Exam 9: Reporting and Interpreting Liabilities

A company purchases a remote site building for computer operations.The building will be suitable for operations after some expenditures.The wiring must be replaced to computer specifications.The roof is leaky and must be replaced.All rooms must be repainted and recarpeted and there will also be some plumbing work done.Which of the following statements is true?

When a company acquires land by issuing 10,000 of its common shares currently trading for $20 per share,the company must get an appraisal of the land and recognize a gain if the appraised value is more than the $200,000 value of the shares issued.

When assets are disposed of through sale or abandonment,we record additional depreciation since the last adjustment was made.

Kovacic Company purchased a computer that cost $10,000.It had an estimated useful life of five years and residual value of $0.The computer was depreciated by the straight-line method and was sold at the end of the fourth year of use for $3,000 cash.What should Kovacic record?

What are operational assets that have physical substance called?

Godfrey's Gadgets sold an obsolete piece of equipment for $4,000.Original cost of the item had been $12,500 and its accumulated depreciation was $7,200.This transaction would result in a:

Pied Piper Pies has been in business 8 years with 4 stores in the San Francisco bay area.Their local reputation for making savoury pies such as curried potatoes is well recognized.A national food distributor has offered to purchase the company.Pied Piper has $1.2 million of assets on their books but those assets have $1.5 million in value at fair market value and $.3 million of liabilities.If the distributor offers to buy Pied Piper for $3.5 million and assume the liabilities of Pied Piper,how much will goodwill be based on the offered purchase price?

A company with relatively small amounts of long-lived operational assets but which has a high level of inventory would most likely have a lower total asset turnover but a higher fixed asset turnover ratio.

When events or changes in circumstances reduce the estimated future cash flows of long-lived assets below their book value,the book values should be written down (by recording a loss)to the fair value of the assets.

How is the matching principle related to the recording of depreciation on tangible operational assets?

Lowe Company purchased a machine at a cash cost of $25,000 and is depreciating it over a 10-year estimated useful life with a residual value of $3,000.At the beginning of the eighth year,a major overhaul on it was completed at a cost of $8,000,and the total estimated useful life was changed to 12 years with the residual value unchanged.depreciation expense for year 8 would be which of the following (assuming straight-line depreciation)?

Management should select the depreciation method that

If an accountant calculates depreciation expense on an asset without taking into account the asset's residual value of $5,000,depreciation expense for the periods will be lower than it should have been.

The Orser Mining Company acquired a gold mine for $8,000,000.It is estimated that 40,000 ounces of gold can be extracted from the mine.In the first year of operations,15,000 ounces of gold were extracted.The Orser Mining Company would recognize:

Hilman Company purchased a truck on January 1,20A,at a cost of $34,000.The company estimated that the truck would have a useful life of 4 years and a residual value of $4,000. Required: 1.Complete the following table: 2.Which of the two methods in part 1 would result in: a.Lower profit in 20A? ___________ b.Lower profit in 20D? ___________

Which of the following costs would be excluded from the acquisition cost of equipment purchased from a supplier?

A depreciable asset that cost $100,000 had an estimated useful life of 5 years and estimated residual value of $10,000.What is the first year for which depreciation would be greater under the straight-line method than under the declining-balance method with an acceleration rate of 200%?

The straight-line depreciation method assumes an approximately equal decline in the economic usefulness of the asset each period and provides greater tax benefits early in the useful life of the asset.

The financial statements of Betty Company contained the following errors: Respond to each of the following (disregard income taxes): A.Profit for 20A,was understated or overstated (circle one). B.Total combined profit for the two-year period ended December 31,20B,was overstated or understated (circle one).

Give the required adjusting entry at December 31,20F,the end of the annual accounting period for the three items below.If no entry is required,explain why. A.Web Company acquired a patent that cost $4,260 on January 1,20F.The patent was registered on January 1,20A.The legal life of a patent is 17 years from registration.Web expects to use the patent the remaining legal life.B.Web Company acquired a gravel pit on January 1,20F,that cost $24,000.The company estimates that 30,000 tons of gravel can be extracted economically.During 20F 4,000 tons were extracted and sold.C.On January 1,20F,Web Company acquired a dump truck that cost $6,000 to use hauling gravel.The company estimated a residual value of 10% of cost and a useful life 4 years.The company uses straight-line depreciation.