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Exam 8: Accounting for Long-Term Operational Assets

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Question 61

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On January 1, Year 1, Dinkins Company purchased a truck that cost $54,000. The company expected to drive the truck 100,000 miles over its 5-year useful life, and the truck had an estimated salvage value of $8,000. If the truck is driven 29,000 miles in Year 1, what would be the amount of depreciation expense for the year? (Round your intermediate calculations to 3 decimal places.)

A) $15,660
B) $13,340
C) $21,600
D) $9,200

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

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Question 62

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On March 1, Bartholomew Company purchased a new stamping machine with a list price of $79,000. The company paid cash for the machine; therefore, it was allowed a 5% discount. Other costs associated with the machine were: transportation costs, $2,200; sales tax paid, $4,920; installation costs, $1,450; routine maintenance during the first month of operation, $2,100. What is the cost of the machine?

A) $82,170
B) $75,050
C) $85,720
D) $83,620

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

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Question 63

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On January 1, Year 1, Jing Company purchased office equipment that cost $35,875 cash. The equipment was delivered under terms free on board (FOB) shipping point, and transportation cost was $3,875. The equipment had a five-year useful life and a $13,050 expected salvage value.Assuming the company uses the double-declining-balance depreciation method, what are the amounts of depreciation expense and accumulated depreciation, respectively, that would be reported in the financial statements prepared as of December 31, Year 3?

When Company X purchases Company Y, Company X should record Company Y's assets at their fair value at the time of the acquisition.

Assume that two companies are in similar circumstances except for their choice of depreciation methods. Explain how the amounts of depreciation expense reported on the income statement of the company that uses the straight-line method will differ from the amounts reported by the company that uses the double-declining-balance method.

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

Rupert Company purchased a delivery van on January 1, Year 1 for $45,000. Rupert uses the straight-line method for the asset, which has a five-year estimated useful life and a salvage value estimated at $9,000. On January 1, Year 3, the asset was sold for $33,300 cash. Indicate whether each of the following items related to Rupert Company is true or false.a)Annual depreciation for Rupert's equipment was $9,000.b)Accumulated depreciation at end of Year 2 was $14,400.c)Book value at end of Year 2 was $30,600.d)On the date of the sale, Rupert will record a loss of $2,400.e)A gain or loss on the sale of a plant asset is reported on the balance sheet.

Which of the following terms is used to identify the expense recognition associated with intangible assets?

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

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 financial statements?

Indicate whether each of the following statements is true or false.a)Long-term assets having no physical substance are called intangible assets.b)Trademarks are examples of an intangible asset.c)Natural resources are examples of tangible long-term assets.d)Land is never classified as a component of property, plant, and equipment.e)Goodwill is classified as Property, Plant and Equipment.

When using the modified accelerated cost recovery system (MACRS)the highest amount of depreciation expense will be recognized in the year the asset is acquired.

Which of the following industries would most likely have the highest value for the ratio of sales to property, plant, and equipment?

Glick Company purchased oil rights on July 1, Year 1 for $2,400,000. A total of 200,000 barrels of oil are expected to be extracted over the asset's life, and 30,000 barrels are extracted and sold in Year 1. Which of the following correctly summarizes the effect of the Year 1 depletion expense on the financial statements?

The term used to recognize expense for property, plant, and equipment assets is depletion.

On January 1, Year 1, Jing Company purchased office equipment that cost $34,000 cash. The equipment was delivered under terms free on board (FOB) shipping point, and transportation cost was $2,000. The equipment had a five-year useful life and a $12,000 expected salvage value.Assume that Jing Company earned $30,000 cash revenue and incurred $19,000 in cash expenses in Year 3. The company uses the straight-line method. The office equipment was sold on December 31, Year 3 for $16,000. What is the company's net income (loss) for Year 3?

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?

A copyright is an intangible asset with an indefinite useful life.

Which of the following should be the main determinant for selection of the allocation method for long-term operational assets?

On January 1, Year 1, Warren Company purchased a machine for $120,000. Warren estimated the useful life of the machine to be 10 years and the salvage value to be $20,000. Indicate whether each of the following statements is true or false.a)Depreciation expense for Year 1 under the straight-line method would be $12,000.b)Depreciation expense for Year 1 under the double declining method would be $24,000.c)The accumulated depreciation at the end of Year 2 under the straight-line method would be $20,000.d)The accumulated depreciation at the end of Year 2 under the double declining method would be $48,000.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 $20,000.