Exam 6: Acquisition and Use of Long-Term Assets

The amount recorded as the cost of a long-term asset includes all costs reasonable and necessary for putting the asset in a working condition.

All long-term assets are tangible.

In an accounting context,cost and expense mean the same thing.

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.

On January 1,2011,Albatross Shipping Company bought equipment that cost $55,000,with an estimated useful life of 10 years and an estimated salvage value of $5,000.The company uses the straight-line method of depreciation.What is the BOOK VALUE of the equipment on December 31,2014?

Which of the following expenditures should NOT be capitalized?

Indicate whether each of the following transactions would result in a gain,a loss,or neither one. A = Gain B = Loss C = Neither a gain nor a loss ______ 2.Bought a machine 9 years ago for $200,000 and over the years recorded $175,000 of depreciation.Sold the machine for $35,000. ______ 4.Recorded $70,000 of depreciation on an asset that originally cost $100,000 and then sold it for a $40,000 note receivable. ______ 5.Bought a machine 5 years ago for $200,000 and over the years recorded $180,000 of depreciation.Sold the machine for $17,000.

On January 1,2012,Orbit,Inc.purchased land and a building for a total of $90,000 by paying $20,000 cash and issuing a note for the rest.The market value of the building was appraised at $80,000 and the land at $20,000.Write in both the correct dollar amounts and the account titles involved.Use a plus for increases and parentheses ()for decreases. Part A: Show the effect of the purchase on the accounting equation. Part B: Show the effect of the first year's depreciation,assuming the straight-line method and an estimated useful life of 20 years with a $32,000 salvage value. Part C: Show the effect of the first year's depreciation,assuming double-declining depreciation and an estimated useful life of 20 years with a $32,000 salvage value. Part D: Show the amounts that would appear on the annual financial statements at the end of the THIRD YEAR for each method.

Put an X in the appropriate box to identify each of these events as either a capital expenditure or an expense (revenue expenditure).

A gain on the sale of a long-term asset is recorded when cash proceeds are ________.

XYZ Company owns an asset with historical cost of $75,000,estimated useful life of 10 years,and salvage value of $5,000.As of December 31,2011,the asset has accumulated depreciation of $49,000 after adjustment.The company still owes $20,000 in liabilities from the purchase of the asset years ago.What is the asset's book value on December 31,2011?

A business will have depletion expense only if it has ________.

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.Accounts payable ______ 2.Minerals ______ 3.Factory ______ 4.Trucks ______ 5.Factory supplies ______ 6.Trademark ______ 7.Natural gas reserves ______ 8.Factory machinery ______ 9.License rights ______ 10.Land

Discuss risks and controls associated with long-term assets.

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

Part A: Enter the April 2011 transactions and adjustments for Tim's Tams in the accounting equation. 1.April 1 Collected $3,000 of accounts receivable from March sales. 2.April 2 Purchased 1,200 caps @ $6 each on account. 3.April 6 Paid $700 cash for office supplies. 4.April 20 Tim's Tams sold 800 baseball caps @ $10 each on account.Cost of goods sold was $4,800. 5.April 30 Tim's Tams declared and paid a $400 cash dividend to its shareholder. 6.April 30 Adjusted for insurance used during the month.On February 1,Tim's Tams paid $600 for 3 months of insurance coverage that began February 1. 7.April 30 Adjusted for rent used during the month.Last month Tim's Tams paid $1,000 for two months' rent. 8.April 30 Recorded one month's straight-line depreciation on the $18,000 truck that has a 6-year useful life and no salvage value. 9.April 30 Counted the office supplies and found that $200 of supplies have not been used. 10.April 30 Recorded interest on the $16,000,4-month,6% note payable for the month. Parts B,C,D and E: Complete the financial statements. Part D: Part E: Part F: Using the financial statements above,answer the following questions:

What is book value and on which financial statement is it reported?

On January 1,2011,Borba,Inc.purchased a $100,000 machine with an estimated useful life of 10 years or 1,000,000 units and a $10,000 salvage value.The machine actually produced 120,000 units in 2011 and 110,000 units in 2012. Part A: Calculate depreciation expense and accumulated depreciation using the following three methods: Part B: In the first year of the machine's life,which method would show the LOWER amount for each of the following financial statement line items? Put an X in the appropriate box.

Under U.S.GAAP,research and development costs (R&D)are not capitalized as part of the cost of an asset.

Which statement below is TRUE of the straight-line method of depreciation?