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Exam 6: Accounting for Long-Term Operational Assets

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Question 31

True/False

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

A) True
B) False

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Question 32

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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. The company uses the double-declining balance method. The book value of the truck at the end of Year 1 is:

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

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

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Question 33

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Duffy Incorporated purchased a truck for $20,700 cash. The truck had a six-year useful life and a $2,700 expected salvage value. Required: Compute the depreciation expense using straight-line method for each of the six years.

On January 1, Year 1, Mike Moving Company paid $27,000 to purchase a truck. The truck was expected to have a four-year useful life and $3,000 salvage value. If Mike uses the straight-line method, which of the following shows how the adjustment to recognize depreciation expense at the end of Year 3 will affect the Company's financial statements?

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 of depreciation for the equipment which is estimated to have a useful life of four years and a salvage value of $5,000. The depreciation expense for Year 1 for the equipment is:

On January 1, Year 1, Li Company purchased an asset that cost $95,000. The asset had an expected useful life of five years and an estimated salvage value of $19,000. Li uses the straight-line method for the recognition of depreciation expense. At the beginning of the fourth year of usage, the company revised its estimated salvage value to $9,500. Based on this information, the amount of depreciation expense to be recognized at the end of Year 4 is:

Explain the meaning of "impairment" as used in accounting for goodwill.

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 recorded for the building?

The balance sheet of Flo's Restaurant showed total assets of $600,000, liabilities of $160,000 and stockholders' equity of $440,000. An appraiser estimated the fair value of the restaurant assets at $680,000. If Alice Company pays $770,000 cash for the restaurant the amount of goodwill acquired would be:

Zebra Company purchased a van for $8,000 cash on January 1, Year 1. On the purchase date, how would Zebra's financial statements be affected?

What term is used for the process of expense allocation of natural resources?

On April 1, Year 1, Fossil Energy Company purchased an oil-producing well at a cash cost of $11,100,000. It is estimated that the oil well contains 840,000 barrels of oil, of which only 740,000 can be profitably extracted. By December 31, Year 1, 37,000 barrels of oil were produced and sold. The amount of depletion for Year 1 on this well would be: (Do not round intermediate calculations.)

The recognition of depreciation expense acts to:

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. The company uses the units-of-production method. The amount of depreciation expense recognized in Year 2 is:

On January 1, Year 1, the Vanguard Company purchased a copyright for $12,000. Vanguard estimated the remaining useful life of the copyright to be 6 years. Which of the following correctly shows the effect of the first year's amortization of Vanguard's copyright?

Is land a tangible or intangible asset? Is land subject to depreciation?

The Grant Company acquired the Lee Company for $600,000 cash. The fair value of Lee's assets was $520,000, and the company had $40,000 in liabilities. Which of the following choices would reflect the acquisition on Grant's financial statements?

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.

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

Goodwill is the added value of a successful business that is attributable to factors that enable the business to earn above-average profits.