ACC module 9
Equipment that cost $ 144000 and on which $ 120000 of accumulated depreciation has been recorded was disposed of for $36000 cash. The entry to record this event would include a
gain of 12,000
On October 1, 2017, Mann Company places a new asset into service. The cost of the asset is $ 120000 with an estimated 5-year life and $ 30000 salvage value at the end of its useful life. What is the depreciation expense for 2017 if Mann Company uses the straight-line method of depreciation?
4,500
Bennie Razor Company has decided to sell one of its old manufacturing machines on June 30, 2017. The machine was purchased for $80,000 on January 1, 2013, and was depreciated on a straight‐line basis for 10 years assuming no salvage value. If the machine was sold for $26,000, what was the amount of the gain or loss recorded at the time of the sale? (a) $18,000 loss. (b) $54,000 loss. (c) $22,000 gain. (d) $46,000 gain.
a
If a company reports goodwill as an intangible asset on its books, what is the one thing you know with certainty? (a) The company is a valuable company worth investing in. (b) The company has a well‐established brand name. (c) The company purchased another company. (d) The goodwill will generate a lot of positive business for the company for many years to come.
c
Arnold Company purchases a new delivery truck for $ 45000. The sales taxes are $ 2500. The logo of the company is painted on the side of the truck for $ 1200. The truck's annual license is $ 120. The truck undergoes safety testing for $ 220. What does Arnold record as the cost of the new truck?
48,920
Lessor
A party that has agreed contractually to let another party use its asset for a period at an agreed price.
Return on assets
A profitability measure that indicates the amount of net income generated by each dollar of assets; computed as net income divided by average total assets.
Intangible assets
Rights, privileges, and competitive advantages that result from the ownership of long‐lived assets that do not possess physical substance.
Depreciation is a process of: (a) valuation. (b) cost allocation. (c) cash accumulation. (d) appraisal.
b
Corrieten Company purchased equipment and incurred these costs: Cash price - $24,000 Sales taxes - 1,200 Insurance during transit - 200 Installation and testing - 400 Total costs - $25,800 What amount should be recorded as the cost of the equipment? (a) $24,000. (b) $25,200. (c) $25,400. (d) $25,800.
d
Trademark (trade name)
A word, phrase, jingle, or symbol that distinguishes or identifies a particular enterprise or product.
Depreciable cost
The cost of a plant asset less its salvage value.
Amortization
The process of allocating to expense the cost of an intangible asset.
A company sells a plant asset that originally cost $ 375000 for $ 125000 on December 31, 2017. The accumulated depreciation account had a balance of $ 150000 after the current year's depreciation of $ 37500 had been recorded. The company should recognize a
100,000 loss on disposal
Capital lease
A contractual agreement allowing one party (the lessee) to use another party's asset (the lessor); accounted for like a debt‐financed purchase by the lessee.
Operating lease
A contractual agreement allowing one party (the lessee) to use the asset of another party (the lessor); accounted for as a rental by the lessee.
Cash equivalent price
An amount equal to the fair value of the asset given up or the fair value of the asset received, whichever is more clearly determinable.
Additions and improvements
Costs incurred to increase the operating efficiency, productive capacity, or expected useful life of a plant asset.
Asset turnover
Indicates how efficiently a company uses its assets to generate sales; calculated as net sales divided by average total assets.
Copyright
An exclusive right granted by the federal government allowing the owner to reproduce and sell an artistic or published work.
Patent
An exclusive right issued by the U.S. Patent Office that enables the recipient to manufacture, sell, or otherwise control an invention for a period of 20 years from the date of the grant.
Revenue expenditures
Expenditures that are immediately charged against revenues as an expense.
Capital expenditures
Expenditures that increase the company's investment in plant assets.
Research and development costs
Expenditures that may lead to patents, copyrights, new processes, and new products; must be expensed as incurred.
Ordinary repairs
Expenditures to maintain the operating efficiency and expected productive life of the asset.
Plant assets
Resources that have physical substance, are used in the operations of a business, and are not intended for sale to customers.
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 its balance sheet. From this, you can conclude that Harrington is accounting for this transaction as a/an: (a) operating lease. (b) capital lease. (c) purchase. (d) None of the above.
a
Able Towing Company purchased a tow truck for $60,000 on January 1, 2017. It was originally depreciated on a straight‐line basis over 10 years with an assumed salvage value of $12,000. On December 31, 2019, before adjusting entries had been made, the company decided to change the remaining estimated life to 4 years (including 2019) and the salvage value to $2,000. What was the depreciation expense for 2019? (a) $6,000. (b) $4,800. (c) $15,000. (d) $12,100.
d
Additions to plant assets are: (a) revenue expenditures. (b) debited to the Repairs and Maintenance Expense account. (c) debited to the Purchases account. (d) capital expenditures.
d
Kant Enterprises purchased a truck for $11,000 on January 1, 2016. The truck will have an estimated salvage value of $1,000 at the end of 5 years. If you use the units‐of‐activity method, the balance in accumulated depreciation at December 31, 2017, can be computed by the following formula: (a) ( $ 11,000 ÷ Total estimated activity ) × Units of activity for 2017 ($11,000÷Total estimated activity)×Units of activity for 2017. (b) ( $ 10,000 ÷ Total estimated activity ) × Units of activity for 2017 ($10,000÷Total estimated activity)×Units of activity for 2017. (c) ( $ 11,000 ÷ Total estimated activity ) × Units of activity for 2016 and 2017 ($11,000÷Total estimated activity)×Units of activity for 2016 and 2017. (d) ( $ 10,000 ÷ Total estimated activity ) × Units of activity for 2016 and 2017 ($10,000÷Total estimated activity)×Units of activity for 2016 and 2017.
d
Which of the following measures provides an indication of how efficient a company is in employing its assets? (a) Current ratio. (b) Profit margin. (c) Debt to assets ratio. (d) Asset turnover.
d
Impairment
A permanent decline in the fair value of an asset.
A company purchased land for $ 94000 cash. Real estate brokers' commission was $ 5000 and $ 7000 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 $ 1200. Under the historical cost principle, the cost of land would be recorded at
104,800
A company purchased factory equipment for $ 450000. It is estimated that the equipment will have a $ 45000 salvage value at the end of its estimated 5-year useful life. If the company uses the double-declining-balance method of depreciation, the amount of annual depreciation recorded for the second year after purchase would be
108,000
A factory machine was purchased for $ 140000 on January 1, 2017. It was estimated that it would have a $ 28000 salvage value at the end of its 5-year useful life. It was also estimated that the machine would be run 40000 hours in the 5 years. If the actual number of machine hours ran in 2017 was 4000 hours and the company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2017 would be
11,200
Equipment with a cost of $ 640000 has an estimated salvage value of $ 60000 and an estimated life of 4 years or 12000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was used 3000 hours?
145,000
On May 1, 2017, Irwin Company purchased the copyright to Quick Computer Tutorials for $ 120000. It is estimated that the copyright will have a useful life of 5 years. The amount of amortization expense recognized for the year 2017 would be
16,000
Mitchell Corporation bought equipment on January 1, 2017. The equipment cost $ 300000 and had an expected salvage value of $ 50000. The life of the equipment was estimated to be 6 years. The company uses the straight-line method of depreciation. The book value of the equipment at the beginning of the third year would be
216,666
Mitchell Corporation bought equipment on January 1, 2017. The equipment cost $ 300000 and had an expected salvage value of $ 50000. The life of the equipment was estimated to be 6 years. The depreciable cost of the equipment is
25,000
Kathy's Blooms purchased a delivery van with a $ 60000 list price. The company was given a $ 6000 cash discount by the dealer, and paid $ 3000 sales tax. Annual insurance on the van is $ 1500. As a result of the purchase, by how much will Kathy's Blooms increase its van account?
57,000
A company purchased factory equipment on June 1, 2017, for $ 128000. It is estimated that the equipment will have a $ 8000salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2017, is
7,000
Shaffer Company acquires land for $ 77000 cash. Additional costs are as follows. Removal of shed $ 300 Filling and grading 1500 Salvage value of lumber of shed 120 Broker commission 1130 Paving of parking lot 10000 Closing costs 560 Shaffer will record the acquisition cost of the land as
80,370
Franchise
A contractual arrangement under which the franchisor grants the franchisee the right to sell certain products, to perform specific services, or to use certain trademarks or trade names, usually within a designated geographic area.
Straight‐line method
A depreciation method in which companies expense an equal amount of depreciation for each year of the asset's useful life.
Units‐of‐activity method
A depreciation method in which useful life is expressed in terms of the total units of production or use expected from the asset.
Declining‐balance method
A depreciation method that applies a constant rate to the declining book value of the asset and produces a decreasing annual depreciation expense over the asset's useful life.
Accelerated‐depreciation method
A depreciation method that produces higher depreciation expense in the early years than the straight‐line approach.
Lessee
A party that has made contractual arrangements to use another party's asset for a period at an agreed price.
Depreciation
The process of allocating to expense the cost of a plant asset over its useful life in a rational and systematic manner.
Goodwill
The value of all favorable attributes that relate to a company that are not attributable to any other specific asset.
Jefferson Company purchased a piece of equipment on January 1, 2017. The equipment cost $60,000 and has an estimated life of 8 years and a salvage value of $8,000. What was the depreciation expense for the asset for 2018 under the double‐declining‐balance method? (a) $6,500. (b) $11,250. (c) $15,000. (d) $6,562.
b
Pierce Company incurred $150,000 of research and development costs in its laboratory to develop a new product. It spent $20,000 in legal fees for a patent granted on January 2, 2017. On July 31, 2017, Pierce paid $15,000 for legal fees in a successful defense of the patent. What is the total amount that should be debited to Patents through July 31, 2017? (a) $150,000. (b) $35,000. (c) $185,000. (d) $170,000.
b
When there is a change in estimated depreciation: (a) previous depreciation should be corrected. (b) current and future years' depreciation should be revised. (c) only future years' depreciation should be revised (d) None of the above.
b
A company would minimize its depreciation expense in the first year of owning an asset if it used: (a) a high estimated life, a high salvage value, and declining‐balance depreciation. (b) a low estimated life, a high salvage value, and straight‐line depreciation. (c) a high estimated life, a high salvage value, and straight‐line depreciation. (d) a low estimated life, a low salvage value, and declining‐balance depreciation.
c
Indicate which one of these statements is true. (a) Since intangible assets lack physical substance, they need to be disclosed only in the notes to the financial statements. (b) Goodwill should be reported as a contra account in the stockholders' equity section. (c) Totals of major classes of assets can be shown in the balance sheet, with asset details disclosed in the notes to the financial statements. (d) Intangible assets are typically combined with plant assets and inventory and then shown in the property, plant, and equipment section.
c
Lake Coffee Company reported net sales of $180,000, net income of $54,000, beginning total assets of $200,000, and ending total assets of $300,000. What was the company's asset turnover? (a) 0.90 (b) 0.20 (c) 0.72 (d) 1.39
c
Cuso Company purchased equipment on January 1, 2016, 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 December 31, 2017, if the straight‐line method of depreciation is used? (a) $80,000. (b) $160,000. (c) $78,000. (d) $156,000.
d
Which of the following statements is false? (a) If an intangible asset has a finite life, it should be amortized. (b) The amortization period of an intangible asset can exceed 20 years. (c) Goodwill is recorded only when a business is purchased. (d) Research and development costs are expensed when incurred, except when the research and development expenditures result in a successful patent.
d