Exam 6: Acquisition and Use of Long-Term Assets

KenCo bought a new packaging machine on September 15.By October 1,the machine had been installed,all the employees had been trained to use it,and it was in full operational use.The factory manager told the accountant: "I know the machine is running the way we hoped it would.But I want you to capitalize all of the machine's operating expenses through our December 31 yearend." Required: 1.What would be the effect on the company's income statement and balance sheet for the current year if three months of operating expenses are capitalized? Why would the company manager want to do this? 2.Is it ethical to capitalize costs that should be expensed?

How do financial analysts evaluate how well a business uses its assets?

A machine was purchased for $100,000 in 2011 and used for four years,during which $50,000 of depreciation accumulated.The machine was then sold for $60,000 cash.What is the gain or loss on this transaction? Assume depreciation is up to date at the time of the sale.

The following information is provided for two companies in the same industry: Required: 1.Calculate the return on assets (ROA)for both companies.Show supporting calculations.Show your answer as a percentage with one decimal place.(For example,0.50000 = 50.0%). 2.Calculate the asset turnover for both companies.Show supporting calculations.Round your answer to two decimal places.(For example,0.98765 = 0.99) 3.Based on your calculations above,which company appears to be a better performer?

On January 1, 2011, Keep Trucking, Inc. purchased a truck for $80,000 that has an estimated useful life of 10 years or 200,000 miles and a salvage value of $20,000. The truck was driven 24,000 miles in 2011 and 30,000 miles in 2012. Write in both the correct dollar amounts and the account titles involved. Part A: Show the effect of the adjusting entry for the FIRST YEAR of depreciation using the straight-line depreciation method. Part B: Show the effect of the adjusting entry for the FIRST YEAR of depreciation using the activity method. Part C: Show the effect of the adjusting entry for the FIRST YEAR of depreciation using the double-declining balance method. 11ed494f_3ca4_06db_9429_edfdbbc31153_TB5475_00 Part D: Show the amounts that would appear on the annual financial statements for December 31, 2012 (the SECOND YEAR) for each method. PUT AN ASTERISK(*) BY THE METHOD THAT BEST REPRESENTS THE ACTUAL USE OF THE TRUCK. Part E: For the first two years of the equipment's life determine which method gives the dollar amount described AND indicate the financial statement where the information would be found.

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 year end.For the year ended December 31,2012,McGriff Company will report depreciation expense of ________ on the ________.

Tennyson LTP purchased computers on January 1,2011,at a cost of $120,000.The estimated useful life of the computers is 4 years and there is no estimated salvage value. Required: 1.Complete the depreciation schedule below assuming Tennyson uses the straight-line method. 2.Complete the depreciation schedule below assuming Tenison uses the double-declining balance method. 3.Which method would report the greater net income to the shareholders for 2011? 4.Which method results in the higher amount of total depreciation expense over the four-year life of the asset?

Put an X in the appropriate box to show whether each item is an expense,a capital expenditure,or neither:

Jim wants to post his resume on Monster.com,but does not have access to a computer.His friend Mary,an accountant for a large manufacturing firm,says: "I have to work this Saturday.Come to the office with me and I will let you use one of the company computers.I'll give you my user name and password." Required: 1.Explain why user names and passwords are assigned. 2.Is it ethical for Mary to allow her friend Jim to use the company's computers?

Explain the cost principle.

A client has asked you to review and correct the following income statement. Additional information: a.A $5,500 machine tune-up was recorded as an asset. b.The costs of buying a $90,000 piece of equipment on the last day of the fiscal year were treated as equipment expense. c.An asset with a cost of $230,000,an estimated useful life of ten years,and a $20,000 salvage value was depreciated $23,000 for the full year. d.The power and electricity costs of running a machine were treated as an asset for the year.The costs amounted to $16,000. e.The $10,000 costs of installing the factory equipment in part b were treated as part of Rent expense. Required: 1.List as many errors as you can find. 2.Prepare a correct income statement.

The adjustment to record the use of long-term assets includes a(n)________.

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

All of the following payments were made by UIB Co.for machinery the company bought and used during the year.Which of these expenditures should NOT be capitalized?

Which financial statement reports long-term assets?

On January 1,2011,Gamma Company purchased equipment that cost $30,000.The equipment has an estimated useful life of 10 years and an estimated salvage value of $5,000. Required: 1.Use the double-declining balance method to complete the chart below: 2.Explain why long-term assets must be depreciated. 3.Explain why land is NOT depreciated when assets like equipment are.

During 2011,Rob M.Clean Company recorded the following business events.For each,determine whether the accounting treatment was correct,and show the effect of any errors on the accounting equation.

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 double-declining balance method?

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

BFS Company sold an asset for $7,500 in cash.The asset had an historical cost of $30,000 and accumulated depreciation of $20,000 on the day it was sold.How much is the gain or loss on the sale?