Exam 8: Accounting for Long-Term Operational Assets

Gillock,Inc.uses MACRS for its income tax return and the straight-line method for its financial statements.On January 1,Year 1,the company purchased a long-term asset that cost $130,000 and has a $10,000 salvage value and an expected 8-year useful life.MACRS specifies a 5-year life for that asset and a depreciation rate of 20% for the first year of its life.Which of the following would the company show on its financial records?

On January 1,Year 2,Ruiz Company spent $850 on a plant asset to improve its quality.Which of the following correctly shows the effects of the Year 2 expenditure on the elements of the financial statements?

A substantial amount spent to improve the quality or extend the life of a long-term asset is called a revenue expenditure.

On January 1,Year 1,Phillips Company made a basket purchase including land,a building and equipment for $380,000.The appraised values of the assets are $20,000 for the land,$340,000 for the building and $40,000 for equipment.Phillips uses the double-declining-balance method for the equipment which is estimated to have a useful life of four years and a salvage value of $5,000.What is the depreciation expense for the equipment for Year 1?

With an accelerated depreciation method,an asset can be depreciated below its salvage value.

Which of the following intangible assets does not convey a specific legal right or privilege?

Glick Company purchased oil rights on July 1,Year 1 for $2,400,000.A total of 200,000 barrels of oil are expected to be extracted over the assets life,and 30,000 barrels are extracted and sold in Year 1.Which of the following correctly summarizes the effect of the Year 1 depletion expense on the elements of the financial statements?

At the end of the current accounting period,Ringgold Co.recorded depreciation of $15,000 on its equipment.What is the effect of this entry on the company's balance sheet?

Accumulated Depreciation is a temporary account that is closed each year.

Anton Company paid cash to extend the life of one of its assets.Which of the following choices accurately reflects how this event would affect the elements of the financial statements?

On January 1,Year 1,Woolly Company purchased a truck that cost $64,000.The truck had an expected useful life of 120,000 miles over 8 years and a $4,000 salvage value.During Year 2,Woolly drove the truck 20,000 miles.Woolly uses the units-of-production method.What is the amount of depreciation expense recognized in Year 2?

Farmer Company sold a piece of equipment for $6,000.The equipment had an original cost of $34,000 and accumulated depreciation of $31,000 at the time of the sale.Which of the following correctly shows the effect of the sale on the elements of the financial statements?

[The following information applies to the questions displayed below.] Farmer Company purchased equipment on January 1, Year 1 for $82,000. The machines are estimated to have a 5-year life and a salvage value of $4,000. The company uses the straight-line method. -At the beginning of Year 4,Farmer revised the expected life to eight years.What is the annual amount of depreciation expense for each of the remaining years in the machine's life?

Which of the following statements is correct regarding accounting treatment of goodwill?

Which of the following statements is true regarding depreciation expense?

Depletion of a natural resource is usually calculated using the straight-line basis.

When a building is purchased simultaneously with land,the purchase price must be allocated between the building and the land.

Expenditures that extend the useful life of a plant asset are debited to the asset account.

Tangible assets include land,equipment,and goodwill.

On January 1,Year 1,Friedman Company purchased a truck that cost $48,000.The truck had an expected useful life of 100,000 miles over 8 years and an $8,000 salvage value.During Year 2,Friedman drove the truck 18,500 miles.Friedman uses the units-of-production method.What is depreciation expense in Year 2?