Question 1

In which of the following situations would Martinez Industries include goodwill in its balance sheet?

Accepted Answer

The answer of In which of the following situations would...

Question 2

Louisville Farms, a breeder of racehorses, paid $432,000 cash for a prize-winning stallion on January 1, 2003. The stallion is depreciated on a straight-line basis, with depreciation for partial years rounded to the nearest month. Estimated useful life was nine years, with no residual value. After owning the animal for six years and five months, Louisville Farms sold the stallion on May 31, 2009, for cash of $85,000. Depreciation had last been recorded on December 31, 2008.
-Compute the book value of the stallion at May 31, 2009, the date of sale.
$______________

Accepted Answer

The answer of Louisville Farms, a breeder of racehorses, paid...

Question 3

Ladd Company sold a plant asset that originally had cost $50,000 for $22,000 cash. If Ladd correctly reports a $5,000 gain on this sale, the accumulated depreciation on the asset at the date of sale must have been:

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The answer of Ladd Company sold a plant asset that...

Question 4

On May 5, 2009, Lloyd purchased a machine for $84,000. The estimated life of the machine was 10 years, with an estimated residual value of $10,000. The service life in terms of "output" is estimated at 8,000 hours of operation.
-Assume Lloyd uses the units-of-output method and that the machine was in operation for 1,000 hours in 2009 and 1,800 hours in 2010. The book value of the machine at December 31, 2010 is:

Accepted Answer

First, we need to calculate the depreciation per hour: 
Depreciation per hour = (Cost - Residual Value) / Service life in hours 
Depreciation per hour = ($84,000 - $10,000) / 8,000 = $9/hour

Using this rate, we can calculate the depreciation expense for each year: 
Depreciation expense in 2009 = 1,000 hours x $9/hour = $9,000 
Depreciation expense in 2010 = 1,800 hours x $9/hour = $16,200

The book value of the machine at the end of 2010 can be calculated as: 
Book value = Cost - Accumulated depreciation 
Accumulated depreciation = Depreciation expense in 2009 + Depreciation expense in 2010 
Accumulated depreciation = $9,000 + $16,200 = $25,200

Book value = $84,000 - $25,200 = $58,800 
Therefore, the book value of the machine at December 31, 2010 is $58,100 (B).

Question 5

Which of the following statements is (are) correct?

Accepted Answer

It is common for companies to use different depreciation methods for financial reporting purposes and for income tax purposes. This is because different depreciation methods may result in different amounts of depreciation expense, which can affect the company's financial statements and tax liability. A and B are incorrect because accumulated depreciation represents the total depreciation expense that has been recorded over the life of an asset, and the cost of repairing damage during installation is not included in the cost of a machine. D is incorrect because accelerated depreciation methods result in higher depreciation expense in the earlier years of an asset's life, but do not necessarily cause the asset to wear out more quickly.

Question 6

In which of the following situations should the named company not record any depreciation expense on the asset described?

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The answer of In which of the following situations should...

Question 7

On May 5, 2009, Lloyd purchased a machine for $84,000. The estimated life of the machine was 10 years, with an estimated residual value of $10,000. The service life in terms of "output" is estimated at 8,000 hours of operation.
-Assume Lloyd uses 200%-declining-balance depreciation with the half-year convention. Depreciation expense to be recognized in 2010 (the second year of ownership) is:

Accepted Answer

Using the 200%-declining-balance method with half-year convention, the annual depreciation rate is 40% (200%/10 years) and the half-year rate for the first year is 20% (40%/2).

For the first year, Lloyd can depreciate half of the cost, which is $42,000 ($84,000/2), by multiplying it by the half-year rate of 20%, resulting in $8,400 for the first year.

For the second year, the remaining cost after the first year's depreciation is $42,000 ($84,000 – $42,000). The second-year depreciation expense can be calculated by multiplying the remaining cost by the annual depreciation rate, which is 40%, resulting in $16,800. Since this is the second year, the half-year convention must be applied again, resulting in a depreciation expense of $8,400 for the second year.

Therefore, the total depreciation expense to be recognized in 2010 is $8,400 + $8,400 = $15,120, which is choice C.

Question 8

Evergreen Mfg. is a rapidly growing company that acquires more equipment every year. Evergreen uses straight-line depreciation in its financial statements and MACRS in its tax returns. Identify all correct statements:

Accepted Answer

Using an accelerated depreciation method in income tax returns reduces the taxable income, which in turn reduces the amount of taxes owed, therefore increasing net cash flow. However, using straight-line depreciation in financial statements does not affect net cash flow. Option A is incorrect because using an accelerated method instead of straight-line depreciation reduces the net income reported. Option B is incorrect because using straight-line depreciation in financial statements does not necessarily increase net cash flow. Option D is incorrect because MACRS is an accelerated depreciation method, so Evergreen may report less depreciation in income tax returns compared to financial statements.

Question 9

On May 5, 2009, Lloyd purchased a machine for $84,000. The estimated life of the machine was 10 years, with an estimated residual value of $10,000. The service life in terms of "output" is estimated at 8,000 hours of operation.
-Assume Lloyd uses 150%-declining-balance depreciation with the half-year convention. Depreciation expense to be recognized in 2009 (the year of purchase) is:

Accepted Answer

The answer of On May 5, 2009, Lloyd purchased a...

Question 10

$\begin{array}{lrr}
&2010&2011\
\
  \text {a \quad Straight-line (with half-year convention)  } &\$\underline{\quad\quad}&\$\underline{\quad\quad}\
\
 \text {b $\quad 200 \% $-declining-balance (with half-year convention) } &\$\underline{\quad\quad}&\$\underline{\quad\quad}\
\
 \text {c $ \quad 150 \% $-declining-balance (with half-year convention) } &\$\underline{\quad\quad}&\$\underline{\quad\quad}\
\
 \text {d \quad Units-of-output method (hours of operation: } &\
 \text {\quad (2,600 in 2010 and 6,000 in 2011) } &\$\underline{\quad\quad}&\$\underline{\quad\quad}\
\
 \text {e \quad Straight-line (with depreciation calculated to the   } &\
 \text {\quad  nearest whole month)} &\$\underline{\quad\quad}&\$\underline{\quad\quad}
\end{array}$

Accepted Answer

The answer of \(\begin{array}{lrr}
&2010&2011\
\
  \text {a \quad Straight-line (with...

Question 11

Louisville Farms, a breeder of racehorses, paid $432,000 cash for a prize-winning stallion on January 1, 2003. The stallion is depreciated on a straight-line basis, with depreciation for partial years rounded to the nearest month. Estimated useful life was nine years, with no residual value. After owning the animal for six years and five months, Louisville Farms sold the stallion on May 31, 2009, for cash of $85,000. Depreciation had last been recorded on December 31, 2008.
-Compute the gain or loss on the sale of the stallion. $______________ (gain/loss)

Accepted Answer

The answer of Louisville Farms, a breeder of racehorses, paid...

Question 12

On April 1, 2010, Sanders Construction paid $10,000 for equipment with an estimated useful life of 10 years and a residual value of $2,000. The company uses the double-declining-balance method of depreciation and applies the half-year convention to fractional periods. In 2011, the amount of depreciation expense to be recognized on this equipment is:

Accepted Answer

The answer of On April 1, 2010, Sanders Construction paid...

Question 13

In the space provided below, prepare the journal entry to record the sale of the stallion on May 31, 2009. (Use Breeding Stock as the title of the asset account. Assume that depreciation to date of sale already has been recorded.)

Accepted Answer

The answer of In the space provided below, prepare the...

Question 14

Louisville Farms, a breeder of racehorses, paid $432,000 cash for a prize-winning stallion on January 1, 2003. The stallion is depreciated on a straight-line basis, with depreciation for partial years rounded to the nearest month. Estimated useful life was nine years, with no residual value. After owning the animal for six years and five months, Louisville Farms sold the stallion on May 31, 2009, for cash of $85,000. Depreciation had last been recorded on December 31, 2008.
-Compute to the nearest full month depreciation for the fractional period from January 1, 2009 to May 31 of 2009. $______________

Accepted Answer

The answer of Louisville Farms, a breeder of racehorses, paid...

Quiz 9: Plant and Intangible Assets

In which of the following situations would Martinez Industries include goodwill in its balance sheet?

Ladd Company sold a plant asset that originally had cost $50,000 for $22,000 cash. If Ladd correctly reports a $5,000 gain on this sale, the accumulated depreciation on the asset at the date of sale must have been:

Which of the following statements is (are) correct?

In which of the following situations should the named company not record any depreciation expense on the asset described?

Evergreen Mfg. is a rapidly growing company that acquires more equipment every year. Evergreen uses straight-line depreciation in its financial statements and MACRS in its tax returns. Identify all correct statements:

In the space provided below, prepare the journal entry to record the sale of the stallion on May 31, 2009. (Use Breeding Stock as the title of the asset account. Assume that depreciation to date of sale already has been recorded.)