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Exam 8: Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles

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Question 61

True/False

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

A) True
B) False

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Question 62

Multiple Choice

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The Wilson Company has provided the following information: 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
B) 1.25
C) 0.25
D) 0.50.

E) None of the above
F) A) and D)

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Question 63

Multiple Choice

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

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.

What is the effect on the 2010 financial statements when a capital expenditure during 2010 was incorrectly recorded as a revenue expenditure?

Which of the following includes only tangible assets?

Hill Inc.purchased an asset on January 1,2009.Hill chose an accelerated depreciation method to depreciate the asset.Which of the following is correct if Hill would have chosen the straight-line depreciation method instead?

Amanda Company purchased a computer that cost $10,000.It had an estimated useful 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?

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

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 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?

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 in the estimated residual value.What is the amount of depreciation that Augie should record for year 3 under the straight-line depreciation method?

An expenditure is capitalized when it is reported as an expense on the income statement.

On March 1,2010,Anniston Company purchased an oil well at a cost of $1,000,000.It is 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?

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

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 for a change in the estimated useful life and/or residual value of a depreciable asset.

Schager Company purchased a computer system on January 1,2010,at a cash cost of $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?

Which one of the following would not be recorded as an intangible asset?

Under what conditions would a company most likely adopt the double-declining-balance method for financial reporting?

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

Gilbert Company made an ordinary repair to a delivery truck 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?