Exam 9: Reporting and Interpreting Liabilities

The consistency principle requires we use only one method of depreciation for all our types of operational assets.

If a company classifies an expenditure as a capital expenditure instead of a revenue expenditure,which of the following will be false?

Intangible assets include which of the following?

With respect to depreciation policies,the principle of consistency means:

Depreciation expense is a non cash expense that has no effect on cash.

FAL Corporation purchased a robot to be used in manufacturing.The purchase was made at the beginning of 20A by paying cash of $500,000.The robot has an estimated residual value of $20,000 and an expected useful life of 10 years.At the beginning of 20C,FAL concluded that the total useful life of the robot will be 8 years rather than 10,and that the residual value will be zero.FAL uses the straight-line method for depreciation. Required: 1.Make the journal entry to record depreciation on the robot for 20B. 2.Make the journal entry to record depreciation on the robot for 20C,including the effect of the changes in estimates. 3.Describe how a business should account for a change in the estimated useful life and/or residual value of a depreciable asset.

One of the most important challenges facing managers is forecasting the level of productive capacity (fixed assets)needed in the long run to meet customer demand.

The declining-balance method of depreciation is appropriate for companies that expect their equipment or other assets to become obsolete fairly rapidly.

A company that is self-constructing a new store,which will open upon completion,is allowed to capitalize the interest during the period of construction if they finance the construction with actual loans.

On January 2,20D,Daintry Company purchased a patent for $380,000 from an inventor who had developed a new manufacturing process.At the time of the purchase,the patent had a remaining legal life of 12 years,but Daintry estimated the useful life to the company to only be 10 years. Required: 1.Prepare the journal entry to record Daintry's purchase of the patent. 2.Prepare the journal entry to record amortization of the patent for 20D,assuming that no contra account is used. 3.At the start of 20G,after amortization had been recorded for three years,Daintry concluded that the total useful life of the patent would be 7 years,rather than 10.Record Daintry's amortization expense for 20G.

Bubba Inc.purchased an asset on January 1,20A.Bubba chose the straight-line method to depreciate the asset.Had Bubba chosen an accelerated depreciation method,which of the following would be false?

Tweed Feed & Seed purchased a new machine on January 1,20A: Accumulated depreciation at the end of year 5 (assume straight-line depreciation)$12,000 It is now the beginning of year 6 and the management re-evaluated the estimates related to the machine.Compute the depreciation expense for year 6 under each of the following independent cases:

Building and equipment are recorded at their cost at acquisition and are subsequently reported at cost less accumulated depreciation.

Raco Inc.purchased two used machines together to get a lower total cash price of $90,000.The machines were different,although of the same general type.They were designated as Machines A and B.New machines of the same type could be purchased as follows: Machine A,$25,000; Machine B,$75,000.Complete the following entry to record the purchase and show your computations.

The declining-balance method of depreciation is based on the assumption that depreciation expense can be regarded as a constant function of time.

The estimated useful life is the total years we expect an asset to be used by all potential users.

Which of the following is a false statement?

Rebuild Inc.purchased a plant and the land on which the plant was located for a total of $300,000 cash.The separate market values of the plant and land were not known,so Rebuild hired an independent appraiser who gave the following estimated market values: plant,$220,000; land,$110,000.Complete the entry to record the acquisition (show computation).

Non-current assets are those that a business retains for long periods of time for use in the course of normal operations rather than for sale.

Yell Company made a lump sum purchase of an office building,including the land and some fixtures,for cash of $160,000.The tax assessments for the past year reflected the following: Land,$22,500; Building,$58,500; and Fixtures,$9,000.Complete the following entry for the acquisition: