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Exam 8: Reporting and Interpreting Property,plant,and Equipment;intangibles;and Natural Resources

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Question 41

Multiple Choice

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Which of the following statements about asset impairments is false?

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.

E) All of the above
F) C) and D)

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Question 42

True/False

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On January 1,2019,equipment was purchased for $100,000.The equipment's estimated residual value is $20,000,and its estimated useful life is 8 years.On December 31,2019,the book value using the straight-line method of depreciation is $90,000.

A) True
B) False

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Question 43

Multiple Choice

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

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

Which statement is false?

When determining cash flow from operating activities using the indirect method,depreciation and amortization expense are deducted from net income.

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

On January 1,2019,Pyle Company purchased an asset that cost $50,000 and had no estimated residual value.The estimated useful life of the asset is 8 years and straight-line depreciation is used.An error was made in 2019 because the total amount of the asset's cost was debited to an expense account for 2019 and no depreciation was recorded.Pretax income for 2019 was $42,000.How much is the correct 2019 pretax income?

On January 1,2019,equipment was purchased for $80,000;the equipment's estimated residual value is $15,000,and its estimated useful life is 10 years.For 2019,the depreciation expense under the double-declining balance method is $13,000.

Carter Company disposed of an asset at the end of the eighth year of its estimated life for $10,000 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?

Which of the following equipment related costs is not capitalized on a balance sheet?

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

On March 1,Wright Company purchased new equipment for $50,000 by paying cash.Other costs associated with the equipment were: transportation costs,$1,000;sales tax paid $4,000;and installation cost,$2,500.At what amount will the equipment be recorded on a balance sheet?

If depreciation expense is calculated without taking into account the asset's residual value,depreciation expense will be overstated.

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

The financial statements of Franklin Company contained the following errors: A.Was net income for 2019 understated or overstated? Briefly explain your answer. B.1.Considering the effect of the errors of both years at December 31,2020,is retained earnings overstated or understated,and by what amount? 2.Briefly explain your answer to part B (1).

International Financial Reporting Standards (IFRS) require the recording of research and development costs as follows:

Which of the following transactions would not increase the fixed asset turnover ratio?

A company acquires land by issuing 10,000 shares of its $10 par value common stock which is currently 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?

The following information was available for Landmark Restaurants for the past three years. Using this information,compute the fixed asset turnover ratio for Year 3 and Year 2.(Round your answers to two decimal places. )