Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 59

Wiki Art Gallery (WAG)
Access the Wiki Art Gallery (WAG) instructional case in Connect, and read the case in sufficient depth to answer the following questions.
1. What method for depreciation does Wiki Art Gallery (WAG) use and is this method generally accepted
a. WAG uses the capitalization method, which is in accordance with GAAP.
b. WAG uses the straight-line method, which is in accordance with GAAP.
c. WAG uses the declining-balance method, which is in accordance with GAAP.
d. WAG uses the units-of-production method, which is in accordance with GAAP.
2. Calculate the amount of 2011 depreciation expense that WAG recorded on the old computer equipment and on the new computer equipment.
a. WAG recorded $206 on the old equipment and $180 on the new equipment.
b. WAG recorded $825 on the old equipment and $180 on the new equipment.
c. WAG recorded $825 on the old equipment and $386 on the new equipment.
d. Cannot be determined with the information provided.
3. Which aspect(s) of WAG's accounting for Web site development costs in 2011 may be inappropriate
a. WAG capitalized $9,000 despite $7,000 being a regularly recurring cost.
b. WAG began amortizing only after the Web site development costs were paid.
c. The six-year useful life overstates the likely period of benefit.
d. All of the above.
4. By what amount would WAG's net income change if WAG were to adopt a two-year useful life for the new computer equipment, appropriately capitalize the Web development cost, and amortize the capitalized Web costs over a three-year life
a. WAG's net income would decrease by $928.
b. WAG's net income would decrease by $1,233.
c. WAG's net income would decrease by $1,867.
d. WAG's net income would decrease by $7,928.