ACC Chapter 6

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four-year useful life and an $8,000 salvage value. If Marino uses the straight-line method, the amount of depreciation expense recognized on the Year 2 income statement is

$10,000

Corazon Company purchased an asset with a list price of $14,000. Corazon paid $500 of transportation-in cost, $800 to train an employee to operate the equipment, and $200 to insure the asset against theft after it has been set up in the factory. The asset was purchased under terms 1/20/n30 and Corazon paid for the asset within the discount period. Based on this information, Corazon would capitalize the asset on its books at

$15,160

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. Marino planned to drive the truck for 100,000 miles and then to sell it. The truck was expected to have an $8,000 salvage value. The truck was actually driven 40,000 miles during Year 1; 20,000 miles during Year 2; 35,000 miles during Year 3; and 10,000 miles during Year 4. If Marino uses the units-of-production method, the amount of depreciation expense recognized on the Year 4 income statement is

$2,000

On January 1, Year 1, Raven Limo Service, Inc. paid $64,000 cash to purchase a limousine. The limo was expected to have a six year useful life and a $10,000 salvage value. On January 1, Year 5 the limo was sold for $30,000 cash. Assuming Raven uses straight-line depreciation, the Company would recognize a

$2,000 gain. Depreciation expense per year = (Cost of the asset - Salvage value) ÷ Useful life Depreciation expense per year = ($64,000 Cost - $10,000 Salvage) ÷ 6 Year life = $9,000 Accumulated depreciation on January 1, Year 5 = $9,000 per year × 4 years = $36,000Book value = $64,000 Cost - $36,000 Accumulated depreciation = $28,000 Gain on sale = $30,000 Sales price - $28,000 Book value = $2,000

On January 1, Year 1, Raven Limo Service, Inc. paid $64,000 cash to purchase a limousine. The limo was expected to have a six year useful life and a $10,000 salvage value. On January 1, Year 5 the limo was sold for $26,000 cash. Assuming Raven uses straight-line depreciation, the Company would recognize a

$2,000 loss. Depreciation expense per year = (Cost of the asset - Salvage value) ÷ Useful life Depreciation expense per year = ($64,000 Cost - $10,000 Salvage) ÷ 6 Year life = $9,000 Accumulated depreciation on January 1, Year 5 = $9,000 per year × 4 years = $36,000 Book value = $64,000 Cost - $36,000 Accumulated depreciation = $28,00 Loss on sale = $26,000 Sales price - $28,000 Book value = ($2,000)

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four-year useful life and an $8,000 salvage value. If Marino uses the straight-line method, the amount of accumulated depreciation shown on the Year 2 balance sheet is

$20,000

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. Marino planned to drive the truck for 100,000 miles and then to sell it. The truck was expected to have an $8,000 salvage value. The truck was actually driven 40,000 miles during Year 1, 20,000 miles during Year 2, 35,000 miles during Year 3 and 10,000 miles during Year 4. If Marino uses the units-of-production method, the amount of book value shown on the Year 2 balance sheet is

$24,000

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four-year useful life and an $8,000 salvage value. If Marino uses the straight-line method, the amount of book value shown on the Year 2 balance sheet is

$28,000

On January 1, Year 1, East Company purchased West Company. East Company paid $600,000 cash and assumed all of West Company's liabilities. West's books showed tangible assets of $550,000, liabilities of $40,000, and equity of $590,000. An appraiser assessed the fair market value of the tangible assets at $580,000 at the date of acquisition. On December 31, Year 4 East determines that the goodwill suffered a $25,000 permanent impairment. However, on December 31, Year 6 East estimated that it had recovered $5,000 of the impairment that had previously been considered to be a permanent impairment. Based on this information, the book value of the goodwill shown on the December 31, Year 6 balance sheet is

$35,000

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four-year useful life and an $8,000 salvage value. Marino uses the straight-line method. On January 1, Year 3, Marino's accounting records contained the following balances: Truck 48,000 Acc. Dep. (20,000) Also, on January 1, Year 3 the company paid $10,000 to replace the engine to make the truck better by enabling it to operate using less expensive natural gas. Based on this information, the balance in the accumulated depreciation shown on the Year 3 balance sheet is

$35,000

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. Marino planned to drive the truck for 100,000 miles and then to sell it. The truck was expected to have an $8,000 salvage value. The truck was actually driven 40,000 miles during Year 1, 20,000 miles during Year 2, 35,000 miles during Year 3 and 10,000 miles during Year 4. If Marino uses the units-of-production method, the amount of accumulated depreciation shown on the Year 3 balance sheet is

$38,000

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four-year useful life and an $8,000 salvage value. If Marino uses the double-declining-balance method, the amount of depreciation expense recognized on the Year 3 income statement is

$4,000

Renewable Energies, Inc. (REI) paid $100,000 to purchase a windmill. The windmill was expected to have an 8 year useful life and a $20,000 salvage value. At the beginning of the fifth year of operation, REI changed the estimated useful life from 8 years to 14 years. Assuming the Company uses the straight-line method, the amount of depreciation expense on the Year 5 income statement would be

$4,000

On January 1, Year 1, Gemstone Mining Company (GMC) paid $10,500,000 cash to purchase the rights to extract raw stone from a surface pit estimated to hold 50,000 pounds of useable material. GMC extracted 10,000 pounds of stone in Year 1, 20,000 pounds of stone in Year 2, and 25,000 pounds of stone in Year 3. The rights to the surface pit were expected to have a $500,000 salvage value at the end of Year 3. Based on this information, the amount of depletion expense shown on the Year 3 income statement is

$4,000,000

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four-year useful life and an $8,000 salvage value. If Marino uses the double-declining-balance method, the amount of accumulated depreciation shown on the Year 3 balance sheet is

$40,000

Renewable Energies, Inc. (REI) paid $100,000 to purchase a windmill. The windmill was expected to have an 8 year useful life and a $20,000 salvage value. At the beginning of the fifth year of operation, REI changed the estimated useful life from 8 years to 14 years. Assuming the Company uses the straight-line method, the amount of accumulated depreciation on the Year 6 balance sheet would be

$48,000

Renewable Energies, Inc. (REI) paid $100,000 to purchase a windmill. The windmill was expected to have an 8 year useful life and a $20,000 salvage value. At the beginning of the fifth year of operation REI changed the estimated salvage to $28,000. Assuming the Company uses the straight-line method, the amount of accumulated depreciation on the Year 6 balance sheet would be

$56,000

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four year useful life and an $8,000 salvage value. Marino uses the straight-line method. On January 1, Year 3, Marino's accounting records contained the following account balances: Truck 48,000 Acc. Dep. (20,000) Also, on January 1, Year 3 the company paid $10,000 to replace an engine that extended the useful life of the asset from a total of four years to a total of seven years. Based on this information, the amount of depreciation expense shown on the Year 3 income statement is

$6,000

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four-year useful life and an $8,000 salvage value. If Marino uses the double-declining-balance method, the amount of book value shown on the Year 3 balance sheet is

$8,000

Renewable Energies, Inc. (REI) paid $100,000 to purchase a windmill. The windmill was expected to have an 8 year useful life and a $20,000 salvage value. At the beginning of the fifth year of operation REI changed the estimated salvage value to $28,000. Based on this information, the amount of depreciation expense on the Year 5 income statement would be

$8,000

On January 1, Year 1, both Alpha Company and Beta Company purchased a truck that cost $34,000. Both trucks had a five year useful life and a $4,000 salvage value. Alpha Company decided to use straight-line depreciation while Beta used the double declining balance method. All other things being equal

Alpha Company would show $2,160 more net income on its Year 2 financial statements than Beta would show.

On January 1, Year 1, Martin Manufacturing Company paid $55,000 to obtain a patent. Martin expected the patent to have a 25 year useful life and a $5,000 salvage value. The patent's legal life is 20 years. Which of the following shows how the recognition of amortization expense will affect the Year 3 financial statements?

Assets- (2,000) Liab.- + Equity= (2,500) Rev.= NA Exp.= 2,500 Net Inc.= (2,500) Statement of Cash Flows= NA

On January 1, Year 1, McGraw Company paid $1,000,000 to obtain a copyright. McGraw expected the copyright to have a 10 year useful life. Which of the following shows the amount of the book value of the copyright, the amortization expense, and the cash flow from operating activities on the Year 3 financial statements?

Book Value- $700,000 Amortization Expense- $100,000 Cash flow from Operating- Zero

On January 1, Year 1, Gemstone Mining Company (GMC) paid $10,500,000 cash to purchase the rights to extract raw stone from a surface pit estimated to hold 50,000 pounds of useable material. GMC extracted 10,000 pounds of stone in Year 1, 20,000 pounds of stone in Year 2, and 25,000 pounds of stone in Year 3. The rights to the surface pit were expected to have a $500,000 salvage value at the end of Year 3. Which of the following statements models shows how the purchase will affect GMC's financial statements?

Cash- (10,5000,000) Stone Reserves- 10,5000,000 Liab.- NA Equity- NA Rev. - NA Exp.- NA Net Inc.- NA Cash Flow Statement- (10,500,000)IA

South Company purchased North Company. South Company paid $550,000 cash and assumed all of North Company's liabilities. On the date of purchase, North's books showed tangible assets of $500,000, liabilities of $20,000,and equity of $480,000. An appraiser assessed the fair market value of the tangible assets at $530,000 on the acquisition date. Which of the following statements models shows how this event will affect South Company's financial statements?

Cash- (555,000) T. Assets- 530,000 Goodwill- 40,000 Liab.-20,000 Equity- NA Rev.-NA Exp.- NA Net Inc.- NA Cash Flow Statement- (550,000)IA

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four-year useful life and an $8,000 salvage value. If Marino uses the double-declining-balance method, which of the following shows how the adjusting entry to recognize depreciation expense at the end of Year 3 will affect the Company's financial statements?

Cash- NA Book value of Truck- (4,000) Liab.- NA Equity- (4,000) Rev.- NA Exp.- 4,000 Net Inc.- (4,000) Cash Flow Statement- NA

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. Marino planned to drive the truck for 100,000 miles and then to sell it. The truck was expected to have an $8,000 salvage value. The truck was actually driven 40,000 miles during Year 1, 20,000 miles during Year 2, 35,000 miles during Year 3 and 10,000 miles during Year 4. If Marino uses the units-of-production method, which of the following shows how the adjusting entry to recognize depreciation expense at the end of Year 3 will affect the Company's financial statements?

Cash- NA Book value of truck- (14,000) Liab.- NA Equity- (14,000) Rev.-NA Exp.-14,000 Net Inc.- (14,000) Cash Flow Statement- NA

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four-year useful life and an $8,000 salvage value. If Marino uses the straight-line method, which of the following shows how the adjusting entry to recognize depreciation expense at the end of Year 3 will affect the Company's financial statements?

Cash- NA Book value- (10,000) Liab.- NA Equity- (10,000) Rev.- NA Exp.- 10,000 Net Inc.- (10,000) Cash flow statement- NA

On January 1, Year 1, Gemstone Mining Company (GMC) paid $10,500,000 cash to purchase the rights to extract raw stone from a surface pit estimated to hold 50,000 pounds of useable material. GMC extracted 10,000 pounds of stone in Year 1, 20,000 pounds of stone in Year 2, and 25,000 pounds of stone in Year 3. The rights to the surface pit were expected to have a $500,000 salvage value at the end of Year 3. Which of the following statements models shows how recognizing depletion expense will affect GMC's Year 1 financial statements?

Cash- NA Stone Reserves- (2,000,000) Liab.- NA Equity- (2,000,000) Rev.- NA Exp.- 2,000,000 Net Inc.- (2,000,000) Cash Flow Statement- NA

On January 1, Year 5, Raven Limo Service, Inc. Raven sold a used limo that had cost $64,000 and had accumulated depreciation of $36,000. The limo was sold for $26,000 cash. Which of the following shows how the sale of the limo would affect Raven's financial statements?

Cash= 26,000 Book value of Limo= (28,000) Liab.= NA Equity= (2,000) Gain=NA Loss=2,000 Net Inc.= (2,000) Cash Flow Statement= 26,000IA

On January 1, Year 5, Raven Limo Service, Inc. sold a used limo that had cost $64,000 and had accumulated depreciation of $36,000. The limo was sold for $30,000 cash. Which of the following shows how the sale of the limo would affect Raven's financial statements?

Cash= 30,000 Book Value of Limo= (28,000) Liab.= NA Equity= 2,000 Gain= 2,000 Loss= NA Net Inc.=2,000 Cash Flow Statement= 30,000 IA

The amount of depletion expense is accumulated in a contra assets account at the end of each accounting period. This statement is

False

The book value of most intangible assets is normally greater than the market value. This statement is

False

Which of the following intangible assets has an indefinite useful life?

Goodwill

On January 1, Year 1, both Jones Company and Smith Company purchased an identical set of office furniture. Both companies assumed a zero salvage value even though Jones Company estimated an eight year useful life while Smith expected a ten year life. All other things being equal

Jones will report a lower amount of net income on its Year 1 financial statements than Smith would, Jones will report a higher amount of net income on its Year 10 financial statements than Smith would report, and Both companies will report the same amount of total assets of their Year 10 financial statements.

Sable Co. paid $400,000 for a purchase that included land, a building, and equipment. An appraiser estimated the market value of the land to be $100,000, the building to be $350,000, and the equipment to be $50,000. Based on this information the cost that would be allocated to each of the assets is

Land- 80,000 Building- 280,000 Equipment- 40,000

Harbor Co. made a basket purchase. Specifically, the Company paid cash to purchase land, a building and equipment. The appraised market value of the individual items was greater that the purchase price. Which of the following shows how this purchase will affect a company's financial statements?

NA for all Statement of cash flow= -IA

When double-declining balance depreciation is used for the recognition of depreciation expense, the statement of cash flows will show an outflow from

No effect

Which of the following would cause net income to be overstated?

Overestimating the useful life of an asset, salvage value of an asset, and capitalizing a cost that should have been expensed

Which of the following is an intangible asset?

Patent, copyright, and trademark

Which of the following normally has an associated contra account?

Tangible long-term assets

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four-year useful life and an $8,000 salvage value. Marino uses the straight-line method. On January 1, Year 3, Marino's accounting records contained the following balances: Truck 48,000 Acc. Dep. (20,000) Also, on January 1, Year 3 the company paid $10,000 to replace an engine that would extend the useful life of the truck from a total of four years to a total of seven years. Which of the following shows how the engine replacement will affect the account balances after the engine replacement on January 1, Year 3?

Truck $48,000; Acc. Dep. (10,000)

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four-year useful life and an $8,000 salvage value. Marino uses the straight-line method. On January 1, Year 3, Marino's accounting records contained the following balances: Truck 48,000 Acc. Dep. (20,000) Also, on January 1, Year 3 the company paid $10,000 to replace the engine to make the truck better by enabling it to operate using less expensive natural gas. Which of the following shows the account balances after the engine replacement on January 1, Year 3?

Truck 58,000; Acc. Dep. (20,000)

All other things being equal, a company using double-declining balance depreciation will show higher depreciation expense in the first year of an asset's useful life than a company using straight-line depreciation. This statement is

True

Goodwill is recognized only when it is purchased. This statement is

True

Goodwill is the mix of variables that are unique to a particular company that enables it to produce above average profits. This statement is

True

The term amortization is used to identify the expense recognition for intangible assets. This statement is

True

Two companies that experience identical accounting events may still report different amounts of net income. This statement is

True

The revenue stream for Marino Moving Company fluctuates from year to year. Based on this information alone, Marino should use the

Units-of-production method to compute depreciation expense.

Capitalizing the cash cost of a piece of equipment is

an asset exchange event

Gains and losses are reported

as nonoperating items on the income statement

Which of the following conveys an exclusive right to produce and sell the content contained in a textbook?

copyright

Which of the following is not a tangible asset?

copyright

All costs associated with a machine after it is operational are expensed in the period they are incurred. This statement is

false

All training costs associated with the purchase and continuing use of an asset should be capitalized in the asset account. This statement is

false

If a company has to change an estimate, such as the salvage value of an asset, the company is required to reissue prior year statements that were based on the estimate. This statement is

false

When the total estimated market value of assets acquired in a basket purchase is greater than the cost of the purchase, the company making the purchase must recognize a gain.

false

Depletion is the term used to recognize expense associated with

natural resources

Guac Co. paid $350,000 for a purchase that included land, a building, and equipment. An appraiser estimated the market value of the land to be $80,000, the building to be $300,000, and the equipment to be $20,000. Based on this information recording the basket purchase in the accounting records would cause

no affect on total assets or total equity

Tangier Company paid cash to purchase a long-term operational asset. The cost of the asset will be expensed (depreciated)

over the useful life of the asset

Land is different from other tangible assets in that its utility is not diminished by its use. This statement is

true