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Exam 8: Accounting for Long-Term Operational Assets

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Question 1

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When Company X purchases Company Y, X should record Y's assets at their fair market value at the time of the acquisition.

A) True
B) False

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Question 2

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A trademark is a tangible asset with an indefinite useful life.

A) True
B) False

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Question 3

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What items are included in the cost of a newly purchased building?

An asset purchased for $12,000 with a $3,000 salvage and a 5 year life is depreciated using straight line depreciation for two years. At the beginning of the third year the useful life of the asset is revised to 4 years. Show how the revision of depreciation expense in the third year of the asset's life will affect the financial statements (compared to the financial statements if the revision in estimate had not been made).

At the end of 2018, the book value of the office equipment using straight-line depreciation and double-declining balance depreciation, respectively, would be:

What account is debited to record an expenditure that extends the life of a plant asset such as equipment?

On January 1, 2013, Owens Company spent $850 on a plant asset to improve its quality. The asset had been purchased on January 1, 2010 for $4,200 and had an estimated salvage value of $600 and a useful life of five years. Owens uses the straight-line depreciation method. Which of the following correctly shows the effects of the 2013 expenditure on the financial statements?

When depreciation is recorded on equipment, Depreciation Expense is debited and Equipment is credited.

The Jenkins Company purchased equipment for $15,000 on January 1, 2013. The equipment had an estimated useful life of four years and an estimated salvage value of $3,000. At the beginning of 2015, the equipment was sold for $10,000. Show how the sale affected the financial statements for 2015, assuming Jenkins uses straight-line depreciation.

On May 16, 2013, Twin Peaks Corporation found it necessary to recognize an impairment loss of $25,000 of goodwill. The goodwill was originally recorded two years earlier in connection with the purchase of another company. Show how the impairment loss affected the financial statements in 2013.

Which of the following is considered an accelerated depreciation method?

Explain how a choice of depreciation methods will have an impact on financial performance measures. Give one example.

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.

Which of the following is not classified as property, plant and equipment?

On May 4, 2013, Strauss Company purchased a tract of land as a factory site for $3,200,000. An existing building on the property was demolished, and construction was begun on a new factory building in July 2013 and completed December 15, 2013. Cost data are shown below. Required: Compute the capitalized cost of (1) the land and (2) the factory building.

Geode Company paid cash to purchase mineral rights on a large parcel of land. Which of the following choices accurately reflects how this event would affect Geode's financial statements?

Gains and losses are reported as non-operating items on the income statement.

Which of the following would be classified as a tangible asset?

On April 1, 2013, Texas Energy Company purchased an oil producing well at a cash cost of $6,000,000. It is estimated that the oil well contains 600,000 barrels of oil, of which only 500,000 can be profitably extracted. By December 31, 2013, 25,000 barrels of oil were produced and sold. The amount of depletion expense for 2013 on this well would be:

Describe what is meant by the term "goodwill."