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Exam 8: Accounting for Long-Term Operational Assets

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Question 31

True/False

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Land differs from other property because it is not subject to depreciation.

A) True
B) False

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Question 32

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Which of the following industries would most likely have the highest value for the ratio of sales to property, plant, and equipment?

A) Airline
B) Consumer product manufacturing company
C) Electric utility
D) Stock brokerage

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

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Question 33

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Depletion of a natural resource is usually calculated using the straight-line basis.

George Company purchased oil rights on July 1, 2013 for $2,400,000. If 200,000 barrels of oil are expected to be extracted over the assets life, and 30,000 barrels are extracted and sold in 2013, the recognition of depletion expense on December 31, 2013 would cause:

Indicate whether each of the following statements is true or false. _____ a) A trademark has an indefinite legal lifetime. _____ b) U.S. GAAP requires that research and development costs be capitalized as assets and then expensed over a reasonable period of time. _____ c) A patent is amortized over the longer of its legal or useful life. _____ d) The entry to record the amortization of a patent includes a debit to Amortization Expense, Patent and a credit to Patent. _____e) The capitalized cost of a trademark includes the cost to develop the trademark and to defend it.

What is meant by a "basket purchase," and what method is normally used to determine the cost of individual assets?

On January 1, 2013, Sanchez Company paid $160,000 to obtain a patent. Sanchez expected to use the patent for 5 years before it became technologically obsolete. The remaining legal life of the patent was 8 years. Based on this information, the amount of amortization expense on the December 31, 2015 income statement and the book value of the patent on the December 31, 2015 balance sheet would be:

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

Sinclair Company purchased a new machine on January 1, 2013, at a cost of $200,000. The machine is expected to have an eight-year life and a $30,000 salvage value. The machine is expected to produce 720,000 finished products during its eight-year life. Production during 2013 was 70,000 units and during 2014 was 110,000 units. Required: Determine the amount of depreciation expense to be recorded on the machine for the years 2013 and 2014 under each of the following methods: 1) Straight-line 2) Units of production 3) Double-declining balance

At the end of the current accounting period, Rodgers Co. recorded depreciation of $25,000 on its equipment. The effect of this entry on the company's balance sheet is to:

Bruen Company amortized $3,400 of patent cost. How does this entry affect Bruen's financial statements?

Marsh Company owned an asset that had cost $22,000. The company sold the asset on January 1, 2013 for $8,000. Accumulated depreciation on the day of sale amounted to $16,000. Based on this information, the sale would result in:

What type of account is Accumulated Depreciation?

Michigan Corporation purchased a new truck on January 1, 2013 for $55,000 cash. Michigan estimated salvage value of $10,000 at the end of the useful life of 5 years. On January 1, 2015 Michigan had to replace the engine of the truck paying $4,500 cash. Due to the replaced engine, Michigan estimates that the truck will continue a productive life for another four years. Required: a) Prepare the journal entry to record the cost of the new engine. b) Assuming straight-line depreciation is used, calculate the depreciation expense for 2015.

Accumulated Depreciation is a temporary account that is closed each year.

Offshore Oil Company recognized $3,000,000 of depletion expense related to an oil reserve. How does this entry affect Offshore's financial statements?

Goldfarb, Inc. uses MACRS for its income tax returns and straight line depreciation for its financial statements. The company purchased 5 year MACRS property on January 1, 2013 that cost $65,000 and has a $5,000 salvage value and an expected 8 year useful life. Given a depreciation percentage of 20% for the first year for 5 year property, the company would show which of the following on its financial records?

State the reason that goodwill is not amortized as some other intangible assets are.

The depreciable cost of a long-term asset is the difference between the amount paid for the asset and its salvage value.

Why do some say that the GAAP treatment of research and development puts the US at a competitive disadvantage compared to businesses in other countries?