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Exam 8: Accounting for Long-Term Operational Assets

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Question 61

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

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Question 62

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What journal entry would be used to record the purchase of the above assets?

A)
B)
C)
D)

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

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Question 63

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Which of the following terms is applied to long-term assets that have no physical substance and provide rights, privileges and special opportunities to businesses?

On January 1, 2013, Williams Co. purchased a machine for $60,000. Williams estimated the useful life of the machine to be 10 years and the salvage value to be $10,000. Indicate whether each of the following statements is true or false. _____ a) Depreciation expense for 2013 under the straight-line method would be $6,000. _____ b) Depreciation expense for 2013 under the double declining method would be $12,000. _____ c) The accumulated depreciation at the end of 2014 under the straight-line method would be $10,000. _____ d) The accumulated depreciation at the end of 2014 under the double declining method would be $24,000. _____ e) The book value of the machine under both the double declining method and the straight-line method at the end of 10 years would be $10,000.

Sherman Co. owned equipment that originally cost $24,000. The company sold the equipment on January 1, 2013 for $8,000 cash. Accumulated depreciation on the day of sale amounted to $17,000. Based on this information, indicate whether each of the following statements is true or false. _____ a) The sale will decrease Sherman's net income, but it will not affect the company's operating income. _____ b) Sherman would show an $8,000 cash inflow in the operating activities section of the cash flow statement. _____ c) The sale would result in a decrease in total assets. _____ d) The sale would increase Sherman's equity by $1,000. _____ e) The sale would be recorded as a debit to cash for $8,000, a credit to equipment for $7,000, and a credit to gain on sale of equipment for $1,000.

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

The Blackwell Company purchased an asset for $25,000 on January 1, 2013. The asset had a zero salvage value and an 8-year estimated useful life. On January 1, 2015, the company spent $1,200 cash on routine repairs and maintenance. What effect will the 2015 expenditure have on the company's financial statements?

The Flagler Company paid $18,000 to improve the quality of a manufacturing machine. How will this expenditure affect Flagler's financial statements?

On January 1, 2013, Leland Company purchased an asset that cost $20,000. The asset had an expected useful life of five years and an estimated salvage value of $4,000. Leland 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 $2,000. Based on this information, the amount of depreciation expense to be recognized at the end of 2016 is:

Explain how the gain or loss is computed on the sale of a piece of equipment.

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

Expenditures that extend the useful life of a plant asset are debited to the asset account.

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

Indicate whether each of the following statements is true or false. _____ a) Long-term assets having no physical substance are called intangible assets. _____ b) Equipment is an example of an intangible asset. _____ c) Natural resources are examples of tangible long-term assets. _____ d) The reason that land is classified separately from other tangible assets is because the cost is normally much higher. _____ e) Goodwill is classified as Plant, Property and Equipment.

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 straight-line depreciation.

Easton Company purchased equipment that cost $55,000 cash on January 1, 2012. The equipment had an expected useful life of six years and an estimated salvage value of $4,000. Assuming that Easton depreciates its assets under the straight-line method, the amount of depreciation expense appearing on the 2015 income statement and the amount of accumulated depreciation appearing on the December 31, 2015 balance sheet would be:

The balance sheet of Ernie's Restaurant showed total assets of $300,000, liabilities of $80,000 and equity of $270,000. An appraiser estimated the market value of the restaurant assets at $340,000. If Bert Company pays $385,000 cash for the restaurant the amount of goodwill purchased would be:

With an accelerated depreciation method, an asset can be depreciated below its salvage value.

The recognition of depletion expense

On January 1, 2013, Fritz Company purchased a truck that cost $38,000. The truck had an expected useful life of 100,000 miles over 8 years and an $8,000 salvage value. During 2014, Fritz drove the truck 18,500 miles. The amount of depreciation expense recognized in 2014 assuming that Fritz uses the units of production method is: