Exam 8: Reporting and Analyzing Long-Term Assets

Identify the balance sheet classification of each of the following assets by placing an X in the correct classification: Plant Assets, Natural Resources, or Intangibles.

On January 2, 2010, a company purchased a delivery truck for $45,000 cash. The truck had an estimated useful life of seven years and an estimated salvage value of $3,000. The straight-line method of depreciation was used. Prepare the journal entries to record depreciation expense and the disposition of the truck on September 1, 2014, under each of the following assumptions: a. The truck and $45,000 cash were given in exchange for a new delivery truck that had a cash price of $60,000. This transaction has commercial substance. b. The truck and $40,000 cash were exchanged for a new delivery truck that had a cash price of $60,000. This transaction lacks commercial substance.

It is necessary to report both the cost and the accumulated depreciation of plant assets in the financial statements.

Martinez owns machinery that cost $87,000 with accumulated depreciation of $40,000. The company sells the machinery for cash of $42,000. The journal entry to record the sale would include a:

If land is purchased as a building site, the cost of removing existing structures is not charged to the Land account.

The going concern assumption supports the reporting of plant assets at undepreciated cost (book value) rather than market value.

Granite Company purchased a machine costing $120,000, terms 1/10, n/30. The machine was shipped FOB shipping point and freight charges were $2,000. The machine requires special mounting and wiring connections costing $10,000. When installing the machine, $1,300 in damages occurred. Compute the cost recorded for this machine assuming Granite paid within the discount period.

An asset's book value is $18,000 on December 31, Year 5. The asset has been depreciated at an annual rate of $3,000 on the straight-line method. Assuming the asset is sold on December 31, Year 5 for $15,000, the company should record:

On September 30 of the current year, a company acquired and placed in service a machine at a cost of $700,000. It has been estimated that the machine has a service life of five years and a salvage value of $40,000. Using the double-declining-balance method of depreciation, complete the schedule below showing depreciation amounts for all six years (round answers to the nearest dollar). The company closes its books on December 31 of each year.

If Clark Corp. purchased machinery for $10,000 with no salvage value and a 5 year life on July 1, the depreciation expense in the first year is $1,000. $10,000/5 × 6/12 = $1,000

Intangible assets, such as goodwill, that are not amortized are tested annually for impairment.

Asset turnover is computed by dividing net sales by average total assets.

Which of the following would be classified as a natural resource?

Revising an estimate of the useful life or salvage value of a plant asset is referred to as a change in accounting estimate and is reflected in the current, and future financial statements.

Record the following events and transactions for Leonard Company for the current year. 1. On January 2, Leonard purchased a patent for $35,000 with a remaining useful life of 10 years. Prepare the journal entry to amortize the patent at the end of the first year. 2. On January 3, Leonard made an advance payment on a leasehold of $840,000. The leasehold expires in 15 years. Prepare the journal entry to amortize the leasehold at the end of the first year. 3. On January 4, Leonard purchased a music distributor's collection of lyrics and songs for $1,425,000. The copyrights have a remaining life of another 30 years. Prepare the journal entry to amortize the copyright at the end of the first year.

Minor Company installs a machine in its factory at the beginning of the year at a cost of $135,000. The machine's useful life is estimated to be 5 years, or 300,000 units of product, with a $15,000 salvage value. During its first year, the machine produces 64,500 units of product. Determine the machines' first year depreciation under the straight-line method.

The insufficient capacity of a company's plant asset to meet the company's productive demands is called ______________________.

During the current year, a company exchanged an old truck costing $58,000 with accumulated depreciation of $52,000 for a new truck. The new truck had a cash price of $80,000 and the company received a $16,000 trade-in allowance on the old truck with the balance of $64,000 paid in cash. Prepare the journal entry to record the exchange, assuming the transaction lacked commercial substance.

An asset that was originally purchased for $46,000 has an estimated salvage value of $4,000 and a 7 year life. The depreciation on the asset has been properly recorded through the end of Year 2 using the straight-line method. Assuming the asset is sold on March 31 of Year 3, what is the appropriate amount of depreciation to record before accounting for the disposal?

Factors that determine depreciation are cost, salvage value, and useful life.