Exam 7: Operating Assets

A company wants to minimize the amount of time and effort its bookkeepers spend on calculating depreciation.Since the company has not been profitable,taxes are not an issue,but maximizing the profit and minimizing reported losses are major objectives.Recommend a course of action for this company and provide support for your recommendation.

Fireworks City Information for 2012 and 2011 is presented below for this company which uses the straight-line depreciation method. Property, plant and equipment Accumulated depreciation Depreciation expense Net sales Total assets \7 50,000 \ 190,000 100,000 85,000 62,500 47,500 1,000,000 900,000 625,000 475,000 -Refer to Fireworks City.Using the data for 2012,determine the average life of the company's property,plant,and equipment rounded to one decimal place.

For Heaven Scapes purchased a trademark at the beginning of 2012 for $200,000.The trademark's legal life is 10 years.How much total amortization expense would have been recorded by January 2013?

Fireworks City Information for 2012 and 2011 is presented below for this company which uses the straight-line depreciation method. Property, plant and equipment Accumulated depreciation Depreciation expense Net sales Total assets \7 50,000 \ 190,000 100,000 85,000 62,500 47,500 1,000,000 900,000 625,000 475,000 -Refer to Fireworks City.Determine the asset turnover ratio for 2012.

Fernbank Farms This company purchased a semi truck at the beginning of 2011 at a cost of $100,000.The truck had an estimated life of 5 years,an estimated residual value of $20,000,and will be depreciated using the straight-line method.On January 1,2013,the company made major repairs of $30,000 to the truck that extended the life 3 years.Thus,starting with 2013,the truck has a remaining life of 5 years and a new salvage value of $8,000. -Refer to Fernbank Farms.When calculating depreciation for 2013,the company's accountant should

Falling Leaves Lawn Care This company purchased new excavating equipment at the beginning of 2012.The equipment has a cost of $37,000,an estimated life of 5 years,and an estimated residual value of $7,000.A full year's depreciation expense is to be recorded in 2012.The equipment was used 20,000 hours during 2012 and 24,000 hours during 2013.The number of expected hours over five years is 100,000. -Refer to Falling Leaves Lawn Care.The company is comparing the straight-line and double-declining-balance depreciation methods.Of these two methods,which method creates the larger expense and larger tax savings in 2012?

An impairment is a temporary decline in the future benefit or service potential of an asset.

Which statement is true concerning operating assets?

When plant assets are reported,the current period's depreciation expense is subtracted from the original cost on the balance sheet.

If technology changes rapidly,a firm should

The two items that must be estimated with respect to a plant asset in order to properly allocate cost to the affected accounting periods are ____________________ and ____________________

How should intangible assets be disclosed on the balance sheet?

The intangible asset called ____________________ can only exist if one company purchases another business and the cost exceeds the fair market values of the identifiable net assets at the time acquired.

Acquisition cost includes all of the costs that are normal and necessary to acquire and maintain a plant asset over its useful life.

In 2012,Fisher Apartments purchased an apartment building to rent to university students.It cost the company $250 to repair damage done by a tenant to one of its units.How should this cost be recorded?

Depreciation has an effect on the company's income taxes.

Fantasy Cruise Lines On January 1,2012,the company purchased a ship for $1,000,000.It has a ten-year useful life and a residual value of $100,000.The company uses the double-declining-balance method. -Refer to Fantasy Cruise Lines.Compute the amount of depreciation expense for the year ended December 31,2012.

What is the relationship between the book value of a plant asset,the market value of the plant asset,and the salvage value of a plant asset? Explain.

A company determined that it had incorrectly estimated the useful life of equipment that it had purchased two years ago.It must now depreciate the asset's remaining book value over the current and future accounting periods.

One reason management may choose the straight-line method of depreciation is because it is easy to compute.