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Exam 8: Accounting for Long-Term Operational Assets

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Question 41

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The Pierce Corporation,a U.S.business,is a direct competitor of the Zeiss Company,a German firm.The two firms not only compete for customers,but also for investment capital.In 2016,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?

A) Pierce will have higher total assets than Zeiss in 2016.
B) Pierce will have a higher debt-to-assets ratio than Zeiss in 2016.
C) Zeiss will have a lower net income for 2016.
D) This difference in accounting principles does not affect the total amount of assets reported by the two companies.

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

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Question 42

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On January 1,2012 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 1,2016 the company spent $6,000 to improve the quality of the asset.Based on this information,the recognition of depreciation expense in 2016 would

A) increase total assets by $4,375.
B) reduce total equity by $4,375.
C) reduce total assets by $4,625.
D) increase total equity by $4,625.

E) All of the above
F) C) and D)

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Question 43

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

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

Explain the meaning of "impairment" as used in accounting for goodwill.

Glick Company purchased oil rights on July 1,2016 for $2,400,000.If 200,000 barrels of oil are expected to be extracted over the assets life,and 30,000 barrels are extracted and sold in 2016,the recognition of depletion expense on December 31,2016 would cause:

Which of the following would most likely not be expensed using the straight-line method?

What term is used to describe the situation where the value of an intangible asset may be significantly diminished?

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.

Indicate whether each of the following statements is true or false. _____ a)Plant assets are classified as long-term assets,while intangible assets are treated as current assets. _____ b)Intangible assets include patents,copyrights,and natural resources. _____ c)Intangible assets with indefinite useful lives will be not be amortized. _____ d)The cost of land should be depleted over its useful life. _____ e)The cost of a natural resource should be expensed (depleted)over its useful life.

Explain the meaning of the terms "tangible" and "intangible" and discuss how these terms are used in describing assets.

Which of the following is considered an accelerated depreciation method?

On January 1,2016,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.Innovative uses the units-of-production method of depreciation.Useful life is estimated at 100,000 units,and estimated salvage value is $8,000.During 2016,the equipment produced 13,000 units.What is closest to the amount of depreciation for the year?

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.Enter only one letter for each element. -The Fisher Company paid $28,000 to improve the quality of a manufacturing machine.How will this expenditure affect Fisher's financial statements?

Use the following to answer questions Harding Corporation acquired real estate that contained land,building and equipment.The property cost Harding $1,900,000.Harding paid $350,000 and issued a note payable for the remainder of the cost.An appraisal of the property reported the following values: Land,$374,000;Building,$1,100,000 and Equipment,$726,000. -Assume that Harding uses the units of production method when depreciating its equipment.Harding estimates that the purchased equipment will produce 1,000,000 units over its 5-year useful life and has salvage value of $34,000.Harding produced 265,000 units with the equipment by the end of the first year of purchase. Which amount below is closest to the amount Harding will record for depreciation expense for the equipment in the first year?

Indicate whether each of the following statements is true or false. _____ a)Sales taxes paid on the purchase of equipment would be expensed in the year of the purchase. _____ b)Real estate fees and attorney's fees related to the purchase of a building would be added to the cost of the building. _____ c)Payment of a fine for improper burning of a demolished building would be added to the land account. _____ d)Delivery charges on equipment would be expensed in the year of the purchase. _____ e)The matching concept requires that plant assets be recorded at the amount paid for the assets.

On January 1,2016,Stewart Corporation purchased equipment for $120,000.A discount of 2% was granted on the equipment;the shipping terms were FOB shipping point,and the freight cost was $3,000.Installation and testing costs amounted to $4,000.The equipment had an estimated useful life of 4 years and salvage value of $10,000.At the beginning of 2018,Stewart revised the expected life of the asset to six years and the salvage value to $12,000. Required: Compute the depreciation expense using straight-line method for each of the six years.

On January 1,2016,Phoenix Corporation purchased a delivery truck for $45,000.The estimated useful life of the truck is 5 years,with an estimated salvage value of $9,000.The truck is expected to be driven 200,000 miles during its useful life. a)If Phoenix uses double-declining balance depreciation,what is the amount of depreciation for 2017? What is the balance of the accumulated depreciation account at the end of 2017? b)Refer to part a.Assume Phoenix used double-declining balance depreciation and sold the truck at the beginning of 2018 for $18,000.What is the amount of the gain or loss on the sale of the delivery van? c)Prepare the journal entry to record the sale in part (b). d)Assume that Phoenix used units-of-production depreciation instead.The delivery van was driven 50,000 miles the first year and 40,000 miles the second year.What is the amount of depreciation expense for 2016 and for 2017? What is the book value of the van at the end of 2017?

Which of the following terms is used to identify the process of expense recognition for property,plant and equipment?

Which of the following is not classified as property,plant and equipment?