Question 1

On the statement of cash flows, cash flows from the purchase and sale of long-lived assets are shown in which section?

Accepted Answer

Cash flows from the purchase and sale of long-lived assets are reported in the investing activities section of the statement of cash flows. This section includes cash flows from the purchase or sale of property, plant, and equipment, as well as investments in other companies or securities.

Question 2

Intangible assets include which of the following?

Accepted Answer

Intangible assets are non-physical assets such as patents, copyrights, and leaseholds.

Question 3

Barnes Company purchased a machine on April 4, 2011, for $210,000. The machine had an estimated useful life of five years and a salvage value of $30,000. The machine is being depreciated using the double-declining-balance method. Barnes depreciates its assets from the first day of the month nearest the date of purchase. The asset balance, net of accumulated depreciation, at December 31, 2012, should be:

Accepted Answer

First, we need to calculate the annual depreciation expense:

Double-declining-balance rate = 2 / useful life

DD rate = 2 / 5 = 40%

Year 1 depreciation expense = Beginning book value × DD rate = $210,000 × 40% = $84,000

Year 2 depreciation expense = Beginning book value - Accumulated depreciation Year 1 × DD rate = ($210,000 - $84,000) × 40% = $50,400

Now we can calculate the asset balance at December 31, 2012:

Depreciation expense for 2012 = $50,400

Accumulated depreciation at December 31, 2011 = $84,000

Accumulated depreciation at December 31, 2012 = $84,000 + $50,400 = $134,400

Book value at December 31, 2012 = $210,000 - $134,400 = $75,600

Therefore, the correct answer is (C) $88,200.

Question 4

The depreciable amount is:

Accepted Answer

The depreciable amount is the cost of an asset that can be depreciated over its useful life. It is calculated by subtracting the asset's residual value (the estimated value at the end of its useful life) from its original cost. Therefore, the correct answer is A) the original cost less the residual value.

Question 5

All of the following statements are true, except:

Accepted Answer

Copyrights extend for the life of the creator plus 70 years, not 10 years.

Question 6

A machine that cost $72,000 has an estimated residual value of $6,000 and an estimated useful life of 5 years or 30,000 hours. Using the units-of-production method, the depreciation expense for the second year, during which the machine was used 5,000 hours, would be

Accepted Answer

The answer of A machine that cost $72,000 has an...

Question 7

How should an expenditure for an ordinary repair to factory equipment be recorded?

Accepted Answer

An expenditure for an ordinary repair to factory equipment should be recorded as an expense in the period incurred. This is because it does not extend the useful life of the asset and does not increase its productivity or efficiency.

Question 8

Which of the following would be classified as an operational (fixed) asset?

Accepted Answer

An operational (fixed) asset is an asset that is used in the normal course of business operations to generate revenue. Option A is a manufacturing plant used by Ford to produce cars, which is an operational asset. The other options are not operational assets: B is land held for sale, C is land held for development, and D is a closed store site.

Question 9

When an asset is retired, the amount of the gain is equal to:

Accepted Answer

When an asset is retired or sold, the gain or loss is determined by the difference between the carrying amount of the asset (cost minus accumulated depreciation) and the amount of cash received from the sale. Therefore, the correct answer is D, the difference between the carrying amount and the proceeds.

Question 10

Which of the following would not be included in the acquisition cost of a building?

Accepted Answer

The cost of paving the parking lot and outdoor lighting in the lot are considered landscaping and site preparation costs, and are not part of the acquisition cost of the building. The other options listed are all costs directly related to the acquisition and modification of the building itself.

Question 11

A depreciable asset that cost $100,000 had an estimated useful life of 5 years and estimated residual value of $10,000. What is the first year for which depreciation would be greater under the straight-line method than under the declining-balance method with an acceleration rate of 200%?

Accepted Answer

Under the straight-line method, annual depreciation is constant at $18,000. Under the double declining-balance method, the first-year depreciation is $40,000, the second year is $24,000, and the third year is $14,400. Thus, the straight-line method results in greater depreciation starting in the third year.

Question 12

All of the following are examples of intangible assets except:

Accepted Answer

Intangible assets are assets that do not have a physical presence but still hold value, such as trademarks, copyrights, and franchises. Research costs, on the other hand, are expenses incurred during the process of research and development and are not considered as an intangible asset.

Question 13

Belmont Corporation made a basket purchase of land, a building and equipment, paying a total of $1,500,000. Market values for the assets were not available, but the appraised values were $300,000 for the land, $900,000 for the building, and $600,000 for equipment. What amounts should be recorded in the Land, Building, and Equipment accounts, respectively?

Accepted Answer

The total purchase price is allocated based on the proportion of each asset's appraised value to the total appraised value. The total appraised value is $1,800,000 ($300,000 + $900,000 + $600,000). The land's allocation is ($300,000/$1,800,000) * $1,500,000 = $250,000, the building's allocation is ($900,000/$1,800,000) * $1,500,000 = $750,000, and the equipment's allocation is ($600,000/$1,800,000) * $1,500,000 = $500,000.

Question 14

Trumble Company purchased a machine on January 1, 20B, for $10,000. The company bookkeeper incorrectly used a 6-year life instead of a 5-year life to depreciate the machine. What would be the effect of this error on the 20B financial statements?

Accepted Answer

The error results in lower depreciation expense, leading to an overstatement of assets (since accumulated depreciation is understated), profit (since expenses are understated), and shareholders' equity (since retained earnings are overstated due to higher net income).

Question 15

A loss on disposal of an asset is reported in the financial statements

Accepted Answer

The answer of A loss on disposal of an asset...

Question 16

Most companies keep separate sets of accounting records for financial reporting and for income tax computations. Which of the following statements is true?

Accepted Answer

The reason companies keep separate sets of accounting records for financial reporting and income tax computations is that financial reporting rules and ITA regulations differ in many ways. The rules for financial reporting are set by accounting standards while the ITA regulations are set by tax laws. Therefore, companies need to keep separate records to ensure compliance with these different rules and regulations.

Question 17

WD Company reports profit in 2013 of $1,300 million and depreciation expense of $851 million. They also report investment in new theme parks, resorts, and other property of $2,134 million for 2013. Which of the following disclosures would appear on their statement of cash flows?

Accepted Answer

Depreciation is a non-cash expense, so it is added back to profit in the operating activities section. Investment in new property is a cash outflow, so it is deducted in the investing activities section.

Question 18

Lawson Pet Shop Limited bought new grooming equipment on January 1, 2013 for $13,000. The useful life is estimated to be 3 years with a residual value of $1,000. The company uses straight-line depreciation. On January 1, 2014, Pierre determined that the value of the equipment is impaired, as its recoverable amount is expected to be $4,800. The journal entry to record the impairment would involve debits and credits to the following accounts:

Accepted Answer

The answer of Lawson Pet Shop Limited bought new grooming...

Question 19

An asset being amortized with the straight-line method has a residual value of $20,000 and amortization expense of $25,000 in its second year. What was the original cost of the asset if its useful life was 10 years?

Accepted Answer

The answer of An asset being amortized with the straight-line...

Question 20

What is an extraordinary repair to a building?

Accepted Answer

An extraordinary repair to a building is considered a capital expenditure because it extends the useful life of the asset or improves its productivity. Therefore, it should be debited to an asset account.

Quiz 9: Reporting and Interpreting Liabilities