Question 1

Prepare the required adjusting journal entry at December 31, 2015, the end of the annual accounting period for the three items below. Assume that no adjusting entries have been made during the year. If no entry is required, explain why.
A. Polk Company acquired a patent that cost $6,000 on January 1, 2015. The patent was registered on January 1, 2010. The useful life of a patent is 20 years from registration.
B. Polk Company acquired a gravel pit on January 1, 2015, that cost $24,000. The company estimates that 30,000 tons of gravel can be extracted economically. During 2015, 4,000 tons were extracted and sold.
C. On January 1, 52014, Polk Company acquired a used dump truck that cost $6,000 to use hauling gravel. The company estimated a residual value of 10% of cost and a useful life 4 years. The company uses straight-line depreciation.

Accepted Answer

The answer of Prepare the required adjusting journal entry at...

Question 2

Selling a depreciable asset for a gain results in an increase in both net income and assets.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is incorrect?

Accepted Answer

A)  A copyright has a legal life not exceeding 70 years after the author's death. 
B)  A trademark is recorded on the balance sheet at an amount equal to the related research and development costs incurred. 
C) A patent's legal life is 20 years. 
D) A franchise's amortization period is determined by the franchise agreement.

Question 4

A company acquires land by issuing 10,000 shares of its $10 par value common stock currently trading at $20 per share and the appraised value of the land is $250,000. Which of the following statements correctly describes the recording of the land?

Accepted Answer

A)  Record the land at its appraised value of $250,000 and recognize a gain of $50,000 since the issued stock is currently worth $200,000. 
B)  Record the land at the $200,000 value of the consideration given up. 
C) Record the land at the average of its appraised value of $250,000 and the $200,000 value of the stock issued, thereby recognizing a $25,000 gain. 
D) Record the land at the par value of the stock given up, $100,000.

Question 5

Goodwill is recorded only when an existing company is bought by another company and the purchase price exceeds the fair value of the purchased company's net assets.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements is correct with respect to the sale of a depreciable asset?

Accepted Answer

A)  A gain occurs when the selling price exceeds book value. 
B)  A sale for a gain results in a decrease in total assets. 
C) A sale for a loss results in an increase in total assets. 
D) A loss occurs when the selling price is more than book value.

Question 7

Which of the following accounts would not be considered a tangible asset?

Accepted Answer

A)  Buildings 
B)  Land 
C) Equipment 
D) Copyright

Question 8

Amanda Company purchased a computer that cost $10,000. It had an estimated useful life of five years and a residual value of $1,000. The computer was depreciated by the straight-line method and was sold at the end of the third year of use for $5,000 cash. How much of a gain or loss should Amanda record?

Accepted Answer

A)  A gain of $1,000. 
B)  A loss of $5,000. 
C) A gain of $400. 
D) A loss of $400.

Question 9

On January 1, 2014, Pyle Company purchased an asset that cost $50,000 and had no estimated residual value. The estimated useful life of the asset is 8 years and straight-line depreciation is used. An error was made in 2014 because the total amount of the asset's cost was debited to an expense account for 2014 and no depreciation was recorded. Pretax income for 2014 was $42,000. How much is the correct 2014 pretax income?

Accepted Answer

A)  $35,750. 
B)  $48,250. 
C) $85,750. 
D) $92,000.

Question 10

Research and development costs are capitalized under GAAP once a product or process has been developed.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following does not properly describe the depreciation process?

Accepted Answer

A)  It is an allocation process. 
B)  It is consistent with the matching principle. 
C) It involves the use of estimates. 
D) It attempts to determine an asset's market value.

Question 12

On August 1, Red Company purchased computer equipment for $10,000 cash and also gave 100 shares of White common stock that Red Company held as an investment. The White common stock cost Red Company $5,000 and on August 1 had a fair value of $4,200. The installation costs for the computer equipment were $700 and shipping costs were $500. What amount should be the total amount debited to the computer equipment account?

Accepted Answer

A)  $14,200. 
B)  $15,000. 
C) $15,400. 
D) $16,200.

Question 13

Which of the following equipment related costs is not capitalized on a balance sheet?

Accepted Answer

A)  Equipment installation costs. 
B)  Transportation costs associated with the equipment purchase. 
C) Equipment maintenance costs. 
D) The equipment's purchase price.

Question 14

The first step in recording the disposal of a long-lived asset is to update its book value by recognizing depreciation expense for the period of time since the last depreciation adjustment was made.

Accepted Answer

A) True 
 B)False

Question 15

Patents, trademarks, and franchises are examples of tangible assets.

Accepted Answer

A) True 
 B)False

Question 16

Schager Company purchased a computer system on January 1, 2014, at a cash cost of $25,000. The estimated useful life is 10 years, and the estimated residual value is $3,000. The company will use the double declining-balance depreciation method. What is the accumulated depreciation balance as of December 31, 2015?

Accepted Answer

A)  $9,000. 
B)  $4,000. 
C) $7,920. 
D) $8,520.

Question 17

Natural resource depletion is recognized on the income statement for all resources removed during the period whether they are sold or not.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements about the Modified Accelerated Cost Recovery System (MACRS) is correct?

Accepted Answer

A)  It is similar to the units-of-production depreciation method. 
B)  It is applied using longer asset lives than the estimated useful lives required by GAAP. 
C) It provides a short-term tax benefit because of the higher depreciation expense reported in the early years of an asset's life. 
D) It is acceptable for use when preparing financial statements.

Question 19

On January 1, 2013, Boston Company purchased a heavy duty machine having an invoice price of $13,000. Boston paid transportation and installation costs totaling $3,000. The machine is estimated to have a 4-year useful life and a $1,400 residual value.
Required:
Calculate depreciation expense and book value for 2013-2016, assuming double declining-balance method of depreciation.

Accepted Answer

The answer of On January 1, 2013, Boston Company purchased...

Question 20

Lue Company sold used equipment for $450,000 cash. The equipment was purchased 5 years ago for a cost of $800,000. It has been depreciated using the straight-line method over an estimated useful life of 10 years with an estimated residual value of $50,000.
Required:
Prepare the journal entry at the end of year five for the asset's disposal assuming the fifth year's depreciation had been recorded.

Accepted Answer

The answer of Lue Company sold used equipment for $450,000...

Exam 8: Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Selling a depreciable asset for a gain results in an increase in both net income and assets.

Which of the following statements is incorrect?

A company acquires land by issuing 10,000 shares of its $10 par value common stock currently trading at $20 per share and the appraised value of the land is $250,000. Which of the following statements correctly describes the recording of the land?

Goodwill is recorded only when an existing company is bought by another company and the purchase price exceeds the fair value of the purchased company's net assets.

Which of the following statements is correct with respect to the sale of a depreciable asset?

Which of the following accounts would not be considered a tangible asset?

Research and development costs are capitalized under GAAP once a product or process has been developed.

Which of the following does not properly describe the depreciation process?

Which of the following equipment related costs is not capitalized on a balance sheet?

The first step in recording the disposal of a long-lived asset is to update its book value by recognizing depreciation expense for the period of time since the last depreciation adjustment was made.

Patents, trademarks, and franchises are examples of tangible assets.

Natural resource depletion is recognized on the income statement for all resources removed during the period whether they are sold or not.

Which of the following statements about the Modified Accelerated Cost Recovery System (MACRS) is correct?