acg ch 9

Able Towing Company purchased a tow truck for $50,000 on January 1 of its first year. The truck was originally depreciated on a straight-line basis over 8 years with an estimated salvage value of $10,000. At the end of the fourth year, before year-end adjusting entries have been recorded, the company decided to revise the estimated life of the truck to a total of 6 years and to change its estimated salvage value to $2,000. How much depreciation expense should be recorded for the fourth year?

$11,000 -($50,000 - $10,000)/8 years = $5,000 per year. ($50,000 - 3 x 5,000 = $35,000), ($35,000 - $2,000)/(6-3) = $11,000.

Kent Enterprises purchased a truck for $100,000 on January 1 of its first year. The company uses the units-of-activity method and it estimates that the truck's useful life will be 150,000 miles. The truck will have an estimated salvage value of $10,000. The company drives the truck 15,000 miles in the first year and drives it 25,000 miles in the second year. How much accumulated depreciation will be reported on the company's balance sheet as of the end of the second year?

$24,000 -Depreciation rate = ($100,000 - 10,000)/150,000 miles = $0.6 per mile Accumulated depreciation = (15,000 + 25,000) x $0.6 per mile = $24,000

Corian Company purchased equipment and incurred these costs: Cash price, $26,000; Sales taxes, $1,200; Insurance during transit, $400; Annual maintenance costs, $500. What amount should be recorded as the cost of the equipment?

$27,600 -($26,000 + $1,200 + $400 = $27,600).

A company's average total assets are $200,000, depreciation expense is $10,000, and accumulated depreciation is $60,000. Net income is $1,000,000. Net sales total $250,000. What is the asset turnover?

1.25 -$250,000/$200,000 = 1.25 times.

Harrington Corporation recently leased a number of trucks from Andre Corporation. In inspecting the books of Harrington Corporation, you notice that the trucks have not been recorded as assets on Harrington's balance sheet. Based on this information, what type of acquisition are the trucks for Harrington?

capital lease

Which of the following best describes depreciation?

cost allocation method

A company uses straight-line depreciation. It purchased a truck for $40,000. The truck's salvage value is $4,000. The truck's monthly depreciation expense is $500. What is the truck's useful life?

6 years -The depreciable cost equals the cost minus the salvage value; it is the $40,000 purchase price less $4,000 salvage value, which is $36,000. The annual depreciation cost is $500 per month or $6,000 per year. Since $36,000 will be depreciated by $6,000 per year, the useful life is 6 years

An asset was purchased on January 1 for $53,000 has an estimated salvage value of $3,000. The depreciation expense for the third year is $5,000 and the balance of the Accumulated Depreciation account after the third year's adjusting entries are recorded is $15,000. If the company uses the straight-line method, what is the asset's remaining useful life?

7 yrs -53-3=50 / 5= 10 yr life then 15/5=3 10-3=7 yrs remain

Massey Corporation purchased a piece of land for $60,000. Massey paid attorney's fees of $5,000 and brokers' commissions of $4,000 in connection with the purchase. An old building on the land was torn down at a cost of $3,000, and proceeds from the scrap were $700. Massey also assumes $5,000 of property taxes on the land owed by the previous owner. How much is the total cost of the land?

76300 -60+5+4+3+5-.7

Which one of the following will maximize depreciation expense in the first year of owning an asset?

A short estimated life, a low salvage value, and declining balance depreciation

Caruso Company purchased equipment on January 1 at a total invoice cost of $400,000. The equipment has an estimated salvage value of $10,000 and an estimated useful life of 5 years. What is the amount of accumulated depreciation at the end of the second year if the straight-line method of depreciation is used?

15600 -(i.e., $400,000 - $10,000)/5 = $78,000 per year. Total accumulated depreciation = $78,000 per year x 2 years = $156,000.

Paul Company purchased a dump truck for $27,000. In addition, Paul Company paid freight charges of $500, and $700 to paint the company's logo on the truck. The estimated salvage value and useful life are $1,200 and 5 years, respectively. How much is the accumulated depreciation under the straight-line method after three years?

16200 -$27,000 + $500 + $700 = $28,200. ($28,200 - $1,200)/5 years = $5,400.x3=

At the beginning of the current year, a company purchased machinery for $50,000. It has a salvage value of $5,000 and an estimated useful life of 9 years. How much is depreciation expense for the first year under the straight-line method?

5000 -50-5 /9=5

When there is a change in a depreciable asset's useful life or salvage value

only that asset's current and future years' depreciation will be affected.

Which of the following gives the recipient the right to manufacture, sell, or otherwise control an invention for a period of 20 years?

patent

All of the following statements are true regarding the declining-balance method of depreciation except

the declining-balance method produces lower depreciation expense in the early years as opposed to the later years.

Clarence Trucking Inc. purchased a new truck on January 1, 2017 for $200,000. Its useful life is expected to be 10 years and its salvage value is estimated at $40,000. The company uses the double-declining balance method. What is the truck's book value at the end of December 31, 2018?

$128,000 -$200,000 - 40,000). 160,000 x (2 x 1/10) = $32,000. $200,000 - 40,000 - 32,000 = $128,000

A company has the following asset account balances: Buildings and equipment, $9,200,000; Accumulated depreciation, $1,200,000; Patents, $750,000; Land Improvements, $1,000,000; and Land, $5,000,000. How much will be reported on the balance sheet under property, plant, & equipment?

$14,000,000 -(i.e., 9,200,000+1,000,000+5,000,000-1,200,000=14,000,000).

An asset purchased on January 1 for $60,000 has an estimated salvage value of $3,000. The current useful life is 8 years. How much is total accumulated depreciation using the straight-line method at the end of the second year of life?

$14,250 -($60,000 - $3,000)/8 years = $7,125. x2

Lorek Company acquires land for $150,000 cash. Additional costs are as follows: Removal of shed, $200; Filling and grading, $2,000; Salvage value of lumber of shed, $80; Broker commission, $5,000; Paving of parking lot, $15,500; Closing costs, $1,200. Lorek Company should record the acquisition cost of the land as

$158,320 -Purchase price, 150,000 Add: Removal of shed less salvages (i.e., 200 - 80), 120 Add: Filling and grading, 2,000 Add: Broker's commission, 5,000 Add: Closing costs, 1,200 Acquisition costs of land, 158,320

In the current year, Brogan Company sold equipment for $20,000. The original cost was $70,000, the estimated salvage value was $4,000, and the expected useful life was 6 years. The equipment was fully depreciated. How much is the gain or loss on the sale?

$16,000 gain -$20,000 - $4,000 = $16,000 gain.

Ben's Razor Company purchased a machine for $70,000 on January 1, 2016 and depreciated it on a straight-line basis over a 10-year life assuming no salvage value. If the company sells the machine for $29,000 on June 30, 2019, what would be the company's gain or loss from the sale?

$16,500 loss -The Book value of the machine when sold: $70,000 - [($70,000/10 years) x 3.5 years] = $45,500. The gain (loss) on the sale = sales price minus book vale = $29,000 - $45,500 = ($16,500).

Schneider Trucking Inc. purchased a new truck on January 1 of the current year for $160,000. Its expected useful life is 6 years and its salvage value is estimated at $30,000. What is the depreciation expense for the current year using the double-declining balance method?

$160,000 x (2 x 1/6) = $53,333.

Santiago Corporation bought equipment on January 1, Year 1. The equipment cost $360,000 and had an expected salvage value of $40,000. The life of the equipment was estimated to be 5 years and straight line depreciation is used. The book value of the equipment at the end of the third year would be

$168,000 -Depreciation per year = ($360,000 - 40,000)/5 years = $64,000 per year Accumulated depreciation after 3 years = $64,000 x 3 = $192,000 Book value = Cost minus accumulated depreciation Book value = $360,000 - 192,000 = $168,000. Chapter 9, Learning objective 3: Compute period

On January 1, 2015, Jamaica Company purchased equipment for $18,000. The estimated salvage value is $2,000 and the estimated useful life is 5 years. On December 31, 2017, before adjusting entries have been made, the company decided to extend the estimated useful life of the equipment one year giving it a total life of 6 years. The company did not change the salvage value and continues to use the straight-line method. What is the depreciation expense for 2017?

$2,400 -($18,000 - $2,000)/5 years = $3,200 per year. $18,000 - $2,000 - (2 years x $3,200) = $9,600./4=2400

On March 1 of the current year, La Presa Company sells some equipment for $30,000. The original cost was $60,000, the estimated salvage value was $12,000, and the expected useful life was 6 years. Straight-line depreciation is used. On January 1 of the current year year, the Accumulated Depreciation account had a balance of $32,000. How much is the gain or loss on the sale?

$3,333 gain -Depreciable cost = Cost - salvage value = $60,000 - 12,000) and a life of 6 years, the depreciation is $8,000 per year. In the current year, depreciation expense is $1,333 (i.e., $8,000 per year x 2/12) $33,333 (i.e., $32,000 + 1,333). $26,667 (i.e., $60,000 - $33,333). Sales price - book value = $30,000 - 26,667 = $3,333

Bazydlo Corporation bought equipment for $360,000 and it had an expected salvage value of $40,000. The life of the equipment was estimated to be 5 years. The depreciable cost of the equipment is

$320,000 - $360,000 - 40,000 = $320,000.

In the current year, Pierce Company incurred $150,000 of research and development costs in its laboratory to develop a new product. It also spent $20,000 in legal fees for a patent on that new product. Later in the current year, Pierce paid $15,000 for legal fees in a successful defense of that patent. What is the total amount that should be debited to the company's Patents account in the current year?

$35,000

A purchase of equipment includes a purchase price of $18,000, freight charges of $500, and installation costs of $2,500. The estimated salvage value and useful life are $2,000 and four years, respectively. Under the straight-line method, how much is annual depreciation expense?

$4,750 -The cost of the equipment is $18,000 plus the freight costs of $500 and the installation costs of $2,500 for a total of $21,000. Depreciation expense = ($21,000 - $2,000)/4 = $4,750 per year.

Adams Trucking Inc. purchased a new truck on January 1, 2017 for $180,000. Its useful life is expected to be 6 years and its salvage value is estimated at $35,000. What is the depreciation expense for 2018 using the declining-balance method at double the straight-line rate (i.e., the double-declining balance method)?

$40,000 -($180,000 - 0) x (2 x 1/6) = $60,000 = ($180,000 - 60,000) x 2/6 = $40,000

Bubba's Trucking Company purchased a new truck on January 1, 2017 for $270,000. Its useful life is expected to be 9 years and its salvage value is estimated at $25,000. What is the depreciation expense for 2018 using the declining-balance method at double the straight-line rate (i.e., the double-declining balance method)?

$46,667 -$210,000 x (2 x 1/9) = $46,667.

Given the following account balances at year end, how much are total intangible assets on the balance sheet of Alisha Enterprises? Sales revenue, $45,000,000; Cash, $1,500,000; Accounts receivable, $3,000,000; Land, $15,000,000; Equipment, $25,000,000; Franchises, $500,000; Trademarks, $1,700,000; and Goodwill, $2,800,000. The company also paid $1,500,000 for research & development during the current year.

$5,000,000

A company has the following asset account balances: Buildings and equipment, $5,800,000; Accumulated depreciation, $1,600,000; Patents, $1,050,000; Inventory, $1,000,000; and Goodwill, $4,000,000. How much will be reported on the balance sheet under property, plant & equipment?

$5,800,000 - $1,600,000 = $4,200,000.

Coronado Company purchased land for $80,000. The company also assumes $15,000 of accrued taxes on the property, incurred $8,000 to remove an old building, and received $4,000 from the salvage of the old building. At what amount will the land be recorded in the accounting records?

$99,000 80+15+8-4

When equipment is sold for cash in an amount that is greater than its book value, the company debits the following

(i) Accumulated Depreciation and (ii) Cash

Oahu Industries' average total assets for the year are $4,000,000, its average total stockholders' equity for the year are $3,000,000, its net income is $800,000, its gross margin is $2,000,000, and its net sales are $10,000,000. What is Oahu's return on assets?

20 percent -Oahu's return on assets is $800,000 divided by $4,000,000 = 20%.

A business bought a new truck for $40,000 for its auto parts delivery service. It estimated that the truck would last 200,000 miles with a salvage value of $4,000. What would be the depreciation expense for the first year assuming it is driven 12,500 miles in the first year?

2250 -The truck's depreciation rate per mile is $0.18, which is computed as ($40,000 - $4,000) divided by 200,000 miles. Depreciation expense in the first year = $0.18 X 12,500 miles = $2,250

Lake Coffee Company reported net income of $54,000 and net sales of $800,000. The company's asset turnover ratio is 4.5 (or 4.5 times). What was the company's return on assets?

30.38% -Return on assets = Asset turnover x Profit margin = 4.5 x ($54,000/$800,000) = 30.38%.

On August 1 of the current year, Moreno Company purchased a patent from another company for $90,000. The estimated useful life of the patent is 10 years, and its remaining legal life is 15 years . How much is Moreno's amortization expense for the current year?

3750 -Amortization expense for the current year = $90,000/10 years x 5/12 = $3,750

A plant asset was purchased on January 1 for $48,000 with an estimated salvage value of $3,000 at the end of its useful life. The current year's depreciation expense is $5,000. It is calculated on the straight-line basis. The balance of the company's Accumulated Depreciation account at the end of the year after adjusting-entries is $25,000. The remaining useful life of the plant asset is

4 years -Depreciation per year = (Cost - salvage value)/Useful life Solving for useful life: Useful life = ($48,000 - 3,000)/$5,000 = 9 years Years expired = Accumulated depreciation/Depreciation per year = $25,000/$5,000 = 5 years Remaining life = Useful life - Years expired = (8 - 5) = 4 years.

On October 1, Year 1, Best Buy purchased an asset for $10,000, with a $2,000 estimated salvage value, and a 5-year useful life. How much is the year 1 depreciation expense using the straight-line method?

400 -($10,000 - $2,000)/5 x 3/12 = $400.

Given the following account balances at year end, how much is amortization expense on Analog Enterprises' income statement for the current year if the company amortizes intangibles over ten years? Sales revenue, $45,000,000; Patents, $2,500,000; Accounts receivable, $4,000,000; Land, $15,000,000; Equipment, $25,000,000; Trademarks, $1,200,000; Goodwill, $4,500,000; and Copyrights, $1,500,000. The company also paid $2,000,000 for research & development at the start of the current year. Assume that all of the company's intangible assets were acquired at the start of the current year.

400,000 -($2,500,000 + $1,500,000)/10 = $400,000.

A company sold a plant asset for $3,000. It had cost $12,000 and its accumulated depreciation is $8,500. What gain or loss did the company experience?

Loss of $500 -Book value is $3,500 ($12,000 - $8,500). Since the book value ($3,500) exceed the proceeds ($3,000) by $500, there is a loss.

Which one of the following costs will not be included in the cost of equipment?

Maintenance costs

If a company properly reports goodwill as an intangible asset on its books, which of the following must be true?

The company purchased another company.

Which of the following two ratios multiplied together yields the return on assets ratio?

The profit margin ratio and the asset turnover ratio

Which of the following is not a depreciable asset?

land