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Exam 9: Reporting and Analyzing Long-Lived Assets

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Question 101

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A machine with a cost of $480,000 has an estimated salvage value of $30,000 and an estimated useful life of 5 years or 15,000 hours. It is to be depreciated using the units-of-activity method of depreciation. What is the amount of depreciation for the second full year, during which the machine was used 5,000 hours?

A) $150,000.
B) $90,000.
C) $130,000.
D) $160,000.

E) All of the above
F) B) and C)

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Question 102

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Goodwill

A) is only recorded when generated internally.
B) can be subdivided and sold in parts.
C) can only be identified with the business as a whole.
D) can be defined as normal earnings less accumulated amortization.

E) C) and D)
F) A) and B)

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Question 103

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Pearson Company bought a machine on January 1, 2014. The machine cost $144,000 and had an expected salvage value of $24,000. The life of the machine was estimated to be 5 years. The depreciation expense using the straight-line method of depreciation is

The following information is provided for Nguyen Company and Northwest Corporation. What is Nguyen's asset turnover ratio for 2014?

Faster Company purchased equipment in 2007 for $104,000 and estimated an $8,000 salvage value at the end of the equipment's 10-year useful life. At December 31, 2013, there was $67,200 in the Accumulated Depreciation account for this equipment using the straight-line method of depreciation. On March 31, 2014, the equipment was sold for $21,000. Prepare the appropriate journal entries to remove the equipment from the books of Faster Company on March 31, 2014. (b) Lewis Company sold equipment for $11,000. The equipment originally cost $25,000 in 2011 and $6,000 was spent on a major overhaul in 2014 (charged to the Equipment account). Accumulated Depreciation on the equipment to the date of disposal was $20,000. Prepare the appropriate journal entry to record the disposition of the equipment. (c) Selby Company sold equipment that had a book value of $13,500 for $15,000. The equipment originally cost $45,000 and it is estimated that it would cost $57,000 to replace the equipment. Prepare the appropriate journal entry to record the disposition of the equipment.

Which of the following would not be included in the Equipment account?

Under an operating lease, both the leased asset and the liability are shown on the balance sheet.

Comment on the validity of the following statements: "As an asset loses its ability to provide services, cash needs to be set aside to replace it. Depreciation accomplishes this goal."

During 2014, Ronald Corporation reported net sales of $1,500,000, net income of $900,000, and depreciation expense of $100,000. Ronald also reported beginning total assets of $1,000,000, ending total assets of $1,500,000, plant assets of $800,000, and accumulated depreciation of $500,000. Ronald's asset turnover ratio is

The Accumulated Depreciation account represents a cash fund available to replace plant assets.

The balance in the Accumulated Depreciation account represents the

Units-of-activity is an appropriate depreciation method to use when

Shaffer Company acquires land for $62,000 cash. Additional costs are as follows. $\begin{array} { l r } \text { Removal of shed } & \$ 300 \\\text { Filling and grading } & 1,500 \\\text { Salvage value of lumber of shed } & 120 \\\text { Broker commission } & 1,130 \\\text { Paving of parking lot } & 10,000 \\\text { Closing costs } & 560\end{array}$ Shaffer will record the acquisition cost of the land as

A computer company has $3,000,000 in research and development costs. Before accounting for these costs, the net income of the company is $3,600,000. What is the amount of net income or loss before taxes after these research and development costs are accounted for?

For each of the following unrelated transactions, (a) determine the amount of the amortization for the current year, and (b) present the adjusting entries required to record amortization at year end. (1) Costs (it was not acquired) of $39,000 were incurred on January 1 to obtain a patent. On January 31, $38,610 was spent in legal costs to successfully defend the patent against competitors. The patent has an estimated legal life of 12 years. (2) A company acquired a copyright for $160,000. The copyright has a useful life of 50 years.

Ordinary repairs should be recognized when incurred as revenue expenditures.

Equipment was purchased for $90,000. Freight charges amounted to $4,200 and there was a cost of $12,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $18,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be

Using the units-of-activity method of depreciating factory equipment will generally result in more depreciation expense being recorded over the life of the asset than if the straight-line method had been used.

All of the following statements regarding impairments are true except

Equipment costing $210,000 was destroyed when it caught on fire. At the date of the fire, the accumulated depreciation on the equipment was $84,000. An insurance check for $240,000 was received based on the replacement cost of the equipment. The entry to record the insurance proceeds and the disposition of the equipment will include a