Question 1

WDS Company owns a patent with an estimated useful life of 15 years,a zero salvage value,and a historical cost of $42,000.Net income is $200,000 BEFORE the year-end adjustment related to the patent.What will net income be AFTER the proper year-end adjustment has been made?

Accepted Answer

The year-end adjustment for the patent would be the amortization expense for the year, which can be calculated using the straight-line method as follows:
Amortization expense = (historical cost - salvage value) / useful life
Amortization expense = ($42,000 - $0) / 15 years
Amortization expense = $2,800
Therefore, net income after the adjustment would be:
Net income = $200,000 - $2,800
Net income = $197,200

Question 2

Which depreciation method will maximize net income reported to the shareholders in the early years of an asset's life?

Accepted Answer

The straight-line method evenly distributes the cost of the asset over its useful life, resulting in lower depreciation expenses and therefore higher net income in the early years of the asset's life. This method is thus best for maximizing net income reported to shareholders in the early years.

Question 3

Under U.S.GAAP,when assets are written down because of impairment,the impairment losses cannot be reversed even if conditions change.

Accepted Answer

Under U.S. GAAP, once an asset is written down due to impairment, the impairment loss cannot be reversed in future periods, even if the asset's value recovers.

Question 4

International Financial Reporting Standards (IFRS)require revaluation of assets to their fair value if fair value can be measured reliably.

Accepted Answer

IFRS allows but does not require revaluation of assets to their fair value. Companies can choose the cost model or the revaluation model for asset valuation.

Question 5

KUI Company owns a copyright with an estimated 10-year useful life,a zero salvage value,and an historical cost of $20,000.What is the effect on net income of making the proper adjusting entry at year-end?

Accepted Answer

The adjusting entry at year-end would involve recognizing $2,000 of amortization expense ($20,000 historical cost/10-year useful life). This expense would decrease net income by $2,000. Therefore, the correct answer is C, "The adjustment will decrease net income by $2,000."

Question 6

On January 1,2011,Petrel Shipping Company bought equipment that cost $65,000 with an estimated useful life of 10 years and an estimated salvage value of $5,000.The company uses the double-declining balance method of depreciation.What will be the BOOK VALUE of the asset on December 31,2012?

Accepted Answer

The double-declining balance method of depreciation involves doubling the straight-line depreciation rate. The straight-line depreciation rate for an asset with a 10-year life is 10%. Doubling this gives a depreciation rate of 20% per year. For the first year (2011), the depreciation expense is 20% of $65,000, which is $13,000. This leaves a book value of $52,000 ($65,000 - $13,000) at the end of 2011. For the second year (2012), the depreciation expense is again 20% of the new book value, which is 20% of $52,000 = $10,400. Subtracting this from the book value at the end of 2011 gives a new book value of $41,600 ($52,000 - $10,400) at the end of 2012.

Question 7

Describe the impact on the financial statements of buying a piece of factory equipment for cash,using it,and then selling it for cash.
On the balance sheet:
On the income statement:
On the statement of cash flows:

Accepted Answer

The answer of Describe the impact on the financial statements...

Question 8

According to GAAP,which of the following items about long term-assets must be disclosed,either in the financial statements or in the related footnotes?

Accepted Answer

According to GAAP, all of these items about long-term assets must be disclosed, either in the financial statements or in the related footnotes. The historical cost of the long-term assets owned, the accumulated depreciation taken over the life of the long-term assets, and the method(s) used to depreciate long-term assets are all important pieces of information for users of financial statements to make informed decisions about a company's financial health.

Question 9

A factory machine was purchased on January 1,2011 for $30,000.The machine has an expected 9-year useful life and a $3,000 estimated salvage value.On January 1,2017,the asset is sold for $3,500 cash.
Required:
1.Determine the total amount of depreciation expense taken over the life of the asset up to the day it is sold.Assume the company uses the straight-line method and has a calendar year.
2.Determine the asset's book value on the day it is sold.
3.Determine if the asset is sold at a gain or a loss,and show the amount.
4 .Explain how the sale will be reported on the statement of cash flows.

Accepted Answer

The answer of A factory machine was purchased on January...

Question 10

Which depreciation method will result in the most total depreciation expense being recognized over a depreciable asset's entire life?

Accepted Answer

All three methods (straight-line, double-declining balance, and units-of-production) result in the same total depreciation expense over the life of an asset. The difference lies in the timing and pattern of expense recognition, not the total amount depreciated.

Question 11

On January 1,2011,Handy Manufacturing Company paid $50,000 for equipment with an estimated useful life of 5 years and $3,000 expected salvage value.The company uses straight-line depreciation.If the adjustment for depreciation is NOT made,net income for the year ended December 31,2011 will be ________.

Accepted Answer

The annual depreciation expense is calculated as ($50,000 - $3,000) / 5 = $9,400. If depreciation is not recorded, net income will be overstated by this amount.

Question 12

Under International Financial Reporting Standards (IFRS),when assets are written down because of impairment,the impairment losses can be reversed if circumstances change.

Accepted Answer

According to IFRS, impairment losses can be reversed if there is a change in circumstances indicating that the previously recognized impairment loss no longer exists or has decreased. However, the reversal is limited to the amount of the original impairment loss that was recognized.

Question 13

Tennyson LTP purchased computers on January 1,2011,at a cost of $120,000.The estimated useful life of the computers is 4 years and there is no estimated salvage value.
Required:
1.Complete the depreciation schedule below assuming Tennyson uses the straight-line method.
  2.Complete the depreciation schedule below assuming Tenison uses the double-declining balance method.
  3.Which method would report the greater net income to the shareholders for 2011?
4.Which method results in the higher amount of total depreciation expense over the four-year life of the asset?

Accepted Answer

The answer of Tennyson LTP purchased computers on January 1,2011,at...

Question 14

Which financial statement reports long-term assets?

Accepted Answer

The balance sheet reports an organization's long-term assets, along with its other assets, liabilities, and shareholders' equity.

Question 15

International Financial Reporting Standards (IFRS)allow revaluation of assets to their fair value if fair value can be measured reliably.

Accepted Answer

IFRS does allow revaluation of assets to their fair value if fair value can be measured reliably.

Question 16

S.GAAP value plant and equipment at historical cost minus accumulated depreciation.

Accepted Answer

This is correct, as per S.GAAP (Statement of Generally Accepted Accounting Principles), plant and equipment are typically valued at historical cost (the original cost at the time of acquisition) minus accumulated depreciation.

Question 17

On January 1,2011,Tiler Company purchased equipment that cost $30,000.The equipment has an estimated useful life of 6 years and an estimated salvage value of $3,000.
Required:
1.Using the straight-line method,complete the chart below:
  2.Explain why long-term assets must be depreciated.
3.Explain why land is NOT depreciated while assets such as equipment are depreciated.

Accepted Answer

The answer of On January 1,2011,Tiler Company purchased equipment that...

Question 18

On January 1,2011,Albatross Shipping Company bought equipment that cost $55,000,with an estimated useful life of 10 years and an estimated salvage value of $5,000.The company uses the straight-line method of depreciation.What is the BOOK VALUE of the equipment on December 31,2014?

Accepted Answer

The annual depreciation expense is calculated as (Cost - Salvage Value) / Useful Life = ($55,000 - $5,000) / 10 = $5,000 per year. After 4 years (2011-2014), the total depreciation is $5,000 * 4 = $20,000. The book value on December 31, 2014, is Cost - Accumulated Depreciation = $55,000 - $20,000 = $35,000.

Question 19

What effect does depreciating a long-term asset have on the financial statements?

Accepted Answer

Depreciation causes a decrease in net income on the income statement through the allocation of the cost of a long-term asset over its useful life. This decrease in net income flows through to the retained earnings section of the statement of changes in shareholders' equity. The decrease in the value of the asset due to depreciation is reflected as a decrease in total assets on the balance sheet.

Question 20

What basic information must be disclosed about long-term assets in the financial statements and accompanying footnotes?

Accepted Answer

The answer of What basic information must be disclosed about...

Quiz 6: Acquisition and Use of Long-Term Assets