Question 1

Many companies use accelerated depreciation for tax purposes because:

Accepted Answer

Accelerated depreciation results in higher depreciation expenses in the earlier years of an asset's life, which reduces taxable income and therefore leads to lower taxes paid for those years. This is why many companies use accelerated depreciation for tax purposes. It has nothing to do with ease of calculation, reflecting cash used in depreciation, or determining net income reported to stockholders.

Question 2

Lone Star Sales & Service acquired a new machine that cost $42,000 in early 2013. The machine is expected to have a five-year useful life and is estimated to have a salvage value of $7,000 at the end of its life. (Round your final answers to the nearest dollar.)
(a.) Using the straight-line depreciation method, calculate the depreciation expense to be recognized in the second year of the machine's life and calculate the accumulated depreciation after the third year of the machine's life.
(b.) Using the double-declining-balance depreciation method, calculate the depreciation expense for the third year of the machine's life and the net book value of the machine at this point in time.

Accepted Answer

The answer of Lone Star Sales & Service acquired a...

Question 3

Goodwill is an asset that arises because the present value of an acquired company's estimated future earnings, discounted at the acquiring firm's ROI:

Accepted Answer

Goodwill is an asset that arises when the value of an acquired company's estimated future earnings, discounted at the acquiring firm's ROI, is more than the fair value of the net assets of the acquired company. This means that the acquiring firm is paying more for the target company than the fair market value of its net assets, in anticipation of future earnings that will generate a return on investment.

Question 4

The principal challenge to calculating depletion is estimating:

Accepted Answer

Depletion is calculated based on the quantity of material to be recovered, also known as the depletion base. The cost of the asset, salvage value of exploration equipment, and demand for the product may be factors in determining the depletion rate, but they are not directly related to calculating the depletion base.

Question 5

The intangible asset goodwill:

Accepted Answer

Goodwill arises when one company purchases another and pays more than the fair value of the net identifiable assets.

Question 6

When a depreciable asset is sold:

Accepted Answer

A gain arises if the sales proceeds exceed the net book value because the difference between the sales proceeds and the net book value is the profit or gain on the sale. Conversely, a loss arises if the sales proceeds are less than the net book value, indicating that the asset was sold for less than its carrying amount. The cash received from the sale does not necessarily result in a gain, as it depends on the amount of the net book value and the sales proceeds. Depreciation expense is not adjusted upon the sale, as it reflects the allocation of the asset's cost over its useful life and is not affected by the sale.

Question 7

Goodwill results from the purchase of one firm by another for a price that is greater than the fair value of the net assets acquired. On January 1, 2014, Blue Grass Co. purchased Red Grass Co. for $1,200,000 when the net assets were valued at $1,000,000. Goodwill will be tested annually for impairment. Assume that after the first year there was an impairment of $15,000.
Required:
(a.) Compute the value of goodwill to be recorded on the books of Blue Grass Company upon the purchase of the business.
(b.) What is impairment and how is the first year's impairment recorded in the books?

Accepted Answer

The answer of Goodwill results from the purchase of one...

Question 8

Noncurrent, intangible assets such as leasehold improvements, patents, and copyrights are all subject to:

Accepted Answer

Noncurrent, intangible assets such as leasehold improvements, patents, and copyrights are all subject to amortization. Amortization is the process of allocating the cost of an intangible asset over its useful life, similar to depreciation for tangible assets.

Question 9

Accounting for natural resources:

Accepted Answer

Accounting for natural resources involves estimating the quantity of the natural resource to be recovered to calculate depletion, which is similar to depreciation for tangible assets.

Question 10

Which of the following is not a term that describes part of the accounting for noncurrent assets?

Accepted Answer

Accumulation is not a term used in the accounting for noncurrent assets, while depletion, amortization, and depreciation are commonly used terms.

Quiz 6: Accounting for and Presentation of Property, Plant and Equipment,and Other Noncurrent Assets