acc 2301 chapter 7-

Caterpillar Corporation makes and sells heavy equipment. In 2019, Caterpillar purchases a machine that can produce 30,000 bolts for the heavy equipment it makes. The cost of the machine is $18,000,000 and has a useful life of 15 years. In year one, Caterpillar produces 3,000 bolts and in year two it produces 6,000 bolts. What's the depreciation expense using Units of Production for Year 1?

1,800,000 3,000 * 600 = 1,800,000

A company purchased land for $94,000 cash. Real estate brokers' commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Proceeds from salvage of the demolished building was $1,200. Under the historical cost principle, the cost of land would be recorded at

104,800 94,000+5,000+7,000-1,200 (the proceeds from salvage reduce cost)

Hoot Corp has a delivery van it uses for business purposes. The van was purchased on Jan 1, 2017, had a cost of 32,000, and a salvage value of 4,000. It's estimated life is 4 years. If Hoot sells this van at the beginning of 2020 (Jan 1) for 13,000, what is the gain or loss recognized on this disposal?

2,000 Gain First off - what's the depreciation per year? 32,000 - 4,000 / 4 = 7,000 per year. Next we need to find out what the book value of the van is before it's sold. It was bought in 2017 and sold in 2020, so three full years of use (all of 2017, 2018, and 2019). So the A/D account has 21,000 (7,000*3). Book value is 11,000 (32,000-21,000). If we sold it for 13,000 we made 2,000 on the sale

The Fine Dining Cafe purchased a large freezer to hold its frozen meat and desserts that it sells to diners. The cost of the equipment was $60,000 and is expected to be useful for 10 years. At the end of the 10 year period, the company should be able to salvage $5,000. They paid $1,000 to have the item shipped to their San Marcos location. They paid an additional $2,500 to modify the equipment to fit in the store. They also paid $1,500 to ensure the equipment would work with the electrical system. All costs related to the equipment were purchased on account. They use the straight-line depreciation method. What is the balance in the accumulated depreciation account at the end of year 4?

24,000 So while the depreciation expense is constant (6000, 6000, 6000, every year) the A/D account works a little different. It accumulates all the years depreciation on the balance sheet to asset with keeping track of the book value of the asset (more on that in the next problem). So after 4 years of depreciation at 6000 a pop, you'd have 24,000 in the A/D account.

The Fine Dining Cafe purchased a large freezer to hold its frozen meat and desserts that it sells to diners. The cost of the equipment was $60,000 and is expected to be useful for 10 years. At the end of the 10 year period, the company should be able to salvage $5,000. They paid $1,000 to have the item shipped to their San Marcos location. They paid an additional $2,500 to modify the equipment to fit in the store. They also paid $1,500 to ensure the equipment would work with the electrical system. All costs related to the equipment were purchased on account. They use the straight-line depreciation method. What is the book value of the equipment at the end of year 4?

41,000 65,000 (what we paid for the asset) minus 24,000 (the A/D after 4 years of depreciation) = 41,000

The Fine Dining Cafe purchased a large freezer to hold its frozen meat and desserts that it sells to diners. The cost of the equipment was $60,000 and is expected to be useful for 10 years. At the end of the 10 year period, the company should be able to salvage $5,000. They paid $1,000 to have the item shipped to their San Marcos location. They paid an additional $2,500 to modify the equipment to fit in the store. They also paid $1,500 to ensure the equipment would work with the electrical system. All costs related to the equipment were purchased on account. They use the straight-line depreciation method. What's the depreciation on this asset for year 1? (Assume a full year's depreciation)

6,000 Depreciable Cost - Salvage / Est. Life, so in this case: 65000 - 5000 / 10 = 60000 / 10 = 6000. They'll get 6000 in depreciation every year for ten years on this asset.

The Fine Dining Cafe purchased a large freezer to hold its frozen meat and desserts that it sells to diners. The cost of the equipment was $60,000 and is expected to be useful for 10 years. At the end of the 10 year period, the company should be able to salvage $5,000. They paid $1,000 to have the item shipped to their San Marcos location. They paid an additional $2,500 to modify the equipment to fit in the store. They also paid $1,500 to ensure the equipment would work with the electrical system. All costs related to the equipment were purchased on account. They use the straight-line depreciation method. What's the depreciation on this asset for year 7? (Assume a full year's depreciation)

6,000 Depreciation expense is different from accumulated depreciation. While the depreciation expense is the same every year, the A/D account includes all the prior years depreciation on the balance sheet

Caterpillar Corporation makes and sells heavy equipment. In 2019, Caterpillar purchases a machine that can produce 30,000 bolts for the heavy equipment it makes. The cost of the machine is $18,000,000 and has a useful life of 15 years. In year one, Caterpillar produces 3,000 bolts and in year two it produces 6,000 bolts What is the per unit depreciation expense using the units-of-production method? Assume no salvage value. Correct!

600 So 18,000,000 / 30,000 = 600

The Fine Dining Cafe purchased a large freezer to hold its frozen meat and desserts that it sells to diners. The cost of the equipment was $60,000 and is expected to be useful for 10 years. At the end of the 10 year period, the company should be able to salvage $5,000. They paid $1,000 to have the item shipped to their San Marcos location. They paid an additional $2,500 to modify the equipment to fit in the store. They also paid $1,500 to ensure the equipment would work with the electrical system. All costs related to the equipment were purchased on account. They use the straight-line depreciation method. What is Fine Dining's depreciable cost of this asset?

65,000 Remember it's never just the sticker price anymore. The historical cost concept states that whatever you pay for it, that's what it goes on the books as, and this includes all the other costs to get it ready for use. So this freezer cost 60,000, but in order to get it ready for use there was shipping (1000), modifications (2500), and testing (1500). In all it cost the company 65,000 to get this thing ready.

TechNoir paid cash to acquire the assets of an existing company. Among the assets acquired were the following items: A Patent with 5 remaining years of legal life: Current value 36,600Goodwill valued at 44,100 Compute the annual amortization expense for the intangible assets

7,320 Simply take its value and divide by it's remaining life to get amortization: 36,600 / 5 = 7,320

The Fine Dining Cafe purchased a large freezer to hold its frozen meat and desserts that it sells to diners. The cost of the equipment was $60,000 and is expected to be useful for 10 years. At the end of the 10 year period, the company should be able to salvage $5,000. They paid $1,000 to have the item shipped to their San Marcos location. They paid an additional $2,500 to modify the equipment to fit in the store. They also paid $1,500 to ensure the equipment would work with the electrical system. All costs related to the equipment were purchased on account. They use the straight-line depreciation method. What financial statements are impacted by the purchase of the equipment? (Check all that apply).

Balance Sheet

The Fine Dining Cafe purchased a large freezer to hold its frozen meat and desserts that it sells to diners. The cost of the equipment was $60,000 and is expected to be useful for 10 years. At the end of the 10 year period, the company should be able to salvage $5,000. They paid $1,000 to have the item shipped to their San Marcos location. They paid an additional $2,500 to modify the equipment to fit in the store. They also paid $1,500 to ensure the equipment would work with the electrical system. All costs related to the equipment were purchased on account. They use the straight-line depreciation method. What financial statements are impacted by the recording of depreciation? (Check all that apply).

Balance Sheet, Income Statement, Statement of Retained Earnings (Equity)

Jamison, Inc. is a regional air cargo carrier. Jamison made a $4,500 improvement to one of its airplanes that would increase the productive life of the asset. How should this entry be reflected on their Balance Sheet?

Decrease Cash, Increase Airplane Asset

The process of allocating to expense the cost of a plant asset (long term resource) over its useful (service) life is called:

Depreciation

Wilhelm spends $50 on an oil change for a vehicle used in his business. How should this expenditure be treated?

Expensed

Which of the following intangible assets are NOT amortized?

Goodwill Okay so land doesn't get depreciated, remember? Think of Goodwill as the "land" of intangibles. Goodwill doesn't get amortized per GAAP. Rather it gets tested for impairment. Only if an impairment is determined will a write down occur.

For the sake of argument, let's say the Fine Dining Cafe purchased that freezer in the previous problem with cash. What kind of Cash Flow activity (and direction) would this be?

Investing Outflow

Which of the following is never depreciated?

Land This is just one of those GAAP rules you get to memorize. Land is never depreciated. Any increase / decrease in its value will get captured upon disposal (when they sell it).

The most commonly used depreciation method utilized by businesses today is:

Straight Line