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Exam 8: Reporting and Analyzing Long-Term Assets

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Question 91

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A leasehold is:

A) A short-term rental agreement.
B) The same as a patent.
C) The rights granted to the lessee by the lessor of a lease.
D) Recorded as revenue expenditure when paid.
E) An asset held as an investment.

F) B) and D)
G) A) and E)

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Question 92

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Explain the purpose of and method of depreciation for partial years.

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Partial years' depreciation is often req...

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Question 93

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Explain the impact, if any, on depreciation when estimates that determine depreciation change.

Morgan Industries purchases land for a building site for $500,000, payed $20,000 to have an existing structure removed and recovered $4,000 from the sale of salvaged materials. The cost charge to the land account is $524,000. $500,000 + 20,000 - 4,000 = $516,000

A company purchased a delivery van for $28,000 with a salvage value of $3,000 on September 1, Year 1. It has an estimated useful life of 5 years. Using the straight-line method, how much depreciation expense should the company recognize on December 31, Year 1?

If an asset is sold above its book value, the selling company records a loss.

Decision makers and other users of financial statements use the total asset turnover ratio in determining a company's ability to use its assets in generating sales.

A patent is an exclusive right granted to its owner to manufacture and sell a patented device or to use a process for 20 years.

A loss on disposal of a plant asset occurs if the cash proceeds received from the asset sale are less than the asset's book value.

A benefit of using an accelerated depreciation method is that:

A company purchased a weaving machine for $190,000. The machine has a useful life of 8 years and a salvage value of $10,000. It is estimated that the machine could produce 75,000 bolts of woven fabric over its useful life. In the first year, 15,000 bolts were produced. In the second year, production increased to 19,000 units. Using the units-of-production method, what is the amount of accumulated depreciation at the end of the second year?

Companies that have a relatively large amount invested in assets to generate a given level of sales are considered capital-intensive.

Additions to land that increase the usefulness of the land such as parking lots, fences, and lighting are not depreciated.

Natural resources include standing timber, mineral deposits, and oil and gas fields.

Financial accounting and tax accounting require the same recordkeeping and there should be no difference in results between the two accounting systems.

A trademark is an exclusive right granted to its owner to publish and sell a musical, literary, or artistic work during the life of the creator plus 70 years.

A company purchased mining property for $1,560,000. The property was estimated to contain 13,000,000 tons of ore. In the current year, the company removed and sold 263,000 tons of ore. Calculate the depletion expense for the current year.

Riverboat Adventures pays $310,000 plus $15,000 in closing costs to buy out a competitor. The real estate consists of land appraised at $35,000, a building appraised at $105,000, and paddleboats appraised at $210,000. Compute the cost that should be allocated to the building.

Compare the different depreciation methods (straight-line, units-of-production, and double-declining-balance) with respect to the amounts of depreciation expense per period and the total depreciation over the life of the asset.

Victory Company purchases office equipment at the beginning of the year at a cost of $15,000. The machine's useful life is estimated to be 7 years with a $1,000 salvage value. The book value at the end of 7 years is: