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Exam 7: Long-Term Assets

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Question 51

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Stephan's Resorts purchased equipment for $40,000.Residual value at the end of an estimated four-year service life is expected to be $8,000.The machine operated for 2,200 hours in the first year and the company expects the machine to operate for a total of 10,000 hours over its four year life.Calculate depreciation expense for the first year using each of the following depreciation methods: (1)straight-line,(2)double-declining-balance,and (3)activity-based.

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(1)($40,000 - $8,000)/4 = $8,0...

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Question 52

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Using the double-declining balance method,depreciation expense for 2012 would be:

A) $24,000.
B) $22,000.
C) $19,000.
D) $20,000.

E) B) and D)
F) B) and C)

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Question 53

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On July 1,2012,Landon Co.purchased a $500,000 tract of land that is intended to be the site of a new office complex.Landon incurred additional costs and realized salvage proceeds during 2012 as follows: What would be the capitalized cost of the land?

Chubbyville purchases a delivery van for $23,500.Chubbyville estimates that at the end of its four-year service life,the van will be worth $2,500.During the four-year period,the company expects to drive the van 105,000 miles.Calculate annual depreciation for the four-year life of the van using each of the following methods.Round all amounts to the nearest dollar. 1.Straight line. 2.Double-declining-balance. 3.Activity-based. Actual miles driven each year were 24,000 miles in Year 1; 26,000 miles in Year 2; 22,000 miles in Year 3; and 25,000 miles in Year 4.Note that actual total miles of 97,000 fall short of expectations by 8,000 miles.

The balance sheet of Cattleman's Steakhouse shows assets of $86,400 and liabilities of $15,000.The fair value of the assets is $90,000 and the fair value of its liabilities is $15,000.Longhorn paid Cattleman's $95,000 to acquire it.Longhorn should record goodwill on this purchase of:

Impairment occurs when the future cash flows generated for a long-term asset fall below its fair value. Impairment occurs when the future cash flows generated for a long-term asset fall below its book value (cost minus accumulated depreciation).

Productive assets that are physically used up,or depleted are:

Allied Construction and Axis Construction reported the following information in their annual financial statements ($ in millions): Required: 1.Calculate Allied Construction's return on assets,profit margin,and asset turnover ratio for 2012. 2.Calculate Axis Construction's return on assets,profit margin,and asset turnover ratio for 2012. 3.Which company has the better profit margin and which company has the better asset turnover? $\begin{array} { c r r } \text { Allied Construction } & \mathbf { 2 0 1 2 } & \mathbf { 2 0 1 1 } \\\text { Sales } & \$ 48,283 & \$ 46,927 \\\text { Net income } & 2,809 & 3,105 \\\text { Total assets } & 30,869 & 27,767\end{array}$ $\begin{array} { c r r } \text { Axis Construction } & \mathbf { 2 0 1 2 } & \mathbf { 2 0 1 1 } \\\text { Sales } & \$ 77,349 & \$ 90,837 \\\text { Net income } & 4,395 & 5,761 \\\text { Total assets } & 44,324 & 52,263\end{array}$

Nate's Hot Dogs exchanges long-term assets with Lizzy's Lemonade.Nate receives a delivery truck and gives up a piece of machinery.The fair value and book value of the machinery were $27,000 and $25,000 (original cost of $35,000 less accumulated depreciation of $10,000),respectively.Since the delivery truck was worth $32,000,Nate paid an additional $5,000 in cash to Lizzy.Record the exchange for Nate's Hot Dogs.

C-Stop reports the following information at year-end: Based on the above information,what is the total amount of impairment loss that C-Stop should record at year end?

Which depreciation method is most common for financial reporting? Which depreciation method is most common for tax reporting? Why do companies choose these methods?

Cowboy Development incurred the following costs associated with the purchase of a piece of land that it will use to re-build an office building: What amount should be recorded for the purchase of the land?

Intangible assets with an indefinite useful life (goodwill and most trademarks)are not amortized.

Taking a "big bath" is recording all losses in one year to make a bad year even worse.

Shasta Exploring purchases a piece of equipment on January 1,2012,for $50,000 and the equipment has an expected useful life of five years.Its residual value is estimated to be $4,000.Assuming Shasta uses the double-declining balance depreciation method,what is the depreciation expense for the equipment for 2013?

Maple Inc.has the following information regarding its assets: What amount of loss should be recorded due to asset impairments?

Bahama Catering purchased a commercial dishwasher by paying cash of $5,000.The dishwasher's fair value on the date of the purchase was $5,600.The company incurred $400 in transportation costs,$300 installation fees,and paid a $200 fine for illegal parking while the dishwasher was being delivered.For what amount will Bahama record the dishwasher?

The return on assets is calculated as:

The CEO,as head of the company,is ultimately responsible for the firm's accounting.

Straight-line depreciation assumes that the benefits we derive from the use of an asset are the same each year.