Question 1

Indicate whether each of the following expenditures should be classified as:
-Electricity cost during first year

Accepted Answer

Electricity cost during the first year is an operational expense, not a capital expenditure, and does not fall into categories of land, land improvements, buildings, or equipment.

Question 2

Matai Ltd purchased a machine on 1 January, 2018. In addition to the purchase price paid, the following additional costs were incurred: 
(a) sales tax paid on the purchase price
(b) transportation and insurance costs while the machinery was in transit from the seller
(c) personnel training costs for initial operation of the machinery
 (d) installation costs necessary to secure the machinery to the building flooring
(e) major overhaul to extend the life of the machinery
 (f) lubrication of the machinery gearing before the machinery was placed into service
(g) lubrication of the machinery gearing after the machinery was placed into service
 (h) annual operating license fee.
Indicate whether the items (a) through (h) are capital or revenue expenditures in the spaces provided: C = capital, R = revenue.

Accepted Answer

The answer of Matai Ltd purchased a machine on 1...

Question 3

Nelson Word Processing Service Ltd uses the straight-line method of depreciation. The company's financial year end is 31 December. The following transactions and events occurred during the first three years.
  Prepare the necessary entries. (Show computations.)

Accepted Answer

The answer of Nelson Word Processing Service Ltd uses the...

Question 4

Identify the following expenditures :
-Replacement of worn out gears on factory machinery.

Accepted Answer

The replacement of worn out gears on factory machinery is considered a revenue expenditure because it is a cost associated with the repair and maintenance of existing equipment, aimed at keeping the asset in its original working condition rather than enhancing its value or life.

Question 5

Identify the following expenditures :
-Painting the exterior of a building.

Accepted Answer

Painting the exterior of a building is considered a revenue expenditure because it is a maintenance cost that does not add to the value or extend the life of the asset.

Question 6

Identify the following expenditures :
-Oil change on a company truck.

Accepted Answer

An oil change on a company truck is considered a revenue expenditure because it is a routine maintenance expense aimed at keeping the asset (the truck) in its normal operating condition without significantly enhancing its value or extending its life.

Question 7

Identify the following expenditures :
-Replacing a Pentium chip with a core 2 Duo chip, which increases productive capacity. No extension of useful life expected.

Accepted Answer

Capital expenditures are costs incurred to increase the productive capacity or efficiency of an asset without extending its useful life. Replacing a Pentium chip with a Core 2 Duo chip to increase productive capacity falls under this category, as it enhances the asset's performance rather than maintaining it.

Question 8

Identify the following expenditures :
-Overhaul of a truck motor. One-year extension in useful life is expected.

Accepted Answer

The overhaul of a truck motor that extends its useful life by one year is considered a capital expenditure because it enhances the value of the asset and extends its useful life, rather than simply maintaining it in its original condition.

Question 9

Identify the following expenditures :
-Purchased a wastebasket at a cost of $10.

Accepted Answer

Purchasing a wastebasket for $10 is considered a revenue expenditure because it is a small, routine purchase that does not significantly extend the asset's life or enhance its value, but rather is part of the day-to-day operating expenses.

Question 10

Identify the following expenditures :
-Painting and lettering of a used truck upon acquisition of the truck.

Accepted Answer

Painting and lettering of a used truck upon acquisition is considered a capital expenditure because it adds value to the truck, potentially extending its useful life and enhancing its efficiency or capacity.

Question 11

On 1 January, 2019, Rata Ltd purchased and installed a telephone system at a cost of $20,000. The equipment was expected to last five years with a salvage value of $3,000. On 1 January, 2020, more telephone equipment was purchased to tie-in with the current system for $8,000. The new equipment is expected to have a useful life of four years. Through an error, the new equipment was debited to Telephone expense. Rata Ltd uses the straight-line method of depreciation.
Prepare a schedule showing the effects of the error on Telephone expense, depreciation expense, and Net profit for each year and in total beginning in 2019 through the useful life of the new equipment.

Accepted Answer

The answer of On 1 January, 2019, Rata Ltd purchased...

Question 12

(a) Barnes Ltd purchased equipment on 1 January, 2013 for $80,000 and estimated an $8,000 salvage value at the end of the equipment's 10-year useful life. At 31 December, 2019, there was $50,400 in the Accumulated depreciation account for this equipment using the straight-line method of depreciation. On March 31, 2020, the equipment was sold for $21,000.
Prepare the appropriate journal entries to remove the equipment from the books of Barnes Ltd on March 31, 2020.
(b) Lanne Manufacturing sold a delivery truck for $11,000. The delivery truck originally cost $25,000 in 2005 and $6,000 was spent on a major overhaul in 2010 (charged to Delivery Truck account). Accumulated depreciation on the delivery truck to the date of disposal was $20,000.
Prepare the appropriate journal entry to record the disposition of the delivery truck.
(c) Crown Travel Ltd sold office equipment that had a carrying amount of $4,500 for $6,000. The office equipment originally cost $15,000 and it is estimated that it would cost $19,000 to replace the office equipment.
Prepare the appropriate journal entry to record the disposition of the office equipment.

Accepted Answer

The answer of (a) Barnes Ltd purchased equipment on 1...

Question 13

Prepare the journal entries to record the following transactions for the Nobles Company, which has a financial year end of 31 December and uses the straight-line method of depreciation.
(a) On 30 September, 2019, the company sold old delivery equipment for $9,000. The delivery equipment was purchased on 1 January, 2017, for $21,000 and was estimated to have a $3,000 residual value at the end of its 5-year life. Depreciation on the delivery equipment has been recorded through 31 December, 2018.
(b) On 30 June, 2019, the company sold old office equipment for $18,000. The office equipment originally cost $24,000 and had accumulated depreciation to the date of disposal of $10,000.

Accepted Answer

The answer of Prepare the journal entries to record the...

Question 14

a. A machine that cost $18,000 and on which $13,000 of depreciation had been recorded was disposed of for $5,200. Indicate whether a gain or loss should be recorded, and for what amount.
b. Assume that the machine in part A above was instead discarded. Indicate whether a gain or loss should be recorded, and for what amount.
c. Assume that the machine in part A above was instead sold for $4,800. Indicate whether a gain or loss should be recorded, and for what amount.

Accepted Answer

The answer of a. A machine that cost $18,000 and...

Question 15

Presented below are selected transactions for Ronnen Products Ltd for 2019.
  Journalise all entries required as a result of the above transactions. Ronnen Products Ltd uses the straight-line method of depreciation and has recorded depreciation through 31 December, 2019.

Accepted Answer

The answer of Presented below are selected transactions for Ronnen...

Question 16

Winningham Ltd sold the following two machines in 2019:
  Journalise all entries required to update depreciation and record the sales of the two assets in 2019. The company has recorded depreciation on the machine through 31 December, 2018.

Accepted Answer

The answer of Winningham Ltd sold the following two machines...

Question 17

The following information is available from the 2019 annual reports of Fresh Food and Food for Cheap:
  Required:
(a) Based on the preceding information, calculate the following values for each company:
 1. average useful life of plant assets
 2. average age of plant assets
 3. asset turnover.
(b) What conclusion concerning the management of plant assets can be drawn from these data?

Accepted Answer

The answer of The following information is available from the...

Question 18

(a) A company purchased a patent on 1 January, 2019, for $2,500,000. The patent's legal life is 20 years but the company estimates that the patent's useful life will only be 5 years from the date of acquisition. On 30 June, 2019, the company paid legal costs of $162,000 in successfully defending the patent in an infringement suit. Prepare the journal entry to amortise the patent at year end on 31 December, 2019.
(b) The Walker Company purchased a franchise from the Tasty Food Company for $400,000 on 1 January, 2019. The franchise is for an indefinite time period and gives the Walker Company the exclusive rights to sell Tasty Wings in a particular territory. Prepare the journal entry to record the acquisition of the franchise and any necessary adjusting entry at year end on 31 December, 2019. The franchise is expected to have value for a period of 20 years.
(c) Dawson Company incurred research and development costs of $500,000 in 2019 in developing a new product.
Prepare the necessary journal entries during 2019 to record these events and any adjustments at year end on 31 December, 2019.

Accepted Answer

The answer of (a) A company purchased a patent on...

Question 19

A patent that was acquired for $800,000 at the beginning of the current year expires in 20 years and is expected to have value for 4 years. Present the adjusting entry to amortise the patent for the current year.

Accepted Answer

The answer of A patent that was acquired for $800,000...

Question 20

For each item listed, choose a code letter to indicate the allocation terminology for the item. Use the following codes for your answer:
-Goodwill

Accepted Answer

Goodwill is not amortized under most accounting frameworks, including IFRS and US GAAP. Instead, it is tested annually for impairment.

Quiz 8: Reporting and Analysing Non-Current Assets

Indicate whether each of the following expenditures should be classified as: -Electricity cost during first year

Nelson Word Processing Service Ltd uses the straight-line method of depreciation. The company's financial year end is 31 December. The following transactions and events occurred during the first three years. Prepare the necessary entries. (Show computations.)

Identify the following expenditures : -Replacement of worn out gears on factory machinery.

Identify the following expenditures : -Painting the exterior of a building.

Identify the following expenditures : -Oil change on a company truck.

Identify the following expenditures : -Replacing a Pentium chip with a core 2 Duo chip, which increases productive capacity. No extension of useful life expected.

Identify the following expenditures : -Overhaul of a truck motor. One-year extension in useful life is expected.

Identify the following expenditures : -Purchased a wastebasket at a cost of $10.

Identify the following expenditures : -Painting and lettering of a used truck upon acquisition of the truck.

Presented below are selected transactions for Ronnen Products Ltd for 2019. Journalise all entries required as a result of the above transactions. Ronnen Products Ltd uses the straight-line method of depreciation and has recorded depreciation through 31 December, 2019.

Winningham Ltd sold the following two machines in 2019: Journalise all entries required to update depreciation and record the sales of the two assets in 2019. The company has recorded depreciation on the machine through 31 December, 2018.

A patent that was acquired for $800,000 at the beginning of the current year expires in 20 years and is expected to have value for 4 years. Present the adjusting entry to amortise the patent for the current year.

For each item listed, choose a code letter to indicate the allocation terminology for the item. Use the following codes for your answer: -Goodwill