Question 1

Recently, companies have been ordered by governmental agencies to clean up environmental damages caused by business operations. How should costs incurred in these situations be treated?

Accepted Answer

A)  If a legal obligation exists, the cost of restoring the property must be added to the asset account. 
B)  As an expense entirely in one accounting period. 
C)  As an amortized expense in the period the cost is incurred. 
D)  Added to the asset, and then depreciated over 15 years.

Question 2

Using the straight-line depreciation method will cause a company to incur tax expense in the early years of an asset's life than they would experience using an accelerated method of depreciation.

Accepted Answer

A)  more 
B)  less 
C)  equal 
D)  This cannot be determined from the information given.

Question 3

Bing's Export Co.
Bing's Export Co. purchased a new delivery truck at the beginning of 2015. The truck has a cost of $37,000, an estimated life of 5 years, and an estimated residual value of $7,000. A full year's depreciation expense is to be recorded in 2015. The truck was driven 20,000 miles during 2015 and 24,000 miles during 2016. The number of expected miles over five years is 100,000.
-Refer to information for Bing's Export Co. By what amount would double-declining-balance depreciation exceed straight-line depreciation over the 5-year life of the truck?

Accepted Answer

A)  The salvage value of $7,000 
B)  Cost less total depreciation 
C)  Cost plus total depreciation 
D)  Total depreciation expenses under double-declining-balance and straight-line depreciation are equal.

Question 4

Music Company's only asset as of January 1, 2014, was a copyright. During 2014, only the following three
transactions occurred:
Royalties earned from copyright use, $510,000 in cash Cash paid for advertising and salaries, $62,500 Amortization, $50,000
Required
1. What amount of income will Music report in 2014?
2. What is the amount of cash on hand at December 31, 2014?
3. Explain how the cash balance increased from zero at the beginning of the year to its year-end balance. Why does the increase in cash not equal the income?

Accepted Answer

The answer of Music Company's only asset as of January...

Question 5

Paulson Transport Company
On January 1, 2015, Paulson Transport Company purchased a ship for $2,000,000. It has a ten-year useful life and a residual value of $50,000. The company uses the double-declining-balance method.
-What was the depreciation expense for Paulson Transport for the year ended December 31, 2015?

Accepted Answer

A)  $ -0- 
B)  $195,000 
C)  $390,000 
D)  $400,000

Question 6

All operating assets, except land, are subject to depreciation, amortization, or depletion.

Accepted Answer

A) True 
 B)False

Question 7

Many companies use MACRS Modified Accelerated Cost Recovery System depreciation for

Accepted Answer

A)  financial reporting purposes and a different method for tax purposes. 
B)  financial reporting purposes because depreciation is not allowed for tax purposes. 
C)  tax purposes because it results in a larger net income in the early years of a plant asset's life. 
D)  tax purposes because of a desire to report higher expenses in early years in order to pay lower taxes.

Question 8

Double-declining-balance depreciation is most commonly used by businesses for financial reporting purposes.

Accepted Answer

A) True 
 B)False

Question 9

Norwood, Inc.
Norwood, Inc. purchased a crane at a cost of $80,000. The crane has an estimated residual value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation. The crane was purchased on January 1, 2015 and was used 2,700 hours in 2015 and 2,600 hours in 2016.
-Refer to the information about Norwood, Inc. What amount will Norwood, Inc. report as depreciation expense over the 8-year life of the equipment?

Accepted Answer

A)  $60,000 
B)  $72,000 
C)  $75,000 
D)  $80,000

Question 10

Craig Inc. purchased a truck on January 1, 2015 for $40,000. The truck had an estimated life of six years and an estimated salvage value of $4,000. Craig uses the straight-line method to depreciate the asset. On July 1, 2017, the truck was sold for $14,000 cash.
A. Determine the effect on the accounting equation upon recording the depreciation for 2015.
B. Show how the gain or loss on the sale of the asset would be reported on Craig Inc.'s income
statement.

Accepted Answer

The answer of Craig Inc. purchased a truck on January...

Question 11

Harkin Company purchased a building on a tract of land and allocated the entire cost of the purchase to building. Normally it depreciates buildings over 20 years using the straight-line method with zero residual value and does not depreciate land. Because of its accounting treatment of the purchase, Harkin's income before taxes for the next 20 years will be

Accepted Answer

A)  overstated. 
B)  understated. 
C)  unaffected. 
D)  in conformance with GAAP.

Question 12

Barnhill, Inc. uses straight-line depreciation for its equipment with an estimated useful life of 10 years and zero residual value. The CEO points out that the equipment will last much longer than 10 years, perhaps up to 20 years. What is the impact on earnings per share and net income of depreciating equipment over 20 years rather than 10 years?

Accepted Answer

A)  Both earnings per share and net income will decrease. 
B)  Both earnings per share and net income will increase. 
C)  Earnings per share will decrease and net income will increase. 
D)  Earnings per share will increase and net income will decrease.

Question 13

For each of the following items, indicate whether each would be treated as a
-Costs related to acquiring an asset, such as sales or excise taxes, transportation, insurance during shipment.

Accepted Answer

A) capital expenditure 
B) revenue expenditure

Question 14

Land is not a depreciable asset, but the amount allocated to the building is subject to .

Accepted Answer

The answer of Land is not a depreciable asset, but...

Question 15

Miguel Foods, Inc. purchased a patent at the beginning of 2013 for $350,000. Economic benefits were expected for 7 years, but the patent's legal life was 20 years. Also during 2013, the company incurred research and development costs of $270,000. Patent amortization expense for 2013 is

Accepted Answer

A)  $11,000 
B)  $17,500 
C)  $31,000 
D)  $50,000

Question 16

Operating assets with no physical properties are called

Accepted Answer

A)  current assets 
B)  intangible assets 
C)  plant assets 
D)  property, plant, and equipment

Question 17

At the end of 2013, Clock Products, Inc. determined that one of its patents was worthless. The patent had a cost of $300,000. The patent had been amortized for 5 years of its estimated 15-year legal life. Which of the following statements is correct?

Accepted Answer

A)  Clock Products must continue to amortize the patent over its remaining 10 years of life. 
B)  The patent must be reduced to 5/15, or 33.3% of its original cost and amortized over the remaining 10 years. 
C)  The remaining unamortized cost must be removed from the accounting records and treated as a loss on the income statement. 
D)  Clock Products must correct its financial statements for the past five years, so that the entire cost is allocated to that five-year period.

Question 18

Assume that Banker Company purchased a new machine on January 1, 2014, for $96,000. The machine has an estimated useful life of nine years and a residual value of $6,000. Banker has chosen to use the straight-line method of depreciation. On January 1, 2016, Banker discovered that the machine would not be useful beyond December 31, 2019, and estimated its value at that time to be $4,000.
REQUIRED:
1. Calculate the depreciation expense, accumulated depreciation, and book value of the asset for each year 2014 to 2019.
2. Was the depreciation recorded in 2014 and 2015 wrong? If so, why was it not corrected?

Accepted Answer

The answer of Assume that Banker Company purchased a new...

Question 19

Explain by what processes the costs of operating assets are allocated to expense.

Accepted Answer

The answer of Explain by what processes the costs of...

Question 20

Depreciation does not describe the increase or decrease in the market value of the asset.

Accepted Answer

A) True 
 B)False

Exam 8: Operating Assets: Property, Plant, and Equipment, and Intangibles

Recently, companies have been ordered by governmental agencies to clean up environmental damages caused by business operations. How should costs incurred in these situations be treated?

Using the straight-line depreciation method will cause a company to incur tax expense in the early years of an asset's life than they would experience using an accelerated method of depreciation.

All operating assets, except land, are subject to depreciation, amortization, or depletion.

Many companies use MACRS Modified Accelerated Cost Recovery System depreciation for

Double-declining-balance depreciation is most commonly used by businesses for financial reporting purposes.

For each of the following items, indicate whether each would be treated as a -Costs related to acquiring an asset, such as sales or excise taxes, transportation, insurance during shipment.

Land is not a depreciable asset, but the amount allocated to the building is subject to .

Miguel Foods, Inc. purchased a patent at the beginning of 2013 for $350,000. Economic benefits were expected for 7 years, but the patent's legal life was 20 years. Also during 2013, the company incurred research and development costs of $270,000. Patent amortization expense for 2013 is

Operating assets with no physical properties are called

At the end of 2013, Clock Products, Inc. determined that one of its patents was worthless. The patent had a cost of $300,000. The patent had been amortized for 5 years of its estimated 15-year legal life. Which of the following statements is correct?

Explain by what processes the costs of operating assets are allocated to expense.

Depreciation does not describe the increase or decrease in the market value of the asset.