Exam 9: Reporting and Interpreting Liabilities

When assets are disposed of through sale or abandonment,we recognize gains or losses when the asset's net carrying amount is not equal to the cash received.

Regardless of the method of depreciation used under international financial reporting standards,the ending book value will be the same at the end of the asset's economic life.

On March 1,20A,Jance Company purchased a producing oil well at a cash cost of $100,000.It is estimated that 250,000 barrels of oil can be produced over the remaining life of the well.By December 31,20A (end of the accounting period),1,500 barrels of oil were produced and sold.What would be the amount of depletion expense for 20A on this well?

If a company sold an operational asset at a price equal to its book value,the selling company would record which of the following?

Depreciation and depletion conceptually are different because they apply to different kinds of operational assets.

Natural resources should be depleted (usually by the units-of-production method)usually with the amount of the depletion expense capitalized to a revenue account.

Accelerated depreciation methods are not desirable from the income tax point of view because the asset will produce a greater profit when it is new (the early years)than when it is older (the later years).

Tangible assets include which of the following?

One example of a capital expenditure is ordinary maintenance cost such as an oil change for a company truck.

A company purchased equipment for $800,000 and has depreciated it for the past 5 years when its original life was estimated to be 10 years with a $200,000 residual value.The equipment's utility to the company has declined because they expect it to generate a net cash flow over the remaining years of $200,000 from its operation.If the asset has been impaired,how much will be recorded as a loss in the current year?

Depreciation expense,as computed for financial reporting,has a direct effect on a corporation's cash flow.

Most companies keep separate sets of accounting records for financial reporting and for income tax computations.Which of the following statements is true?

Martinelli Company recently purchased a truck.The price negotiated with the dealer was $85,000.Martinelli also paid sales tax of $6,000 on the purchase,shipping and preparation costs of $950,and insurance for the first year of operation of $2,000.For the truck,what amount should be debited to the asset account Vehicles?

An expanding company that is acquiring more operational assets most likely will experience a decrease in its fixed asset turnover ratio until higher future sales are generated.

Ordinary repairs and maintenance of operational assets should be capitalized and depreciated over the remaining useful life of the related asset.

Wilson,Inc.,a manufacturing company,is preparing their annual financial statements.Which of the following accounts would not be grouped under operational assets?

Chamber Company purchased a truck on January 1,20A,at a cash cost of $10,600.The estimated residual value was $400 and the estimated useful life 4 years.The company uses straight-line depreciation computed monthly.On July 1,20D,the company sold the truck for $1,700 cash.A.What was the depreciation expense amount per month? B.What was the amount of accumulated depreciation at July 1,20D? C.Give the required journal entries on the date of disposal,July 1,20D.(Assume no 20D depreciation had yet been recorded).

Intangible assets have value to a business because they represent rights that are useful to the business.

Intangibles with definite useful lives are amortized using the straight-line method.

Acquiring and disposing of long-lived assets are financing activities on the cash flow statement.