Accounting Chapter 9

On April 2, 2009, Victor, Inc. acquired a new piece of filtering equipment. The cost of the equipment was $160,000 with a residual value of $20,000 at the end of its estimated useful lifetime of 4 years. Refer to the above information. If Victor uses straight-line depreciation with the half-year convention, the book value of the equipment at December 31, 2010 will be:

$107,500.

On April 30, 2009, Tilton Products purchased machinery for $88,000. The useful life of this machinery is estimated at 8 years, with an $8,000 residual value. Refer to the above data. Assume that in its financial statements, Tilton Products uses the 200%-declining-balance method and the half-year convention. Depreciation expense in 2009 and 2010 will be:

$11,000 in 2009 and $18,857 in 2010.

Clark Imports sold a depreciable plant asset for cash of $35,000. The accumulated depreciation amounted to $70,000, and a loss of $5,000 was recognized on the sale. Under these circumstances, the original cost of the asset must have been:

$110,000.

Early in the current year, Tokay Co. purchased the Silverton Mine at a cost of $20,000,000. The mine was estimated to contain 200,000 tons of ore and to have a residual value of $5,000,000 after mining operations are completed. During the year, 105,000 tons of ore were removed from the mine. At year-end, the book value of the mine (cost minus accumulated depletion) is:

$12,125,000.

Harvard Company purchased equipment having an invoice price of $11,500. The terms of sale were 2/10, n/30, and Harvard paid within the discount period. In addition, Harvard paid a $160 delivery charge, $185 installation charge, and $931 sales tax. The amount recorded as the cost of this equipment is:

$12,546

On April 2, 2009, Victor, Inc. acquired a new piece of filtering equipment. The cost of the equipment was $160,000 with a residual value of $20,000 at the end of its estimated useful lifetime of 4 years. Refer to the above information. Assume that in its financial statements, Victor uses straight-line depreciation and the half-year convention. Depreciation recognized on this equipment in 2009 and 2010 will be:

$17,500 in 2009 and $35,000 in 2010

On April 2, 2009, Victor, Inc. acquired a new piece of filtering equipment. The cost of the equipment was $160,000 with a residual value of $20,000 at the end of its estimated useful lifetime of 4 years. Refer to the above information. Assume that in its financial statements, Victor uses straight-line depreciation and rounds depreciation for fractional years to the nearest whole month. Depreciation recognized on this equipment in 2009 and 2010 will be:

$26,250 in 2009 and $35,000 in 2010.

Land is purchased for $256,000. Additional costs include a $15,300 fee to a broker, a survey fee of $2,400, $1,750 to construct a fence and a legal fee of $8,500. What is the cost of the land?

$282,200

Land and a warehouse were acquired for $890,000. What amounts should be recorded in the accounting records for land and for the warehouse if an appraisal showed the estimated values to be $400,000 for the land and $700,000 for the warehouse?

$323,960 for land; $566,040 for warehouse.

On March 2, 2009, Glen Industries purchased a fleet of automobiles at a cost of $550,000. The cars are to be depreciated by the straight-line method over five years with no salvage value. Glen uses the half-year convention to compute depreciation for fractional periods. The book value of the fleet of automobiles at December 31, 2010, will be:

$385,000.

On April 30, 2009, Tilton Products purchased machinery for $88,000. The useful life of this machinery is estimated at 8 years, with an $8,000 residual value. Refer to the above data. Assume that in its financial statements, Tilton Products uses straight-line depreciation and the half-year convention. Depreciation expense recognized on this machinery in 2009 and 2010 will be:

$5,000 in 2009 and $10,000 in 2010

On April 30, 2009, Tilton Products purchased machinery for $88,000. The useful life of this machinery is estimated at 8 years, with an $8,000 residual value. Refer to the above data. Assume that in its financial statements, Tilton Products uses straight-line depreciation and rounds depreciation for fractional years to the nearest month. Depreciation expense recognized on this machinery in 2009 and 2010 will be:

$6,667 in 2009 and $10,000 in 2010.

On April 8, 2009, Jupitor Corp. acquired equipment at a cost of $480,000. The equipment is to be depreciated by the straight-line method over six years with no provision for salvage value. Depreciation for fractional years is computed by rounding the ownership period to the nearest month. Depreciation expense recognized in 2009 will be:

$60,000.

Suffolk Associates sold office furniture for cash of $42,000. The accumulated depreciation at date of sale amounted to $38,000, and a gain of $18,000 was recognized on the sale. The original cost of the asset must have been:

$62,000.

Machinery acquired new on January 1 at a cost of $80,000 was estimated to have a useful life of 10 years and a residual salvage value of $20,000. Straight-line depreciation was used. On January 1, following six full years of use of the machinery, management decided that the estimate of useful life had been too long and that the machinery would have to be retired after three years, that is, at the end of the ninth year of service. Under this revised estimate, the depreciation expense for the seventh year of use would be:

$8,000

On April 30, 2009, Tilton Products purchased machinery for $88,000. The useful life of this machinery is estimated at 8 years, with an $8,000 residual value. Refer to the above data. Assume that in its financial statements, Tilton Products uses the 150%-declining-balance method and the half-year convention. Depreciation expense in 2009 and 2010 will be:

$8,250 in 2007 and $14,953 in 2008

Mayer Instrumentation sold a depreciable asset for cash of $300,000. The original cost of the asset was $1,200,000. Mayer recognized a gain of $45,000 on the sale. What was the amount of accumulated depreciation on the asset at the time of its sale?

$945,000.

Which of the following would not be considered part of the cost of equipment recently purchased?

*All three are capitalized costs.* A. Sales tax. B. Transportation charges. C. Installation and setup charges.

When straight-line depreciation is in use, the depreciation rate of an asset is equal to

1 divided by the life of the asset

The legal life of most patents is:

20 years.

If the 150% declining balance method is being used and an asset has a useful life of 20 years what is the depreciation rate?

7.5%

On April 30, 2009, Tilton Products purchased machinery for $88,000. The useful life of this machinery is estimated at 8 years, with an $8,000 residual value. Refer to the above data. In the year 2015, Tilton Products sells this machinery for $4,500. At the date of sale, the machinery had been depreciated by Tilton Products to its estimated residual value of $8,000. This sale results in:

A $3,500 loss in both the company's financial statements and income tax return.

With respect to depreciation policies, the principle of consistency means:

A company should use the same depreciation method from year to year for a given plant asset.

In the fixed-percentage-of-declining-balance depreciation method, the book value of the asset is multiplied by:

A constant depreciation rate.

When a depreciable asset is sold at a price equal to its book value, a journal entry would include

A debit to accumulated depreciation

The entry to record amortization on a copyright would include:

A debit to amortization expense

An asset which costs $18,800 and has accumulated depreciation of $6,000 is sold for $11,600. What amount of gain or loss will be recognized when the asset is sold?

A loss of $1,200

The cost of a new windshield wiper on a delivery vehicle would be classified as:

A revenue expenditure

Coca-Cola's famous name printed in distinctive typeface is an example of:

A trademark.

All of the following may be considered intangible assets except:

Accounts receivables

Which of the following is not a capital expenditure?

Advertising expenditures to introduce a new product line.

The term net identifiable assets means:

All assets except goodwill, minus all liabilities.

When a company uses straight-line depreciation and the half-year convention, assets with a five-year life:

All of the above statements are correct. A. Will have the same depreciation expense in the first and last years. B. Will be depreciated over six accounting years. C. Book value will equal its salvage value at the end of its economic life.

Capital expenditures are recorded as:

An asset.

Revenue expenditures are recorded as:

An expense

After March, 2004 international standards required that goodwill

Be capitalized and reviewed annually and its value should be adjusted if impaired.

Which of the following situations is impossible?

Book value is less than residual value.

Responsibility for selection of the depreciation methods used in financial reporting rests with:

Company management.

The book value of plant assets (other than land):

Decreases with the passage of time.

Which of the following should not be treated as a revenue expenditure?

Delivery costs on newly purchased equipment.

The gain or loss on the disposal of a depreciable asset reported in financial statements often differs from that reported for income tax purposes. The principal reason for the difference is:

Different depreciation methods have been used in financial statements and in income tax returns.

Machinery is purchased on May 15, 2009 for $50,000 with a $5,000 salvage value and a five year life. The half year convention is followed. What method of depreciation will give the highest amount of depreciation expense in year 2?

Double declining balance

For depreciable property other than real estate, MACRS is based upon:

Either the 150% or 200% declining-balance method.

Total stockholders' equity of Tucker Company is $4,000,000. The fair market value of Tucker 's net identifiable assets (assets less liabilities) is $5,000,000. Empire Corporation makes an offer to purchase Tucker 's entire business for $5,800,000. In this situation:

Empire Corporation is willing to pay $800,000 for goodwill generated by Tucker, and Empire will report this goodwill in its balance sheet if the purchase is finalized.

Which of the following statements about MACRS is not correct?

If a company uses MACRS in its income tax returns, it also must use MACRS in its financial statements

Accelerated depreciation methods are used primarily in:

Income tax returns

For the financial statements of publicly traded companies, MACRS:

Is not considered to be in conformity with GAAP.

Intangible assets are assets used in business operations but which:

Lack physical substance.

Which of the following assets is not subject to depreciation and whose usefulness does not decline over time?

Land

The fair market value of Lewis Company's net identifiable assets is $5,000,000. Martin Corporation purchases Lewis' entire business for $5,800,000. Which of the following statements is not correct?

Martin will record amortization expense over a period not to exceed 40 years.

All of the following assets are amortized except:

Natural resources

The application of the matching principle to depreciation of plant and equipment can best be described as:

Offsetting revenue of an accounting period with the portion of the cost of plant and equipment estimated to have been used up during the accounting period.

Which of the following would not be amortized?

Oil well.

An accelerated depreciation method:

Recognizes more depreciation expense in the early years of an asset's useful life and less in the later years.

The adjusting entries to record depreciation or amortization expense, or to write down assets that have become impaired:

Reduce net income, but have no direct effect on cash balances.

Armstrong Company recently acquired a new computer system. Which of the following costs associated with the computer should not be debited to the Equipment account?

Replacement of several circuit boards damaged during installation.

The basic purpose of the matching principle is to allocate the cost of an asset to expense over the years in which the asset contributes to revenue. Current accounting practice does not strictly apply this principle to expenditures for:

Research and development.

For financial reporting purposes, the gain or loss on the sale of a plant asset is determined by comparing the asset's:

Sales price with its book value.

Which of the following is a capital expenditure?

Sales tax paid in conjunction with the purchase of office equipment.

Expenditures for research and development intended to lead to new products of commercial value:

Should be charged to expense when incurred.

Which depreciation method is most commonly used among publicly owned corporations?

Straight-line.

The inclusion of the intangible asset goodwill in the financial statements of a company indicates:

That the company has purchased a going business at a price in excess of the fair market value of the net identifiable assets.

In February 2009, Brilliant Industries purchased the Topaz Mine at a cost of $10,000,000. The mine is estimated to contain 500,000 carats of stone and to have a residual value of $500,000 after mining operations are completed. During 2009, 50,000 carats of stone were removed from the mine and sold. In this situation:

The amount of depletion deducted from revenue during 2009 is $950,000.

The gain on the disposal of equipment is recognized when:

The book value of the equipment is less than the value received.

When comparing the units-of-output method of depreciation with straight-line depreciation:

The depreciation expense in the first year may be greater than, equal to, or less under the units-of-output method.

The term accumulated depreciation, as used in accounting, is best defined as:

The portion of a plant asset recognized as expense since the asset was acquired.

Tomassi Company paid $450,000 to acquire a piece of real estate consisting of land and an office building with a parking lot. In this situation:

The purchase price should be apportioned among the Land, Land Improvement, and Building accounts.

A gain is recognized on the disposal of plant assets when:

The sales price is greater than the book value and greater than the residual value.

The book value of an asset in the plant and equipment category is:

The undepreciated cost of the asset.

If an asset is determined to be impaired, it should be:

written down to its fair market value.