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Exam 6: Accounting for Long-Term Operational Assets

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Question 61

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On January 1,2012,Gray Company purchased a new company car for $36,000.The car has an expected salvage value of $6,000.The company estimates that the car will be driven 100,000 miles over its life and uses units of production to determine depreciation expense.The car was driven 20,000 miles in 2012.At the beginning of 2013 the company revised the estimated total life to 120,000 miles.If 26,000 miles were driven in 2013,the amount of depreciation expense for the year would be

A) $7,800.
B) $6,500.
C) $6,240.
D) $6,040.

E) B) and C)
F) None of the above

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Question 62

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On January 1,2012,Stetson Company paid $160,000 to obtain a patent.Stetson expected to use the patent for 5 years before it became technologically obsolete.Based on this information,the amount of amortization expense on the December 31,2014 income statement and the book value of the patent on the December 31,2014 balance sheet would be:

A) $32,000/$64,000.
B) $32,000/$96,000.
C) $64,000/$64,000.
D) $64,000/$96,000.

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

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Question 63

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The Minneapolis Company spent $8,000 to improve the quality of one of its assets.

On January 1,2012,Stassi Corporation purchased equipment for $25,000.A discount of 2% was granted on the equipment; the shipping terms were FOB Shipping Point,and the shipping cost was $1,500; installation and testing amounted to $1,000.The equipment had an estimated useful life of 4 years and salvage value of $4,000.At the beginning of 2014,Stassi revised the expected life of the asset to six years and the salvage value to $5,000. Required: Compute the depreciation expense using straight-line method for each of the six years.

Evenbeck Company purchased Ferguson Company for $500,000 cash.The fair market value of Ferguson's assets was $320,000 and the company had no liabilities.Which of the following choices would reflect the purchase on Evenbeck's financial statements?

Which of the following terms is used to identify the expense recognition for intangible assets?

A trademark is an intangible asset with an indefinite useful life.

The Harlow Company purchased the Hampton Company for $600,000 cash.The fair market value of Hampton's assets was $520,000 and the company had liabilities of $30,000.What amount of goodwill should Harlow record related to the purchase of Hampton Company?

Flynn Company experienced an accounting event that affected its financial statements as indicated below: Which of the following accounting events could have caused these effects on Flynn's statements?

Title search and document costs incurred to purchase a building are expensed in the period the building is acquired.

The Chandler Company purchased equipment for $16,000 on January 1,2010.The equipment had an estimated useful life of four years and an estimated salvage value of $4,000.At the beginning of 2012,the equipment was sold for $7,000.Show how the sale affected the financial statements for 2012.

Using double declining balance depreciation,instead of straight line,will have what effect on the financial statements in the first year of an asset's life?

Which one of the following would not be classified as an intangible operational asset?

The cost of natural resources includes the purchase price,as well as exploration costs and surveys.

Remsen,Inc.purchased equipment that cost $48,000.The equipment had a useful life of 5 years and a $5,000 salvage value.Remsen used the double-declining-balance method to depreciate its assets.Which of the following choices accurately reflects how the recognition of the first year's depreciation would affect the company's financial statements?

On January 1,2012,Racine Company purchased equipment that cost $55,000 cash.The equipment had an expected useful life of six years and an estimated salvage value of $4,000.Assuming that Racine depreciates its assets under the straight-line method,the amount of depreciation expense appearing on the December 31,2013 income statement and the amount of accumulated depreciation appearing on the December 31,2013 balance sheet would be:

On January 1,2012,Ziskin Company spent $3,000 on an asset to improve its quality.The asset had been purchased on January 1,2009 for $14,000.The asset had a $2,000 salvage value and a 6-year life.Ziskin uses straight-line depreciation.What would be the book value of the asset on January 1,2013?

The XYZ Company purchased the ABC Company for $520,000 cash.ABC's assets had been appraised at $410,000.ABC had liabilities of $40,000,which XYZ assumed.How would the purchase of ABC affect XYZ's financial statements?

On January 1,2012,Rugh Company purchased equipment with a list price of $12,000 with a 2% cash discount.The equipment was delivered under terms of FOB destination and freight costs amounted to $400.A total of $1,000 was paid for installation and testing.During the first year,Rugh paid $300 for insurance on the equipment and another $250 for routine maintenance and repairs.Rugh uses the units-of-production method of depreciation.Useful life is estimated at 5 years or 300,000 units and estimated salvage value is $2,000.During 2012,the equipment produced 60,000 units.What is the amount of depreciation for 2012?

Give an example of an intangible asset with an identifiable useful life.