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Exam 8: Accounting for Long-Term Operational Assets

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Question 101

True/False

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Goodwill is the value attributable to favorable factors such as reputation, location, and superior products.

A) True
B) False

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Question 102

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Tyler Company purchased equipment that cost $260,000 cash on January 1, Year 1. The equipment had an expected useful life of five years and an estimated salvage value of $10,000. Tyler depreciates its assets under the straight-line method. What is the amount of depreciation expense appearing on the Year 1 income statement?

A) $26,000
B) $50,000
C) $52,000
D) $100,000

E) B) and C)
F) A) and C)

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Question 103

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Madison Company owned an asset that cost $44,000. The company sold the asset for $16,000. Accumulated depreciation on the day of sale amounted to $32,000. Which of the following statements is true?

Indicate whether each of the following statements is true or false.a)MACRS is an accelerated depreciation method commonly used for tax purposes.b)The half-year convention is a semiannual meeting of accountants and educators.c)MACRS requires that the taxpayer estimate the salvage value of assets.d)The use of MACRS provides tax benefits in the early years of an asset's life, compared to use of the straight-line method.e)Most companies use the same depreciation method for both financial reporting and tax reporting.

On January 1, Year 1, Stiller Company paid $80,000 to obtain a patent. Stiller expected to use the patent for 5 years before it became technologically obsolete. The remaining legal life of the patent was 8 years. Based on this information, what is the amount of amortization expense during Year 3 and the book value of the patent as of December 31, Year 3, respectively?

Which of the following is considered an accelerated depreciation method?

If a business chooses to use the straight-line method for tax purposes rather than MACRS, how will this choice affect the amount of income taxes paid in the first year of an asset's life?

Which method of depreciation is used by most U.S. companies for financial reporting purposes?

On January 1, Year 1, Ballard company purchased a machine for $52,000. On January 1, Year 2, the company spent $12,000 to improve its quality. The machine had a $4,000 salvage value and a 6-year life, which are unchanged. Ballard uses the straight-line method. What is the book value of the machine on December 31, Year 4?

On January 1, Year 1, Phillips Company made a basket purchase including land, a building and equipment for $380,000. The appraised values of the assets are $20,000 for the land, $340,000 for the building and $40,000 for equipment. Phillips uses the double-declining-balance method for the equipment which is estimated to have a useful life of four years and a salvage value of $5,000. What is the depreciation expense for the equipment for Year 1?

Generally accepted accounting principles require that, when the estimated useful life of a long-term asset is changed, previously-issued financial statements should not be revised.

On January 1, Year 1, XYZ Company paid $60,000 cash to purchase a truck. The truck has a $5,000 salvage value and a 4-year useful life. XYZ uses the double-declining-balance method. How much depreciation expense would XYZ report on its Year 2 income statement?

Why is land not depreciated?

On January 1, Year 1, Rainey Company purchased a machine that cost $150,000. The equipment is estimated to have a 5-year life and a salvage value of $30,000. Required: a)Compute the amount of depreciation expense using the double-declining-balance method for:(1)Year 1(2)Year 2b)Compute the amount of MACRS depreciation for the above equipment for Year 1 assuming the property is 5-year property and the MACRS percentage is 20%.

How will an impairment loss of $15,000 relating to goodwill affect the financial statements?

Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts.Increase = I Decrease = D Not Affected = NABoothe Company paid $9,000 to extend the useful life of one of its assets. How will this expenditure affect Boothe's financial statements?

EFG Transportation Company uses the straight-line method to depreciate its delivery truck. Which of the following reflects how recognizing depreciation expense would affect the financial statements?

Harding Corporation acquired real estate that contained land, building and equipment. The property cost Harding $2,470,000. Harding paid $735,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $777,000; Building, $2,310,000 and Equipment, $1,533,000.What value will be reported for the building on the balance sheet?

Laramie Company paid $2,300,000 for a purchase that included land, building, and office furniture. An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: Land, $696,000, Building, $864,000, and Office Furniture, $840,000. What is the cost that should be allocated to the land?

How does the recognition of depletion expenseaffect the financial statements?