Exam 6: Acquisition and Use of Long-Term Assets

Part A: Put an X in the appropriate box to show if these amounts related to the purchase of a new computer system are expenses or capital expenditures. Part B: What other information is needed to calculate double-declining depreciation expense for the year 2012?

Queue,Incorporated incurred the following expenditures for the purchase and use of a machine,which was placed into service on January 1,2011: Required: 1.Determine the total costs that should be capitalized into the machine account.What is the total? Explain how you decided which costs to capitalize. 2.Determine the total operating expenses associated with using the machine for the year ended December 31,2011.Assume the machine has an estimated 5-year useful life and an $8,000 salvage value.Explain how you decided which costs to expense.

Provide students with copies of real merchandising companies' annual reports,or give students the Web addresses of real merchandising companies and ask them to print out the annual reports. Divide the class into teams of three or four people.All team members should work with the same company's annual report.Give the students time in class to answer the following questions for their company.Each team should turn in only one copy of the answers for grading,along with a copy of the annual report that they used.All team members will receive the same grade.

Cost is ________.

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.A payment for service that maintains the working condition of a truck ______ 2.A payment for service that adds 3 years of useful life to a machine ______ 3.A payment that reduces a liability ______ 4.A payment of cash to the owners of the business ______ 5.A payment to buy an asset with a 5-year estimated useful life ______ 6.A payment to install the asset with a 5-year estimated useful life ______ 7.A payment to increase the speed of a cutting machine used in production ______ 8.A payment to decrease the cost of operating a metal molding machine ______ 9.A monthly payment to tune-up and lubricate factory equipment ______ 10.A payment to change the rubber belts on the factory conveyor system

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 double-declining balance method to depreciate its assets.The book value of the computer at December 31,2011 is ________.

David Justice Company incurred the following expenditures related to the purchase and use of a new building that will be used as the growing company's corporate headquarters in Toronto,Canada. Required: Put an X in the appropriate box to indicate which expenditures should be capitalized and which should be expensed:

International Financial Reporting Standards (IFRS)require revaluation of assets to their fair value if fair value can be measured reliably.

On January 1,2012,Albatross Shipping Company bought equipment that cost $65,000 and had an estimated useful life of 5 years and an estimated salvage value of $5,000.The company uses the double-declining balance method of depreciation.At what rate will the equipment depreciate in 2012?

Cost means the cash or cash equivalent amount sacrificed to acquire an asset.

Purchasing a machine with a cost of $60,000 that is expected to last five years will result in an expense of $10,000 in the year of purchase.

Generally accepted accounting principles (GAAP)require that long-term assets be expensed over their estimated useful lives

Use the following selected information from PDG 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.How much depreciation expense should Ace Electronics record for the year ended December 31,2012,using the straight-line method?

Which of the statements below is TRUE?

On January 1,2011,Ace Electronics purchased a patent for $2,000,000 cash,which allows Ace the exclusive legal right to manufacture a new microchip for the next 20 years.However,Ace thinks that the useful life of the patent is only 5 years because rapid changes in technology will make the microchip obsolete.For 2011,Ace should report ________.

Which statement below is TRUE about the cost principle?

Which of the following assets can NOT be depleted?

Asset turnover is a ratio used to evaluate how effectively assets generate sales.

Someone needs to make sure that internal controls for assets are working properly.