income reported to the shareholders in the early years of an asset's life?

On January 1,2011,Fred McGriff Company bought office computers that cost $43,000,with an estimated useful life of 10 years and an estimated salvage value of $3,000.The company uses the straight-line method of depreciation and has a calendar yearend.For the year ended December 31,2011,McGriff Company will report depreciation expense of ________ on the ________.

Use the following selected information from PDG Corporation to determine the return on assets for the year.

How many of the following depreciation methods result in reporting equal depreciation expense for every year an asset is owned and used?

RET Company uses the activity (units-of-production)method to depreciate long-term assets.The company owns a truck that cost $24,000.The truck is estimated to have a salvage value of $2,000 and a useful life of 200,000 miles.How much depreciation expense would be reported on the income statement in a year in which the truck is driven 50,000 miles?

Use the following selected information from Alpha Corporation to determine the asset turnover ratio for the year.

On January 1,2011,Ace Electronics paid $400,000 cash for a computer that would be used to store and process its accounting information.The computer has a 5-year useful life,after which it will be worthless because it will be obsolete.Ace Electronics uses the straight-line method to depreciate its assets.At December 31,2013,Ace will have accumulated depreciation of ________.

Tango Company purchased land and a building for $350,000.If the assets had been purchased separately,the company would have paid $170,000 for the land and $210,000 for the building.What amount should be recorded for the LAND?

Explain what gains and losses are,how they are calculated,and how they are reported on the financial statements.

On January 1,2011,Ace Electronics paid $400,000 cash for a computer that would be used to store and process its accounting information.The computer has a 5-year useful life,after which it will be worthless because it will be obsolete.What should Ace Electronics report on its Statement of Cash Flows for the year ended December 31,2011?

A gain results when a long-term asset is sold for more than book value.

Return on assets is a ratio used to evaluate how effectively assets generate income.

Which assets are depreciated?

Depreciation,depletion,and amortization all refer to capitalizing an asset at its cost.

All of the following costs would be included in the Equipment account when equipment is purchased EXCEPT ________.

Identify the appropriate accounting treatment for each of the payments listed below using the following code: C = Capitalize E = Expense N = Neither of the above ______ 1.Paid one-month's rent on an office ______ 2.Bought a new truck ______ 3.Bought new hand-held computers for the sales staff ______ 4.Paid for insurance coverage for one year ______ 5.Paid to tune up the truck ______ 6.Paid the employees their weekly wages ______ 7.Paid cash to the owners as a dividend ______ 8.Paid for construction of a building ______ 9.Paid to paint a machine ______ 10.Incurred a cost designed to make a machine work two additional years