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Exam 8: Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

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Question 1

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Depreciation is the process of estimating a long-lived asset's current market value.

A) True
B) False

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Question 2

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Determine the effect of the following transactions on the financial statement components identified. Code your answers as follows: A: If the transaction results in an increase in the financial statement component. B: If the transaction results in a decrease in the financial statement component. C. If the transaction does not affect the financial statement component. Transaction 1: The adjusting journal entry to record depreciation expense was prepared. Net income_____ Total assets_____ Stockholders' equity_____ Transaction 2: The adjusting journal entry to record patent amortization expense was prepared. Net income_____ Total assets_____ Stockholders' equity_____ Transaction 3: A depreciable asset was sold for a gain. Net income_____ Total assets_____ Stockholders' equity_____ Transaction 4: The adjusting journal entry to record an impairment loss was prepared. Net income_____ Total assets_____ Stockholders' equity_____

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Transaction 1: The adjusting journal ent...

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Question 3

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On January 1, 2014, Woodstock, Inc. purchased a machine costing $40,000. Woodstock also paid $1,000 for transportation and installation. The expected useful life of the machine is 6 years and the residual value is $5,000. If Woodstock uses the straight-line depreciation method, which of the following statements is incorrect?

Which method of depreciation results in periodic depreciation expense that fluctuates from one period to the next, not necessarily in a steadily upward or downward direction?

Sadler Corporation purchased equipment to be used in manufacturing. The purchase was made at the beginning of 2013 by paying cash of $150,000. The equipment has an estimated residual value of 10,000 and an expected useful life of 10 years. At the beginning of 2015, Sadler concluded that the total useful life of the equipment will be 8 years rather than 10, and that the residual value will be zero. Sadler uses the straight-line method for depreciation. Required: A. Prepare the journal entry to record depreciation on the equipment for 2014. B. Prepare the journal entry to record depreciation on the equipment for 2015, including the effect of the changes in estimates. C. Describe how and when a business should account for a change in the estimated useful life and/or residual value of a depreciable asset.

A company has some bottling equipment which cost $8.5 million, has a net book value of $4.1 million, estimated future cash flows of $3.7 million, and a fair value of $3.1 million. How much is the asset impairment loss?

In Year 4, Landmark Restaurants reported the cost of property and equipment at $1,189.8 million and the accumulated depreciation at $224.2 million. In that same year, Coca Cola reported $10,149 million in long-lived, productive assets and accumulated depreciation on them of $4,058. Required: A. Estimate the approximate percent of remaining life of the assets for Landmark and Coca Cola. B. Which company appears to have newer assets with longer remaining lives?

Which of the following is correct?

Ordinary repairs and maintenance costs are incurred to maintain a long-lived productive asset and are expensed as incurred.

Which of the following journal entries is correct when a company owns its office building for many years and now sells the building? A. Cash Accumulated depreciation $\quad$ Loss on sale $\quad$ Building B. Cash $\quad$ Building $\quad$ Gain on sale $\quad$ Accumulated depreciation C. Cash $\quad$ Accumulated depreciation $\quad$ Loss on sale $\quad$ Building D. Cash $\quad$ Gain on sale $\quad$ Building

Warren Company plans to depreciate a new building using the double declining-balance depreciation method. The building cost $800,000. The estimated residual value of the building is $50,000 and it has an expected useful life of 25 years. Assuming the first year's depreciation expense was recorded properly, what would be the amount of depreciation expense for the second year?

Pier 5 has been in business 8 years with 4 stores in the San Francisco bay area. Its local reputation for making savory pies such as curried potatoes is well recognized. A national food distributor has offered to purchase the company. Pier 5 has $0.9 million of net assets at book value, but those net assets have a fair value of $1.2 million. If the distributor offers to buy Pier 5 for $3.5 million, how much will be recorded as goodwill based on the offered acquisition price?

Which of the following is incorrect for Smith Company when Smith issues 10,000 shares of $10 par value common stock and pays $20,000 cash in exchange for a building? The market price of the Smith stock on the exchange date was $35 per share and the building's book value on the books of the seller was $200,000.

Which of the following includes only tangible assets?

Which of the following statements is correct?

Warren Company plans to depreciate a new building using the double declining-balance depreciation method. The building cost $800,000. The estimated residual value of the building is $50,000 and it has an expected useful life of 25 years. What is the building's book value at the end of the first year?

Hi-Crest Company purchased a machine on January 1, 2014, for $300,000. The machine has an estimated useful life of 5 years and a $10,000 residual value. Required: Calculate depreciation expense and the year-end book value for 2013 and 2014 using the double declining-balance method of depreciation.

Which of the following statements is correct with respect to a loss on the sale of a depreciable asset?

On March 1, 2014, Anniston Company purchased an oil well at a cost of $1,000,000. It is estimated that 150,000 barrels of oil can be produced over the remaining life of the well and the residual value of the well will be $100,000. During 2014, 15,000 barrels of oil were produced and sold. Which of the following statements is incorrect with respect to the accounting for the oil well?

Gilbert Company made an ordinary repair to a delivery truck during 2014 at a cost of $500 and capitalized the repair cost. What is the effect on the 2014 financial statements as a result of the capitalization?