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Exam 8: Accounting for Long-Term Operational Assets

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Question 21

True/False

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An expenditure that improves the quality of service provided by a plant asset is added to the historical cost of the asset.

A) True
B) False

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Question 22

Multiple Choice

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Which of the following measurements would not be affected by the choice of depreciation methods?

A) Debt-to-assets ratio
B) Total assets
C) Total cash flow from investing activities
D) Return-on-equity ratio

E) B) and D)
F) None of the above

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Question 23

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Jackson Incorporate purchased a truck for $36,000.The truck had a useful life of 150,000 miles over 4 years and a $6,000 salvage value.Jackson drove the truck 40,000 miles in Year 1 and 24,000 miles in Year 2.If Jackson uses the units-of-production method,what is the accumulated depreciation at the end of Year 2?

Late in a plant asset's useful life,the amount of depreciation that would be recorded with the double-declining-balance method is less than the amount that would be recognized with the straight-line method.

Grant Company acquired 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 elements of Grant's financial statements?

On January 1,Year 1,Eller Company purchased an asset that had cost $24,000.The asset had an 8-year useful life and an estimated salvage value of $1,000.Eller depreciates its assets on the straight-line basis.On January 1,Year 5,the company spent $6,000 to improve the quality of the asset.How does the Year 5 depreciation expense impact the elements of the financial statements?

Which method of depreciation is used by most U.S.companies for financial reporting purposes?

On January 1,Year 1,Milton Manufacturing Company purchased equipment with a list price of $88,000.A total of $4,000 was paid for installation and testing.During the first year,Milton paid $6,000 for insurance on the equipment and another $2,200 for routine maintenance and repairs.Milton uses the units-of-production method of depreciation.Useful life is estimated at 100,000 units,and estimated salvage value is $8,000.During Year 1,the equipment produced 13,000 units.What is the amount of depreciation for Year 1?

Gains and losses are reported as part of operating income on the income statement.

Which of the following is an asset that has an identifiable useful life?

How does the recognition of depletion expense affect the elements of the financial statements?

Pierce Corporation,a U.S.business,is a direct competitor of Zeiss Company,a German firm.The two firms not only compete for customers,but also for investment capital.In Year 1,each company spent about $35,000 U.S.dollars or the equivalent on research and development.U.S.GAAP requires the entire amount to be expensed,while Germany requires its businesses to record R&D expenditures as an asset and then to expense it over its useful life.Assuming the treatment of R&D is the only difference between the two firms,which of the following is correct?

Which of the following statements is true concerning the modified accelerated cost recovery system (MACRS) for the recognition of depreciation expense,for tax purposes?

The use of estimates and revision of estimates are uncommon in financial reporting.

On January 1,Year 1,Zach Company purchased equipment that cost $50,000.The equipment had a useful life of 5 years and a $10,000 salvage value.Zach Company used the double-declining-balance method to depreciate its assets.What is the accumulated depreciation at the end of Year 2?

Chico Company paid $950,000 for a basket purchase that included office furniture,a building and land.An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: Office furniture,$190,000;Building,$740,000;and Land,$132,000.Based on this information,what is the cost that should be allocated to the office furniture? (Round allocation percentage to two decimal places. )

On January 6,Year 1,Mount Jackson Corporation purchased a tract of land for a factory site for $1,500,000.An existing building on the site was demolished and the new factory was completed on October 11,Year 1.Additional cost data are shown below: Which of the following are the capitalized costs of the land and the new building,respectively?

At the end of Year 5,the equipment was still owned by Jing Company.What is the book value of the office equipment using the straight-line method and double-declining-balance method,respectively?

Which of the following would be classified as a tangible asset?

Which of the following general journal entries shows the proper recording of an impairment loss of $15,000 relating to goodwill?