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Exam 6: Accounting for Long-Term Operational Assets

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Question 81

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The Dalen Company purchased office equipment that cost $3,000 cash on January 1. In addition, the Company paid $500 cash for installation fees to get the equipment ready for use. The equipment had an estimated five-year useful life and an estimated salvage value of $750. The company uses the straight-line method. The amount of accumulated depreciation shown on the balance sheet and the amount of cash flow from investing activities shown of the statement of cash flows at the end of the first year, respectively, would be: $\begin{array}{llcc} \text { Balance Sheet} & \text { Statement of Cash Flows } \\\end{array}$ A. $\begin{array}{cc}&\$3,500&&&&&\$(3,500) \\\end{array}$ B. $\begin{array}{cc}&\$5500&&&&&&\$(3,500) \\\end{array}$ C. $\begin{array}{cc}&\$450&&&&&&\$(3,000) \\\end{array}$ D. $\begin{array}{cc}&\$0&&&&&&&\$(550) \\\end{array}$

A) Option A.
B) Option B.
C) Option C.
D) Option D.

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

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Question 82

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Indicate how each event affects the horizontal financial statements model. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter amounts.Increase = IDecrease = DNot Affected = NAGulfshore Oil Company recognized $2,000,000 of depletion expense related to an oil reserve. How does this entry affect Gulfshore's financial statements?

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The depletion of a natural resource has...

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Question 83

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

On January 1, Year 2, Ballard Company spent $12,000 on an asset to improve its quality. The asset had been purchased on January 1, Year 1, for $52,000. The asset had a $4,000 salvage value and a 6-year life. Ballard uses straight-line depreciation. What would be the book value of the asset on January 1, Year 5?

Glick Company purchased an oil reserve on July 1, Year 1 for $2,680,000. A total of 200,000 barrels of oil are expected to be extracted over the asset's life. During Year 1, 44,000 barrels are extracted and sold., The depletion charge for Year 1 would cause: (Do not round intermediate calculations.)

An impairment of an intangible asset decreases the asset, stockholders' equity, and net income.

On January 1, Year 1, Li Company purchased an asset that cost $80,000. The asset had an expected useful life of five years and an estimated salvage value of $16,000. 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 $8,000. Based on this information, the amount of depreciation expense to be recognized at the end of Year 4 is:

Anchor Company purchased a manufacturing machine with a list price of $160,000 and received a 2% cash discount on the purchase. The machine was delivered under terms Free On Board shipping point, and freight costs amounted to $2,400. Anchor paid $3,000 to have the machine installed and tested. Insurance costs to protect the asset from fire and theft amounted to $3,600 for the first year of operations. Based on this information, the amount of cost recorded in the asset account would be:

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

Monroe Minerals Company purchased a copper mine for $125,000,000. The mine was expected to produce 50,000 tons of copper over its useful life. During Year 1, the company extracted 7,000 tons of copper. The copper was sold for $5,500 per ton. Assume that the company incurred $8,750,000 in operating expenses during Year 1. Based on this information, how much net income would Monroe report in Year 1?

Indicate how each event affects the horizontal financial statements model. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter amounts.Increase = IDecrease = DNot Affected = NAThe Fisher Company paid $28,000 to improve the quality of a machine. How will this expenditure affect Fisher's financial statements?

State the reason that goodwill is not amortized as some other intangible assets are.

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, Land $132,000. Based on this information, the amount of cost that would be allocated to the office furniture is closest to: (Round your intermediate percentages to 2 decimal places: ie 0.054231 = 5.42%.)

Laramie Company paid $800,000 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, $100,000, Building, $740,000, and Office Furniture, $160,000. Based on this information the cost that would be allocated to the land is:

Which of the following would be classified as a long-term operational asset?

On January 1, Year 1, Friedman Company purchased a truck that cost $27,000. The truck had an expected useful life of 100,000 miles over 8 years and a $7,000 salvage value. During Year 2, Friedman drove the truck 38,000 miles. The company uses the units-of-production method. The amount of depreciation expense recognized in Year 2 is: (Do not round intermediate calculations.)

Give an example of a type of industry in which a company can be very successful with a relatively small amount of operational assets. Give an example of a type of industry that requires a very large amount of operational assets in order to be successful.