Deck 8: Accounting for Long-Term Operational Assets

Question 1

A copyright is an intangible asset with an indefinite useful life.

Answer 1

False

Question 2

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

Answer 2

False

Question 3

Accumulated Depreciation is reported on the income statement.

Answer 3

False

Question 4

In choosing a depreciation method for financial reporting, a company should use the method that most closely approximates the amount of depreciation on the tax return.

Question 5

The term used to recognize expense for property, plant, and equipment assets is depletion.

Question 6

Recognizing depreciation expense on equipment or a building is an asset use transaction.

Question 7

Intangible assets include patents, copyrights, and franchises.

Question 8

A trademark is a tangible asset with an indefinite useful life.

Question 9

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

Question 10

Title search and transfer document costs incurred to purchase a building are expensed in the period the building is acquired.

Question 11

Generally accepted accounting principles require that, when the estimated useful life of a long-term asset is changed, previously-issued financial statements should not be revised.

Question 12

When depreciation is recorded on equipment, Depreciation Expense is increased, and the Equipment account is decreased.

Question 13

A substantial amount spent to improve the quality or extend the life of a long-term asset is called a revenue expenditure.

Question 14

The depreciable cost of a long-term asset is the difference between the amount paid for the asset and its salvage value.

Question 15

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 the straight-line method.

Question 16

Land differs from other property because it is not subject to depreciation.

Question 17

The use of estimates and revision of estimates are uncommon in financial reporting.

Question 18

When using the modified accelerated cost recovery system (MACRS)the highest amount of depreciation expense will be recognized in the year the asset is acquired.

Question 19

The purchase of a new delivery truck for cash is an asset use transaction.

Question 20

Gains and losses are reported as part of operating income on the income statement.

Question 21

An expenditure that improves the quality of service provided by a plant asset is added to the historical cost of the asset.

Question 22

Harding Corporation acquired real estate that contained land, building and equipment. The property cost Harding $1,900,000. Harding paid $350,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $374,000; Building, $1,100,000 and Equipment, $726,000.What value will be reported for the land on the balance sheet?

A)$370,000
B)$1,100,000
C)$323,000
D)$760,000

Question 23

Harding Corporation acquired real estate that contained land, building and equipment. The property cost Harding $1,900,000. Harding paid $350,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $374,000; Building, $1,100,000 and Equipment, $726,000.Assume that Harding uses the units-of-production method when depreciating its equipment. Harding estimates that the purchased equipment will produce 1,000,000 units over its 5-year useful life and has a salvage value of $34,000. Harding produced 265,000 units with the equipment by the end of the first year of purchase. Which amount below is closest to the amount Harding will record for depreciation expense for the equipment in the first year?

A)$193,450
B)$125,200
C)$157,145
D)$165,890

Question 24

Depletion of a natural resource is usually calculated using the straight-line method.

Question 25

Harding Corporation acquired real estate that contained land, building and equipment. The property cost Harding $2,090,000. Harding paid $595,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $629,000; Building, $1,870,000 and Equipment, $1,241,000.What value will be reported for the land on the balance sheet? (Round intermediate percentage values to a whole percentage.)

A)$635,800
B)$1,870,000
C)$355,300
D)$1,234,200

Question 26

Which of the following intangible assets does not convey a specific legal right or privilege?

A)Copyrights
B)Franchises
C)Goodwill
D)Trademarks

Question 27

Harding Corporation acquired real estate that contained land, building and equipment. The property cost Harding $1,900,000. Harding paid $350,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $374,000; Building, $1,100,000 and Equipment, $726,000.What value will be reported for the building on the balance sheet?

A)$175,000
B)$950,000
C)$800,000
D)$1,100,000

Question 28

An impairment of an intangible asset decreases assets, stockholders' equity, and net income.

Question 29

Harding Corporation acquired real estate that contained land, building and equipment. The property cost Harding $2,375,000. Harding paid $700,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $740,000; Building, $2,200,000 and Equipment, $1,460,000.What value will be reported for the land on the balance sheet? (Round intermediate percentage values to a whole percentage. Do not round other intermediate calculations.)

A)$194,900
B)$132,700
C)$187,600
D)$386,900

Question 30

On January 6, Year 1, Mount Jackson Corporation purchased a tract of land for a factory site for $1,500,000. An existing building on the site was demolished and the new factory was completed on October 11, Year 1. Additional cost data are shown below: Which of the following are the capitalized costs of the land and the new building, respectively?

A)$1,637,600 and $1,898,000
B)$1,515,400 and $2,020,200
C)$1,648,600 and $1,887,000
D)$1,500,000 and $2,035,600

Question 31

Goodwill is the value attributable to favorable factors such as reputation, location, and superior products.

Question 32

Which of the following terms is used to describe the process of expense recognition for property, plant and equipment?

A)Amortization
B)Depreciation
C)Depletion
D)Revision

Question 33

Expenditures that extend the useful life of a plant asset increase the accumulated depreciation on the asset.

Question 34

When Company X purchases Company Y, Company X should record Company Y's assets at their fair value at the time of the acquisition.

Question 35

On January 6, Year 1, Mount Jackson Corporation purchased a tract of land for a factory site for $770,000. An existing building on the site was demolished and the new factory was completed on October 11, Year 1. Additional cost data are shown below: Which of the following are the capitalized costs of the land and the new building, respectively?

A)$842,400 and $985,000
B)$780,500 and $1,046,900
C)$849,900 and $977,500
D)$770,000 and $1,057,400

Question 36

Which of the following would not be classified as a tangible long-term asset?

A)Delivery truck
B)Timber reserve
C)Land
D)Copyright

Question 37

The cost of natural resources includes the purchase price, as well as exploration costs and surveys.

Question 38

Which of the following would not be classified as property, plant and equipment?

A)Computers
B)Buildings
C)Inventory
D)Office furniture

Question 39

Harding Corporation acquired real estate that contained land, building and equipment. The property cost Harding $2,470,000. Harding paid $735,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $777,000; Building, $2,310,000 and Equipment, $1,533,000.What value will be reported for the building on the balance sheet?

A)$367,500
B)$1,235,000
C)$160,000
D)$2,310,000

Question 40

Which of the following would be classified as a long-term operational asset?

A)Notes receivable
B)Trademark
C)Inventory
D)Accounts receivable

Question 41

On March 1, Bartholomew Company purchased a new stamping machine with a list price of $79,000. The company paid cash for the machine; therefore, it was allowed a 5% discount. Other costs associated with the machine were: transportation costs, $2,200; sales tax paid, $4,920; installation costs, $1,450; routine maintenance during the first month of operation, $2,100. What is the cost of the machine?

A)$82,170
B)$75,050
C)$85,720
D)$83,620

Question 42

Flagler Company purchased equipment that cost $90,000. The equipment had a useful life of 5 years and a $10,000 salvage value. Flagler uses the double-declining-balance method. Which of the following choices accurately reflects how the recognition of the first year's depreciation would affect the financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question 43

Which method of depreciation is used by most U.S. companies for financial reporting purposes?

A)Straight-line
B)Units-of-production
C)Double-declining-balance
D)Modified accelerated cost recovery system (MACRS)

Question 44

On January 1, Year 1, Milton Manufacturing Company purchased equipment with a list price of $88,000. A total of $4,000 was paid for installation and testing. During the first year, Milton paid $6,000 for insurance on the equipment and another $2,200 for routine maintenance and repairs. Milton uses the units-of-production method of depreciation. Useful life is estimated at 100,000 units, and estimated salvage value is $8,000. During Year 1, the equipment produced 13,000 units. What is the amount of depreciation for Year 1?

A)$10,920
B)$11,960
C)$11,700
D)$12,740

Question 45

On January 1, Year 1, Phillips Company made a basket purchase including land, a building and equipment for $380,000. The appraised values of the assets are $20,000 for the land, $340,000 for the building and $40,000 for equipment. Phillips uses the double-declining-balance method for the equipment which is estimated to have a useful life of four years and a salvage value of $5,000. What is the depreciation expense for the equipment for Year 1?

A)$17,000
B)$20,000
C)$9,500
D)$19,000

Question 46

Which of the following is considered an accelerated depreciation method?

A)Double-declining balance
B)Units-of-production
C)Modified accelerated cost recovery system (MACRS)
D)Both double-declining-balance and MACRS

Question 47

Chico Company paid $520,000 for a basket purchase that included office furniture, a building and land. An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: Office furniture, $120,000; Building, $420,000; and Land, $90,000. Based on this information, what is the cost that should be allocated to the office furniture? (Round intermediate percentage values to a whole percentage.)

A)$98,800
B)$120,000
C)$187,852
D)$57,700

Question 48

On January 1, Year 1, Phillips Company made a basket purchase including land, a building and equipment for $1,075,000. The appraised values of the assets are $76,000 for the land, $1,040,000 for the building and $224,000 for equipment. Phillips uses the double-declining-balance method for the equipment which is estimated to have a useful life of four years and a salvage value of $10,000. What is the depreciation expense for the equipment for Year 1? (Round your intermediate calculations to 4 decimal places.)

A)$112,000
B)$56,000
C)$44,935
D)$89,870

Question 49

On March 1, Bartholomew Company purchased a new stamping machine with a list price of $34,000. The company paid cash for the machine; therefore, it was allowed a 5% discount. Other costs associated with the machine were: transportation costs, $550; sales tax paid, $1,360; installation costs, $450; routine maintenance during the first month of operation, $500. What is the cost of the machine?

A)$34,210
B)$32,300
C)$35,160
D)$34,660

Question 50

The acronym MACRS stands for

A)Modified Accelerated Cost Recovery System
B)Management Accounting Cost and Revenue Streams
C)Management Assurance Cost and Revenue System
D)Modified Accounting of Cost and Revenue Streams

Question 51

Laramie Company paid $800,000 for a purchase that included land, building, and office furniture. An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: Land, $100,000, Building, $740,000, and Office Furniture, $160,000. What is the cost that should be allocated to the land?

A)$80,000
B)$70,000
C)$100,000
D)$107,000

Question 52

Laramie Company paid $2,300,000 for a purchase that included land, building, and office furniture. An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: Land, $696,000, Building, $864,000, and Office Furniture, $840,000. What is the cost that should be allocated to the land?

A)$667,000
B)$465,160
C)$696,000
D)$830,896

Question 53

When reporting to the Internal Revenue Service companies are most likely to use

A)an accelerated depreciation.
B)straight-line depreciation.
C)reverse accelerated depreciation.
D)units-of-production depreciation.

Question 54

Anchor Company purchased a manufacturing machine with a list price of $100,000 and received a 2% cash discount on the purchase. The machine was delivered under terms free on board (FOB)shipping point, and transportation costs amounted to $5,200. Anchor paid $7,500 to have the machine installed and tested. Insurance costs to protect the asset from fire and theft amounted to $9,800 for the first year of operations. What is the cost of the machine?

A)$98,000
B)$103,200
C)$120,500
D)$110,700

Question 55

On January 1, Year 1, Milton Manufacturing Company purchased equipment with a list price of $32,000. A total of $3,000 was paid for installation and testing. During the first year, Milton paid $4,500 for insurance on the equipment and another $650 for routine maintenance and repairs. Milton uses the units-of-production method of depreciation. Useful life is estimated at 100,000 units, and estimated salvage value is $6,000. During Year 1, the equipment produced 12,000 units. What is the amount of depreciation for Year 1?

A)$3,480
B)$4,020
C)$4,098
D)$4,740

Question 56

At the end of the current accounting period, Ringgold Company recorded depreciation of $15,000 on its equipment. What is the effect of this event on the company's balance sheet?

A)Decrease assets and increase liabilities
B)Decrease stockholders' equity and decrease assets
C)Decrease assets and increase stockholders' equity
D)Decrease stockholders' equity and increase liabilities

Question 57

Anchor Company purchased a manufacturing machine with a list price of $160,000 and received a 2% cash discount on the purchase. The machine was delivered under terms free on board (FOB)shipping point, and transportation costs amounted to $2,400. Anchor paid $3,000 to have the machine installed and tested. Insurance costs to protect the asset from fire and theft amounted to $3,600 for the first year of operations. What is the cost of the machine?

A)$156,800
B)$159,200
C)$165,800
D)$162,200

Question 58

Chico Company paid $950,000 for a basket purchase that included office furniture, a building and land. An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: Office furniture, $190,000; Building, $740,000; and Land, $132,000. Based on this information, what is the cost that should be allocated to the office furniture? (Round allocation percentage to two decimal places.)

A)$171,000
B)$190,000
C)$316,667
D)$105,000

Question 59

On January 1, Year 1 Missouri Company purchased a truck that cost $57,000. The truck had an expected useful life of 10 years and a $6,000 salvage value. Missouri uses the double declining-balance method. What is the amount of depreciation expense recognized in Year 2?

A)$9,120
B)$11,400
C)$10,200
D)$8,160

Question 60

On January 1, Year 1 Missouri Company purchased a truck that cost $47,000. The truck had an expected useful life of 10 years and a $5,000 salvage value. Missouri uses the double declining-balance method. What is the amount of depreciation expense recognized in Year 2?

A)$7,520
B)$6,720
C)$4,700
D)$9,400

Question 61

On January 1, Year 1, Dinwiddie Company purchased a car that cost $45,000. The car has an expected useful life of 5 years and a $10,000 salvage value. Which of the following statements is true?

A)The total amount of depreciation expense recognized over the six-year useful life will be greater under the double-declining-balance method than the straight-line method.
B)The amount of depreciation expense recognized in Year 4 would be greater if Dinwiddie depreciates the car under the straight-line method than if the double-declining-balance method is used.
C)At the end of Year 2, the amount in accumulated depreciation account will be less if the double-declining-balance method is used than it would be if the straight-line method is used.
D)None of these statements is true.

Question 62

On January 1, Year 1, Marino Moving Company paid $64,000 cash to purchase a truck. The truck was expected to have a four year useful life and a $4,000 salvage value. If Marino uses the straight-line method, the amount of book value shown on the Year 2 balance sheet is

A)$32,000
B)$34,000
C)$28,000
D)$30,000

Question 63

On January 1, Year 1, Marino Moving Company paid $64,000 cash to purchase a truck. The truck was expected to have a four year useful life and a $4,000 salvage value. If Marino uses the straight-line method, the accumulated depreciation shown on the Year 2 balance sheet is

A)$16,000
B)$32,000
C)$45,000
D)$30,000

Question 64

Emir Company purchased equipment that cost $110,000 cash on January 1, Year 1. The equipment had an expected useful life of six years and an estimated salvage value of $8,000. Emir depreciates its assets under the straight-line method. What are the amounts of depreciation expense during Year 3 and the accumulated depreciation at December 31, Year 3, respectively?

A)$17,000 and $17,000
B)$17,000 and $68,000
C)$68,000 and $17,000
D)$17,000 and $51,000

Question 65

On January 1, Year 1, Jing Company purchased office equipment that cost $34,125 cash. The equipment was delivered under terms free on board (FOB)shipping point, and transportation cost was $2,125. The equipment had a five-year useful life and a $12,070 expected salvage value.Assume that Jing Company earned $30,100 cash revenue and incurred $19,100 in cash expenses in Year 3. The company uses the straight-line method. The office equipment was sold on December 31, Year 3 for $16,200. What is the company's net income (loss)for Year 3?

A)($6,642)
B)$6,642
C)$622
D)$5,458

Question 66

On January 1, Year 1, Friedman Company purchased a truck that cost $48,000. The truck had an expected useful life of 100,000 miles over 8 years and an $8,000 salvage value. During Year 2, Friedman drove the truck 18,500 miles. Friedman uses the units-of-production method. What is depreciation expense in Year 2?

A)$8,880
B)$7,400
C)$6,000
D)$5,000

Question 67

On January 1, Year 1, Dinkins Company purchased a truck that cost $46,000. The company expected to drive the truck 100,000 miles over its 5-year useful life, and the truck had an estimated salvage value of $8,000. If the truck is driven 26,000 miles in Year 1, what would be the amount of depreciation expense for the year?

A)$11,960
B)$9,880
C)$9,200
D)$7,600

Question 68

On January 1, Year 1, Marino Moving Company paid $64,000 cash to purchase a truck. The truck was expected to have a four-year useful life and a $4,000 salvage value. If Marino uses the straight-line method, the amount of depreciation expense recognized on the Year 2 income statement is

A)$16,000
B)$32,000
C)$15,000
D)$10,000

Question 69

On January 1, Year 1, Friedman Company purchased a truck that cost $48,000. The truck had an expected useful life of 8 years and an $8,000 salvage value. Friedman uses the double-declining-balance method. What is the book value of the truck at the end of Year 1?

A)$43,000
B)$38,000
C)$40,000
D)$36,000

Question 70

On January 1, Year 1, Friedman Company purchased a truck that cost $43,000. The truck had an expected useful life of 8 years and an $8,000 salvage value. Friedman uses the double-declining-balance method. What is the book value of the truck at the end of Year 1?

A)$24,250
B)$34,250
C)$26,250
D)$32,250

Question 71

Tally Company paid cash to purchase a long-term operational asset. The cost of the asset will be expensed (depreciated)

A)over the useful life of the asset.
B)at the end of its useful life.
C)on the day it is purchased.
D)when the asset is sold.

Question 72

Which of the following statements is true regarding depreciation expense?

A)Different companies in the same industry always depreciate similar assets by the same methods.
B)A company using the straight-line method will show a smaller book value for assets than if the same company uses the double-declining-balance method.
C)Choosing the double-declining balance method over the straight-line method will produce a greater total depreciation expense over the asset's life.
D)A company should use the depreciation method that best matches expense recognition with the use of the asset.

Question 73

Chubb Company paid cash to purchase equipment on January 1, Year 1. Select the answer that shows how the recognition of depreciation expense in Year 2 would affect the financial statements.

A)Option A
B)Option B
C)Option C
D)Option D

Question 74

On January 1, Year 1, Jing Company purchased office equipment that cost $35,875 cash. The equipment was delivered under terms free on board (FOB)shipping point, and transportation cost was $3,875. The equipment had a five-year useful life and a $13,050 expected salvage value.Assuming the company uses the double-declining-balance depreciation method, what are the amounts of depreciation expense and accumulated depreciation, respectively, that would be reported in the financial statements prepared as of December 31, Year 3?

A)$0 and $26,700
B)$1,260 and $26,700
C)$9,540 and $25,440
D)$5,724 and $31,164

Question 75

On January 1, Year 1, Jing Company purchased office equipment that cost $34,000 cash. The equipment was delivered under terms free on board (FOB)shipping point, and transportation cost was $2,000. The equipment had a five-year useful life and a $12,000 expected salvage value.Assuming the company uses the double-declining-balance depreciation method, what are the amounts of depreciation expense and accumulated depreciation, respectively, that would be reported in the financial statements prepared as of December 31, Year 3?

A)$0 and $24,000
B)$960 and $24,000
C)$8,640 and $23,040
D)$5,184 and $28,224

Question 76

On January 1, Year 1, Friedman Company purchased a truck that cost $40,000. The truck had an expected useful life of 200,000 miles over 8 years and an $8,000 salvage value. During Year 2, Friedman drove the truck 19,000 miles. Friedman uses the units-of-production method. What is depreciation expense in Year 2? (Round your intermediate calculations to 3 decimal places.)

A)$3,800
B)$3,040
C)$4,000
D)$5,000

Question 77

On January 1, Year 1, Dinkins Company purchased a truck that cost $54,000. The company expected to drive the truck 100,000 miles over its 5-year useful life, and the truck had an estimated salvage value of $8,000. If the truck is driven 29,000 miles in Year 1, what would be the amount of depreciation expense for the year? (Round your intermediate calculations to 3 decimal places.)

A)$15,660
B)$13,340
C)$21,600
D)$9,200

Question 78

On January 1, Year 1, Jing Company purchased office equipment that cost $34,000 cash. The equipment was delivered under terms free on board (FOB)shipping point, and transportation cost was $2,000. The equipment had a five-year useful life and a $12,000 expected salvage value. At the end of Year 5, the equipment was still owned by Jing Company. What is the book value of the office equipment using the straight-line method and double-declining-balance method, respectively?

A)$12,000 and $1,680.
B)$12,000 and $12,000.
C)$0 and $0.
D)None of these answer choices are correct.

Question 79

On January 1, Year 1, Marino Moving Company paid $64,000 cash to purchase a truck. The truck was expected to have a four year useful life and a $4,000 salvage value. If Marino uses the straight-line method, which of the following shows how the adjusting entry to recognize depreciation expense at the end of Year 3 will affect the Company's financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question 80

On January 1, Year 1, Jing Company purchased office equipment that cost $34,000 cash. The equipment was delivered under terms free on board (FOB)shipping point, and transportation cost was $2,000. The equipment had a five-year useful life and a $12,000 expected salvage value.Assume that Jing Company earned $30,000 cash revenue and incurred $19,000 in cash expenses in Year 3. The company uses the straight-line method. The office equipment was sold on December 31, Year 3 for $16,000. What is the company's net income (loss)for Year 3?

A)($6,600)
B)$6,600
C)$600
D)$5,400