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Exam 6: Accounting for Long-Term Operational Assets

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Question 51

True/False

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

A) True
B) False

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Question 52

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Zabinski Co. paid $150,000 for a purchase that included land, building, and office furniture. An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: Land, $20,000, Building, $150,000, and Office furniture, $30,000. Based on this information the cost that would be allocated to the land is

A) $17,500.
B) $20,000.
C) $25,000.
D) $15,000.

E) All of the above
F) None of the above

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Question 53

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Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. $\text { Increase } = \mathrm { I } \quad \text { Decrease } = \mathrm { D } \quad \text { No Effect } = \mathrm { N }$ The XYZ Company purchased the ABC Company for $520,000 cash. ABC's assets had been appraised at $410,000. ABC had liabilities of $40,000, which XYZ assumed. How would the purchase of ABC affect XYZ's financial statements? $\begin{array}{|l|l|l|l|l|l|}\text { Assets Liabilities } & \text { Equity } & \text { Revenues } & \text { Expenses } & \begin{array}{c}\text { Net } \\\text { Income }\end{array} & \begin{array}{c}\text { Cash } \\\text { Flow }\end{array}\\\hline&&&\end{array}$

Which of the following is an intangible asset with an identifiable useful life?

Mobley Company purchased an asset with a list price of $35,000. Mobley received a 2% cash discount. The asset was delivered under terms FOB shipping point, and freight costs amounted to $700. Mobley paid $1,500 to have the asset installed. Insurance costs to protect the asset from fire and theft amounted to $400 for the first year of operations. Based on this information, the cost recorded in the asset account would be

A trademark has a total legal and useful life of 50 years.

On January 1, 2014, Santa Fe Company purchased a truck that cost $34,000. The truck had an expected useful life of 5 years and a $4,000 salvage value. Based on this information alone:

Which of the following assets is not considered to have an indefinite useful life?

On September 10, 2014, Barden Company sold a piece of equipment for $3,000. The equipment had an original cost of $17,000 and accumulated depreciation of $15,500 at the time of the sale. Which of the following correctly shows the effect of the sale on the 2014 financial statements?

On January 1, 2014, Ziskin Company spent $3,000 on an asset to improve its quality. The asset had been purchased on January 1, 2009 for $14,000. The asset had a $2,000 salvage value and a 6-year life. Ziskin uses straight-line depreciation. What would be the book value of the asset on January 1, 2015?

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. $\text { Increase } = \mathrm { I } \quad \text { Decrease } = \mathrm { D } \quad \text { No Effect } = \mathrm { N }$ Stanton Company recognized $5,000 of depreciation expense. $\begin{array}{|l|l|l|l|l|l|}\text { Assets Liabilities } & \text { Equity } & \text { Revenues } & \text { Expenses } & \begin{array}{c}\text { Net } \\\text { Income }\end{array} & \begin{array}{c}\text { Cash } \\\text { Flow }\end{array}\\\hline&&&\end{array}$

A substantial amount spent to improve the quality or extend the life of a long-term asset is a revenue expenditure.

Which of the following statements is true with regard to depreciation expense?

For what types of assets is the recognition of expense called "amortization?"

Rodriquez Company paid $375,000 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, $75,000; Building, $320,000; Land, $36,000. Based on this information the amount of cost that would be allocated to the office furniture is

Indicate whether each of the following statements is true or false. 1. The amount recorded in a Trademark account includes the cost to develop the trademark and to defend it 2. GAAP requires that research and development costs be capitalized and allocated over a reasonable period of time 3. Intangible assets generally are depreciated using the double declining-balance method 4. A trademark has an indefinite legal lifetime 5. The entry to record the amortization of a patent includes recognition of an expense

Give an example of a type of industry that requires a company to have a large amount of operational assets.

Explain how a choice of depreciation methods will have an impact on financial performance measures. Give one example.

On January 1, 2014, Stassi Corporation purchased equipment for $25,000. A discount of 2% was granted on the equipment; the shipping terms were FOB Shipping Point, and the shipping cost was $1,500; installation and testing amounted to $1,000. The equipment had an estimated useful life of 4 years and salvage value of $4,000. At the beginning of 2016, Stassi revised the expected life of the asset to six years and the salvage value to $5,000. Required: Compute the depreciation expense using straight-line method for each of the six years.

Depletion is the process of expensing intangible assets.