ch8

ch8 Student: ___________________________________________________________________________

1.

Tangible Tangible long-lived long-lived productiv productivee assets assets differ differ from intangi intangible ble long-lived long-lived product productive ive assets assets in that that tangible tangible assets have physical substance whereas intangible assets have no physical substance. True

2.

Patents, Patents, trademar trademarks, ks, and franchi franchises ses are examples examples of tangible tangible assets assets.. True

3.

False

If a second-ha second-hand nd machine machine is purchas purchased ed for product productive ive use in a business business,, all renovati renovation on and repair repair costs costs on the used machine incurred by the purchaser prior to its productive use should be reported as an expense on the income statement. True

9.

False

The cash-equi cash-equivalent valent cost cost of an asset asset received received is measure measured d as any cash cash paid paid plus the the current current market market value value of the non-cash consideration given up. If this value is not determinable, the current market value of what is received should be used instead. True

8.

False

The land cost initia initially lly reported reported on on the balance balance sheet sheet includes includes legal legal fees fees and title title insuranc insurance. e. True

7.

False

An expenditur expendituree is capital capitalized ized when when it is reported reported as an expense on the income statement. statement. True

6.

False

The equipment equipment cost cost initially initially reported reported on the the balance balance sheet includes includes the the equipment equipment related related installa installation tion costs. costs. True

5.

False

The fixed fixed asset asset turnover turnover ratio ratio measures measures the amount amount of operati operating ng income income generated generated per dollar of average average fixed assets. True

4.

False

False

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

False

10. In accounting accounting for depreciation, depreciation, acquisition acquisition cost and useful life life usually are known quantities, quantities, whereas whereas residual value is an estimate because it relates to an amount in the future. True

False

11. Depreciation Depreciation is the process process of allocating a long-lived long-lived asset's cost cost over its productive productive life. True

False

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

False

13. If depreciation expense is calculated without taking into account the asset's asset's residual value, depreciation expense will be higher than it should have been. True

False

14. The book value of a depreciable asset equals its acquisition cost minus the depreciation expense recorded to date. True

False

15. On January 1, 2010 equipment equipment was purchased purchased for $80,000; $80,000; the equipment's equipment's estimated estimated residual residual value is $15,000 and its estimated useful life is 8 years. During 2010, the depreciation expense under the doubledeclining balance method is $16,250. True

False

16. On January 1, 2010 equipment equipment was purchased purchased for $100,000; $100,000; the equipment's equipment's estimated estimated residual residual value value is $20,000 and its estimated useful life is 8 years. On December 31, 2010, the book value using the straightline method of depreciation is $90,000. True

False

17. Use of the double-declining-balance method of depreciation results results in higher depreciation expense during the first year of an asset's life relative to use of the straight-line depreciation method. True

False

18. Use of the double-declining-balance method of depreciation results results in decreasing amounts of depreciation expense over an asset's life. True

False

19. The units-of-production method of depreciation allocates allocates an asset's cost over its useful life based on the current period's production relative to its total estimated production. True

False

20. The depreciation method method chosen for financial reporting purposes (GAAP) must also be utilized for income tax reporting (IRS). True

False

21. If a long-lived long-lived asset has been impaired, the journal journal entry will require a debit to a loss account and a credit to the long-lived asset account. True

False

22. If a company has an asset asset with with a book value of $5.0 million million and estimate estimatess the future future cash flows to to be received over the asset's remaining life to be $5.5 million, no impairment has occurred and no loss would be recognized. True

False

23. The first step in recording the disposal of a long-lived asset is to update its book value by recognizing depreciation expense for the period of time since the last depreciation adjustment was made. True

False

24. Gains and losses on a long-lived asset disposal are determined by comparing comparing the asset's cost to its its selling price. True

False

25. Selling Selling a depreciable depreciable asset for a gain results results in an increase in both stockholder stockholders' s' equity and assets. assets. True

False

26. The systematic and rational allocation of the acquisition cost of natural resources resources to those periods in which the resources contribute to revenue is called depletion. True

False

27. The method of depletion depletion used to allocate the cost of natural resources to future periods is most similar to the straight-line depreciation method. True

False

28. Natural Natural resource depletion depletion expense expense is recognized on the income statement statement for all resources resources removed during during the period whether they are sold or not. True

False

29. Goodwill Goodwill is recorded recorded only when an existing existing company is bought by another another company and the purchase purchase price exceeds the fair value of the purchased company's net assets. True

False

30. Research Research and development development costs are capitalize capitalized d under GAAP once a product or process process has been developed. True

False

31. When determining determining cash flow from from operations operations using the direct method, method, depreciation depreciation and amortization amortization expense are deducted from net income. True

False

32. Which of the following following would would not be classified classified as property, property, plant and equipment equipment on a balance balance sheet? A. Land being held for resale. B. Equipment used in the manufacturing process. C. A building used as corporate headquarters. D. A natural resource being mined. 33. Which of the the following following accounts would would not be considered considered a tangible tangible asset? asset? A. B. C. D.

Buildings Land Equipment Patents

34. Which of the the following following accounts would would not be considered considered an intangibl intangiblee asset? A. Goodwill B. Patents C. Research and development costs D. Trademarks 35. Which of the following following transacti transactions ons would not increase increase the fixed asset asset turnover turnover ratio? A. A profitable sale of inventory on account. B. A profitable sale of inventory inventory for cash. C. Selling equipment used in the manufacturing process for a loss. D. A decrease in cash-based operating expenses. 36. Which of the the following following includes includes only only tangible tangible assets? assets? A. Land, buildings and natural resources. B. Land, buildings and leaseholds. C. Natural resources, buildings, and franchises. franchises. D. Licenses, trademarks, and land. 37. Which of the the following following includes includes only only intangible intangible assets? assets? A. Natural resources, patents, and trademarks. trademarks. B. Research and development costs, franchises, and trademarks. trademarks. C. Copyrights, licenses, and land. D. Leaseholds, patents and copyrights. 38. Which of the following following statement statementss regarding regarding the fixed asset turnover turnover ratio ratio is incorrect? incorrect? A. B. C. D.

The numerator is net operating income. The denominator is average net fixed assets. assets. It is used to assess a company's effectiveness in generating sales from its its fixed assets. It increases when a company sells a factory building for its book value.

39. The Wilson Wilson Company Company has provided provided the the following following informat information: ion: • Net sales, $100,000; • Net operating income, $40,000; • Net income, $20,000; • Average total assets, $120,000; • Average net fixed assets; $80,000. What is Wilson's fixed asset turnover ratio? A. B. C. D.

0.83 1.25 0.25 0.50.

40. Which Which state statemen mentt is fals false? e? A. Shortening S hortening the estimated useful lives of depreciable assets will lead lead to a higher fixed asset turnover. BUsing an accelerated depreciation method instead of the straight-line depreciation method will lead to . reporting a higher fixed asset turnover during the earlier years of an asset's life. C. Acquiring more long-lived, productive assets when a company is growing will lead to a lower fixed asset turnover. D. Selling off long-lived, productive assets while maintaining sales will lead to a lower fixed asset turnover. 41. On March 1, Wright Wright Company Company purchased purchased new equipment equipment for $50,000 $50,000 by paying cash. cash. Other costs costs associated with the equipment were: transportation costs, $1,000; sales tax paid $3,000; and installation cost, $2,500. At what amount will the equipment be recorded at on a balance sheet? A. B. C. D.

$56,500 $54,000 $51,000 $50,000

42. On August 1, Red Red Company purchased purchased computer computer equipment equipment for $10,000 $10,000 cash and and also gave 100 shares shares of White common stock held by Red Company as an investment. The White common stock cost Red Company $5,000 and on August 1 had a market value of $4,200. Installation costs were $700 and shipping costs were $500. What amount should be the total amount debited to the computer equipment account? A. B. C. D.

$14,200 $15,000 $15,400 $16,200

43. Salvia Company Company recently recently purchased purchased a truck. The price negotiated negotiated with the dealer dealer was $40,000. Salvia Salvia also paid sales tax of $2,000 on the purchase, shipping and preparation costs of $3,000, and insurance for the first year of operation of $4,000. At what amount should the truck be recorded on the balance sheet prior to recording depreciation expense? A. B. C. D.

$40,000 $42,000 $43,000 $45,000

44. Which of the following following equipment equipment related related costs is not capitali capitalized zed on a balance sheet? A. Equipment installation costs. B. Transportation costs associated with with the equipment purchase. C. Equipment maintenance costs. D. The equipment's purchase price. 45. Which of the following following costs costs associated associated with a land purchase purchase is not a component of the land cost reported reported on a balance sheet? A. The payment of delinquent property taxes. B. The incurrence of legal fees. C. The cost of title insurance. insurance. D. The land's appraised value. 46. Which of the following following is correct correct for Smith Company Company when Smith issues issues 10,000 shares 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. A. Total assets increase $350,000. B. Stockholders' equity increases $200,000. C. Stockholders' equity increases $330,000. D. Total assets increase $330,000. 47. Which of the following following is incorrect incorrect for Smith Smith Company when when Smith issues issues 10,000 shares 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. A. The common stock account increases by $100,000. B. The building account increases by $350,000. C. Stockholders' equity increases $350,000. D. The additional paid-in capital account increases by $250,000. 48. Which of the following journal entries is correct for Smith Smith Company when Smith issues 10,000 shares of $20 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. A. Building 220,000 Cash 20,000 Common stock 200,000 B. Building 370,000 Cash 20,000 Common Stock 350,000 C. Building 370,000 Cash 20,000 Common stock 200,000 Additional paid-in capital 150,000 D. Building 200,000 Common stock 200,000 49. If an expenditure related to a depreciable asset is incorrectly treated as a capital expenditure, instead instead of as a revenue expenditure, which of the following statements is true? A. B. C. D.

The current year's net income will be lower and future depreciation expense will be higher. The current year's net income will be higher and future depreciation expense will be lower. The current year's net income will be higher and future depreciation expense will be higher. The current year's net income will be lower and future depreciation expense will be lower.

50. Which of of the followi following ng statements statements is incorrect incorrect?? A. Revenue expenditures decrease net income. B. Capital expenditures decrease assets. C. Ordinary repairs and maintenance are considered revenue revenue expenditures. D. Additions and improvements are considered considered capital expenditures. 51. A company acquires acquires land by issuing issuing 10,000 shares of its $10 par value value common stock currentl currently y trading at $20 per share and the appraised value of the land is $250,000. Which of the following statements correctly describes the recording of the land? A Record the land at its appraised value of $250,000 and recognize a gain of $50,000 since the issued stock . is currently worth $200,000. B. Record the land at the value of the consideration given up, $200,000. C Record the land at the average of its appraised value of $250,000 and the $200,000 value of the stock . issued, thereby recognizing a $25,000 gain. D. Record the land at the par value of the stock given up, $100,000. 52. Which of of the followi following ng statements statements is incorrect incorrect?? A. Replacement of a truck's tires would be treated as a capital expenditure. B. The cost of replacing carpet in a building would be a revenue expenditure. C. Cost of replacing a roof on a newly purchased building before using it as a store would be a capital expenditure. D. The cost of repainting a hallway hallway would be a revenue expenditure. 53. Gilbert Gilbert Company made an ordinary ordinary repair repair to a delivery truck during during 2010 at a cost of $500 and capitalized the repair cost. What will be the effect on the 2010 financial statements as a result of the capitalization? A. B. C. D.

The financial statements aren't affected. Assets and net income are both overstated. Assets are overstated and net income was understated. Assets and stockholders' equity are both understated.

54. Which of the the following following would most most likely not be a revenue revenue expenditure? expenditure? A. Repairing the carpet in the sales sales department offices. B. Repairing a leaky roof. C. Putting a hydraulic lift on a delivery truck making it easier and quicker to deliver appliances. D. Painting the exterior of the the factory building. 55. What is the effect on the 2010 financial statements when a capital expenditure during 2010 was incorrectly incorrectly recorded as a revenue expenditure? A. B. C. D.

The financial statements aren't affected. Assets and net income are both overstated. Assets are overstated and net income was understated. Assets and stockholders' equity are both understated.

56. Which of the the following following best describes describes the objective objective of deprecia depreciation? tion? A. To allocate a llocate the cost of a tangible asset to the periods in which its use contributes to earning revenue. B. To estimate the remaining useful life of the asset. C. To report the asset on the balance sheet at the estimated amount amoun t for which the asset could be sold on the balance sheet date. D. To estimate the current replacement cost of the asset. 57. Which of the following following doesn't doesn't properly properly describe describe the depreciation depreciation process? process? A. B. C. D.

It is an allocation process. process. It is consistent with with the matching principle. It involves the use of estimates. It attempts to determine determine an asset's market value.

58. Which of the following following describes describes the effect effect of recording recording depreciation depreciation expense expense at year-end? A. B. C. D.

Net income decreases and total assets assets aren't affected. Total assets decrease and stockholders' equity is not affected. Net income decreases and total assets decrease. Stockholders' equity is not affected affected and net income decreases.

59. Why is the continuity assumption important with respect to the accounting for long-lived tangible assets? A. It helps a company decide whether to use straight-line depreciation or an accelerated ac celerated depreciation method. B.It justifies depreciating the asset over its expected useful life, without anticipating that the business will liquidate in the near future. C. It provides justification for including residual values in calculating depreciation. D. It is consistent with maintaining assets in the accounting records at market value rather than acquisition cost. 60. On January 1, 2010, Woodstock, Woodstock, Inc. Inc. purchased purchased a machine costing $40,000. $40,000. Woodstock Woodstock also paid $1,000 $1,000 for transportation and installation. The expected useful life of the machine is 6 years and the residual value is $5,000. How much is the annual depreciation expense assuming a ssuming use of the straight-line depreciation method? A. B. C. D.

$6,100 $6,000 $5,950 $5,750

61. On January 1, 2010, Woodstock, Woodstock, Inc. Inc. purchased purchased a machine costing $40,000. $40,000. Woodstock Woodstock also paid $1,000 $1,000 for transportation and installation. The expected useful life of the machine is 6 years and the residual value is $5,000. Which of the following statements is incorrect? A. The annual depreciation expense is $6,000. B. The December 31, 2010 book value was $35,000. C. The December 31, 2012 accumulated depreciation balance was $18,000. D. The December 31, 2011 book value was $24,000.

62. A machine, acquired acquired for a cash cost of $15,000, is being being depreciated depreciated on a straight-line straight-line basis basis of $2,700 per year. The residual value was estimated e stimated to be 10% of cost. The estimated useful life is A. 3 years. B. 4 years. C. 5 years. D. 6 years. 63. Warren Warren Company plans to depreciate depreciate a new building building using the double double declining-balan declining-balance ce depreciation 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? A. B. C. D.

$30,720 $32,000 $58,880 $64,000

64. Warren Warren Company plans to depreciate depreciate a new building building using the double double declining-balan declining-balance ce depreciation 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. yea rs. What is the building's book value at the end of the first year? A. B. C. D.

$736,000 $768,000 $686,000 $690,000

65. Which method method of depreciation depreciation results in periodic periodic depreciation depreciation expense that fluctuates fluctuates from from one period to the next, not necessarily in a steadily upward or downward direction? A. Straight-line B. Units-of-production C. Modified accelerated cost recovery system D. Declining balance 66. Hill Inc. purchased purchased an asset asset on January 1, 2009. Hill chose chose an accelerated accelerated depreciation depreciation method to depreciate the asset. Which of the following is correct if Hill would have chosen the straight-line depreciation method instead? A. B. C. D.

Depreciation expense would have been lower in 2009. The book value of the asset would have been lower at the end of 2009. The net income would have been lower during 2009. The accumulated depreciation balance would have been higher at the end of 2009.

67. On January 1, 2010, Pyle Company Company purchased purchased an asset that cost $50,000 $50,000 (no estimated estimated residual residual value, estimated useful life 8 years, straight-line depreciation is used). An error was made because the total cost amount was debited to an expense account for 2010 and no depreciation on it was recorded. Pretax income for 2010 was $42,000. How much is the correct 2010 pretax income? A. B. C. D.

$35,750 $48,250 $85,750 $92,000

68. Schager Company Company purchased purchased a computer computer system system on January 1, 2010, 2010, at a cash cost of $25,000. $25,000. The estimated useful life is 10 years, and the estimated residual value is $3,000. The company will use the double declining-balance depreciation method. How much is the 2011 depreciation expense? A. B. C. D.

$5,000 $4,000 $3,800 $2,200

69. Schager Company Company purchased purchased a computer computer system system on January 1, 2010, 2010, at a cash cost of $25,000. $25,000. The estimated useful life is 10 years, and the estimated residual value is $3,000. The company will use the double declining-balance depreciation method. What is the accumulated depreciation balance as of December 31, 2011? A. B. C. D.

$9,000 $4,000 $5,000 $10,920

70. On January 1, 2010, Wasson Wasson Company purchased purchased a delivery delivery vehicle costing costing $40,000. $40,000. The vehicle has an estimated 6-year life and a $4,000 residual value. What is the vehicle's book value as of December 31, 2011 assuming Wasson uses the straight-line depreciation method? A. B. C. D.

$12,000 $24,000 $30,000 $28,000

71. On January 1, 2010, Wasson Wasson Company purchased purchased a delivery delivery vehicle costing costing $40,000. $40,000. The vehicle has an estimated 6-year life and a $4,000 residual value. Wasson estimates that the vehicle will be driven 100,000 miles. What is the vehicle's book value as of December 31, 2011 assuming Wasson uses the units-ofproduction depreciation method and the vehicle was driven 10,000 miles during 2010 and 18,000 miles during 2011? A. B. C. D.

$29,920 $28,800 $24,800 $25,920

72. Which of of the followi following ng statements statements is false? false? A. The book value at the end of an asset's useful life will be the same under all the depreciation de preciation methods allowed under GAAP. B The balance in the accumulated depreciation account will be the same at the end of an asset's useful life . under all the methods allowed under GAAP. C. Once you select a depreciation method, then you must use this method for all depreciable assets. D The annual depreciation expense and year-end book values will differ under the various depreciation . methods over the life of the asset.

73. Under what condition conditionss would a company most likely likely adopt the double-decl double-decliningining-balance balance method method for financial reporting? AThey have high technology, robotic equipment in their plant that becomes obsolete quickly and declines . in utility to the company more rapidly in the early years of the assets' lives. B. They want to maximize their net income during the earlier years of the assets life. C. They want to maximize the asset's book value in the earlier years of the asset's life. D. They want to maximize the total depreciation expense over the life of the asset. 74. Which of of the followi following ng statements statements is correct? correct? A. Companies can change the method of depreciating assets from one year to the next. B. Companies can affect the book value at the end of an asset's life by choosing one method of depreciation over another. CCompanies can use one method of depreciation for some of their long-lived, productive assets but then . use a different method for another group or type of long-lived, productive assets. D Companies can minimize an asset's book value in the first year of use by selecting the straight-line . depreciation method rather than the double-declining-balance method. 75. Which of of the followi following ng statements statements is correct? correct? AUsing straight-line depreciation in comparison to an accelerated depreciation method will result in a . lower reported amount of total assets at end of the first year of an asset's life. B Using accelerated depreciation in the first year of an asset's life will result in a higher net income during . the first year compared to using the straight-line depreciation method. C. Using an accelerated depreciation method will lead to a higher fixed asset turnover ratio for the first year. D Using straight-line depreciation in comparison to an accelerated depreciation method will lead to a higher . book value at the end of an asset's life. 76. Which of the following following statements statements about the Modified Modified Accelerated Accelerated Cost Recovery System System (MACRS) is correct? A. It is similar to the units-of-production units-of-production depreciation method. B. It is applied using longer asset lives than the estimated useful lives required required by GAAP. C. It provides a short-term tax benefit because of the higher depreciation expense reported in the early years of an asset's life. D. It is acceptable for use when preparing financial statements. 77. Which of the the following following statements statements about about asset impairme impairment nt is false? false? A. Asset impairment loss is the difference between an asset's net book value a nd its estimated future cash flows. B. If an asset is impaired, a loss would be recognized in the period it can be estimated. C. Impairment will lead to writing down the asset's net book value. D. Asset impairment occurs when the estimated future cash flows are less than the asset's net book value.

78. A company has some bottling bottling equipment equipment which cost cost $8.5 million, 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? A. $5.4 million B. $4.1 million C. $0.4 million D. $1.0 million 79. A company has some bottling bottling equipment equipment which cost cost $8.5 million, 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. Which of the following correctly describes the recording of the asset impairment loss? A. B. C. D.

The loss account is debited for $1.0 million and the asset account is credited for $1.0 million. The loss account is debited for $0.4 million and the asset account is credited for $0.4 million. The loss account is debited for $5.4 million and the asset account is credited for $5.4 million. The loss account is debited for $4.8 million and the asset account is credited for $4.8 million.

80. On December 31, 2010, 2010, Hamilton Hamilton Inc. sold a used industrial industrial crane for $600,000 $600,000 cash. The original original cost of the crane was $5.0 million and its accumulated depreciation equaled $4.2 million on December 31, 2010. What is the gain or loss from the December Dece mber 31, 2010 equipment sale? A. $800,000 gain B. $800,000 loss C. $200,000 loss D. $200,000 gain 81. Which of the the following following is correct correct when recording recording the disposal disposal of equipment equipment for a gain? gain? A. A debit to a gain account. B. A credit to the equipment account for the asset's book value. C. A debit to accumulated depreciation for the depreciation accumulated to the date of disposal. D. A decrease in total assets assets occurs. 82. Which of the following following statement statementss is incorrect incorrect with respect respect to the sale of a depreciable depreciable asset? A. B. C. D.

A gain occurs when the selling selling price exceeds book value. A sale for a gain results in an increase in total assets. A sale for a loss results in an increase in total assets. assets. A loss occurs when the selling price is less than book value.

83. Carter Carter Company disposed disposed of an asset at the end of the eighth year of its estimated estimated life life for $10,000 cash. cash. The asset's life was originally estimated to be 10 years. The original cost was $50,000 with an estimated residual value of $5,000. The asset was being depreciated using the straight-line method. What was the gain or loss on the disposal? A. $1,000 loss B. $4,000 loss C. $5,500 gain D. $10,000 gain

84. Which of the following journal entries is correct when a depreciable asset (building) is sold for cash subsequent to acquisition? A.

B.

C.

D.

85. Which of the following statements is incorrect with with respect to the sale of a depreciable asset for a loss? loss? A. B. C. D.

Net income deceases and total assets decrease. Net income and stockholders' equity both decrease. Total assets and stockholders' equity equity both decrease. Total assets increase and stockholders' stockholders' equity decreases.

86. Amanda Company Company purchased purchased a computer that cost cost $10,000. It had an estimated estimated useful life life of five years and a residual value of $1,000. The computer was depreciated by the straight-line method and was sold at the end of the third year of use for $5,000 cash. How much of a gain or loss should Amanda record? A. A gain of $1,000. B. A loss of $5,000. C. A gain of $400. D. A loss of $400. 87. Amanda Company Company purchased purchased a computer that cost cost $10,000. It had an estimated estimated useful life life of five years and a residual value of $1,000. The computer was depreciated by the straight-line method and was sold at the end of the third year of use for $5,000 cash. Which of the following statements correctly describes the computer sale? A. B. C. D.

Assets and stockholders' equity both increase by $5,000. Assets decrease $5,000 and stockholders' equity is not affected. Assets and stockholders' equity both decrease by $400. Assets and stockholders' equity both increase by $400.

88. On March 1, 2010, Anniston Anniston Company purchased purchased an oil well at a cost of $1,000,000. $1,000,000. It is estimated 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 2010, 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? A. B. C. D.

The 2010 cost of goods sold was was $90,000. The book value of the oil well decreased $90,000 during 2010. The inventory of oil increased $90,000 during 2010. The depletion rate is $6.00 per barrel barrel of oil.

89. On March 1, 2010, Anniston Anniston Company purchased purchased an oil well at a cost of $1,000,000. $1,000,000. It is estimated 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 2010, 15,000 barrels of oil were produced and 10,000 barrels were sold. Which of the following statements is correct with respect to the accounting for the oil well? A. B. C. D.

The 2010 cost of goods sold was was $90,000. The book value of the oil well decreased $60,000 during 2010. The inventory of oil increased $30,000 during 2010. The 2010 cost of goods sold was was $30,000.

90. During During 2010, a company purchased purchased a mine at a cost of of $3,000,000. $3,000,000. The company spent spent an additional additional $600,000 getting the mine ready for its intended use. It is estimated that 300,000 tons of mineral can be removed from the mine and the residual value of the mine will be $600,000. During 2010, 45,000 tons of mineral were removed from the mine and 35,000 tons were sold. Which of the following statements is correct with respect to the accounting for the mine? A. B. C. D.

The 2010 net income decreased $450,000 as a result of the mining during the year. The book value of the mine decreased $350,000 during 2010. The inventory of minerals increased $450,000 during 2010. The 2010 cost of goods sold was was $350,000.

91. During During 2010, a company purchased purchased a mine at a cost of of $3,000,000. $3,000,000. The company spent spent an additional additional $600,000 getting the mine ready for its intended use. It is estimated that 300,000 tons of mineral can be removed from the mine and the residual value of the mine will be $600,000. During 2010, 45,000 tons of mineral were removed from the mine and 35,000 tons were sold. Which of the following statements is incorrect with respect to the accounting for the mine? A. B. C. D.

The book value of the mine on December 31, 2010 was was $2,640,000. The book value of the mine decreased $450,000 during 2010. The inventory of minerals increased $100,000 during 2010. The 2010 cost of goods sold was was $350,000.

92. Which of the following following is most most likely to be an intangible intangible asset with an indefinite indefinite life? life? A. B. C. D.

Leasehold Franchise Patent Goodwill

93. Which one of the the following following would not be recorded recorded as an intangibl intangiblee asset? A. Leaseholds B. Copyrights C. Internally generated goodwill D. Franchises 94. Failure Failure to record amortization amortization expense expense on a patent during the current current year will result result in which of the following? A. B. C. D.

Net income will be overstated, but there would be no affect on total assets. Net income for the year and total assets would both be overstated. Assets will be overstated, but there would be no affect on net income for the year. Net income and assets will will both be understated.

95. Which of the the following following properly properly describes describes the accounting accounting for goodwill goodwill?? A. Goodwill is created when it is internally generated. B. Goodwill is amortized over its useful life. C. Goodwill is the difference between the amounts paid for a company relative to the book value of the company's net assets. D. Goodwill is written-down when it has been determined to be impaired. 96. Which of the the following following properly properly describes describes the accounting accounting for a patent? patent? A. B. C. D.

Research and development costs associated with with a patent are capitalized. The patent will be amortized over its useful life. Patent amortization expense is accounted for within within the accumulated depreciation account. Their legal life extends to 70 years after the death of the inventor.

97. Which of of the followi following ng statements statements is correct? correct? A. A copyright has a legal life life not exceeding 70 years. B. A trademark is recorded on the balance sheet at an amount equal to the related research and development costs incurred. C. A patent's legal life is 20 years. D. A franchise's amortization is a function of the underlying contract. 98. During During 2010, the Bowtie Company Company reported reported net income of $1,872 million, million, depreciation depreciation expense expense of $1,412 million and $978 million paid for purchases of property, plant and equipment. What would be the effect on cash flows from operating activities during 2010? A Depreciation expense would increase cash flows from operations and the property, plant and equipment . purchases would decrease cash flow from operations. B Depreciation would increase cash flow from operations and property, plant and equipment purchases . would increase cash flows from operations. C Depreciation would increase cash flow from operations but the property, plant and equipment purchases . would have no effect on cash flow from operations. D. Depreciation is a non-cash expense and would not be used to calculate cash flow from operations. 99. Landmark Landmark Restaurants Restaurants reported reported net income in 2008 of $45.9 million million and depreciation depreciation expense expense of $48.8 million. They also report additions to property and equipment of $162.9 million. Which of o f the following disclosures would appear on the 2008 statement of cash flows? A Depreciation of $48.8 million would be deducted from net income under operating activities and the . $162.9 million would be added under investing activities. B Depreciation of $48.8 million would be added to net income under operating activities and the $162.9 . million would be added under investing activities. C Depreciation of $48.8 million would be added to net income under operating activities and the $162.9 . million would be deducted under un der investing activities. D Depreciation of $48.8 million would be deducted from net income under operating activities and the . $162.9 million would be deducted under investing activities.

100.Williams Company purchased a machine costing $25,000 and is depreciating it over a 10-year estimated useful life with a residual value of $3,000. At the beginning of the eighth year, a major overhaul on it was completed at a cost of $8,000, and the total estimated useful life was changed to 12 years with the residual value unchanged. How much is the year 8 depreciation expense assuming use of the straight-line depreciation method? A. B. C. D.

$2,200 $2,920 $3,100 $8,800

101.Augie Corporation purchased a truck at a cost of $60,000. It has an estimated useful life of five years and estimated residual value of $5,000. At the beginning of year three, Augie's managers concluded that the total useful life would be four years, rather than five. There was no change chang e in the estimated residual value. What is the amount of depreciation that Augie should record for year 3 under the straight-line depreciation method? A. B. C. D.

$15,500 $8,250 $11,000 $16,500

102.The following information is available for Coca-Cola and PepsiCo:

Compute the fixed asset turnover ratio for both Coca Cola and PepsiCo.

103.The following information was available for Landmark Restaurants for the past three years. Using this information compute the fixed asset turnover ratio for 2010 and 2009.

104.On January 1, 2010, Trenton Company purchased a machine costing $50,000. Trenton also incurred the following costs: transportation, $1,000; installation, $2,000; and sales tax, $3 ,000. Prepare the journal entry to record the machine acquisition assuming cash was paid.

105.Waterloo Corporation purchased factory equipment for a cost of $1,800,000. It cost $100,000 for its delivery, $220,000 for its installation and modifications to the production building, and $60,000 in interest costs on borrowed funds used to acquire ac quire the equipment. What is the acquisition ac quisition cost of the new equipment?

106.In 2008, 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 longlived, productive assets and accumulated depreciation on them of $4,058. A. Estimate the approximate remaining life of the assets for Landmark and Coca Cola B. Which company appears appea rs to have newer assets with longer remaining lives?

107.Hi-Crest Company purchased a machine on January 1, 2010, for $300,000. The machine has an estimated useful life of 5 years and a $10,000 residual value. Calculate depreciation expense and the year-end book value for 2010 and 2011 using the double declining-balance method of depreciation.

108.The financial statements of Franklin Company contained the following errors:

Requirements: A. Was net income for 2009 understated or overstated? B. Was total combined net income for the two-year period ended December 31, 2010 overstated or understated?

109.On January 1, 2009, Boston Company purchased a heavy duty machine having an invoice price of $13,000; Boston paid transportation and installation costs totaling $3,000. The machine is estimated to have a 4year useful life and a $1,000 residual value. Calculate depreciation expense and book value for 2009 - 2012, assuming 150% declining-balance method of depreciation. (Round to the nearest dollar.)

110.Covey Company purchased a machine on January 1, 2010, by paying cash of $250,000. The machine has an estimated useful life of five years, is expected to produce 500,000 units, and an d has an estimated residual value of $25,000. Requirements: A. Calculate determine depreciation expense (to the nearest dollar) for each year of the machine's useful life under (1.) straight-line depreciation; and (2.) the 200% declining balance method. B. What is the book value of the machine after three years using the 200% declining- balance method? C. What is the book value va lue of the machinery after three years ye ars with straight-line depreciation? D. If the machine was used to produce and sell 120,000 units in 2010, what would the depreciation expense be under the units of production method?

111.Hubbard Company purchased a truck on January 1, 2009, at a cost of $34,000. The company estimated that the truck would have a useful life of 4 years and a residual value of $4,000. Requirements: A. Calculate depreciation expense under straight line and double declining balance for 2009-2012. B. Which of the two methods would result in lower net income in 2010 and 2012?

112.Allison Company purchased a machine for $1,200,000 at the beginning of 2009. Allison was using the double-declining-balance (200%) method to depreciate the asset and its useful life was estimated to be 5 years with a residual value of $200,000. At the end of 2010, Allison Co. estimates the future cash flows from the asset to be equal to $500,000 and the fair value to be $450,000. What is the amount of the impairment loss?

113.A company purchased equipment for $800,000 and has depreciated it using the straight-line method for the past 5 years when its original life was estimated to be 10 years with a $200,000 residual value. The equipment's utility to the company has declined because they expect it to generate net cash flows over the remaining years of $300,000. The asset's fair value at the end of the fifth year is $200,000. If the asset has ha s been impaired, record the journal entry e ntry to record the impairment.

114.Beckworth Company purchased a truck on January 1, 2009, at a cash cost of $10,600. The estimated residual value was $400 and the estimated useful life 4 years. The company c ompany uses straight-line depreciation computed monthly. On July 1, 2012, the company sold the truck for $1,900 cash. A. What was the depreciation expense amount per month? B. What was the amount of accumulated depreciation at July 1, 2012? C. Give the required journal entries on the date of disposal, July 1, 2012. (Assume no 2012 depreciation had yet been recorded)

115.Lue Company sold used equipment for $450,000 cash. The equipment was purchased 5 years ago for a cost of $800,000. It has been depreciated using the straight-line method over an estimated useful life of 10 years with an estimated residual value of $50,000. Record the journal entry at the end of year five for the asset's disposal assuming the fifth year's depreciation had been recorded.

116.Bennett Corporation sold a piece of equipment on June 30, 2012 for $50,000 cash. The equipment had been purchased on January 1, 2008 for $150,000. It had an estimated useful life of 6 years and a $30,000 residual value. Bennett Corp. has been using the straight-line method of depreciation and has a year-end of December 31st. Prepare any necessary journal entries on June 30, 2012 assuming that 2012 depreciation expense has not been recorded.

117.Spa Sources Corporation purchased a machine that had an original cost of $60,000 and an estimated residual value of $10,000. The useful life was expected to be 8 years and straight-line depreciation is used. At the end of 2010, the book value of the machine was $35,000. Spa Sources sold the machine for $32,000 cash on October 1, 2011. Requirements: A. Prepare the journal entry to record depreciation for 2011 up to the date of sale. B. Prepare the journal entry to record the sale of the machine.

118.Give the required adjusting journal entry at December 31, 2011, the end of the annual accounting period for the three items below. Assume that no adjusting entries have been made during the year. If no entry is required, explain why. A. Polk Company acquired a patent that cost $6,000 on January 1, 2011. The patent was registered on January 1, 2006. The useful life of a patent is 20 years y ears from registration. B. Polk Company acquired a gravel pit on January 1, 2011, that cost $24,000. The company estimates that 30,000 tons of gravel can be extracted economically. During 2011 4,000 tons were extracted and sold. C. On January 1, 2011, Polk Company acquired a used dump truck that cost $6,000 to use hauling gravel. The company estimated a residual value of 10% of cost and a useful life 4 years. The company uses straight-line depreciation.

119.Benson Mining Company purchased a site containing a mineral deposit during 2010. The purchase price was $820,000, and the site is estimated to contain 400,000 tons of extractable ore. Benson constructed a building at the site, at a cost of $500,000, to be used while the ore is being extracted. When the ore reserves are gone, the building will have no further value. Requirements: A. Explain the objective of recording depletion on natural resources. B. Determine Benson's depletion rate per ton of ore. C. Prepare the journal entry to record depletion for the year 2010, when Benson mined and sold 150,000 tons of ore. D. Prepare the journal entry to record depreciation on the building for 2010. Benson calculates depreciation on the building using the units-of-production method based on the amount of ore extracted (150,000 tons in 2010).

120.On January 1, 2010 Gordon Company purchased a patent for $420,000 from an inventor who had developed a new manufacturing process. At the time of the purchase, the patent had a remaining useful life of 10 years. Requirements: A. Prepare the journal entry to record Gordon's purchase of the patent. B. Prepare the journal entry to record amortization of the patent on December 31, 2010. C. At the end of 2013, after amortization had been recorded through December 31, 2013, Gordon concluded that the estimated future cash flows from the patent to be $250,000. $250, 000. The patent's estimated fair value on December 31, 2011 was $200,000. Prepare the journal entry to record the patent impairment, if necessary.

121.Pier 5 has been in business 8 years with 4 stores in the San Francisco bay area. Their local reputation for making savory pies such as curried potatoes p otatoes 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 market 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 purchase price?

122.Landmark Restaurants reported net income of $45.9 million during 2010. They reported depreciation and amortization of plant and equipment of $48.8 million and cash paid for additions to property, plant and equipment of $162.9 million during 2010. Explain where each of these items would be reported and their impact on cash flows on the statement of cash flows.

123.Frankel Feed purchased a new machine on January 1, 2010, relevant information is as follows:

124.Sadler Corporation purchased equipment to be used in manufacturing. The purchase was made at the beginning of 2009 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 2011, 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. Requirements: A. Make the journal entry to record depreciation on the equipment for 2010. B. Make the journal entry to record depreciation on the equipment for 2011, including the effect of the changes in estimates. C. Describe how a business should account ac count for a change in the estimated useful life and/or residual value of a depreciable asset.

125.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.

ch8 Key 1.

Tangibl Tangiblee longlong-liv lived ed prod product uctive ive assets assets differ differ from from inta intangi ngible ble long-l long-live ived d produc productiv tivee asset assetss in in that that tangi tangible ble assets have physical substance whereas intangible assets have no physical substance. TRUE

Tangible assets have physical substance, whereas whe reas intangible assets lack physical substance.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Easy  Learning Objective: 08-01 Define; classify; and and explain the nature of long-lived productive productive assets and interpret the fixed asset turnover ratio.  Libby - Chapter 08 #1 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

2.

Patent Patents, s, trade tradema mark rks, s, and fran franchi chise sess are are exam exampl ples es of tangi tangibl blee ass asset ets. s. FALSE

Intangible assets lack physical substance and include patents, copyrights, franchises, licenses, and trademarks.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Easy  Learning Objective: 08-01 Define; classify; and and explain the nature of long-lived productive productive assets and interpret the fixed asset turnover ratio.  Libby - Chapter 08 #2 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

3.

The fixed fixed asse assett turn turnover over ratio ratio measur measures es the amount amount of operati operating ng income income genera generated ted per dollar dollar of average average fixed assets. FALSE

The fixed asset turnover ratio measures the amount amou nt of sales dollars generated per dollar of average av erage fixed assets.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Measurement   Bloom's: Remember   Difficulty: Easy  Learning Objective: 08-01 Define; classify; and and explain the nature of long-lived productive productive assets and interpret the fixed asset turnover ratio.  Libby - Chapter 08 #3 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

4.

The equipmen equipmentt cost cost initia initially lly report reported ed on the the bala balance nce sheet sheet includ includes es the equipm equipment ent relate related d inst install allati ation on costs. TRUE

The equipment cost reported on the balance sheet includes the purchase price, transportation costs, installation costs, etc.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Easy  Learning Objective: 08-02 Apply the cost principle principle to measure the acquisition and maintenance maintenance of property; plant; and equipment.  Libby - Chapter 08 #4 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

5.

An exp expend endit itur uree is capit capital aliz ized ed when when it is is repor reporte ted d as an an expen expense se on on the the inco income me sta state teme ment nt.. FALSE

An expenditure is capitalized when it is reported as an asset on the balance sheet.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Easy  Learning Objective: 08-02 Apply the cost principle principle to measure the acquisition and maintenance maintenance of property; plant; and equipment.  Libby - Chapter 08 #5 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

6.

The lan land d cost cost init initia iall lly y repo report rted ed on the the bala balance nce shee sheett incl include udess legal legal fees fees and tit title le ins insur uranc ance. e. TRUE

The land cost reported on the balance sheet includes the purchase price, legal fees, title insurance, etc.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Easy  Learning Objective: 08-02 Apply the cost principle principle to measure the acquisition and maintenance maintenance of property; plant; and equipment.  Libby - Chapter 08 #6  Topic Area: Acquisition And Maintenance Of Plant And Equipment 

7.

The cash-e cash-equi quival valent ent cost cost of of an an asse assett recei received ved is measur measured ed as as any any cash cash paid paid plus plus the the curr current ent market market value value of the non-cash consideration given up. If this value is not determinable, the current market value of what is received should be used instead. TRUE

The market value of the asset received is used in situations where the market value of the asset given up up is not known.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Medium  Learning Objective: 08-02 Apply the cost principle principle to measure the acquisition and maintenance maintenance of property; plant; and equipment.  Libby - Chapter 08 #7  Topic Area: Acquisition And Maintenance Of Plant And Equipment 

8.

If a secon second-h d-hand and machin machinee is is purc purchas hased ed for product productive ive use in a busi busines ness, s, all renovat renovation ion and repair repair costs costs on the used machine incurred by the purchaser prior to its productive use should be reported as an expense on the income statement. FALSE

Costs incurred to get an asset ready for its intended use are capitalized and are reported on the balance sheet as a component of the asset's cost.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Easy  Learning Objective: 08-02 Apply the cost principle principle to measure the acquisition and maintenance maintenance of property; plant; and equipment.  Libby - Chapter 08 #8  Topic Area: Acquisition And Maintenance Of Plant And Equipment 

9.

Ordina Ordinary ry repair repairss and and mainte maintenanc nancee costs costs are incurr incurred ed to mainta maintain in a long long-li -lived ved asset asset and are expens expensed ed as as incurred. TRUE

Costs incurred to maintain an asset are reported on the income statement as an expense as they are incurred.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Easy  Learning Objective: 08-02 Apply the cost principle principle to measure the acquisition and maintenance maintenance of property; plant; and equipment.  Libby - Chapter 08 #9 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

10.

In account accounting ing for for depre deprecia ciatio tion, n, acquis acquisiti ition on cost cost and usefu usefull life life usuall usually y are known known quant quantiti ities, es, wher whereas eas residual value is an estimate because it relates to an amount in the future. FALSE

The useful life is an estimate.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Easy  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #10 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

11.

Depreci Depreciati ation on is the proc process ess of alloc allocati ating ng a longlong-liv lived ed asset asset's 's cost cost over over its its prod product uctive ive life life.. TRUE

Depreciation is an allocation process.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Understand   Difficulty: Easy  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #11 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

12.

Depreci Depreciati ation on is is the the proc process ess of esti estimat mating ing a longlong-liv lived ed asse asset's t's curren currentt marke markett value value.. FALSE

Depreciation is an allocation process, not a valuation process.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Easy  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #12 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

13.

If depre deprecia ciatio tion n expense expense is is calcul calculate ated d without without taki taking ng into into account account the the asset asset's 's resid residual ual valu value, e, deprec depreciat iation ion expense will be higher than it should have been. TRUE

An asset's depreciable basis is equal to the cost of the asset minus residual value. Ignoring the residual value increases the depreciable basis and therefore depreciation expense.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Understand   Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #13 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

14.

The book book valu valuee of a depr depreci eciabl ablee asset asset equal equalss its its acquis acquisiti ition on cost cost minu minuss the the deprec depreciat iation ion expen expense se recorded to date. TRUE

An asset's book value equals the cost of the asset minus accumulated depreciation. Accumulated depreciation is the depreciation expense recorded to date.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Easy  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #14 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

15.

On Januar January y 1, 2010 2010 equipm equipment ent was was purch purchase ased d for $80,000 $80,000;; the equipmen equipment's t's estima estimated ted resi residua duall value value is $15,000 and its estimated useful life is 8 years. During 2010, the depreciation expense under the doubledeclining balance method is $16,250. FALSE

2010 depreciation expense ($20,000) = $80,000 × 2/8  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #15 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

16.

On Januar January y 1, 2010 2010 equipm equipment ent was was purch purchase ased d for $100,00 $100,000; 0; the the equipm equipment ent's 's estim estimate ated d residu residual al value value is $20,000 and its estimated useful life is 8 years. On December 31, 2010, the book value using the straight-line method of depreciation is $90,000. TRUE

2010 depreciation expense ($10,000) = ($100,000 - $20,000) ÷ 8 years December 31, 2010 book value ($90,000) = Cost ($100,000) - Accumulated depreciation ($10,000)  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #16  Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

17.

Use of of the doubledouble-decl declini iningng-bal balanc ancee method method of of deprec depreciat iation ion resu results lts in higher higher depreci depreciati ation on expens expensee during the first year of an asset's life relative to u se of the straight-line depreciation method. TRUE

The double-declining-balance method is an accelerated depreciation method which results in higher amounts of depreciation expense in the earlier years of an asset's life.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Understand   Difficulty: Easy  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #17  Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

18.

Use of the the doubl double-d e-decl eclini iningng-bal balanc ancee method method of of depre depreciat ciation ion result resultss in decreas decreasing ing amounts amounts of depreciation expense over an asset's life. TRUE

The double-declining-balance method is an accelerated depreciation method which results in decreasing amounts of depreciation expense due to the decrease in the underlying asset's book value.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Understand   Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #18  Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

19.

The units units-of -of-pr -produc oductio tion n method method of depr depreci eciati ation on alloc allocate atess an asset asset's 's cost cost over over its its useful useful life life base based d on the the current period's production relative to its total estimated production. TRUE

The units-of-production method of depreciation calculates unit depreciation expense by dividing the depreciable basis (cost minus residual value) by estimated total p roduction.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Understand   Difficulty: Easy  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #19 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

20.

The depr depreci eciati ation on metho method d chosen chosen for for fina financi ncial al repor reportin ting g purpos purposes es (GAA (GAAP) P) must must also also be utili utilized zed for for income tax reporting (IRS). FALSE

GAAP depreciation accounting differs from IRS depreciation a ccounting.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Easy  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #20 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

21.

If a longlong-liv lived ed asset asset has been been impa impaire ired, d, the the journa journall entry entry will will requi require re a debit debit to a loss loss account account and and a credit to the long-lived asset account. TRUE

An asset impairment results in a loss and reduces the book value of the impaired asset.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Easy  Learning Objective: 08-04 Explain the effect of asset impairment on the financial statements. Explain the effect of asset impairment on on the financial statements.  Libby - Chapter 08 #21 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

22.

If a comp company any has has an asse assett with with a book book value value of of $5.0 $5.0 millio million n and esti estimat mates es the the futur futuree cash cash flows flows to to be received over the asset's remaining life to be b e $5.5 million, no impairment has occurred occ urred and no loss would be recognized. TRUE

The first step in the determination of asset impairment is to co mpare the asset's book value to its future estimated cash flows. If cash flows exceed book boo k value, there isn't impairment.  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Easy  Learning Objective: 08-04 Explain the effect of asset impairment on the financial statements. Explain the effect of asset impairment on on the financial statements.  Libby - Chapter 08 #22 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

23.

The firs firstt step step in record recording ing the the dispo disposal sal of a long long-li -lived ved asse assett is to to update update its its book book value value by by recogn recognizi izing ng depreciation expense for the period of time since the last depreciation adjustment was made . TRUE

Depreciation expense has to be recorded up to the date of sale.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Understand   Difficulty: Easy  Learning Objective: 08-05 Analyze the disposal disposal of property; plant; and equipment.  Libby - Chapter 08 #23 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

24.

Gains Gains and and losses losses on a longlong-liv lived ed asset asset disp disposa osall are are determ determine ined d by compa comparin ring g the asse asset's t's cost cost to its its selling price. FALSE

Gains and losses on a long-lived asset a sset disposal are determined by comparing the asset's book value to its selling price.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Easy  Learning Objective: 08-05 Analyze the disposal disposal of property; plant; and equipment.  Libby - Chapter 08 #24 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

25.

Sellin Selling g a deprec depreciab iable le asset asset for a gain gain result resultss in an an increa increase se in in both both stockho stockholde lders' rs' equity equity and and asset assets. s. TRUE

Selling a depreciable asset for a gain increases net income and therefore stockholders' equity; assets increase because the selling price exceeds book value.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Understand   Difficulty: Easy  Learning Objective: 08-05 Analyze the disposal disposal of property; plant; and equipment.  Libby - Chapter 08 #25 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

26.

The syst systema ematic tic and and ratio rational nal alloc allocati ation on of the the acquis acquisiti ition on cost cost of natur natural al resou resource rcess to those those perio periods ds in which the resources contribute to revenue is called depletion. TRUE

The allocation of a natural resource cost to future periods is referred to as depletion.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Easy  Learning Objective: 08-06 Apply measurement measurement and reporting concepts for natural resources and intangible intangible assets.  Libby - Chapter 08 #26  Topic Area: Natural Resources And Intangible Assets

27.

The metho method d of deplet depletion ion used used to alloc allocate ate the the cost cost of natur natural al resou resource rcess to futur futuree period periodss is most most simi similar lar to to the straight-line depreciation method. FALSE

The method is most similar to the units-of-production method of d epreciation.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Understand   Difficulty: Easy  Learning Objective: 08-06 Apply measurement measurement and reporting concepts for natural resources and intangible intangible assets.  Libby - Chapter 08 #27  Topic Area: Natural Resources And Intangible Assets

28.

Natura Naturall resou resource rce deple depletio tion n expens expensee is recog recogniz nized ed on the the incom incomee statem statement ent for for all all resou resource rcess remove removed d during the period whether they are sold or not. FALSE

If the resources aren't sold, they are reported as inventory on the balance sheet.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Medium  Learning Objective: 08-06 Apply measurement measurement and reporting concepts for natural resources and intangible intangible assets.  Libby - Chapter 08 #28  Topic Area: Natural Resources And Intangible Assets

29.

Goodwil Goodwilll is record recorded ed only only when an exist existing ing company company is bough boughtt by anot another her company company and the the purc purchas hasee price exceeds the fair value of the purchased company's net assets. TRUE

Goodwill is recognized when the amount paid for an existing company exceeds the company's assets at fair value.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Medium  Learning Objective: 08-06 Apply measurement measurement and reporting concepts for natural resources and intangible intangible assets.  Libby - Chapter 08 #29 Topic Area: Natural Resources And Intangible Assets

30.

Resear Research ch and and develo developme pment nt costs costs are capital capitalize ized d under under GAAP GAAP once a produc productt or proces processs has has been been developed. FALSE

Research and Development costs are expensed as incurred under GAAP.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Easy  Learning Objective: 08-06 Apply measurement measurement and reporting concepts for natural resources and intangible intangible assets.  Libby - Chapter 08 #30 Topic Area: Natural Resources And Intangible Assets

31.

When When determ determini ining ng cash cash flow flow from from oper operati ations ons usin using g the direct direct meth method, od, depr depreci eciati ation on and and amorti amortizat zation ion expense are deducted from net income. FALSE

Depreciation and amortization expense are added to net income.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Understand   Difficulty: Medium  Learning Objective: 08-07 Explain how the acquisition; use; and disposal disposal of long-lived assets impact cash flows.  Libby - Chapter 08 #31 Topic Area: Focus On Cash Flows

32.

Which Which of the foll followi owing ng would would not not be classi classifie fied d as prop propert erty, y, plant plant and and equip equipmen mentt on a bala balance nce shee sheet? t? Land being held for resale. B. Equipment used in the manufacturing process. C. A building used as corporate headquarters. D. A D.  A natural resource being mined.

A.

Land being held for resale would be reported on a balance sheet as either an investment or a current asset.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Medium  Learning Objective: 08-01 Define; classify; and and explain the nature of long-lived productive productive assets and interpret the fixed asset turnover ratio.  Libby - Chapter 08 #32 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

33. 33.

Whic Wh ich h of the the fol follo lowi wing ng acco account untss woul would d not not be cons consid ider ered ed a tang tangib ible le ass asset et?? A. Buildings A. Buildings B.   Land B. C.   Equipment C. D. Patents Tangible assets have physical substance, whereas whe reas intangible assets lack physical substance.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Easy  Learning Objective: 08-01 Define; classify; and and explain the nature of long-lived productive productive assets and interpret the fixed asset turnover ratio.  Libby - Chapter 08 #33 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

34.

Which Which of the follow following ing account accountss woul would d not not be cons conside idered red an intang intangibl iblee asse asset? t? A. Goodwill A. Goodwill B.   Patents B. C. Research and development costs D. Trademarks D.  Trademarks Tangible assets have physical substance, whereas whe reas intangible assets lack physical substance. Research and development costs are expensed as incurred.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Easy  Learning Objective: 08-01 Define; classify; and and explain the nature of long-lived productive productive assets and interpret the fixed asset turnover ratio.  Libby - Chapter 08 #34 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

35.

Which Which of of the the follo followin wing g trans transact action ionss would would not increa increase se the the fixed fixed asset asset turn turnover over ratio? ratio? A. A profitable sale of inventory on account. B. A profitable sale of inventory for cash. C. Selling equipment used in the manufacturing process for a loss. D. A decrease in cash-based operating expenses. Fixed asset turnover is calculated by dividing net sales by average net fixed assets. A decrease in operating expenses does not affect net sales or average net fixed assets.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Measurement   Bloom's: Understand   Difficulty: Medium  Learning Objective: 08-01 Define; classify; and and explain the nature of long-lived productive productive assets and interpret the fixed asset turnover ratio.  Libby - Chapter 08 #35 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

36. 36.

Whic Wh ich h of of the the foll follow owin ing g inc inclu ludes des only only tangi tangibl blee ass asset ets? s? Land, buildings and natural resources. B. Land, B.  Land, buildings and leaseholds. C. Natural resources, buildings, and franchises. franchises. D. Licenses, D.  Licenses, trademarks, and land.

A.

Tangible assets have physical substance; each of these assets has physical substance.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Medium  Learning Objective: 08-01 Define; classify; and and explain the nature of long-lived productive productive assets and interpret the fixed asset turnover ratio.  Libby - Chapter 08 #36  Topic Area: Acquisition And Maintenance Of Plant And Equipment 

37. 37.

Whic Wh ich h of of the the foll follow owin ing g inc inclu ludes des only only inta intang ngib ible le asse assets ts?? A. Natural resources, patents, and trademarks. B. Research and development costs, franchises, and trademarks. trademarks. C. Copyrights, C.  Copyrights, licenses, and land. D. Leaseholds, patents and copyrights. Intangible assets have physical form; each of these assets lacks physical substance.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Medium  Learning Objective: 08-01 Define; classify; and and explain the nature of long-lived productive productive assets and interpret the fixed asset turnover ratio.  Libby - Chapter 08 #37  Topic Area: Acquisition And Maintenance Of Plant And Equipment 

38.

Which Which of of the the follo followin wing g state statement mentss regar regardin ding g the the fixed fixed asse assett turno turnover ver ratio ratio is is incor incorrec rect? t? The numerator is net operating income. B. The denominator is average net fixed assets. assets. C. It is used to assess a company's effectiveness in generating sales from its its fixed assets. D. It increases when a company sells a factory building for its book value.

A.

The numerator is net sales or operating revenues and the denominator is average a verage net fixed assets.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Measurement   Bloom's: Understand   Difficulty: Medium  Learning Objective: 08-01 Define; classify; and and explain the nature of long-lived productive productive assets and interpret the fixed asset turnover ratio.  Libby - Chapter 08 #38  Topic Area: Acquisition And Maintenance Of Plant And Equipment 

39. 39.

The Wils Wilson on Com Compa pany ny has has provi provided ded the the fol follo lowi wing ng info inform rmat atio ion: n: • Net sales, $100,000; • Net operating income, $40,000; • Net income, $20,000; • Average total assets, $120,000; • Average net fixed assets; $80,000. What is Wilson's fixed asset turnover ratio? A. 0.83 A.  0.83 B. 1.25 C.   0.25 C. D. 0.50. D.  0.50. Fixed asset turnover ratio (1.25) = Net sales ($100,000) ÷ Average net fixed assets ($80,000)  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-01 Define; classify; and and explain the nature of long-lived productive productive assets and interpret the fixed asset turnover ratio.  Libby - Chapter 08 #39 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

4 0.

Which st statement is is fa false? A. Shortening the estimated useful lives of depreciable assets will lead to a higher fixed asset turnover. turnover. B Using an accelerated depreciation method instead of the straight-line depreciation method will lead to . reporting a higher fixed asset turnover during the earlier years of an asset's life. C. Acquiring more long-lived, productive assets when a company is growing will lead to a lower fixed asset turnover. D. Selling off long-lived, productive assets while maintaining sales will lead to a lower fixed asset turnover. Selling long-lived assets results in a decrease in the fixed asset turnover ratio denominator and therefore an increase in the fixed asset turnover ratio.  AACSB: Analyze  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Apply  Difficulty: Hard   Learning Objective: 08-01 Define; classify; and and explain the nature of long-lived productive productive assets and interpret the fixed asset turnover ratio.  Libby - Chapter 08 #40 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

41.

On Marc March h 1, Wrig Wright ht Compa Company ny purch purchase ased d new equipm equipment ent for $50,000 $50,000 by by paying paying cash. cash. Othe Otherr costs costs associated with the equipment were: transportation costs, $1,000; sales tax paid $3,000; and installation cost, $2,500. At what amount will the equipment be recorded at on a balance sheet? $56,500 B.   $54,000 B. C.   $51,000 C. D. $50,000 D.  $50,000

A.

$56,500 = $50,000 + $1,000 + $3,000 + $2,500  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-02 Apply the cost principle principle to measure the acquisition and maintenance maintenance of property; plant; and equipment.  Libby - Chapter 08 #41 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

42.

On Augus Augustt 1, Red Red Comp Company any purc purchas hased ed compu computer ter equipme equipment nt for for $10, $10,000 000 cash cash and also also gave gave 100 shares shares of White common stock held by Red Company as an investment. The White common stock cost Red Company $5,000 and on August 1 had a market value of $4,200. Installation costs were $700 and shipping costs were $500. What amount should be the total amount debited to the computer equipment account? A. $14,200 A. $14,200 B.   $15,000 B. C. $15,400 D. $16,200 D.  $16,200 $15,400 = $10,000 + $4,200 + $700 + $500  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-02 Apply the cost principle principle to measure the acquisition and maintenance maintenance of property; plant; and equipment.  Libby - Chapter 08 #42 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

43.

Salvia Salvia Compa Company ny recent recently ly purch purchase ased d a truck truck.. The pric pricee negoti negotiate ated d with with the deal dealer er was was $40,000 $40,000.. Salvia Salvia also paid sales tax of $2,000 on the purchase, shipping and preparation costs of $3,000, and insurance for the first year of operation of $4,000. At what amount should the truck be recorded on the balance sheet prior to recording depreciation expense? A. $40,000 A. $40,000 B.   $42,000 B. C.   $43,000 C. D. $45,000 $45,000 = $40,000 + $2,000 + $3,000  AACSB: Application  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-02 Apply the cost principle principle to measure the acquisition and maintenance maintenance of property; plant; and equipment.  Libby - Chapter 08 #43 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

44.

Which Which of of the the follo followin wing g equip equipmen mentt rela related ted costs costs is not capita capitaliz lized ed on on a bala balance nce sheet? sheet? A. Equipment installation costs. A. Equipment B. Transportation costs associated with the equipment purchase. C. Equipment maintenance costs. D. The D.  The equipment's purchase price. Equipment maintenance costs are expensed as incurred.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Remember   Difficulty: Medium  Learning Objective: 08-02 Apply the cost principle principle to measure the acquisition and maintenance maintenance of property; plant; and equipment.  Libby - Chapter 08 #44 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

45.

Which Which of of the the follo followin wing g costs costs asso associat ciated ed with with a land land purcha purchase se is is not not a comp componen onentt of the land land cost cost reported on a balance sheet? A. The payment of delinquent property taxes. A. The B. The B.  The incurrence of legal fees. C. The C.  The cost of title insurance. D. The land's appraised value. The purchase price of the land is capitalized, not its appraised value.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Remember   Difficulty: Medium  Learning Objective: 08-02 Apply the cost principle principle to measure the acquisition and maintenance maintenance of property; plant; and equipment.  Libby - Chapter 08 #45 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

46.

Which Which of the foll followi owing ng is correc correctt for Smith Smith Compa Company ny when when Smith Smith issu issues es 10,000 10,000 shares shares of $10 $10 par value 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. Total assets increase $350,000. B. Stockholders' B.  Stockholders' equity increases $200,000. C. Stockholders' C.  Stockholders' equity increases $330,000. D. Total D.  Total assets increase $330,000.

A.

The building account increases $370,000 {(10,000 × $35) + $20,000} and the cash account decreases $20,000.  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-02 Apply the cost principle principle to measure the acquisition and maintenance maintenance of property; plant; and equipment.  Libby - Chapter 08 #46  Topic Area: Acquisition And Maintenance Of Plant And Equipment 

47.

Which Which of the foll followi owing ng is incorr incorrect ect for for Smith Smith Company Company when Smith Smith issu issues es 10,000 10,000 shares shares of $10 $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. A. The A.  The common stock account increases by $100,000. B. The building account increases by $350,000. C. Stockholders' C.  Stockholders' equity increases $350,000. D. The D.  The additional paid-in capital account increases by $250,000. The building account increases $370,000 {(10,000 × $35) + $20,000}.  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-02 Apply the cost principle principle to measure the acquisition and maintenance maintenance of property; plant; and equipment.  Libby - Chapter 08 #47  Topic Area: Acquisition And Maintenance Of Plant And Equipment 

48.

Which Which of the foll followi owing ng journ journal al entri entries es is is correc correctt for for Smith Smith Compa Company ny when when Smith Smith issues issues 10,0 10,000 00 share sharess of $20 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. A. Building A.  Building 220,000 Cash 20,000 Common stock 200,000 B. Building B.  Building 370,000 Cash 20,000 Common Stock 350,000 C. Building 370,000 Cash 20,000 Common stock 200,000 Additional paid-in capital 150,000 D. Building D.  Building 200,000 Common stock 200,000 The building account is debited for $370,000 {(10,000 × $35) + $20,000}; the common stock is credited for the par value of the stock issued (10,000 × $20); additional add itional paid-in capital is credited for the excess of the stock's market price over the par value {($35 - $20) × 10,000}, and cash is credited for $20,000.  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-02 Apply the cost principle principle to measure the acquisition and maintenance maintenance of property; plant; and equipment.  Libby - Chapter 08 #48  Topic Area: Acquisition And Maintenance Of Plant And Equipment 

49.

If an expen expendit diture ure rela related ted to to a depreci depreciabl ablee asset asset is incor incorrec rectly tly trea treated ted as a capital capital expe expendi nditur ture, e, instea instead d of as a revenue expenditure, which of the following statements is true? A. The current year's net income will be lower and future depreciation expense will be higher. B. The current year's net income will be higher and future depreciation expense will be lower. C. The current year's net income will be higher and future depreciation expense will be higher. D. The current year's net income will be lower and future depreciation expense will be lower. Capitalizing an expenditure means that the expenditure in this case is added to the depreciable asset account rather than being immediately expensed.  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Analyze  Difficulty: Medium  Learning Objective: 08-02 Apply the cost principle principle to measure the acquisition and maintenance maintenance of property; plant; and equipment.  Libby - Chapter 08 #49 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

50. 50.

Whic Wh ich h of of the the foll follow owin ing g sta state teme ment ntss is is inc incor orre rect ct?? A. Revenue A.  Revenue expenditures decrease net income. B. Capital expenditures decrease assets. C. Ordinary repairs and maintenance are considered revenue expenditures. D. Additions and improvements are considered capital expenditures. Capital expenditures increase assets.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Understand   Difficulty: Medium  Learning Objective: 08-02 Apply the cost principle principle to measure the acquisition and maintenance maintenance of property; plant; and equipment.  Libby - Chapter 08 #50 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

51.

A compan company y acquir acquires es land land by by issui issuing ng 10,000 10,000 shares shares of its its $10 par par value value comm common on stock stock curr current ently ly tradi trading ng at $20 per share and the appraised value of the land is $250,000. Which of the following statements correctly describes the recording of the land? A.Record A. Record the land at its appraised value of $250,000 and recognize a gain of $50,000 $50 ,000 since the issued stock is currently worth $200,000. B. Record the land at the value of the consideration given up, $200,000. C Record the land at the average of its appraised value of $250,000 and the $200,000 value of the stock . issued, thereby recognizing a $25,000 gain. D. Record the land at the par value of the stock given up, $100,000. The land should be recorded at the market value of the stock issued (10,000 × $20). In addition, the appraised value doesn't necessarily indicate the land's market value.  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-02 Apply the cost principle principle to measure the acquisition and maintenance maintenance of property; plant; and equipment.  Libby - Chapter 08 #51 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

52. 52.

Whic Wh ich h of of the the foll follow owin ing g sta state teme ment ntss is is inc incor orre rect ct?? Replacement of a truck's tires would be treated as a capital expenditure. B. The cost of replacing carpet in a building would be a revenue expenditure. C. Cost of replacing a roof on a newly purchased building before using it as a store would be a capital expenditure. D. The cost of repainting a hallway would be a revenue expenditure.

A.

Replacing the tires would be considered ordinary maintenance and repairs and is considered to be a revenue expenditure.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Understand   Difficulty: Medium  Learning Objective: 08-02 Apply the cost principle principle to measure the acquisition and maintenance maintenance of property; plant; and equipment.  Libby - Chapter 08 #52 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

53.

Gilber Gilbertt Compa Company ny made made an ordina ordinary ry repai repairr to a delive delivery ry truc truck k during during 2010 at a cost cost of $500 $500 and and capitalized the repair cost. What will be the effect on the 2010 financial statements as a result of the capitalization? A. The financial statements aren't affected. B. Assets and net income are both overstated. C. Assets are overstated and net income was understated. D. Assets and stockholders' equity are both understated. The repair should have been expensed during 2010 rather than be capitalized. As a result, net income is overstated because expenses are understated; u nderstated; assets are overstated because of the capitalization.  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Analyze  Difficulty: Hard   Learning Objective: 08-02 Apply the cost principle principle to measure the acquisition and maintenance maintenance of property; plant; and equipment.  Libby - Chapter 08 #53 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

54. 54.

Whic Wh ich h of the the fol follo lowi wing ng wou would ld mos mostt like likely ly not not be be a reve revenue nue expen expendi ditu ture re?? A. Repairing the carpet in the sales department offices. B. Repairing B.  Repairing a leaky roof. d elivery truck making it easier and quicker quicke r to deliver appliances. C. Putting a hydraulic lift on a delivery D. Painting the exterior of the factory building. The hydraulic lift would be considered co nsidered a capital expenditure since the lift increases the truck's operating efficiency.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Medium  Learning Objective: 08-02 Apply the cost principle principle to measure the acquisition and maintenance maintenance of property; plant; and equipment.  Libby - Chapter 08 #54 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

55.

What What is the effect effect on on the the 2010 2010 financ financial ial statem statement entss when when a capi capital tal expendi expenditur turee during during 2010 2010 was incorrectly recorded as a revenue expenditure? A. The financial statements aren't affected. B. Assets and net income are both overstated. C. Assets are overstated and net income was understated. D. Assets and stockholders' equity are both understated. Assets are understated because the expenditure should have been capitalized; stockholders' equity is understated because net income is understated due to the expense overstatement.  AACSB: Apply  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Analyze  Difficulty: Hard   Learning Objective: 08-02 Apply the cost principle principle to measure the acquisition and maintenance maintenance of property; plant; and equipment.  Libby - Chapter 08 #55 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

56. 56.

Whic Wh ich h of the the fol follo lowi wing ng bes bestt desc descri ribe bess the the object objectiv ivee of depr depreci eciat atio ion? n? To allocate the cost of a tangible asset to the periods in which its use contributes to earning revenue. B. To estimate the remaining useful life of the asset. C. To C.  To report the asset on the balance sheet at the estimated amount for which the asset could be sold on the balance sheet date. D. To estimate the current replacement cost of the asset.

A.

Depreciation is an allocation process, not a valuation process.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #56  Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

57.

Which Which of the follow following ing doesn't doesn't proper properly ly descri describe be the deprec depreciat iation ion proces process? s? A. It is an allocation process. B. It is consistent with the matching principle. C. It involves the use of estimates. D. It attempts to determine an asset's market value. Depreciation is an allocation process, not a valuation process.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #57  Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

58.

Which Which of of the the follo followin wing g descri describes bes the effe effect ct of of recor recordin ding g deprec depreciat iation ion expense expense at year year-en -end? d? A. Net income decreases and total assets aren't affected. B. Total assets decrease and stockholders' equity is not affected. C. Net income decreases and total assets decrease. D. Stockholders' equity is not affected and net income decreases. The journal entry increases expenses, which decreases both net income and an d total assets. Total assets decrease because the contra-account accumulated depreciation is increased.  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #58  Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

59.

Why is is the the contin continuit uity y assumpt assumption ion impo importa rtant nt with with resp respect ect to to the account accounting ing for for longlong-liv lived ed tangi tangible ble assets? A. It A.  It helps a company decide whether to use straight-line depreciation or an accelerated depreciation method. B. It justifies depreciating the asset over its expected useful life, without anticipating that the business will liquidate in the near future. C. It provides justification for including residual values in calculating depreciation. D. It is consistent with maintaining assets in the accounting accou nting records at market value rather than acquisition cost. The justification for allocating an asset's cost over its useful life is that the business entity is a going concern.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #59 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

60.

On Janua January ry 1, 1, 2010, 2010, Wood Woodsto stock, ck, Inc. Inc. purchas purchased ed a machi machine ne cost costing ing $40, $40,000. 000. Woodst Woodstock ock also also paid paid $1,000 for transportation and installation. The exp ected useful life of the machine is 6 years and the residual value is $5,000. How much is the annual depreciation expense assuming use of the straight-line depreciation method? A. $6,100 A.  $6,100 B. $6,000 C.   $5,950 C. D. $5,750 D.  $5,750 Annual depreciation expense ($6,000) = ($40,000 + $1,000 - $5,000) ÷ 6  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #60 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

61.

On Janua January ry 1, 1, 2010, 2010, Wood Woodsto stock, ck, Inc. Inc. purchas purchased ed a machi machine ne cost costing ing $40, $40,000. 000. Woodst Woodstock ock also also paid paid $1,000 for transportation and installation. The exp ected useful life of the machine is 6 years and the residual value is $5,000. Which of o f the following statements is incorrect? A. The annual depreciation expense is $6,000. A. The B. The B.  The December 31, 2010 book value was $35,000. C. The December 31, 2012 accumulated depreciation balance was $18,000. D. The December 31, 2011 book value was $24,000. Annual depreciation expense ($6,000) = ($40,000 + $1,000 - $5,000) ÷ 6 December 31, 2011 book value ($29,000) = $41,000 - ($6,000 × 2)  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #61 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

62.

A machin machine, e, acqui acquired red for for a cash cash cost cost of of $15,00 $15,000, 0, is being being depre deprecia ciated ted on on a strai straight ght-li -line ne basis basis of $2,700 $2,700 per year. The residual value was estimated to be 10% of cost. c ost. The estimated useful life is A. 3 years. A. 3 B. 4 B.  4 years. C. 5 years. D. 6 D.  6 years. Annual depreciation expense ($2,700) = ($15,000 - $1,500) ÷ N, N = 5  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #62 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

63.

Warren Warren Comp Company any plan planss to depr deprecia eciate te a new new build building ing usin using g the double double decli declinin ning-b g-bala alance nce depr depreci eciati ation on method. The building cost $800,000. The estimated residual value of the building is $50,000 and it has an expected useful u seful 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? A. $30,720 A. $30,720 B.   $32,000 B. C. $58,880 D. $64,000 D.  $64,000 Year 1 depreciation expense ($64,000) = $800,000 × 2/25 Year 2 depreciation expense ($58,880) = ($800,000 - $64,000) × 2/25  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #63 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

64.

Warren Warren Comp Company any plan planss to depr deprecia eciate te a new new build building ing usin using g the double double decli declinin ning-b g-bala alance nce depr depreci eciati ation on 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 2 5 years. What is the building's book value at the end of o f the first year? $736,000 B.   $768,000 B. C.   $686,000 C. D. $690,000 D.  $690,000

A.

Year 1 depreciation expense ($64,000) = $800,000 × 2/25 End of the first year book value ($736,000) = $800,000 - $64,000  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #64 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

65.

Which Which metho method d of deprec depreciat iation ion resu results lts in in period periodic ic deprec depreciat iation ion expen expense se that that fluct fluctuat uates es from from one peri period od to the next, not necessarily in a steadily upward or downward direction? A. Straight-line A.  Straight-line B. Units-of-production C. Modified C.  Modified accelerated cost recovery system D. Declining D.  Declining balance Depreciation expense under the units-of-production method fluctuates directly with production levels.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Understand   Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #65 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

66.

Hill Hill Inc. Inc. purc purchas hased ed an asset asset on Januar January y 1, 2009 2009.. Hill Hill chos chosee an acce acceler lerate ated d deprec depreciat iation ion method method to to depreciate the asset. Which of the following is correct if Hill would have chosen the straight-line depreciation method instead? Depreciation expense would have been lower in 2009. B. The book value of the asset would have been lower at the end of 2009. C. The net income would have been lower during 2009. D. The D.  The accumulated depreciation balance would have been higher at the end of 2009.

A.

An accelerated depreciation method has higher amounts of depreciation expense in earlier years relative to the straight-line method.  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Analyze  Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #66  Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

67.

On Januar January y 1, 2010, 2010, Pyle Pyle Compa Company ny purch purchase ased d an asset asset that that cost cost $50,000 $50,000 (no (no estim estimate ated d residu residual al value value,, estimated useful life 8 years, straight-line depreciation is used). An error was made because the total cost amount was debited to an expense account for 2010 and no depreciation on it was recorded. Pretax income for 2010 was $42,000. How much is the correct 2010 pretax income? A. $35,750 A. $35,750 B.   $48,250 B. C. $85,750 D. $92,000 D.  $92,000 2010 pretax income ($85,750) = $42,000 + $50,000 - $6,250* *Straight-line depreciation expense ($6,250) = $50,000 ÷ 8  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #67  Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

68.

Schager Schager Company Company purchas purchased ed a comp compute uterr syste system m on Janua January ry 1, 1, 2010, 2010, at a cash cash cost cost of of $25,0 $25,000. 00. The The estimated useful life is 10 years, and the estimated residual value is $3,000. The company will use the double declining-balance depreciation method. How much is the 2011 depreciation expense? A. $5,000 A.  $5,000 B. $4,000 C.   $3,800 C. D. $2,200 D.  $2,200 2010 depreciation expense ($5,000) = $25,000 × 2/10 2011 depreciation expense ($4,000) = ($25,000 - $5,000) × 2/10  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #68  Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

69.

Schager Schager Company Company purchas purchased ed a comp compute uterr syste system m on Janua January ry 1, 1, 2010, 2010, at a cash cash cost cost of of $25,0 $25,000. 00. The The estimated useful life is 10 years, and the estimated residual value is $3,000. The company will use the double declining-balance depreciation method. What is the accumulated depreciation balance as of December 31, 2011? $9,000 B.   $4,000 B. C.   $5,000 C. D. $10,920 D.  $10,920

A.

2010 depreciation expense ($5,000) = $25,000 × 2/10 2011 depreciation expense ($4,000) = ($25,000 - $5,000) × 2/10 December 31, 2011 accumulated depreciation balance ($9,000) = $5,000 + $4,000  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #69 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

70.

On Janua January ry 1, 1, 2010, 2010, Wass Wasson on Comp Company any purc purchas hased ed a deli deliver very y vehicl vehiclee costin costing g $40,00 $40,000. 0. The The vehicl vehiclee has has an estimated 6-year life and a $4,000 residual value. What is the vehicle's book value as of December 31, 2011 assuming Wasson uses the straight-line depreciation method? A. $12,000 A. $12,000 B.   $24,000 B. C.   $30,000 C. D. $28,000 Annual straight-line depreciation expense ($6,000) = ($40,000 - $4,000) ÷ 6 December 31, 2011 book value ($28,000) = $40,000 - ($6,000 × 2)  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #70 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

71.

On Janua January ry 1, 1, 2010, 2010, Wass Wasson on Comp Company any purc purchas hased ed a deli deliver very y vehicl vehiclee costin costing g $40,00 $40,000. 0. The The vehicl vehiclee has has an estimated 6-year life and a $4,000 residual value. Wasson estimates that the vehicle will be driven 100,000 miles. What is the vehicle's book value as of December 31, 2011 assuming Wasson uses the units-of-production depreciation method and the vehicle was driven 10,000 miles during 2010 and 18,000 miles during 2011? $29,920 B.   $28,800 B. C.   $24,800 C. D. $25,920 D.  $25,920

A.

Depreciation expense per mile ($0.36) = ($40,000 - $4,000) ÷ 100,000 December 31, 2011 accumulated depreciation balance ($10,080) = $0.36 × 28,000 December 31, 2011 book value ($29,920) = $40,000 - $10,080  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #71 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

72. 72.

Whic Wh ich h of of the the foll follow owin ing g sta state teme ment ntss is is fal false se?? A.The A. The book value at the end of an asset's useful life will be the same under all the depreciation de preciation methods allowed under GAAP. B The balance in the accumulated depreciation account will be the same at the end of an asset's useful . life under all the methods allowed under unde r GAAP. d epreciation method, then you must use u se this method for all depreciable assets. C. Once you select a depreciation D.The D. The annual depreciation expense and year-end book values will differ under the various depreciation methods over the life of the asset. A company can utilize different depreciation methods for various assets.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Understand   Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #72 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

73.

Under Under what what condi conditio tions ns would would a comp company any most most likely likely adop adoptt the doubledouble-decl declini iningng-bal balance ance method method for for financial reporting? AThey

have high technology, robotic equipment in their plant that becomes obsolete quickly and . declines in utility to the company more rapidly in the early years of the assets' lives. B. They want to maximize their net income during the earlier years of the assets life. C. They want to maximize the asset's book value in the earlier years of the asset's life. D. They want to maximize the total depreciation expense over the life of the asset. The double-declining-balance depreciation method results in more depreciation in the earlier years of an asset's life which will best fit the robotic equipment scenario.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Understand   Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #73 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

74. 74.

Whic Wh ich h of of the the foll follow owin ing g sta state teme ment ntss is is cor corre rect ct?? A. Companies can change the method of depreciating assets from one year to the next. B. Companies can affect the book value at the end of an asset's life by choosing one method of depreciation over another. me thod of depreciation for some of their long-lived, productive assets but then CCompanies can use one method . use a different method for another group or type of long-lived, productive assets. D Companies can minimize an asset's book value in the first year of use by selecting the straight-line . depreciation method rather than the double-declining-balance method. Different depreciation methods can be chosen ch osen for various assets.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Understand   Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #74 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

75. 75.

Whic Wh ich h of of the the foll follow owin ing g sta state teme ment ntss is is cor corre rect ct?? AUsing straight-line depreciation in comparison to an accelerated depreciation method will result in a . lower reported amount of total assets at end of the first year of an asset's life. B Using accelerated depreciation in the first year of an asset's life will result in a higher net income . during the first year compared to using the straight-line depreciation method. C. Using an accelerated depreciation method will lead to a higher fixed asset turnover ratio for the first year. D Using straight-line depreciation in comparison to an accelerated depreciation method will lead to a . higher book value at the end of an asset's life. An accelerated depreciation method results in more depreciation expense during the first year and a lower book value at the end of the first year. The lower book value means that the fixed asset turnover ratio denominator is smaller; therefore the fixed asset turnover ratio is increased.  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Analyze  Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #75 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

76.

Which Which of the foll followi owing ng state statement mentss about about the the Modifi Modified ed Accel Accelera erated ted Cost Cost Recover Recovery y System System (MAC (MACRS) RS) is correct? A. It is similar to the units-of-production units-of-production depreciation method. B. It is applied using longer asset lives than the estimated useful lives required required by GAAP. C. It provides a short-term tax benefit because of the higher depreciation expense reported in the early years of an asset's life. D. It is acceptable for use when preparing financial statements. MACRS is an accelerated depreciation method, which results in higher amounts of depreciation expense and less taxable income during the earlier years of an asset's life.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Understand   Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #76  Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

77. 77.

Whic Wh ich h of the the fol follo lowi wing ng sta state teme ment ntss about about asse assett impa impair irme ment nt is is fals false? e? A. Asset

impairment loss is the difference between an asset's net book value and its estimated future cash flows. B. If an asset is impaired, a loss would be recognized in the period it can be estimated. C. Impairment will lead to writing down the asset's net book value. D. Asset impairment occurs when the estimated future cash flows are less than the asset's net book value. An impairment is equal to an asset's net book value less its fair value.

 AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Understand   Difficulty: Medium  Learning Objective: 08-04 Explain the effect of asset impairment on the financial statements. Explain the effect of asset impairment on on the financial statements.  Libby - Chapter 08 #77  Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

78.

A compan company y has some some bott bottlin ling g equipm equipment ent whic which h cost cost $8.5 $8.5 millio million, n, has has a net net book book value value of $4.1 $4.1 mill million ion,, estimated future cash flows of $3.7 million, and a fair value of $3.1 million. How much is the asset impairment loss? A. $5.4 million A. $5.4 B. $4.1 B.  $4.1 million C. $0.4 C.  $0.4 million D. $1.0 million An impairment loss occurs when the asset's net book b ook value ($4.1 million) exceeds its fair value ($3.1 million).  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Easy  Learning Objective: 08-04 Explain the effect of asset impairment on the financial statements.  Libby - Chapter 08 #78  Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

79.

A compan company y has some some bott bottlin ling g equipm equipment ent whic which h cost cost $8.5 $8.5 millio million, n, has has a net net book book value value of $4.1 $4.1 mill million ion,, estimated future cash flows of $3.7 million, and a fair value of $3.1 million. Which of the following correctly describes the recording of the asset impairment loss? The loss account is debited for $1.0 $1 .0 million and the asset account is credited for $1.0 million. B. The loss account is debited for $0.4 million and the asset account is credited for $0.4 million. C. The loss account is debited for $5.4 million and the asset account is credited for $5.4 million. D. The loss account is debited for $4.8 million and the asset account is credited for $4.8 million.

A.

An impairment loss occurs when the asset's net book b ook value ($4.1 million) exceeds its fair value ($3.1 million). When an impairment loss is recorded, a loss acc ount is debited and the asset a sset account is credited.  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Easy  Learning Objective: 08-04 Explain the effect of asset impairment on the financial statements.  Libby - Chapter 08 #79 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

80.

On Decem December ber 31, 31, 2010, 2010, Hami Hamilto lton n Inc. Inc. sold sold a used used indust industria riall crane crane for for $600, $600,000 000 cash cash.. The orig origina inall cost cost of the crane was $5.0 million and its accumulated depreciation equaled $4.2 million on December 31, 2010. What is the gain or loss from the December 31, 2010 equipment sale? A. $800,000 gain A. $800,000 B. $800,000 B.  $800,000 loss C. $200,000 loss D. $200,000 D.  $200,000 gain A $200,000 loss occurs because the book value ($5.0 million - $4.2 million) exceeds the $600,000 selling price.  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-05 Analyze the disposal disposal of property; plant; and equipment.  Libby - Chapter 08 #80 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

81.

Which Which of of the the follo followin wing g is correc correctt when when recor recordin ding g the the dispo disposal sal of equipme equipment nt for for a gain? gain? A. A debit to a gain account. A. A B. A credit to the equipment account for the asset's book value. C. A debit to accumulated depreciation for the depreciation accumulated to the date of disposal. D. A decrease in total assets occurs. The accumulated depreciation account normally has a credit balance and is therefore debited when an asset is disposed of.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Understand   Difficulty: Easy  Learning Objective: 08-05 Analyze the disposal disposal of property; plant; and equipment.  Libby - Chapter 08 #81 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

82.

Which Which of the foll followi owing ng state statement mentss is incor incorrec rectt with with respec respectt to the the sale sale of of a depre deprecia ciable ble asse asset? t? A. A gain occurs when the selling price exceeds book value. B. A sale for a gain results in an increase in total assets. C. A sale for a loss results in an increase in total assets. D. A loss occurs when the selling price is less than book value. Total assets decrease when an asset a sset is sold at a loss because the proceeds proce eds (selling price) are less than book value.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Understand   Difficulty: Easy  Learning Objective: 08-05 Analyze the disposal disposal of property; plant; and equipment.  Libby - Chapter 08 #82 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

83.

Carter Carter Company Company dispos disposed ed of an asset asset at the the end of of the the eighth eighth year year of of its its estim estimate ated d life life for for $10,000 $10,000 cash. cash. The asset's life was originally estimated to be 10 years. The original cost was $50,000 with an estimated residual value of $5,000. The asset was being depreciated using the straight-line method. What was the gain or loss on the disposal? A. $1,000 A.  $1,000 loss B. $4,000 loss C. $5,500 C.  $5,500 gain D. $10,000 D.  $10,000 gain Annual straight-line depreciation expense ($4,500) = ($50,000 - $5,000) ÷ 10; End of year eight book value ($14,000) = $50,000 - ($4,500 × 8); A $4,000 loss occurs because the selling price ($10,000) is less than book value ($14,000).  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-05 Analyze the disposal disposal of property; plant; and equipment.  Libby - Chapter 08 #83 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

84.

Which Which of the foll followi owing ng journ journal al entri entries es is is correc correctt when when a depre deprecia ciable ble asse assett (build (building ing)) is sold sold for for cash cash subsequent to acquisition? A.

B.

C.

D.

When the building is sold, the building account is credited, cash is debited, accumulated depreciation is debited, and a loss account is debited when the sale results in a loss.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Understand   Difficulty: Easy  Learning Objective: 08-05 Analyze the disposal disposal of property; plant; and equipment.  Libby - Chapter 08 #84 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

85.

Which Which of the the follo followin wing g statem statement entss is incor incorrec rectt with with respec respectt to the the sale sale of a deprec depreciab iable le asset asset for for a loss? loss? A. Net income deceases and total assets decrease. B. Net income and stockholders' equity both decrease. C. Total assets and stockholders' equity both decrease. D. Total assets increase and stockholders' equity decreases. Total assets decrease when an asset a sset is sold at a loss because the proceeds proce eds (selling price) are less than book value. Stockholders' equity decreases because the decrease in net income reduces retained earnings.  AACSB: Apply  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Analyze  Difficulty: Easy  Learning Objective: 08-05 Analyze the disposal disposal of property; plant; and equipment.  Libby - Chapter 08 #85 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

86.

Amanda Amanda Comp Company any purc purchas hased ed a compu computer ter that that cost cost $10,000 $10,000.. It had had an esti estimat mated ed usefu usefull life life of five five years years and a residual value of $1,000. The computer was depreciated by the straight-line method and was sold at the end of the third year of use for $5,000 cash. How much of a gain or loss should Amanda record? A. A gain of $1,000. A. A B. A B.  A loss of $5,000. C. A gain of $400. D. A D.  A loss of $400. Annual straight-line depreciation expense ($1,800) = ($10,000 - $1,000) ÷ 5; End of year three book value ($4,600) = $10,000 - ($1,800 × 3); A $400 gain occurs because the selling price ($5,000) is greater than book value ($4,600).  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-05 Analyze the disposal disposal of property; plant; and equipment.  Libby - Chapter 08 #86  Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

87.

Amanda Amanda Comp Company any purc purchas hased ed a compu computer ter that that cost cost $10,000 $10,000.. It had had an esti estimat mated ed usefu usefull life life of five five years years and a residual value of $1,000. The computer was depreciated by the straight-line method and was sold at the end of the third year of use for $5,000 cash. Which of the following statements correctly describes the computer sale? A. Assets and stockholders' equity both increase by $5,000. B. Assets decrease $5,000 and stockholders' equity is not affected. C. Assets and stockholders' equity both decrease by $400. D. Assets and stockholders' equity both increase by $400. Annual straight-line depreciation expense ($1,800) = ($10,000 - $1,000) ÷ 5; End of year three book value ($4,600) = $10,000 - ($1,800 × 3); A $400 gain occurs because the selling price ($5,000) is greater than book value ($4,600). Assets increase because the cash received exceeds the book value by $400 and stockholders' equity increases because the gain increases net income and therefore retained earnings.  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-05 Analyze the disposal disposal of property; plant; and equipment.  Libby - Chapter 08 #87  Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

88.

On Marc March h 1, 2010, 2010, Annist Anniston on Compa Company ny purch purchase ased d an oil oil well well at a cost cost of $1,00 $1,000,00 0,000. 0. It It is estima estimated ted 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 2010, 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? A. The 2010 cost of goods sold was $90,000. A. The B. The book value of the oil well decreased $90,000 during 2010. C. The inventory of oil increased $90,000 during 2010. D. The depletion rate is $6.00 per barrel of oil. If the resources are sold, they are not reported as inventory on the balance sheet.  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-06 Apply measurement measurement and reporting concepts for natural resources and intangible intangible assets.  Libby - Chapter 08 #88  Topic Area: Natural Resources And Intangible Assets

89.

On March March 1, 1, 2010, 2010, Annis Anniston ton Compa Company ny purch purchase ased d an oil oil well well at a cost cost of $1,00 $1,000,00 0,000. 0. It is estim estimate ated d that 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 2010, 15,000 barrels of oil were produced and 10,000 barrels were sold. Which of the following statements is correct with respect to the accounting for the oil well? A. The 2010 cost of goods sold was $90,000. A. The B. The book value of the oil well decreased $60,000 during 2010. C. The inventory of oil increased $30,000 during 2010. D. The D.  The 2010 cost of goods sold was $30,000. If the resources are not sold, they are reported as inventory (5,000 × $6) on the balance sheet.  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-06 Apply measurement measurement and reporting concepts for natural resources and intangible intangible assets.  Libby - Chapter 08 #89 Topic Area: Natural Resources And Intangible Assets

90.

During During 2010, 2010, a compa company ny purch purchase ased d a mine mine at a cost cost of of $3,00 $3,000,00 0,000. 0. The The company company spent spent an an additi additional onal $600,000 getting the mine ready for its intended use. It is estimated that 300,000 tons of mineral can be removed from the mine and the residual value of the mine will be $600,000. During 2010, 45,000 tons of mineral were removed from the mine and 35,000 tons were sold. Which of the following statements is correct with respect to the accounting for the mine? A. The 2010 net income decreased $450,000 as a result of the mining during the year. B. The book value of the mine decreased $350,000 during 2010. C. The inventory of minerals increased $450,000 during 2010. D. The 2010 cost of goods sold was $350,000. Depletion rate per ton ($10) = ($3,000,000 + $600,000 - $600,000) ÷ 300,000 Cost of goods sold ($350,000) = $10 × 35,000  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-06 Apply measurement measurement and reporting concepts for natural resources and intangible intangible assets.  Libby - Chapter 08 #90 Topic Area: Natural Resources And Intangible Assets

91.

During During 2010, 2010, a compa company ny purch purchase ased d a mine mine at a cost cost of of $3,00 $3,000,00 0,000. 0. The The company company spent spent an an additi additional onal $600,000 getting the mine ready for its intended use. It is estimated that 300,000 tons of mineral can be removed from the mine and the residual value of the mine will be $600,000. During 2010, 45,000 tons of mineral were removed from the mine and 35,000 tons were sold. Which of the following statements is incorrect with respect to the accounting for the mine? The book value of the mine on December 31, 2010 was $2,640,000. B. The book value of the mine decreased $450,000 during 2010. C. The inventory of minerals increased $100,000 during 2010. D. The D.  The 2010 cost of goods sold was $350,000.

A.

Depletion rate per ton ($10) = ($3,000,000 + $600,000 - $600,000) ÷ 300,000. The December 31, 2010 book value ($3,150,000) = ($3,000,000 + $600,000) - ($10 × 45,000).  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-06 Apply measurement measurement and reporting concepts for natural resources and intangible intangible assets.  Libby - Chapter 08 #91 Topic Area: Natural Resources And Intangible Assets

92.

Which Which of of the the follo followin wing g is most most likel likely y to be an intangi intangible ble asset asset with with an indef indefini inite te life life?? A. Leasehold A. Leasehold B.   Franchise B. C.   Patent C. D. Goodwill A successful business will theoretically create goodwill rather than deplete it. Therefore goodwill most likely has an indefinite life.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Medium  Learning Objective: 08-06 Apply measurement measurement and reporting concepts for natural resources and intangible intangible assets.  Libby - Chapter 08 #92 Topic Area: Natural Resources And Intangible Assets

93. 93.

Whic Wh ich h one one of the the fol follo lowi wing ng wou would ld not not be be reco record rded ed as as an int intang angib ible le ass asset et?? A. Leaseholds A. Leaseholds B.   Copyrights B. C. Internally generated goodwill D. Franchises D.  Franchises Goodwill is only recorded when a business entity is acquired and goodwill is a component of the transaction cost.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Medium  Learning Objective: 08-06 Apply measurement measurement and reporting concepts for natural resources and intangible intangible assets.  Libby - Chapter 08 #93 Topic Area: Natural Resources And Intangible Assets

94.

Failur Failuree to recor record d amorti amortizat zation ion expen expense se on a patent patent duri during ng the the curren currentt year year will will resu result lt in in which which of the following? A. Net income will be overstated, but there would be no affect on total assets. B. Net income for the year and total assets would both be overstated. C. Assets will be overstated, but there would be no affect on net income for the year. D. Net income and assets will both be understated. Failure to record patent amortization results in an understatement of expenses and therefore an overstatement of net income. Assets are overstated because the patent account was not reduced by the amortization which was not recorded.  AACSB: Apply  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Analyze  Difficulty: Medium  Learning Objective: 08-06 Apply measurement measurement and reporting concepts for natural resources and intangible intangible assets.  Libby - Chapter 08 #94 Topic Area: Natural Resources And Intangible Assets

95. 95.

Whic Wh ich h of the the fol follo lowi wing ng pro proper perly ly des descr crib ibes es the the acco account untin ing g for for good goodwi will ll?? A. Goodwill is created when it is internally generated. B. Goodwill is amortized over its useful life. C. Goodwill is the difference between the amounts paid pa id for a company relative to the book value of the company's net assets. D. Goodwill is written-down when it has been determined to be impaired. Goodwill is not amortized, but is written-down when it h as been determined to be impaired.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Medium  Learning Objective: 08-06 Apply measurement measurement and reporting concepts for natural resources and intangible intangible assets.  Libby - Chapter 08 #95 Topic Area: Natural Resources And Intangible Assets

96. 96.

Whic Wh ich h of the the fol follo lowi wing ng pro proper perly ly des descr crib ibes es the the acco account untin ing g for for a pate patent nt?? A. Research and development costs associated with a patent are capitalized. B. The patent will be amortized over its useful life. C. Patent amortization expense is accounted for within the accumulated depreciation account. D. Their legal life extends to 70 years after the death of the inventor. Patents are amortized over their useful life.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Medium  Learning Objective: 08-06 Apply measurement measurement and reporting concepts for natural resources and intangible intangible assets.  Libby - Chapter 08 #96  Topic Area: Natural Resources And Intangible Assets

97. 97.

Whic Wh ich h of of the the foll follow owin ing g sta state teme ment ntss is is cor corre rect ct?? A. A copyright has a legal life not exceeding 70 years. B. A trademark is recorded on the balance sheet at an amount equal to the related research and development costs incurred. C. A patent's legal life is is 20 years. D. A franchise's amortization is a function of the underlying contract. Research and development costs are expensed as incurred rather than capitalized.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Remember   Difficulty: Medium  Learning Objective: 08-06 Apply measurement measurement and reporting concepts for natural resources and intangible intangible assets.  Libby - Chapter 08 #97  Topic Area: Natural Resources And Intangible Assets

98.

During During 2010, 2010, the the Bowti Bowtiee Company Company report reported ed net net incom incomee of $1,872 $1,872 mill million ion,, deprec depreciat iation ion expense expense of $1,412 million and $978 million paid for purchases of property, plant and equipment. What would be the effect on cash flows from operating activities during 2010? A Depreciation expense would increase cash flows from operations and the property, plant and . equipment purchases would decrease cash ca sh flow from operations. B Depreciation would increase cash flow from operations and property, plant and equipment purchases p urchases . would increase cash flows from operations. C Depreciation would increase cash flow from operations but the property, plant and equipment . purchases would have no effect on cash flow from operations. D. Depreciation is a non-cash expense and would not be used to calculate cash flow from operations. Depreciation expense is a noncash expense and is therefore added back to net income in the determination of cash flows from operations. The property, p lant and equipment purchases are reported as an investing cash flow.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Understand   Difficulty: Medium  Learning Objective: 08-07 Explain how the acquisition; use; and disposal disposal of long-lived assets impact cash flows.  Libby - Chapter 08 #98  Topic Area: Focus On Cash Flows

99.

Landmar Landmark k Restau Restauran rants ts repor reported ted net net incom incomee in 2008 2008 of of $45.9 $45.9 milli million on and and deprec depreciat iation ion expe expense nse of of $48.8 $48.8 million. They also report additions to property and equipment of $162.9 million. Which of the following disclosures would appear on the 2008 statement of cash flows? A Depreciation of $48.8 million would be deducted from net income under operating activities and the . $162.9 million would be added under investing activities. B Depreciation of $48.8 million would be added to net income under operating activities and the $162.9 . million would be added under investing activities. C Depreciation of $48.8 million would be added to net income under operating activities and the $162.9 und er investing activities. . million would be deducted under D Depreciation of $48.8 million would be deducted from net income under operating activities and the . $162.9 million would be deducted under investing activities. Depreciation expense is a noncash expense and is therefore added back to net income in the determination of cash flows from operations. The property, p lant and equipment additions are reported as an investing cash flow.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Understand   Difficulty: Medium  Learning Objective: 08-07 Explain how the acquisition; use; and disposal disposal of long-lived assets impact cash flows.  Libby - Chapter 08 #99 Topic Area: Focus On Cash Flows

100.

Williams Williams Company Company purchased purchased a machine machine costing costing $25,000 and is is depreciat depreciating ing it it over a 10-year 10-year estim estimated ated useful life with a residual value of $3,000. At the beginning of the eighth year, a major overhaul on it was completed at a cost of $8,000, and the total estimated useful life was changed to 12 years with the residual value unchanged. How much is the year 8 depreciation expense assuming use of the straightline depreciation method? A. $2,200 A.  $2,200 B. $2,920 C.   $3,100 C. D. $8,800 D.  $8,800 Years 1 -7 annual depreciation expense ($2,200) = ($25,000 - $3,000) ÷ 10; Beginning of year 8 book value prior to overhaul ($9,600) = $25,000 - ($2,200 × 7); Year 8 depreciation expense ($2,920) = [Book value after overhaul ($9,600 + $8,000) minus residual value ($3,000)] ÷ 5 remaining years of life.  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Hard   Learning Objective: 08-03 Apply Apply various cost allocation methods as assets assets are held and used over time. (S)  Libby - Chapter 08 #100 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

101.

Augie Corpor Corporation ation purchased purchased a truck truck at a cost of $60,000. $60,000. It It has an estimated estimated useful useful life life of five five years years and estimated residual value of $5,000. At the beginning of year three, Augie's managers concluded that the total useful life would be four years, ye ars, rather than five. There was no change in the estimated residual value. What is the amount of o f depreciation that Augie should record for year 3 under the straight-line depreciation method? A. $15,500 A. $15,500 B.   $8,250 B. C.   $11,000 C. D. $16,500 Years 1 & 2 annual depreciation expense ($11,000) = ($60,000 - $5,000) ÷ 5; Beginning of year 3 book value ($38,000) = $60,000 - ($11,000 × 2); Year 3 depreciation expense ($16,500) = [Book value ($38,000) minus residual value ($5,000)] ÷ 2 remaining years of life.  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Hard   Learning Objective: 08-03 Apply Apply various cost allocation methods as assets assets are held and used over time. (S)  Libby - Chapter 08 #101 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

102. 102.

The foll followi owing ng infor informat mation ion is avai availab lable le for for CocaCoca-Col Colaa and PepsiCo PepsiCo::

Compute the fixed asset turnover ratio for both Coca Cola and PepsiCo. Answers will vary Feedback: Coca-Cola fixed asset turnover ratio (4.62) = ($19,889 ÷ [$4,168 + $4,435]/2) PepsiCo fixed asset turnover ratio (3.82) = ($20,438 ÷ [$5,266 + $5,438]/2)  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-01 Define; classify; and and explain the nature of long-lived productive productive assets and interpret the fixed asset turnover ratio.  Libby - Chapter 08 #102 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

103.

The following following informatio information n was available available for for Landmark Landmark Restauran Restaurants ts for for the past three years. Using this information compute the fixed asset turnover ratio for 2010 and 2009.

Answers will vary Feedback: 2010 fixed asset turnover ratio (1.23) = ($1,105,755 ÷ [$965,575 + $830,930/ 2]) 2009 fixed asset turnover ratio (1.26) = ($894,795 ÷ [$830,930 + $587,829/ 2])  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-01 Define; classify; and and explain the nature of long-lived productive productive assets and interpret the fixed asset turnover ratio.  Libby - Chapter 08 #103 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

104.

On January January 1, 2010, 2010, Trenton Trenton Company Company purchased purchased a machine costing costing $50,000. $50,000. Trenton Trenton also also incurre incurred d the the following costs: transportation, $1,000; installation, $2,000; and sales tax, $3,000. Prepare the journal entry to record the machine acquisition assuming cash was paid. Answers will vary

Feedback:  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Understand   Difficulty: Medium  Learning Objective: 08-02 Apply the cost principle principle to measure the acquisition and maintenance maintenance of property; plant; and equipment.  Libby - Chapter 08 #104 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

105.

Waterloo Waterloo Corpora Corporation tion purchased purchased factory factory equipment equipment for for a cost of $1,800,00 $1,800,000. 0. It cost $100,000 for its delivery, $220,000 for its installation and modifications to the production building, and $60,000 in interest costs on borrowed funds used to acquire acq uire the equipment. What is the acquisition ac quisition cost of the new equipment? Answers will vary Feedback: Equipment cost ($2,120,000) = $1,800,000 + $100,000 + $220,000. Interest is not capitalized because the equipment was purchased and not self-constructed.  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-02 Apply the cost principle principle to measure the acquisition and maintenance maintenance of property; plant; and equipment.  Libby - Chapter 08 #105 Topic Area: Acquisition And Maintenance Of Plant And Equipment 

106.

In 2008, 2008, Landmark Landmark Restaurants Restaurants reported reported the the cost cost of property property and and equipment equipment at $1,189.8 $1,189.8 million 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. A. Estimate the approximate remaining life of the assets for Landmark and Coca Cola B. Which company appears to have newer assets with longer remaining lives? Answers will vary Feedback: A. Landmark: 81.2% = ($1,189.8-$224.2)/$1,189.8; Coca Cola: 60.0% = ($10,149-$4,058)/  $10,149. B. Landmark's appears to have "newer" assets than Coca-Cola because 81.2% of their assets' value remains in book value while Coca-Cola has 60.0% remaining in book value.  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #106  Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

107. 107.

Hi-Cre Hi-Crest st Compan Company y purchas purchased ed a machin machinee on Januar January y 1, 2010, 2010, for $300,000 $300,000.. The machi machine ne has an estimated useful life of 5 years and a $10,000 residual value. Calculate depreciation expense and the year-end book value for 2010 and 2011 using the double declining-balance method of depreciation. Answers will vary

Feedback: *$120,000 = $300,000 × 2/5 **$72,000 = $180,000 × 2/5  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #107  Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

108. 108.

The fina financia nciall statem statement entss of Frankl Franklin in Compa Company ny contai contained ned the the follo followin wing g errors errors::

Requirements: A. Was net income for 2009 understated or overstated? B. Was total combined net income for the two-year period ended December 31, 2010 overstated or understated? Answers will vary Feedback: A. Overstated (If depreciation expense is understated, then net income is overstated.) B. Overstated (2009's net income was overstated by $1,000. 2010's net income was understated by $900. The net is an overstatement of $100.)  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #108  Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

109. 109.

On Januar January y 1, 2009, 2009, Bosto Boston n Company Company purc purchas hased ed a heavy heavy duty duty machine machine havin having g an invoi invoice ce price price of $13,000; Boston paid transportation and installation costs totaling $3,000. The machine is estimated to have a 4-year useful life and a $1,000 residual value. Calculate depreciation expense and book value for 2009 - 2012, assuming 150% declining-balance method of depreciation. (Round to the nearest dollar.) Answers will vary

Feedback:  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Hard   Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #109 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

110. 110.

Covey Covey Company Company purc purchas hased ed a machin machinee on Januar January y 1, 2010, 2010, by payin paying g cash of of $250,00 $250,000. 0. The machi machine ne has an estimated useful life of five years, is expected to produce 500,000 units, and has an estimated residual value of $25,000. Requirements: A. Calculate determine depreciation expense expen se (to the nearest dollar) for each year of the machine's useful life under (1.) straight-line depreciation; and (2.) the 200% declining balance method. B. What is the book value of the machine after three years using the 200% declining- balance method? C. What is the book value v alue of the machinery after three years y ears with straight-line depreciation? D. If the machine was used to produce and sell 120,000 units in 2010, what would the depreciation expense be under the units of production method? Answers will vary

Feedback:  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #110 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

111. 111.

Hubbard Hubbard Compa Company ny purchas purchased ed a truck truck on Januar January y 1, 2009, 2009, at a cost of of $34,000. $34,000. The The company company esti estimat mated ed that the truck would have a useful life of 4 years and a residual value of $4,000. Requirements: A. Calculate depreciation expense under straight line and double declining balance for 2009-2012. B. Which of the two methods would result in lower net income in 2010 and 2012? Answers will vary

Feedback: A. Straight-line: ($34,000 - 4,000)/4 years = $7,500 Declining-balance: 2009 ¼ x 200% x $34,000 = $17,000 2010 ¼ x 200% x ($34,000 - $17,000) = $8,500 2008 ¼ x 200% x ($34,000 - $25,500) = $4,250 2009 Book value $4,250 - $4,000 target book value = $250 B. Lower net income: 2010, double declining-balance; 2012, straight-line.  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Libby - Chapter 08 #111 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

112.

Allison Allison Company Company purchas purchased ed a machine machine for $1,200,000 $1,200,000 at the beginni beginning ng of 2009. Allison Allison was was using using the the double-declining-balance (200%) method to depreciate dep reciate the asset and its useful life was estimated to be 5 years with a residual value of $200,000. $2 00,000. At the end of 2010, Allison Co. estimates the future cash flows from the asset to be equal to $500,000 and the fair value to be $450,000. What is the amount of the impairment loss? Answers will vary Feedback: At the end of year two, the machine's book value would be $432,000 (year 1 depreciation $480,000 plus year 2 depreciation of $288,000 would be deducted from the asset's cost of $1,200,000). Since the future cash flows are not below the asset's book value, there is no impairment loss.  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Easy  Learning Objective: 08-04 Explain the effect of asset impairment on the financial statements.  Libby - Chapter 08 #112 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

113.

A company company purchase purchased d equipment equipment for $800,000 $800,000 and has deprecia depreciated ted it it using using the the straight straight-lin -linee method method for for the past 5 years when its original life was estimated to be 10 years with a $200,000 residual value. The equipment's utility to the company has declined because they expect it to generate net cash flows over the remaining years of $300,000. The asset's fair value at the end of the fifth year is $200,000. If the asset has been impaired, record the journal entry to record the impairment. Answers will vary Feedback: Annual straight-line depreciation expense ($60,000) = ($800,000 - $200,000) ÷ 10 End of year 5 book value ($500,000) = $800,000 - ($60,000 × 5) There is an impairment because the net future cash flows ($300,000) are less than book value. The impairment loss ($300,000) is the difference between the asset's book value ($500,000) and a nd fair value ($200,000).

 AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-04 Explain the effect of asset impairment on the financial statements.  Libby - Chapter 08 #113 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

114. 114.

Beckwor Beckworth th Compan Company y purchas purchased ed a truck truck on Januar January y 1, 2009, 2009, at a cash cost cost of $10,6 $10,600. 00. The The estimat estimated ed residual value was $400 and the estimated useful life 4 years. The company uses straight-line depreciation computed monthly. On July 1, 2012, the company sold the truck for $1,900 cash. A. What was the depreciation expense amount per month? B. What was the amount of accumulated depreciation at July 1, 2012? C. Give the required journal entries on the date of disposal, July 1, 2012. (Assume no 2012 depreciation had yet been recorded) Answers will vary

Feedback:  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Learning Objective: 08-05 Analyze the disposal disposal of property; plant; and equipment.  Libby - Chapter 08 #114 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

115. 115.

Lue Compa Company ny sold sold used equip equipment ment for for $450,00 $450,000 0 cash. cash. The equipm equipment ent was was purchas purchased ed 5 years years ago for for a cost of $800,000. It has been depreciated using the straight-line method over ov er an estimated useful life of 10 years with an estimated residual value of $50,000. Record the journal entry at the end of year five for the asset's disposal assuming the fifth year's depreciation had be en recorded. Answers will vary

Feedback: *[($800,000 - $50,000) ÷ 10] × 5  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Remember   Difficulty: Medium  Learning Objective: 08-05 Analyze the disposal disposal of property; plant; and equipment.  Libby - Chapter 08 #115 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

116. 116.

Bennett Bennett Corpo Corporat ration ion sold sold a piece piece of equipm equipment ent on June June 30, 30, 2012 for for $50,000 $50,000 cash. cash. The The equipmen equipmentt had been purchased on January 1, 2008 for $150,000. It had an estimated useful life of 6 years and a $30,000 residual value. Bennett Corp. has been using the straight-line method of depreciation and has a year-end of December 31st. Prepare any necessary journal entries on June 30, 2012 assuming that 2012 depreciation expense has not been recorded. Answers will vary

Feedback: *[($150,000 - $30,000) ÷ 6] × 6/12 ** [($150,000 - $30,000) ÷ 6] × 4.5 years  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Learning Objective: 08-05 Analyze the disposal disposal of property; plant; and equipment.  Libby - Chapter 08 #116  Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

117.

Spa Sources Sources Corporation Corporation purchased purchased a machine machine that that had an original original cost of $60,000 $60,000 and and an estimated estimated residual value of $10,000. The useful life was expected to be 8 years and straight-line depreciation is used. At the end of 2010, the book value of the machine was $35,000. Spa Sources sold the machine for $32,000 cash on October 1, 2011. Requirements: A. Prepare the journal entry to record depreciation for 2011 up to the date of sale. B. Prepare the journal entry to record the sale of the machine. Answers will vary

Feedback: *The book value of $35,000 at the end of 2010 equals the asset cost ($60,000) less accumulated depreciation ($25,000) the end of 2010. The accumulated depreciation at the date of sale ($29,688) equals the accumulated depreciation at the end of 2010 ($25,000) plus the $4,688 from requirement A.  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Learning Objective: 08-05 Analyze the disposal disposal of property; plant; and equipment.  Libby - Chapter 08 #117  Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

118.

Give the require required d adjustin adjusting g journal journal entry entry at December December 31, 2011, 2011, the the end of the the annual annual accountin accounting g period period for the three items below. Assume that no adjusting entries have been made during the year. If no entry en try is required, explain why. A. Polk Company acquired a patent that cost $6,000 on January 1, 2011. The patent was registered on January 1, 2006. The useful life of a patent is 20 years yea rs from registration. B. Polk Company acquired a gravel pit on January 1, 2011, that cost $24,000. The company estimates that 30,000 tons of gravel can be extracted economically. During 2011 4,000 tons were extracted and sold. C. On January 1, 2011, Polk Company acquired a used dump truck that cost $6,000 to use hauling gravel. The company estimated a residual value of 10% of cost and a useful life 4 years. The company uses straight-line depreciation. Answers will vary

Feedback:  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Learning Objective: 08-06 Apply measurement measurement and reporting concepts for natural resources and intangible intangible assets.  Libby - Chapter 08 #118  Topic Area: Natural Resources And Intangible Assets

119.

Benson Mining Mining Company Company purchas purchased ed a site containing containing a mineral mineral deposit deposit during 2010. The purchase purchase price was $820,000, and the site is estimated to contain 400,000 tons of extractable ore. Benson constructed a building at the site, at a cost of $500,000, to be used while the ore is being extracted. When the ore reserves are gone, the building will have no further value. Requirements: A. Explain the objective of recording depletion on natural resources. B. Determine Benson's depletion rate per ton of ore. C. Prepare the journal entry to record depletion for the year 2010, when Benson mined and sold 150,000 tons of ore. D. Prepare the journal entry to record depreciation on the building for 2010. Benson calculates depreciation on the building using the units-of-production method based on the amount of ore extracted (150,000 tons in 2010). Answers will vary

Feedback: *($500,000 ÷ 400,000 tons) × 150,000 tons  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-06 Apply measurement measurement and reporting concepts for natural resources and intangible intangible assets.  Libby - Chapter 08 #119 Topic Area: Natural Resources And Intangible Assets

120. 120.

On Januar January y 1, 2010 2010 Gordon Gordon Compa Company ny purchas purchased ed a patent patent for for $420,0 $420,000 00 from from an invent inventor or who who had developed a new manufacturing process. At the time of the purchase, the patent had a remaining useful life of 10 years. Requirements: A. Prepare the journal entry to record Gordon's purchase of the patent. B. Prepare the journal entry to record amortization of the patent on December 31, 2010. C. At the end of 2013, after amortization had been recorded through December 31, 2013, Gordon concluded that the estimated future cash flows from the patent to be $250,000. The patent's estimated fair value on December 31, 2011 was $200,000. Prepare the journal entry to record the patent impairment, if necessary. Answers will vary

Feedback:  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-06 Apply measurement measurement and reporting concepts for natural resources and intangible intangible assets.  Libby - Chapter 08 #120 Topic Area: Natural Resources And Intangible Assets

121.

Pier 5 has been been in busines businesss 8 years years with with 4 stores stores in the San Francisco Francisco bay bay area. Their local reputation reputation for making savory pies such as curried cu rried 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 market 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 purchase price? Answers will vary Feedback: Goodwill ($2.3 million) = Amount paid ($3.5 million) minus fair value of net assets ($1.2 million).  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-06 Apply measurement measurement and reporting concepts for natural resources and intangible intangible assets.  Libby - Chapter 08 #121 Topic Area: Natural Resources And Intangible Assets

122.

Landmark Landmark Restaur Restaurants ants reported reported net income income of $45.9 $45.9 million million during during 2010. They reported reported deprecia depreciation tion and amortization of plant and equipment of $48.8 million and cash paid for additions to property, plant and equipment of $162.9 million during 2010. Explain where each of these items would be reported and their impact on cash flows on the statement of cash flows. Answers will vary Feedback: The net income would be reported as the first item in the operating activities section and would have a positive impact on cash flow. The depreciation and amortization would be added to net income in the operating activities section and would have a positive effect on cash flow. Finally the cash paid for new property, plant and equipment would be in the investing activities section and would have a negative cash flow effect.  AACSB: Reflective Thinking  AICPA BB: Critical Thinking  AICPA FN: Reporting  Bloom's: Understand   Difficulty: Medium  Learning Objective: 08-07 Explain how the acquisition; use; and disposal disposal of long-lived assets impact cash flows.  Libby - Chapter 08 #122 Topic Area: Focus On Cash Flows

123. 123.

Frankel Frankel Feed Feed purch purchase ased d a new machin machinee on January January 1, 2010, 2010, relev relevant ant info informa rmatio tion n is as follo follows: ws:

Annual straight-line depreciation expense ($2,400) = ($26,000 - $2,000) ÷ 10 A. ($26,000 - $12,000* - $2,000) ÷ (15 years - 5 years) = $1,200 of depreciation expense B. ($26,000 - $12,000* - $1,000) ÷ (10 years - 5 years) = $2,600 of depreciation expense C. ($26,000 - $12,000* - $3,000) ÷ (7 years - 5 years) = $5,500 of depreciation expense * ($2,400 × 5 years)  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Hard   Learning Objective: 08-03 Apply Apply various cost allocation methods as assets assets are held and used over time. (S)  Libby - Chapter 08 #123 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

124.

Sadler Corporation Corporation purchased purchased equipment equipment to be used in in manufactur manufacturing. ing. The The purchase purchase was made at at the beginning of 2009 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 2011, 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. Requirements: A. Make the journal entry to record depreciation on the equipment for 2010. B. Make the journal entry to record depreciation on the equipment for 2011, including the effect of the changes in estimates. C. Describe how a business should account a ccount for a change in the estimated useful life and/or residual value of a depreciable asset.

 AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Hard   Learning Objective: 08-03 Apply Apply various cost allocation methods as assets assets are held and used over time. (S)  Libby - Chapter 08 #124 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

125.

Determine Determine the the effect effect of the follow following ing transa transactions ctions on the the financial financial statement statement components components identif identified. ied. 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 made. Net income ______ Total assets ______ Stockholders' equity ______ Transaction 2: The adjusting  journal entry to record patent amortization expense was made. 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 made. Net income ______ Total assets ______ Stockholders' equity ______  AACSB: Analytic  AICPA BB: Critical Thinking  AICPA FN: Reporting, Measurement   Bloom's: Apply  Difficulty: Medium  Learning Objective: 08-03 Apply Apply various cost allocation methods as assets are are held and used over time.  Learning Objective: 08-04 Explain the effect of asset impairment on the financial statements.  Learning Objective: 08-05 Analyze the disposal disposal of property; plant; and equipment.  Learning Objective: 08-06 Apply measurement measurement and reporting concepts for natural resources and intangible intangible assets.  Libby - Chapter 08 #125 Topic Area: Use, Impairment, And Disposal Of Plant And Equipment 

ch8 Summary Category

# of Questions

AACSB: Analytic

58

AACSB: Analyze

1

AACSB: Application

1

AACSB: Apply

3

AACSB: Reflective Thinking

62

AICPA BB: Critical Thinking

1 25

AICPA FN: Measurement

8

AICPA FN: Reporting

49

AICPA FN: Reporting, Measurement

68

Bloom's: Analyze

7

Bloom's: Apply

56

Bloom's: Remember

36

Bloom's: Understand

26

Difficulty: Easy

32

Difficulty: Hard

8

Difficulty: Medium

85

Learning Objective: 08-01 Define; classify; and explain the nature of long-lived productive assets and interpret the fixed asset turnover ratio.

14

Learning Objective: 08-02 Apply the cost principle to measure the acquisition and maintenance of property; plant; and equipment.

23

Learning Objective: 08-03 Apply various cost allocation methods as assets are held and used over time.

43

Learni rning Ob Objective: 08-03 Apply va various co cost allocation me methods as assets ar are held and and used ove over titime. (S)

4

Learning Objective: 08-04 Explain the effect of asset impairment on the financial statements.

5

Learning Objective: 08-04 Explain the effect of asset impairment on the financial statements. Explain the effect of asset impairment on the financial statements.

3

Learning Objective: 08-05 Analyze the disposal of property; plant; and equipment.

16

Lear Learni ning ng Obje Object ctiv ive: e: 08-06 08-06 Appl Apply y mea measu sure reme ment nt and and rep repor orti ting ng conc concep epts ts for for natu natura rall reso resour urce cess and and int intan angi gibl blee ass asset ets. s.

20

Lear Learni ning ng Obje Object ctiv ive: e: 08-0 08-07 7 Exp Expla lain in how how the the acqu acquis isit itio ion; n; use; use; and and dis dispo posa sall of of lon longg-li live ved d ass asset etss imp impac actt cas cash h flo flows ws..

4

Libby - Chapter 08

12 5

Topic Area: Acquisition And Maintenance Of Plant And Equipment

37

Topic Area: Focus On Cash Flows

4

Topic Area: Natural Resources And Intangible Assets

19

Topic Area: Use, Impairment, And Disposal Of Plant And Equipment

65