ACG Final - Chapter 8 edition

CRASHING OUT

Which of the following is not a depreciable asset?

Land

A corporation purchased a piece of land for $50,000.  The corporation 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.  The corporation also assumes $5,000 of property taxes on the land owed by the previous owner.  How much is the total cost of the land?

65,500

In the current year, a company paid $250,000 to improvement to one of its buildings.  If the company's accountant expensed this amount in the current year, which of the following statements is true?

The entry will improperly understate net income for the year.

Which one of the following will minimize depreciation expense in the first year of owning an asset?

A long estimated life, a high salvage value, and straight-line depreciation

A company purchased a plant asset  for $53,000.  It has a salvage value of $3,000 and annual depreciation expense of $5,000.  It calculates depreciation using the straight-line method.  The balance of the company's Accumulated Depreciation account at the end of the current year after-adjusting entries is $15,000.  What is the asset's remaining useful life?

7 years

An asset purchased on January 1 for $50,000 has an estimated salvage value of $5,000.  The current useful life is 9 years.  How much is total accumulated depreciation using the straight-line method at the end of the third year of life?

15,000

On May 1 of the current year, a company purchases and places into service new equipment. The cost of the equipment is $115,000.  The equipment has an estimated 10-year life and $15,000 salvage value at the end of its useful life.  What is the depreciation expense for the current year ending December 31 if the company uses the straight-line method of depreciation?

6,667

Which statement is true about additions to plant assets?

They are capitalized.

A company purchased equipment  for $50,000 on January 1 of its first year.  The equipment’s original estimated useful life is 8 years and its estimated salvage value is $10,000.  The company uses the straight-line method of depreciation.  On December 31 of its second year, before year-end adjusting entries have been recorded, the company decides to shorten the estimated useful life by 3 years giving it a total life of 5 years.  The company did not change the salvage value and continues to use the straight-line method.  How much depreciation expense should be recorded for the second year?

8,750

If a plant asset is retired and its accumulated depreciation equals its cost

no gain or loss on disposal will be recorded.

A corporation has equipment that originally cost $80,000. Its accumulated depreciation is $68,000 after the current year’s adjusting entries have been recorded. A new processing technique has rendered the equipment obsolete, so it is retired. How should the company record the retirement of the equipment?

Debit the Accumulated Depreciation account for $68,000

Debit the Loss on Disposal of Plant Assets account for $12,000

Credit the Equipment for $80,000

During the current year, a corporation reported net sales of $1,500,000, net income of $900,000, and depreciation expense of $100,000. It also reported beginning total assets of $1,000,000, ending total assets of $1,500,000, plant assets of $800,000, and accumulated depreciation of $500,000. Its total asset turnover ratio is

1.2 times.

Which of the following is an intangible asset that is not amortized?

Trademark

At the start of the current year, a company paid for the following in cash:

     Copyrights, $1,500,000

     Equipment, $25,000,000

     Goodwill, $4,500,000

     Inventory, $1,500,000

     Land, $15,000,000

     Patents, $2,500,000

     Research and development, $1,500,000

     Supplies, $4,000,000

     Trademarks, $1,200,000

It amortizes its intangibles over 10 years.  Determine its current year amortization expense.

400,000

A company purchased a truck for $60,000 on January 1 of its first year.  The company uses the units-of-activity method and it estimates that the truck’s useful life will be 100,000 miles.  The truck will have an estimated salvage value of $10,000.  The company drives the truck 25,000 miles in the first year and drives it 20,000 miles in the second year.  How much accumulated depreciation will be reported on the company’s balance sheet as of the end of the second year?

22,500

A company purchased equipment and incurred these costs:

Cash price, $26,000

Sales taxes, $1,200

Insurance during transit, $400

Annual maintenance costs, $500

What amount should be recorded as the cost of the equipment?

27,600

A company purchased land for $80,000.  The company also assumes $15,000 of accrued taxes on the property, incurred $8,000 to remove an old building, and received $4,000 from the salvage of the old building.  At what amount will the land be recorded in the accounting records?

99,000

In the current year, a company paid $250,000 to improvement to one of its buildings.  If the company's accountant expensed this amount in the current year, which of the following statements is true?

The entry will improperly understate net income for the year

At the beginning of the current year, a company purchased machinery for $50,000.  It has a salvage value of $6,000 and an estimated useful life of 8 years.  How much is depreciation expense for the first year under the straight-line method?

5,500

A company purchased a plant asset for $48,000.  It has a salvage value of $3,000 and an annual depreciation expense of $5,000.  It calculates depreciation using the straight-line method.  The balance of the company's Accumulated Depreciation account at the end of the current year after-adjusting entries is $20,000.  What is the asset's remaining useful life?

9 years

An asset purchased on January 1 for $60,000 has an estimated salvage value of $3,000.  The current useful life is 8 years.  How much is total accumulated depreciation using the straight-line method at the end of the second year of life?

14,250

On September 1, a company purchased equipment for $25,000. The equipment’s estimated salvage value is $2,500. The machine will be depreciated using straight-line depreciation and a five year life. If the company prepares annual financial statements on December 31, the appropriate adjusting journal entry to make on December 31 of the first year would be a

$1,500 debit to Depreciation Expense and a $1,500 credit to Accumulated Depreciation

Which statement is true about additions to plant assets?

They are capitalized.

A company purchased a truck for $60,000 on January 1 of its first year.  The truck was originally depreciated on a straight-line basis over 10 years with an estimated salvage value of $12,000.  At the end of the third year, before year-end adjusting entries have been recorded, the company decided to revise the estimated life of the truck to a total of 6 years and to change its estimated salvage value to $2,000.  How much depreciation expense should be recorded for the third year?

12,100

A plant asset with a cost of $240,000 and accumulated depreciation of $228,000 is sold for $28,000. What is the amount of the gain or loss on disposal of the plant asset?

16,000 gain.

When a plant asset is retired, the difference between the plant asset’s cost and the accumulated depreciation of the same plant asset is

recognized on the income statement as a loss on disposal of plant asset.

A company has the following:

     Net income for the current year is $275,000

     Net income in the prior year was $250,000

     Net sales for the current year is $1,500,000

     Net sales in the prior year were $1,400,000

     Total assets as of the end of the current year is $1,150,000

     Total assets at the end of the prior year was $1,050, 000

What is the company’s total asset turnover ratio for the current year?

1.36 times

Based on the following year-end account balances, what amount would the company report on its balance sheet as intangible assets?

Buildings	$18,000,000
Accumulated depreciation	4,000,000
Research and development	1,500,000
Patents	3,000,000
Accounts receivable	5,000,000

The total amount reported on the balance sheet as intangible assets would be

3,000,000

At the start of the current year, a company paid for the following in cash:

     Copyrights, $2,000,000

     Equipment, $25,000,000

     Goodwill, $4,500,000

     Inventory, $1,500,000

     Land, $15,000,000

     Patents, $1,500,000

     Prepaid rent, $500,000

     Research and development, $500,000

     Supplies, $4,000,000

     Trademarks, $1,000,000

It amortizes its intangibles over 10 years.  Determine its current year amortization expense.

350,000

A machine with a cost of $480,000 has an estimated salvage value of $30,000 and an estimated useful life of 5 years or 15,000 hours. It is to be depreciated using the units-of-activity method of depreciation. What is the amount of depreciation for the second full year, during which the machine was used 5,000 hours?

150,000