Question 1

Lone Star Sales & Service acquired a new machine that cost $84,000 in early 2016. The machine is expected to have a five-year useful life and is estimated to have a salvage value of $14,000 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 2

Joe's Garage, Inc., purchased a used vehicle lift, brake tester, and wheel aligning equipment for a lump-sum price of $16,000 from a bankrupt competitor. Appraised values were as follows: vehicle lift, $20,000; brake tester, $4,000; and wheel aligner, $6,000.Required:
What cost should be recorded for the wheel aligner?

Accepted Answer

The answer of Joe's Garage, Inc., purchased a used vehicle...

Question 3

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 subject to amortization, which is the process of allocating the cost of an intangible asset over its useful life. Depreciation is the process of allocating the cost of a tangible asset over its useful life, and depletion is the process of allocating the cost of a natural resource over its usage. Consolidation refers to the combining of financial statements of two or more entities into one set of financial statements.

Question 4

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, 2017, Blue Grass Co. purchased Red Grass Co. for $2,400,000 when the net assets were valued at $2,000,000. Goodwill will be tested annually for impairment. Assume that after the first year there was an impairment of $30,000.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 5

Psyche Company wants to acquire Trim Company. Trim's ROI has been above average for its industry; net income has averaged $140,000 a year more than the industry average. These "excess" earnings are expected to continue at this amount for 5 years. Assuming a discount rate of 8%, how much goodwill will arise from Psyches' purchase of Trim?

Accepted Answer

The answer of Psyche Company wants to acquire Trim Company....

Question 6

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 arises when the estimated future earnings of the acquired company, discounted at the acquiring firm's ROI, are more than the fair value of the net assets of the acquired company. This means that the acquiring company paid more for the acquired company than the estimated value of its net assets. Therefore, the correct choice is B.

Question 7

A particular common stock has an annual cash dividend of $4 per share and is predicted to have a market value of $60 per share 5 years from now. Assuming a discount rate of 10%, a fair market price for the stock today is:

Accepted Answer

To calculate the fair market price of the stock today, we can use the dividend discount model which takes into consideration the present value of future cash flows from the stock.

PV = D / (1+r)^t + MV / (1+r)^t

Where: 
PV = Present value of the stock today 
D = Annual cash dividend 
r = Discount rate 
t = Number of years 
MV = Predicted market value of the stock

Substituting the given values, we get:

PV = 4 / (1+0.1)^1 + 60 / (1+0.1)^5 
PV = 3.64 + 34.77 
PV = $38.41

Therefore, the fair market price for the stock today is $52.41 (rounded to two decimal places).

So, the correct choice is B.

Question 8

The present value of an obligation of $8,000 payable in 7 years at 8% is:

Accepted Answer

To calculate the present value, we use the formula PV = FV / (1+r)^n, where PV is the present value, FV is the future value, r is the interest rate, and n is the number of years. Plugging in the values, we get PV = 8000 / (1+0.08)^7 = $4,668. Therefore, the correct answer is B.

Question 9

The intangible asset goodwill:

Accepted Answer

Goodwill typically arises when one company purchases another company for a price that is greater than the fair value of the acquired company's net assets. It is an intangible asset that represents the value of the acquired company's reputation, customer base, brand, and other factors that contribute to its value beyond its tangible assets. While management may consider the value of goodwill to the company, it is ultimately determined by the purchase price paid by the acquiring company. Option A and C are not accurate descriptions of goodwill.

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 that describes part of the accounting for noncurrent assets. The other three options (depletion, amortization, and depreciation) are all methods used to allocate the cost of noncurrent assets over their useful lives.

Question 11

Leasehold is an example of which of the following types of assets?

Accepted Answer

The answer of Leasehold is an example of which of...

Question 12

Many companies use accelerated depreciation for tax purposes because:

Accepted Answer

Accelerated depreciation allows for larger depreciation deductions in the early years of an asset's life, resulting in lower taxable income and therefore lower taxes in those years. This is a common tax strategy used by companies to reduce their tax liability.

Question 13

Which of the following statements concerning the accounting for leases is not true?

Accepted Answer

At the inception of a capital lease, the lessee's total assets increase, but total stockholders' equity does not increase; instead, liabilities increase due to the recognition of a lease liability.

Question 14

Accounting for natural resources:

Accepted Answer

When accounting for natural resources, it is necessary to estimate the quantity of resource to be recovered because it is a limited resource. It is different from the accumulated depreciation account which is used to account for the reduction in the value of long-term assets over their useful life. Also, it does not necessarily involve an exception to the matching concept or a double-declining balance depletion calculation.

Question 15

Which of the following statements concerning repair and maintenance expenditures is true?

Accepted Answer

Maintenance expenditures that extend the useful life and/or increase the salvage value of an asset should be capitalized and depreciated over the asset's remaining useful life. This is in accordance with the matching principle of accounting, which requires that costs be matched with the revenues they help to generate. Routine repair costs and preventive maintenance expenditures are expensed in the period in which they are incurred. For income tax purposes, there may be benefits to either expensing or capitalizing repair and maintenance expenditures, depending on the taxpayer's specific circumstances.

Question 16

The present value of $6,000 to be received every year for 9 years, at 10%, is:

Accepted Answer

The answer of The present value of $6,000 to be...

Question 17

Lessee, Inc., acquired the use of a machine by agreeing to pay the manufacturer of the machine $20,000 per year for 5 years. At the time the lease was signed, the interest rate for a 5-year loan was 8%.Required:
(a.) Use the appropriate factor from Table 6-5 to calculate the amount that Lessee, Inc. could have paid at the beginning of the lease to buy the machine outright.(b.) What causes the difference between the amount you calculated in part (a.) and the total of $100,000 ($20,000 per year for 5 years) that Lessee, Inc. will pay under the terms of the lease?
(c.) What is the appropriate amount of cost to be reported in Lessee, Inc's balance sheet (at the time the lease was signed) with respect to this asset?

Accepted Answer

The answer of Lessee, Inc., acquired the use of a...

Question 18

When a depreciable asset is sold:

Accepted Answer

A gain arises when the sales proceeds exceed the net book value because the asset was sold for more than its recorded value on the company's books. If the sales proceeds are less than the net book value, a loss arises because the asset was sold for less than its recorded value. Cash received has no bearing on whether a gain or loss is realized. Depreciation expense is adjusted for accounting purposes, but it does not affect the gain or loss realized on the sale of the asset.

Question 19

The principal challenge to calculating depletion is estimating:

Accepted Answer

Depletion is the process of allocating the cost of natural resources over the period they are expected to be used. The quantity of material to be recovered is the key factor in calculating depletion as it determines how much of the expected resource is being used up each period.

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