Exam 8: Reporting and Analyzing Long-Term Assets

On January 1,a machine costing $260,000 with a 4-year life and an estimated $5,000 salvage value was purchased.It was also estimated that the machine would produce 500,000 units during its life.The actual units produced during its first year of operation were 110,000.Determine the amount of depreciation expense for the first year under each of the following assumptions: 1.The company uses the straight-line method of depreciation. 2.The company uses the units-of-production method of depreciation. 3.The company uses the double-declining-balance method of depreciation.

A company traded an old forklift for a new forklift,receiving a $10,500 trade-in allowance and paying the remaining $37,200 in cash.The old forklift had cost $39,000 and straight-line accumulated depreciation of $27,200 had been recorded as of the exchange date under the assumption it would last five years and have a $5,000 salvage value. 1.What was the book value of the old forklift on the date of the exchange? 2.What amount of gain or loss (indicate which)should be recognized in recording the exchange? 3.What amount should be recorded as the cost of the new forklift?

The three main factors in computing depreciation are: (1)____________________, (2)____________________, (3)___________________.

A company purchased office equipment for $4,300 by trading in old equipment with a cost of $2,000 and that had accumulated depreciation of $1,900 as of the exchange date.The company received a $75 trade-in allowance for the old equipment with the balance of $4,225 paid in cash.Prepare the journal entry to record the exchange.

On April 1 of the current year,a company traded an old machine that originally cost $32,000 and that had accumulated depreciation of $24,000 for a similar new machine that had a cash price of $40,000. 1.Give the entry to record the exchange under the assumption that a $5,000 trade-in allowance was received and the balance of $35,000 was paid in cash. 2.Give the entry to record the exchange under the assumption that instead of a $5,000 trade-in allowance,a $12,500 trade-in allowance was received and the balance of $27,500 was paid in cash.

A machine was purchased for $37,000 and depreciated for five years on a straight-line basis under the assumption it would have a ten-year life and a $1,000 salvage value.At the beginning of the machine's sixth year it was recognized the machine had three years of remaining life instead of five and that at the end of the remaining three years its salvage value would be $1,600.What amount of depreciation should be recorded in each of the machine's remaining three years?

Many companies use accelerated depreciation in computing taxable income because:

Plant assets refer to intangible assets that are used in the everyday operations of a business.

A company purchased a special purpose machine on August 1 of the past year and it was installed and ready to run on January 1 of this year.The following costs were incurred in the purchase and installation of the machine. Determine the total cost of the machine. Invoice price \ 1,200,000 Freight costs 6,000 Installation costs 64,000 Electrical and power connections 32,000 Repairs to correct damage incurred during uncrating 12,000 Costs to adjust machine to appropriate specifications 56,000 Spare parts for future use 108,000 Sales tax 70,500 Fines incurred during transport of machine 400 Cost of special foundation required for machine installation 28,500

Cardco Inc.has an annual accounting period which ends on December 31.During the current year a depreciable asset which cost $42,000 was purchased on September 2.The asset has a $4,000 estimated salvage value.The company uses straight-line depreciation and expects the asset to have a 5 year life.What is the total depreciation expense for the current year?

The formula for computing annual straight-line depreciation is:

A company purchased land with a building for a total cost of $2,570,000 ($500,000 paid in cash and the balance on a long-term note).It was estimated that the land and building had market values of $900,000 and $2,100,000,respectively. Determine the cost to be apportioned to the land and to the building and prepare the journal entry to record the acquisition.

A company had a building destroyed by fire.The building originally cost $650,000 and its accumulated depreciation as of the date of the fire was $300,000.The company received $400,000 cash from an insurance policy that covered the building and will use that money to help rebuild.Prepare the single journal entry to record the destruction of the building and the receipt of cash from the insurance company.

Revenue expenditures:

A leasehold:

.A company purchased a delivery van for $23,000 with a salvage value of $3,000 on September 1,2010.It has an estimated useful life of 5 years.Using the straight-line method,how much depreciation expense should the company recognize on December 31,2010?

______________________ are costs that increase the usefulness of land,but have limited useful lives and are thus depreciated.

A company exchanged an old truck for a newer model.The old truck account had a cost of $76,000 and Accumulated depreciation of $65,000 as of the exchange date.The new truck had a cash price of $84,000,but the company was given a $15,000 trade-in allowance and the balance of $69,000 was paid in cash.Prepare the journal entry to record the exchange.

The going concern principle supports the reporting of plant assets at book value rather than market value.

When the value of plant assets decline after acquisition,but before disposition,both GAAP and IFRS require companies to record those decreases as impairment losses.