Ch 8: Learn Smart

The cost at which a company records purchases of machinery and equipment include

1. taxes 2. installation 3. shipping fees 4. purchase price

Co. bought machine for 14000 with useful life of 5 years and 2000 salvage. Using the straight line depreciation method, compute the depreciation expense for June 1st through December 31 14000-2000/5=2400 There are seven months in between June and December So take 2400 x 7/12 = 1400

1400

Co. owns a delivery van that was purchased two years ago for 25000. Co. has depreciated the van for two years at a straight-line amount of 4000 per year. The book value of this van at the end of the second year would be_____________ 25000-4000-4000=17000

17000

Co. purchases equipment for 12000 and has been using straight-line depreciation, estimating a 5 year life and 500 salvage value. At the beginning of the third year, they decide to use the equipment for a total of 6 years with no salvage. Revised depreciation for the third year: 12000-500/5 =2300 This is the method used for two years so 2300 x 2 = 4600 On third year, decide to go from 5 to 6. Have already done 2, so 6-2=4 1200-4600/4=1850

1850

Vehicle is purchased at 15000 for 8 years with a 3000 salvage value. Use double declining balance depreciation to compute second year depreciation expense 200%/8 yrs = 0.25 rate Year 1: Beginning Book Value = 15000 Rate = 0.25 Depreciation = 15000 x .25 = 3750 Year 2: Take 15000-3750 = 11250 Depreciation = 11250 x 0.25 = 2812.5

2812.5

Co. bought delivery van for 22000. Expects to drive van for 100000 miles. Salvage value of 2000. During the first year, Bora drives the van for 18000 miles. How much would depreciation expense be if Co. uses the units-of-production method? 22000-2000/100000 = 0.20 .20 x 18000 = 3600

3600

Determine which of the following expenses related to a building would be classified as a capital expenditure 1. new air conditioning system 2. air conditioning maintenance 3. minor drywall repair 4. room addition 5. carpet cleaning

1 and 4

The cost of a plant asset includes

1. Cost to prepare it for use 2. Purchase price

A company sells a machine that cost 7000 for 500 cash. the machine had 6500 accumulated depreciation. The entry to record this transaction:

Debit Accumulated Depreciation 6500 Debit Cash 500 Credit Machinery 7000

Company sells machine that cost 7000 for 500 cash. The machine has 6500 accumulated depreciation. The entry to record this transaction will include:

Debit Cash 500 Debit Accumulated Depreciation 6500 Credit Machinery 700

Co. received an invoice for replacement of the engine on its main delivery van. The replacement will extend the life of the van an additional three years. The entry to record the receipt of the invoice:

Debit Equipment Credit Accounts Payable

Co. paid cash for an upgrade to an existing machine that would reduce the amount of waste produced by the machine (and therefore, increasing efficiency). The journal entry recorded:

Debit Machinery Credit Cash

The factors necessary to compute depreciation

cost, salvage value, and useful life

___________ is the process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use

depreciation

Assets that increase the benefits of land, have a limited useful life, and are depreciated--such as sidewalks and street lights--are called

land improvements

Book value is greater than the selling price

loss on sale of asset

Book value is equal to the selling price

no gain or loss recognized

____________ expenditures are additional cost that do not materially increase the asset's life or productive capabilities

revenue

_______ value, also called residual value or scrap value, is an estimate of the asset's value at the end of its benefit period

salvage

Plant assets should be recorded at cost, including all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use. This includes

1. shipping charges 2. insurance while in transit 3. taxes

Co. sells equipment for 1000 cash. The equipment cost the Co. 6500 and it fully depreciated at the time of sale with no salvage. Credit which account and how much

Credit Gain on Sale of Equipment 1000

______________ is the amount by which a company's value exceeds the value of its individual assets and liabilities. Recorded as an intangible asset, but is not amortized

Goodwill

____________ are expenditures that make a plant asset more efficient or productive, but do not always increase an asset's useful life

betterments

_____________ are expenditures that extend the asset's useful life beyond its original estimate.

extraordinary repairs

Book value is less than the selling price

gain on sale of asset

____________ assets purchased as a group in a single transaction for a lump-sum price are allocated the purchase price based on their relative market values

plant

To calculate the depletion expense in a period, a company should multiply the depletion per unit by

units extracted and sold in the period

The method of depreciation that charges a vary amount to depreciation expense for each period of an asset's useful life depending on its usage is called the __________ method.

units-of-production

Machine is bought at 25500, expected to last four years and have a salvage value of 5500. Using the straight line method, depreciation expense should be __________ per year. 25500-5500/4 = 5000

5000

Which depreciation method will compute the most depreciation expense over the life of the asset?

All methods will produce equal depreciation expense over the life of the asset

Co. sells a copier for 2000. The copier cost the co. 6000 and at the time of sale, accumulated depreciation was 2500. Co. will record this sale with: Add selling price and the amount of acc. depreciation 2000+2500=4500 Take original price minus 4500 The company lost 1500 dollars

Debit Loss on Disposal of Machinery for 1500

If Co.'s current year machinery and equipment repair costs are 8200, which accounts would be impacted to complete the journal entry?

Debit Repairs expense Credit Cash

The process of allocating the cost of a natural resource to a period when it is consumed requires a debit entry to the ____________ account

Depletion Expense

_________________________ will be found on a company's income statement relating to depreciating equipment

Depreciation Expense - Equipment

Ordinary repairs, such as repairs and maintenance to a vehicle, would be recorded with a debit to which account

Repairs expense

Copyrights, trademarks, and other intangible assets are expensed over their useful lives through the process of __________

amortization

_______ expenditures provide benefits extending beyond the current period

capital

Accumulated depreciation is a ______________ asset account (one that is linked with the plant asset account but has an opposite normal balance) and is reported on the balance sheet

contra

Depreciation expense is reported as a decrease in which of the following financial statements?

income statement

____________ are nonphysical assets used in operations that confer on their owners long-term rights, privileges, or competitive advantages.

intangible assets

Co. sold a computer for 500 cash. The computer cost 3000 and had accumulated depreciation of 2200 at the time of sale. They will record the sale with an entry to the ____ on Disposal of Equipment account in the amout of _____. 2200+500=2700 Losing 300 from the deal

loss, 300

_________ are assets that are physically consumed when used, such as mineral deposits and oil and gas fields

natural resources

Bilos Co. purchased a patent on a newly developed technology. They will recognize the cost of this patent

over the asset's life using amortization expense

___________ assets are assets used in a company's operations that have a useful life of more than one accounting period.

plant

The ____________ life (also called service life) is the length of time the asset is productively used in a company's operations.

useful