Acct 201 Chapter 7

Corristan Company purchased equipment and incurred these costs: Cash price $24,000 Sales taxes $1,200 Insurance during transit $200 Annual maintenance costs $400 Total costs $25,800 The equipment account should be increased by what $ amount?

$25,400 All costs necessary to get the asset ready to use should be included as part of the cost of the equipment because these are the costs that are necessary to acquire, safely transport, and prepare it for its intended use ($24,000 + $1,200 + $200 = $25,400). The annual maintenance costs are expensed.

Concord Corporation bought equipment on January 1, 2017. The equipment cost $390000 and had an expected salvage value of $70000. The life of the equipment was estimated to be 5 years. The book value of the equipment at the beginning of the third year would be what amount?

$262,000

Massey Corporation purchased a piece of land for $50,000. 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 $2,000, and proceeds from the scrap were $500. What is the total cost of the land?

$60,500 All costs necessary to get the land ready to use are included as part of the cost of the land. The total of the increase to the land account is the cost of the land of $50,000 plus the attorney's fees of $5,000, the brokers' commissions of $4,000, plus the cost of tearing down the old building, $2,000. The proceeds from the scrap sale totaling $500 should be subtracted for a total cost of the land of $60,500.

Coronado Company purchased land for $80,000. The company also paid $12,000 in accrued taxes on the property, incurred $5,000 to remove an old building, and received $2,000 from the salvage of the old building. By what amount will Land be increased in the accounting records?

$95,000 All costs necessary to get the land ready to use are included as part of the cost of the land. Coronado should include the purchase price of $80,000, the accrued taxes of $12,000, the cost of razing the old building of $5,000 less the payment received for the salvaged materials in the amount of $2,000. This results in an acquisition cost of $95,000.

What will be reported on the balance sheet under property, plant, and equipment?

1) Buildings and equipment less accumulated depreciation 2) land improvements 3) land

A company sold for $3,000 a plant asset that had a cost of $10,000 and accumulated depreciation of $7,500. What gain or loss did the company experience?

Gain of $500 Book value is $2,500 ($10,000 - $7,500). Since the proceeds ($3,000) exceed the book value ($2,500) by $500, there is a gain.

Pharoah Company incurred $890000 of research and development costs in its laboratory to develop a new product. It spent $150000 in legal fees for a patent granted on January 2, 2017. On July 31, 2017, Pharoah paid $90000 for legal fees in a successful defense of the patent. What is the total amount of the increased to Patents through July 31, 2017?

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Schneider Trucking Inc. purchased a new semi-truck on January 1, 2017 for $200,000. The truck's expected useful life is 4 years and its salvage value is estimated at $25,000. What is the depreciation for 2017 using the declining-balance method at a double the straight-line rate?

The depreciation for 2017 would be (2 x 25%) x $200,000 =$100,000

Which one of these statements is true? a) Totals of major classes of assets can be shown in the balance sheet, with asset details disclosed in the notes to the financial statements. b) Since intangible assets lack physical substance, they need to be disclosed only in the notes to the financial statements. c) Intangible assets are typically combined with plant assets and natural resources and then shown in the property, plant, and equipment section. d) Goodwill should be reported as a contra account in the stockholders' equity section.

answer: a GAAP allows details on assets to be disclosed in the notes to the financial statements

What is depreciation? a) A valuation approach. b) A cost allocation method. c) A cash accumulation approach. d) An adjustment to market value over time.

b) A cost allocation method Depreciation is a process of allocating the cost of a long-term asset over its useful service life.

A permanent decline in the market value of an asset is called a) a capital expenditure. b) an impairment. c) a write-down. d) a disposal.

b) an impairment. An impairment is recognized when a permanent decline in the market value of an asset exists.

A loss on disposal of a plant asset is reported in the financial statements a) as a direct increase to the capital account on the balance sheet. b) in the Other Expenses and Losses section of the income statement. c) as a direct decrease to the capital account on the balance sheet. d) in the Other Revenues and Gains section of the income statement.

b) in the Other Expenses and Losses section of the income statement.

Which of the following is not a depreciable asset? a) driveways b) equipment c) land d) buildings

c) Land Land is not a depreciable asset because its usefulness and revenue-producing ability generally stay intact over time. Buildings, driveways, and equipment are all depreciable assets.

Which of the following gives the recipient the right to manufacture, sell, or otherwise control an invention for a period of 20 years? a) License b) Copyright c) Patent d) Trademark

c) Patent Patents give the recipient rights for 20 years. A copyright protects literary and artistic works, and a trademark is a word, phrase, jingle, or symbol that distinguishes or identifies an enterprise or product. A license is an operating right.

When using the straight-line depreciation method, which of the following is not a factor affecting the computation of depreciation? a) salvage value b) useful life c) book value d) cost

c) book value Book value is equal to acquisition cost less accumulated depreciation. The factors affecting the computation of depreciation include acquisition cost, useful life, and salvage value.

Plant assets are accounted for at: a) Fair value. b) Cost minus accumulated depreciation. c) Historical cost. d) Accounting value.

c) historical cost

Sheridan Company sold office furniture for $58000. The furniture had an original cost of $147000 and accumulated depreciation of $73500. Ignoring the tax effect, as a result of the sale a) net income will increase $15500. b) net income will decrease $31000. c) net income will decrease $15500. d) net income will increase $31000.

c) net income will decrease $15500

Research and development costs a) should be included in the cost of the patent they relate to. b) are capitalized and then amortized over a period not to exceed 20 years. c) are classified as intangible assets. d) must be expensed when incurred under generally accepted accounting principles.

d) must be expensed when incurred under generally accepted accounting principles.

Which of the following costs should not be included in the cost of a building? a) Broker's commission b) Remodeling of office space prior to use c) Closing costs d) Parking lot repaving

d) parking lot repaving Parking lot repaving costs are considered to be land improvements and recorded in an account separate from buildings.