Exam 6: Acquisition and Use of Long-Term Assets

Capitalizing a cost means to record the cost into a(n)________ account.

Use the following code to identify the expense associated with each of the assets listed below: A = Depreciation expense B = Depletion expense C = Amortization expense D = None of the above ______ 1.Land ______ 2.Patent ______ 3.Oil reserves ______ 4.Lumber ______ 5.Franchise ______ 6.Equipment ______ 7.Inventory ______ 8.Computers ______ 9.Office supplies ______ 10.Office furniture

TER Company uses the activity (units-of-production)method to depreciate long-term assets.The company owns a truck that cost $48,000.The truck is estimated to have a salvage value of $4,000 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?

Which assets are amortized?

S.GAAP value plant and equipment at historical cost minus accumulated depreciation.

On January 1,2011.Hula Hoops,Inc.purchased a $40,000 machine for cash.The company uses straight-line depreciation,an estimated useful life of 5 years,and a $2,000 salvage value. Treat each of the following scenarios independently.For each,write in the amount in the column that represents the one financial statement where the amount is found.Round your answers to the nearest whole dollar.The company's yearend is December 31. Part A: On December 31,2011,the company was told by an appraiser that the machine is in such great condition it could be sold for $38,000. Part B: In December 2012,the company decided that the machine's original estimated useful life of 5 years should be revised to a total of 8 years since the machine is in such good condition.Salvage value is still $2,000.

All depreciation methods provide the same amount of depreciation expense each year.

Indicate whether each of the following transactions would result in a gain,a loss,or neither a gain nor a loss. A= Gain B= Loss C= Neither a gain nor a loss ______ 1.Sold an asset for $4,000.The asset had an original cost of $10,000 and accumulated depreciation of $8,000 had been recorded up to the date of the sale. ______ 2.Sold stock for $12,000.The stock was purchased four years ago for $16,000. ______ 3.Bought a machine 9 years ago for $100,000 and over the years recorded accumulated depreciation of $75,000.Sold the machine for $25,000. ______ 4.Seven years ago the company purchased a patent with a 10-year useful life for $30,000.Sold rights to the patent for $11,000. ______ 5.Recorded $80,000 of depreciation on an asset that originally cost $100,000 and then sold it for a $10,000 note receivable. ______ 6.Bought a machine 5 years ago for $50,000 and over the years recorded accumulated depreciation of $45,000.Sold the machine for $7,000.

A factory machine was purchased on January 1,2011 for $30,000.The machine has an expected 9-year useful life and a $3,000 estimated salvage value.On January 1,2017,the asset is sold for $3,500 cash. Required: 1.Determine the total amount of depreciation expense taken over the life of the asset up to the day it is sold.Assume the company uses the straight-line method and has a calendar year. 2.Determine the asset's book value on the day it is sold. 3.Determine if the asset is sold at a gain or a loss,and show the amount. 4 .Explain how the sale will be reported on the statement of cash flows.

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

On January 1, 2011, the Peninsula Paper Company purchased manufacturing equipment for $600,000. The equipment has a 4-year estimated useful life and a salvage value of $22,500. The company expects to use the equipment for 275,000 hours. Actual hours the equipment was used are provided in the table below: Required: Calculate the depreciation expense for each year of the asset's life using: 1. the straight-line method, 2. the double-declining balance method, and 3. the activity (units-of-production) method

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 31,2011,Ace will have accumulated depreciation of ________.

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.How much depreciation expense should Ace Electronics record for the year ended December 31,2011,using the double-declining balance method?

Indicate which financial statement would report the items listed in the table below. Use the following code: IS = Income statement SE = Statement of changes in shareholders' equity BS = Balance sheet CF = Statement of cash flows NONE = The item does not appear on any financial statement.

Which of the following assets should be amortized?

Peterson Company purchased land,building,and equipment for a total cash price of $900,000.An independent appraiser told management that if the assets had been acquired separately,the company would have paid $300,000,$700,000,and $200,000,respectively,for each of the assets purchased.Write your answers on the lines provided and show your work in the space provided below each question. 1.Use the relative fair market value method to determine how much of the $900,000 purchase price should be used for each of the three separate assets. $______________ should be used for the cost of the land. $______________ should be used for the cost of the building. $______________ should be used for the cost of the equipment. 2.Determine how much depreciation expense the company will have each full year using the straight-line method and the following assumptions: ∙ The building has a 30-year useful life and a zero salvage value. ∙ The equipment has an 8-year useful life and a $50,000 salvage value. $______________ annual depreciation expense for the building $______________ annual depreciation expense for the equipment

SML International owns an oil field that contains an estimated 10,000,000 barrels of oil.The oil field was acquired at a cost of $35,000,000 and has no salvage value.In 2011,1,000,000 barrels were produced and in 2012,1,750,000 barrels were produced.How much depletion expense should be recorded in 2011 and 2012?

KUI Company owns a copyright with an estimated 10-year useful life,a zero salvage value,and an historical cost of $20,000.What is the effect on net income of making the proper adjusting entry at year-end?

Which of the following statements is TRUE?

On January 1, 2011, Muddy Acres, Inc. purchased a $44,000 mulching machine with a useful life of 5 years and a $4,000 salvage value. The company uses straight-line depreciation. On December 31, 2014, after 4 full years of use, Muddy Acres sold the machine for $6,000. Part A: Show the effect of the sale in 2014 on the accounting equation. Write in both the correct dollar amounts and the account titles affected. Use a + for increases and parentheses () for decreases. Assume that depreciation expense for 2014 has already been recorded. Part B: For each item below,WRITE IN THE AMOUNT as of or for the period ended December 31,2014,in the column of the one financial statement where the amount is found.