Question 1

On January 1, Hampton Company paid $48,000 for a new delivery truck. It was estimated that the truck would be driven 100,000 miles during the next 5 years, at which time it would have a salvage value of $3,000. During the first and second years, the truck was driven 22,000 and 18,000 miles, respectively. How much is accumulated depreciation using the activity (miles driven) method at the end of year 2?

Accepted Answer

The answer of On January 1, Hampton Company paid $48,000...

Question 2

On December 1, Dominican Corp. purchased a tract of land for $325,000 to be used as a factory site. An old unusable building on the land was razed (torn down), and the salvaged materials from the demolition were sold. These cash expenditures and receipts and other costs incurred during December are as follows:
 $\begin{array}{lr}
\text { Demolition of old building } & \$ 11,000 \
\text { Proceeds from sale of salvaged materials } & 5,000 \
\text { Legal fees to transfer land title } & 3,000 \
\text { Title guarantee insurance } & 1,000
\end{array}$ 
Calculate the balance in Dominican's Land account on its December 31 balance sheet.

Accepted Answer

The answer of On December 1, Dominican Corp. purchased a...

Question 3

Farmdale Company's President purchased an extremely used automobile on November 1 by paying $2,000. He immediately had it towed to his mechanic who overhauled the auto in order to get the car ready to be safely driven. The cost of the tow was $40 and the initial overhaul was $1,500. While driving from his mechanic's garage, he ran over a nail that punctured a tire and cost $35 to repair. Calculate the cost of the auto.

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The answer of Farmdale Company's President purchased an extremely used...

Question 4

On January 1, Bisbee Co. paid $80,000 for a new truck. It was estimated that the truck would be driven 400,000 miles during the next 8 years, at which time it would have a salvage value of $8,000. At the end of the first and second years, the odometer registered 45,000 and 97,000 miles, respectively. Calculate the book value of the truck using straight-line depreciation at the end of the second year.

Accepted Answer

The answer of On January 1, Bisbee Co. paid $80,000...

Question 5

On January 1, 2017, Blackwell Company paid $90,000 for a new delivery truck. It was estimated that the truck would be driven 300,000 miles during the next 6 years, at which time it would have a salvage value of $9,000. At the end of the second year, the odometer registered 88,000 miles. Show how the plant asset would appear in Blackwell Company's balance sheet at December 31, 2018 assuming the company uses the activity method depreciation.

Accepted Answer

The answer of On January 1, 2017, Blackwell Company paid...

Question 6

Arnez Company purchased a building and equipment for $110,000. Although a reliable market value of the building could not be determined, the equipment's market value is $70,000. What are the separate costs assigned to the building and equipment?

Accepted Answer

The answer of Arnez Company purchased a building and equipment...

Question 7

Harrahs Corporation purchased a dump truck at the beginning of 2015 at a cost of $60,000. The truck had an estimated life of 5 years and an estimated salvage value of $5,000. On January 1, 2017, the company made major repairs of $3,000 to the truck that extended its life 2 more years. Starting with 2017, the truck has a remaining life of 5 years. The company uses the straight-line depreciation method.
If Harrahs sells the truck at the end of 2017 for $20,000 cash, how much gain or loss would be recognized?

Accepted Answer

The answer of Harrahs Corporation purchased a dump truck at...

Question 8

On April 1, Tarpon Co. made the following expenditures on its printing press:
 $\begin{array}{lrr}
  \text { Purchase of stapling attachment  } &\$8,000\
 \text { installation of attachment } &2,000\
 \text { Cleaning and oiling press costs prior to renovation  } &1,000\
 \text { Replacement parts for renovation of printing press } &1,000\
 \text { Labor used in press renovation  } &3,000\
\end{array}$

The renovation increased the expected life and the attachment increased the productivity of the press. What are the total expenditures capitalized to the printing press?

Accepted Answer

The answer of On April 1, Tarpon Co. made the...

Question 9

Harrahs Corporation purchased a dump truck at the beginning of 2015 at a cost of $60,000. The truck had an estimated life of 5 years and an estimated salvage value of $5,000. On January 1, 2017, the company made major repairs of $3,000 to the truck that extended its life 2 more years. Starting with 2017, the truck has a remaining life of 5 years. The company uses the straight-line depreciation method.
How much is the book value of the truck to be reported on the balance sheet at the end of 2016?

Accepted Answer

The answer of Harrahs Corporation purchased a dump truck at...

Question 10

Harvey Ltd. purchased land in exchange for 50,000 shares of its stock that is trading on the New York Stock Exchange at $20 a share. Although the market value of the land is unknown, the current assessed value is $900,000. What is the cost of the land?

Accepted Answer

The answer of Harvey Ltd. purchased land in exchange for...

Question 11

Courtney Corp. has significant stock that can be issued by the company. The managers are planning to sell the stock for a large profit by fraudulently inflating reported earnings. They plan to sell the stock after current earnings are reported, then leave for the carnival in Brazil. To accomplish their devious plans, they purchased inventory for $800,000 and charged the inventory purchase to equipment that is being depreciated using the straight-line method with a life of 8 years and no salvage value. If beginning and ending inventories were correctly stated and a full year's depreciation is recognized on the equipment, what is the amount of Courtney's current net income overstatement?

Accepted Answer

The answer of Courtney Corp. has significant stock that can...

Question 12

On January 1, Weston Company paid $88,000 for a copy machine. It was estimated that the machine would produce 1,000,000 copies over the next 8 years, at which time it would have a salvage value of $8,000. During the first and second years, the copies totaled 180,000 and 300,000, respectively. Calculate depreciation expense using the activity method for each of the first two years.

Accepted Answer

The answer of On January 1, Weston Company paid $88,000...

Question 13

Carson Co. purchased a printer for $10,000, for which it paid $1,000 a month for 10 months. Carson had the option of paying $9,500 cash for the printer but chose the delayed payment plan. It cost Carson $80 to transport the printer to its place of business and $200 for installing and initial timing adjustments to the printer. Calculate the cost of the printer.

Accepted Answer

The answer of Carson Co. purchased a printer for $10,000,...

Question 14

On January 1, Summers Co. purchased equipment with a 10-year life and zero salvage value for $900,000. Summers uses the straight-line method on its financial statements and double-declining-balance method on its income tax returns. By what amount does the tax deduction for depreciation exceed depreciation expense on Summers' income statements for each of the first two years?

Accepted Answer

The answer of On January 1, Summers Co. purchased equipment...

Question 15

Lincoln Co. purchased a piece of property (land and building) at a tax sale for $110,000. A reliable estimate of the fair market value of the land and building is $114,000. What is the gain that Lincoln Co. should record from this advantageous purchase?

Accepted Answer

The answer of Lincoln Co. purchased a piece of property...

Question 16

On January 1, Marriott Company paid $80,000 for a copy machine. It was estimated that the machine would produce 200,000 copies over the next 8 years, at which time it would have a salvage value of $8,000. During the first and second years, the copies totaled 24,000 and 51,000, respectively. Calculate accumulated depreciation using the double-declining-balance method at the end of year two.

Accepted Answer

The answer of On January 1, Marriott Company paid $80,000...

Question 17

Harrahs Corporation purchased a dump truck at the beginning of 2015 at a cost of $60,000. The truck had an estimated life of 5 years and an estimated salvage value of $5,000. On January 1, 2017, the company made major repairs of $3,000 to the truck that extended its life 2 more years. Starting with 2017, the truck has a remaining life of 5 years. The company uses the straight-line depreciation method.
What amount should be recorded as depreciation expense each year starting in 2017?

Accepted Answer

The answer of Harrahs Corporation purchased a dump truck at...

Question 18

Calculate depreciation expense for each of the first two full years of life for an airplane with a cost of $600,000, salvage value of $40,000, and an estimated life of 4 years under the double-declining-balance depreciation method.

Accepted Answer

The answer of Calculate depreciation expense for each of the...

Question 19

Rio Grande Company purchased equipment on January 1, 2017 for $75,000. The estimated useful life of the equipment is 5 years, the salvage value is $10,000, and the company uses the double-declining balance method to depreciate fixed assets. Which of the following journal entries would Rio Grande record if the equipment is sold for $17,000 after three years?
a.
$\begin{array}{lrr}
  \text { Equipment } &75,000\
 \text {Loss on Disposal of Plant Asset } &800\
 \text {Cash } &&17,000\
 \text {Accumulated Depreciation-Equipment}&&58,800
\end{array}$

b.
$\begin{array}{lrr}
  \text { Cash } &17,000\
 \text {Gain on Disposal of Plant Asset } &&6,200\
 \text { Equipment}&&10,800
\end{array}$

c.
$\begin{array}{lrr}
  \text { Cash  } &17,000\
 \text { Depreciation Expense} &10,800\
 \text { Loss on Disposal of Plant Asset}&47,200\
 \text {  Equipment} &&75,000\
\end{array}$

d.
$\begin{array}{lrr}
  \text {Cash } &17,000\
 \text {Accumulated Depreciation-Equipment  } &58,800\
 \text { Equipment } &&75,000\
\text {Gain on Disposal of Plant Asset}&&800
\end{array}$

Solution (next page):
Assuming that Rio Grande Company kept the equipment for its entire five-year estimated useful life, the depreciation schedule on the equipment would be as follows.
$\begin{array}{lccrrr}
\text { Depreciation }&&\text { Depreciation }&&\text { Accumulated }&\text { Book }\
\text { Date}&\text { Factor}&\text { Expense}&\text {  Cost}&\text { Depreciation}&\text { Value }\
\hline1 / 1 / 17 & & & \$ 75,000 & \$0 &\$75,000 \
12 / 31 / 17 & 40 \% & \$ 30,000 & 75,000 & 30,000 & 45,000 \
12 / 31 / 18 & 40 \% & 18,000 & 75,000 & 48,000 & 27,000 \
12 / 31 / 19 & 40 \% & 10,800 & 75,000 & 58,800 & 16,200 \
12 / 31 / 20 & 40 \% & 6,2000^{*} & 75,000 & 65,000 & 10,000 \
12 / 31 / 21 & 40 \% & 0 & 75,000 & 65,000 & 10,000
\end{array}$
__________________
* Because the equipment's book value can't drop below its estimated salvage value, depreciation expense for 2020 can't exceed $6,200.

Accepted Answer

The answer of Rio Grande Company purchased equipment on January...

Question 20

Apple Inc. purchased a used pickup truck with an advertised price of $18,900 for $17,000 cash. While Jeff, the CEO, was driving the truck to get supplies, he was stopped by a highway patrol woman and received a $50 speeding ticket and a warning for a nonfunctioning brake light. Jeff had failed to notice when this problem when he purchased the truck. If Jeff knew about the brake light condition, he would have paid only $16,500 for the car. The cost, not under warranty, of replacing the brake light was $50. Calculate the cost to be capitalized to the truck account.

Accepted Answer

The answer of Apple Inc. purchased a used pickup truck...

Quiz 9: Long-Lived Assets

Arnez Company purchased a building and equipment for $110,000. Although a reliable market value of the building could not be determined, the equipment's market value is $70,000. What are the separate costs assigned to the building and equipment?

Harvey Ltd. purchased land in exchange for 50,000 shares of its stock that is trading on the New York Stock Exchange at $20 a share. Although the market value of the land is unknown, the current assessed value is $900,000. What is the cost of the land?

Lincoln Co. purchased a piece of property (land and building) at a tax sale for $110,000. A reliable estimate of the fair market value of the land and building is $114,000. What is the gain that Lincoln Co. should record from this advantageous purchase?

Calculate depreciation expense for each of the first two full years of life for an airplane with a cost of $600,000, salvage value of $40,000, and an estimated life of 4 years under the double-declining-balance depreciation method.