Deck 16: Recording and Evaluating Capital Resource Process Activities: Investing

Question 1

All of the following are based on estimates except:

A)useful life
B)salvage value
C)acquisition cost
D)depreciable cost

Answer 1

acquisition cost

Question 2

Affiliated Industries purchased a piece of equipment for $5,500,FOB shipping point.The company paid freight of $225 and installation costs of $485.During installation,the equipment was damaged requiring $195 in repair costs.The total cost assigned to the equipment should be:

A)$5,500
B)$5,725
C)$6,210
D)$6,405

Answer 2

$6,210

Question 3

Byrons,Inc.acquired a piece of equipment on January 3,2010.The total cost of the equipment was $28,500.Byrons estimated that the equipment would be used for 6 years before being sold for an estimated $4,500.Assuming the use of straight-line depreciation,the total depreciation expense for the year ended December 31,2010 was:

A)$ 4,000
B)$ 4,750
C)$ 5,500
D)$20,000

Answer 3

$ 4,000

Question 4

Revenue expenditures:

A)include expenditures for betterments
B)include expenditures for extraordinary repairs
C)are expenditures that provide benefits only during the current accounting period
D)are expenditures that extend the remaining useful life of an operational investment

Question 5

Architect's fees during construction of a building should be:

A)capitalized
B)expensed immediately
C)treated as a revenue expenditure
D)expensed at the completion of construction

Question 6

To calculate depreciation,all of the following must be determined except:

A)useful life of the asset
B)salvage value of the asset
C)acquisition cost of the asset
D)fair market value of the asset

Question 7

Kenyon Company purchased land and a building for $270,000.The appraised values of the land and building were $100,000 and $200,000,respectively.The purchase price allocated to the land should be:

A)$270,000
B)$180,000
C)$100,000
D)$ 90,000

Question 8

Comptel Corporation purchased land,a building and equipment for a total cost of $525,000.The appraised values of the land,building and equipment were $150,000,$375,000 and $75,000,respectively.The purchase price allocated to the land should be:

A)$525,000
B)$150,000
C)$131,250
D)$ 65,625

Question 9

Which of the following would be considered a revenue expenditure?

A)Cost to install a new machine
B)Sales tax on the cost of a new machine
C)Cost the ship the machine to factory
D)Cost to repair the machine which was damaged during installation.

Question 10

Cost to repair damage to machine incurred when installing the machine should be:

A)capitalized
B)expensed immediately
C)capitalized once machine is in use.
D)expensed at the end of the life of the machine

Question 11

Kenyon Company purchased land and a building for $270,000.The appraised values of the land and building were $100,000 and $200,000,respectively.The purchase price allocated to the building should be:

A)$270,000
B)$200,000
C)$180,000
D)$ 90,000

Question 12

Which of the following would be considered a capital expenditure?

A)Oil change on a truck
B)Repair fender damage during shipping
C)Cost of custom paint job on truck at time of purchase
D)Repair of radiator

Question 13

Comptel Corporation purchased land,a building and equipment for a total cost of $525,000.The appraised values of the land,building and equipment were $150,000,$375,000 and $75,000,respectively.The purchase price allocated to the building should be:

A)$131,250
B)$328,125
C)$375,000
D)$428,571

Question 14

Carlton Company acquired a tract of land on June 30,2008.The total cost of the land was $90,000.Carlton estimated that the land would be used for 10 years and then sold.Assuming the company uses straight-line depreciation,the total depreciation taken on the land for the year ended December 31,2003should be:

A)amount cannot be determined without additional information
B)$ 9,000
C)$ 4,500
D)$ 0

Question 15

All of the following are characteristics of plant assets except:

A)tangible
B)used in the business
C)held as an investment
D)life longer than one year

Question 16

Comptel Corporation purchased land,a building and equipment for a total cost of $525,000.The appraised values of the land,building and equipment were $150,000,$375,000 and $75,000,respectively.The purchase price allocated to the equipment should be:

A)$ 65,625
B)$ 75,000
C)$131,250
D)$150,000

Question 17

Ivanhoe Enterprises acquired a piece of equipment on January 3,2010.The total cost of the equipment was $35,000.Ivanhoe estimated that the equipment would be used for 8 years before being sold for an estimated $7,000.Assuming the use of straight-line depreciation,the total depreciation expense for the year ended December 31,2010 was:

A)$3,500
B)$4,000
C)$4,375
D)$5,250

Question 18

Expenditures that create the expectation of future benefits applicable beyond the current period are called:

A)capital expenditures
B)revenue expenditures
C)ordinary expenditures
D)accelerated expenditures

Question 19

Which of the following would be considered a revenue expenditure?

A)Cost to install a new machine
B)Sales tax on the cost of a new machine
C)Cost the ship the machine to factory
D)Costs incurred during test run the new machine.
E)All of the above

Question 20

On January 1,2010,Boyd Corporation purchased a piece of equipment for $50,000,will pay $1,500 in property tax during the year,paid $500 to have it delivered,paid $1,000 to have it installed,paid $300 for 1 year of insurance,and paid $1,800 in sales tax.If the equipment has a ten year life and a $2,000 salvage value what will be the depreciation of the equipment for 2010 if straight-line depreciation is used.

A)$4,800
B)$5,330
C)$5,130
D)$5,150

Question 21

Golden Eagle Golf Corp sold equipment with an original cost of $160,000 and accumulated depreciation of $95,000.If the sale of the equipment generated a loss of $15,000 how much cash was received from the sale?

A)$145,000
B)$50,000
C)$85,000
D)$70,000

Question 22

Harold Lynd Corporation sold equipment with an original cost of $90,000 for $55,000 cash and recorded a gain of $5,000.What was the book value of the equipment on the date of the sale?

A)$50,000
B)$90,000
C)$60,000
D)$70,000

Question 23

Oxford Enterprises acquired a delivery truck on January 4,2010.The total cost of the truck was $87,000.Oxford estimated that the truck would be used for 5 years before being sold for an estimated $16,500.Oxford uses the double-declining balance method of depreciation.The depreciation expense for the year ended December 31,2012 was:

A)$34,800
B)$28,200
C)$12,528
D)$ 8,880

Question 24

Horizons,Inc.purchased a machine 3 years ago at a price of $64,500.At that time,useful life was estimated at 12 years with a $6,900 salvage value,and straight-line depreciation was used.After recording depreciation for the 3rd year,Horizons decided that for future years it would revise its original estimates from 12 to 8 years and from $6,900 to $5,500.The depreciation expense to be recorded in year 4 of the machine's life is:

A)$4,800
B)$5,575
C)$8,640
D)$8,920

Question 25

Wilkens Corporation acquired a delivery truck on January 4,2010.The total cost of the truck was $138,000.Wilkens estimated that the truck would be used for 10 years before being sold for an estimated $28,500.Wilkens uses the double-declining balance method of depreciation.The carrying value of the truck on January 2,2014 will be:

A)$56,525
B)$45,271
C)$44,851
D)$35,921

Question 26

Advanced Systems,Inc.purchased a machine 4 years ago at a price of $82,800.At that time,useful life was estimated at 10 years with a $13,500 salvage value,and straight-line depreciation was used.After recording depreciation for the 4th year,Advanced decided that for future years it would revise its original estimates from 10 to 14 years and from $13,500 to $8,500.The depreciation expense to be recorded in year 5 of the machine's life is:

A)$4,658
B)$4,968
C)$5,508
D)$6,930

Question 27

Brookside Enterprises acquired a piece of machinery on January 3,2010.The total cost of the machinery was $138,600.Brookside estimated that the machinery would be used for 77,000 hours before being sold for an estimated $3,850.Brookside uses the units-of-production method of depreciation.Assuming the machine was used for 15,800 hours during 2010,18,300 hours during 2011,and 17,400 hours during 2012,the balance in the accumulated depreciation account on January 2,2013 would be:

A)$45,900
B)$48,475
C)$90,125
D)$92,700

Question 28

Tucker Truck Company acquired a delivery truck on January 4,2010.The total cost of the truck was $71,000.Tucker estimated that the truck would be used for 4 years before being sold for an estimated $7,500.Tucker uses the double-declining balance method of depreciation.The balance in the accumulated depreciation account on January 2,2013 will be:

A)$63,500
B)$62,125
C)$55,563
D)$41,047

Question 29

Spataro Industries owns some equipment with an original cost of $53,800 and accumulated depreciation of $26,350.If the equipment is sold for $25,500,the gain or loss recognized on the sale would be:

A)$ 850 gain
B)$ 850 loss
C)$1,950 gain
D)$1,950 loss

Question 30

Eric Lynd Industries sold equipment with an original cost of $80,000 and accumulated depreciation of $35,000.If the sale of the equipment generated a gain of $10,000 how much cash was received from the sale?

A)$ 90,000
B)$ 45,000
C)$55,000
D)$70,000

Question 31

Overhead Industries acquired a piece of machinery on January 3,2010.The total cost of the machinery was $255,000.Overhead estimated that the machinery would be used for 68,000 hours before being sold for an estimated $10,200.Overhead uses the units-of-production method of depreciation.Assuming the machine was used for 12,700 hours during 2010,14,100 hours during 2011,and 13,400 hours during 2012,the carrying value of the machinery on January 2,2013 would be:

A)$104,250
B)$110,280
C)$144,720
D)$150,750

Question 32

Cowboy Enterprises owns some equipment with an original cost of $59,000 and a book value of $19,000 that is exchanged for a $20,000 notes receivable and $5,000 cash.Which of the following is not part of the entry to record this transaction?

A)Debit Notes Receivable $20,000
B)Debit Accumulated Depreciation $40,000
C)Credit Equipment for $19,000
D)Credit Gain for $6,000

Question 33

Cooper Resources,Inc.owns some equipment with an original cost of $53,800 and accumulated depreciation of $26,350.If the equipment is sold for $28,500,the gain or loss recognized on the sale would be:

A)$2,150 loss
B)$1,050 loss
C)$2,150 gain
D)$1,050 gain

Question 34

Galloway Corporation sold equipment with an original cost of $120,000 for $55,000 cash and recorded a loss of $15,000.What was the balance in the accumulated depreciation account on the date of the sale?

A)$60,000
B)$70,000
C)$55,000
D)$50,000

Question 35

Sportech,Inc.acquired a piece of equipment on January 3,2010.The total cost of the equipment was $77,500.Sportech estimated that the equipment would be used for 9 years before being sold for an estimated $5,500.Assuming the use of straight-line depreciation,the balance in the accumulated depreciation account on January 2,2014 will be:

A)$32,000
B)$34,444
C)$36,889
D)$45,500

Question 36

Chippawa Industries acquired a delivery truck on January 4,2010.The total cost of the truck was $145,000.Chippawa estimated that the truck would be used for 8 years before being sold for an estimated $23,500.Chippawa uses the double-declining balance method of depreciation.The total depreciation expense for the year ended December 31,2010 was:

A)$36,250
B)$30,375
C)$18,125
D)$15,188

Question 37

Windstreamers,Inc.acquired a piece of machinery on January 3,2010.The total cost of the machinery was $68,400.Windstreamers estimated that the machinery would be used to produce 100,000 units of product before being sold for an estimated $11,600.Windstreamers uses the units-of-production method of depreciation.Assuming the machine produced 18,500 units during the year ended December 31,2010,the 2008 depreciation expense was:

A)$18,500
B)$14,800
C)$12,654
D)$10,508

Question 38

Irmelas Enterprises owns some equipment with an original cost of $84,700 and accumulated depreciation of $41,650.If the equipment is sold for $9,500 in cash plus a 9-month $30,000 note receivable with a stated 12% interest rate,the gain or loss recognized on the sale would be:

A)$3,550 loss
B)$3,550 gain
C)$2,150 loss
D)$2,150 gain

Question 39

Dynatech Corporation acquired a piece of machinery on January 3,2010.The total cost of the machinery was $172,500.Dynatech estimated that the machinery would be used for 60,000 hours before being sold for an estimated $7,500.Dynatech uses the units-of-production method of depreciation.Assuming the machine was used for 18,750 hours during the year ended December 31,2010,the depreciation expense rate per hour for 2010 was:

A)$9.20
B)$8.92
C)$2.88
D)$2.75

Question 40

Edcon Industries acquired a piece of equipment on January 3,2010.The total cost of the equipment was $43,700.Edcon estimated that the equipment would be used for 7 years before being sold for an estimated $5,200.Assuming the use of straight-line depreciation,the carrying value of the equipment on January 2,2015 will be:

A)$12,486
B)$16,200
C)$21,400
D)$27,500

Question 41

Which of the following describes "depreciable cost"?

A)original cost minus accumulated depreciation
B)depreciation expense times the income tax rate
C)original cost minus salvage value
D)accumulated depreciation

Question 42

Abernethy Corporation is depreciating an asset using the double declining balance method and a 40 percent depreciation rate.What is the estimated economic life of the asset?

A)40 years
B)20 years
C)10 years
D)5 years

Question 43

Mallory Technical Services obtained a new machine.Which of the following would not be included in the cost of the machine?

A)penalty for failure to obtain transport permit
B)cost of installation
C)cost of testing
D)invoice price

Question 44

Which of the following is different for straight-line depreciation and declining balance depreciation?

A)cost of asset
B)salvage value
C)economic life
D)amount of depreciation per year

Question 45

Manhattan Corporation owns a jet airplane with an original cost of $958,500 and accumulated depreciation of $644,800.The company exchanged the airplane for 50,000 shares of stock held by another company as an investment.The stock is valued at $5 per share.The gain or loss recognized on the exchange would be:

A)$394,800 loss
B)$ 63,700 loss
C)$313,700 gain
D)no gain or loss should be recognized

Question 46

Use the following to answer questions
Oceanside Enterprises is trading in its old fishing vessel for a new model. The old fishing vessel is on the books at a cost of $364,000 with accumulated depreciation of $314,600. The new fishing vessel has a list price of $538,000 but the manufacturer has agreed to reduce this by $75,000 in return for Oceanside's old fishing vessel.
The new fishing vessel should be recorded on the books at a cost of:

A)$538,000
B)$512,400
C)$463,000
D)$488,600

Question 47

Which of the following would be classified as a plant asset?

A)land held for future use
B)machinery
C)trademark
D)inventory

Question 48

Which of the following would be classified as an intangible asset?

A)land held for future use
B)machinery
C)trademark
D)inventory

Question 49

Operational investments in non-renewable assets are referred to as:

A)plant assets
B)intangible assets
C)natural resources
D)long-term investments

Question 50

O'Conner Corporation purchased land with a building on it.It removed the old building and constructed a new one.Which of the following costs would not be included in the cost of the building?

A)constructing the new building
B)removing the old building
C)building permits
D)foundation
E)all would be included

Question 51

Safeco,Inc.owns a jet airplane with an original cost of $958,500 and accumulated depreciation of $644,800.The company exchanged the airplane for 50,000 shares of stock held by another company as an investment.The stock is valued at $7 per share.The gain or loss recognized on the exchange would be:

A)$294,800 loss
B)$313,700 gain
C)$ 36,300 gain
D)no gain or loss should be recognized

Question 52

At December 31,2010,Edgar Enterprises had equipment with a book value of $40,000.On December 31,2009,the book value was $55,000.The original cost of the equipment was $75,000.Assuming straight-line depreciation and no salvage value,what is the estimated economic life of the asset?

A)5 years
B)4 years
C)3 years
D)2 years

Question 53

Use the following to answer questions
Oceanside Enterprises is trading in its old fishing vessel for a new model. The old fishing vessel is on the books at a cost of $364,000 with accumulated depreciation of $314,600. The new fishing vessel has a list price of $538,000 but the manufacturer has agreed to reduce this by $75,000 in return for Oceanside's old fishing vessel.
The gain or loss recognized on the exchange would be:

A)$49,400 loss
B)$25,600 gain
C)$75,000 gain
D)no gain or loss should be recognized

Question 54

The legal life of a patent is:

A)5 years
B)7 years
C)17 years
D)40 years

Question 55

Offshore Oil Company owns oil reserves estimated to contain 6,500,000 barrels of oil.The oil reserves originally cost $75,000,000 with an estimated salvage value of $3,500,000.During the current period,1,200,000 barrels of oil were extracted.The depletion rate per barrel was:

A)$11.00
B)$11.54
C)$59.58
D)$62.50

Question 56

Laguna Enterprises is trading in its old schooner for a new model.The old schooner is on the books at a cost of $535,000 with accumulated depreciation of $384,300.The new schooner has a list price of $765,000 but the manufacturer has agreed to reduce this by $125,000 in return for Laguna's old schooner.The new schooner should be recorded on the books at a cost of:

A)$640,000
B)$739,300
C)$765,000
D)$790,700

Question 57

When an exchange is deemed to have no economic substance,the gain is not recognized and is subtracted from which of the following to determine the cost of the new asset.

A)The book value of the asset given
B)The book value of the asset received
C)The cash given
D)The fair value of the asset received

Question 58

B&V Enterprises exchanged a used crane with an original cost of $200,000 and accumulated depreciation of $140,000 for a truck with a fair market value of $100,000.B&V also paid cash of $25,000.What amount of gain should B&V report on this transaction?

A)$0
B)$15,000
C)$40,000
D)$100,000

Question 59

The intangible asset representing the difference between the purchase price paid for a going concern and the fair market value of the purchased company's identifiable net assets is referred to as:

A)a patent
B)goodwill
C)a franchise
D)a leasehold

Question 60

Orkney Company has 2-year-old machinery with a book value of $300,000,based on straight-line depreciation.The machinery has a 5 year economic life and $30,000 salvage value.What was the original cost?

A)$480,000
B)$500,000
C)$530,000
D)unable to determine from the information given

Question 61

Explain why gains and losses are not recorded when a noncash exchange as not economic substance.

Question 62

Which of the following statements about interest costs is correct?

A)interest on money specifically borrowed to finance construction of an asset should be capitalized
B)a proportionate share of all interest incurred during the life of an asset should be capitalized
C)interest cost incurred during construction of an asset can be capitalized
D)no interest should be capitalized

Question 63

Wynn Distributing wants to trade in its old delivery truck for a new one.The old truck is on the books at a cost of $84,500,and it has a carrying value of $19,300.The new truck has a list price of $108,700.Determine the gain or loss to be recognized on the disposal of the delivery truck,as well as the dollar amount recorded on the books for the new truck under each of the following situations:
(

A)the dealer has agreed to reduce the price of the new truck by $10,000 in exchange for the old truck
(b)the dealer has agreed to reduce the price of the new truck by $30,000 in exchange for the old truck

Question 64

Blythe Company has equipment with an original cost of $150,000 and accumulated depreciation of $40,000.What is the current fair value of the equipment?

A)$150,000
B)$110,000
C)$40,000
D)unable to determine from the information given

Question 65

Which of the following statements is correct?

A)firms must use the same depreciation methods for tax and financial reporting
B)return on assets based on reported values tends to be overstated
C)all the assets a firm owns are reported on its balance sheet
D)plant assets are reported at fair market value

Question 66

Question 67

Technonerds,Inc.owns a piece of lab equipment with an original cost of $39,500,and a current carrying value of $17,450.Determine the gain or loss for each of the following situations:
(

A)the equipment is sold for $23,800 cash
(b)the equipment is sold for scrap and $750 in cash is received
(c)the equipment is sold for a 12-month $25,000 note receivable with a stated 9% interest rate

Question 68

What is a company's primary objective when reporting depreciation in its annual financial statements? What is the primary objective for tax reporting purposes? Is depreciation expense always the same for tax and financial reporting purposes? Explain.

Question 69

A loss due to impairment is recorded when:

A)The asset is sold for less than its book value.
B)An asset's fair value temporarily drops below its book value.
C)An asset is damaged during operations.
D)An asset's fair value permanently drops below its book value

Question 70

Visonic Corporation purchased a delivery truck at a total cost of $65,000.The truck will be used for 5 years,during which time it is expected to be driven 100,000 miles,and then it will be sold for an estimated $7,000.During the first two years of the truck's life it was driven 16,000 miles and 21,500 miles,respectively.Calculate the depreciation expense for the first two years of the truck's life using the:
(

A)straight-line method
(b)units-of-production method
(c)double-declining balance method

Question 71

Comment on this statement: "Salvage value is ignored when the declining balance depreciation method is used."

Question 72

"Intangible assets are consistently unreported and underreported".Explain this statement.

Question 73

Klocke Corporation purchased a truck for its delivery service.The list price of the truck was $32,000 but Klocke paid $5,000 cash and signed a $24,000 five year installment note to buy the truck.Before the truck was put into service the company logo was printed on the doors at a cost of $300.Because the truck will be making many deliveries to off-road locations,Klocke installed special shock absorbers that cost $300,however,$50 of the cost was due damage repaired when one of shocks was installed incorrectly.Sales tax on the truck was $1,200 and property tax for the first year was $600.What is the cost of the new truck?

Question 74

Would a firm prefer straight-line or accelerated depreciation for financial reporting purposes? For tax purposes? Explain.

Question 75

Olympic Products,Inc.acquired some land,several buildings,and various pieces of equipment at a total cost of $5,600,000.Independent appraisals valued the land at $2,100,000,the buildings at $3,400,000,and the equipment at $500,000.The owner of the company thinks the land should be valued at $1,000,000,the buildings at $3,850,000 and the equipment at $750,000.Using the most appropriate method,what dollar amount should be assigned to each category of asset? Is there any reason the owner might want a higher or lower value assigned to any of the three asset categories?

Question 76

Which of the following is the correct entry for the sale of equipment at a loss?

A)
B)
C)
D)

Question 77

Gorham Company has equipment with an original cost of $250,000 and accumulated depreciation of $140,000.If the equipment was sold it would generate a $15,000 Gain.What is the current fair value of the equipment?

A)$150,000
B)$110,000
C)$140,000
D)$125,000

Question 78

Nanotech Inc owns a machine with an original cost of $200,000 and a book value of $60,000.Give the entries to record the following
(a) Sold the machine for $72,000 cash.
(b) Discarded the machine
(c) Sold the machine for $5,000 cash and a $40,000 note

Question 79

Why might the returns on assets of two firms in the same industry not be useful in comparing the firms?

Question 80

Ivy,Incorporated,purchased all the common stock of Harrell Company for $2,000,000.Harrell's net assets had a book value of $1,200,000 and a fair market value of $1,500,000.What amount of goodwill should Ivy record as a result of this transaction?

A)$0
B)$300,000
C)$500,000
D)$700,000