Exam 8: Accounting for Long-Term Operational Assets

Late in a plant asset's useful life, the amount of depreciation that would be recorded with the double-declining balance method is less than the amount that would be recognized with straight-line depreciation.

For what types of assets is the recognition of expense called "amortization?"

The Flagler Company paid $18,000 to improve the quality of a manufacturing machine. How will this expenditure affect Flagler's financial statements?

On January 1, 2013, Leland Company purchased an asset that cost $20,000. The asset had an expected useful life of five years and an estimated salvage value of $4,000. Leland uses the straight-line method for the recognition of depreciation expense. At the beginning of the fourth year of usage, the company revised its estimated salvage value to $2,000. Based on this information, the amount of depreciation expense to be recognized at the end of 2016 is:

Which of the following measurements would not be affected by the choice of depreciation methods?

Sherman Co. owned equipment that originally cost $24,000. The company sold the equipment on January 1, 2013 for $8,000 cash. Accumulated depreciation on the day of sale amounted to $17,000. Based on this information, indicate whether each of the following statements is true or false. _____ a) The sale will decrease Sherman's net income, but it will not affect the company's operating income. _____ b) Sherman would show an $8,000 cash inflow in the operating activities section of the cash flow statement. _____ c) The sale would result in a decrease in total assets. _____ d) The sale would increase Sherman's equity by $1,000. _____ e) The sale would be recorded as a debit to cash for $8,000, a credit to equipment for $7,000, and a credit to gain on sale of equipment for $1,000.

The balance sheet of Ernie's Restaurant showed total assets of $300,000, liabilities of $80,000 and equity of $270,000. An appraiser estimated the market value of the restaurant assets at $340,000. If Bert Company pays $385,000 cash for the restaurant the amount of goodwill purchased would be:

On January 1, 2013, Williams Co. purchased a machine for $60,000. Williams estimated the useful life of the machine to be 10 years and the salvage value to be $10,000. Indicate whether each of the following statements is true or false. _____ a) Depreciation expense for 2013 under the straight-line method would be $6,000. _____ b) Depreciation expense for 2013 under the double declining method would be $12,000. _____ c) The accumulated depreciation at the end of 2014 under the straight-line method would be $10,000. _____ d) The accumulated depreciation at the end of 2014 under the double declining method would be $24,000. _____ e) The book value of the machine under both the double declining method and the straight-line method at the end of 10 years would be $10,000.

What journal entry would be used to record the purchase of the above assets?

When a building is purchased simultaneously with land, the purchase price must be allocated between the building and the land.

Which of the following terms is applied to long-term assets that have no physical substance and provide rights, privileges and special opportunities to businesses?

Explain how the gain or loss is computed on the sale of a piece of equipment.

Easton Company purchased equipment that cost $55,000 cash on January 1, 2012. The equipment had an expected useful life of six years and an estimated salvage value of $4,000. Assuming that Easton depreciates its assets under the straight-line method, the amount of depreciation expense appearing on the 2015 income statement and the amount of accumulated depreciation appearing on the December 31, 2015 balance sheet would be:

Which of the following assets is not considered to have indefinite useful lives?

The Blackwell Company purchased an asset for $25,000 on January 1, 2013. The asset had a zero salvage value and an 8-year estimated useful life. On January 1, 2015, the company spent $1,200 cash on routine repairs and maintenance. What effect will the 2015 expenditure have on the company's financial statements?

Indicate whether each of the following statements is true or false. _____ a) Long-term assets having no physical substance are called intangible assets. _____ b) Equipment is an example of an intangible asset. _____ c) Natural resources are examples of tangible long-term assets. _____ d) The reason that land is classified separately from other tangible assets is because the cost is normally much higher. _____ e) Goodwill is classified as Plant, Property and Equipment.

On January 1, 2013, Fritz Company purchased a truck that cost $38,000. The truck had an expected useful life of 100,000 miles over 8 years and an $8,000 salvage value. During 2014, Fritz drove the truck 18,500 miles. The amount of depreciation expense recognized in 2014 assuming that Fritz uses the units of production method is:

Expenditures that extend the useful life of a plant asset are debited to the asset account.

The recognition of depletion expense

With an accelerated depreciation method, an asset can be depreciated below its salvage value.