Question 1

On October 1, 2014, Welch Auto Rentals purchases a new automobile for $30,000 to add to its fleet of rental cars. The automobiles are rented out on a short-term basis with rental fees calculated based on distance driven by the customer. Welch's policy is to sell and replace a car after the earlier of 3 years, or 75,000 kilometers. The average selling price of the used cars is $8,000. This particular car was driven 8,000 km in 2014, 39,000 in 2015 and 21,000 in 2016.
Instructions
a. Calculate 2014 and 2015 depreciation expense under each of the following methods:
(i) Straight-line
(ii) Diminishing-balance using a 40% rate.
(iii) Units-of-production
b. Which method will best match the estimated pattern in which the asset's economic benefits are expected to be consumed? Explain.

Accepted Answer

The answer of On October 1, 2014, Welch Auto Rentals...

Question 2

Asset turnover is calculated as follows:

Accepted Answer

Asset turnover is calculated by dividing net sales by average total assets, which measures how efficiently a company uses its assets to generate sales.

Question 3

For the year ended December 31, 2014, Akito Co. has net sales of $1,000,000 and profit of $290,000. Total assets on January 1, 2014 were $1,750,000 and total assets at December 31, 2014 are $1,245,000. Akito's return on assets for 2014 is

Accepted Answer

Return on assets = Net income / Average total assets= 290,000 / ((1,750,000 + 1,245,000) / 2)= 290,000 / 1,497,500= 19.36%

Question 4

On March 31, 2014 Delhon Industries purchased a new plant for $2,500,000 cash. Before completing the purchase, Delhon had obtained valuations to determine the relative value of the different components purchased.
The valuation indicated that the fair value of the land, if purchased separately, would be $375,000, the building's value is $1,900,000, the manufacturing equipment $192,500, and the office and computer equipment $55,000. In addition to the land, building and equipment, the purchase price includes inventory with a net realizable value of $27,500.
The anticipated life of the building is 25 years, the manufacturing equipment 10 years, and the office and computer equipment 5 years, with no residual value for any of them. Delhon has a December 31 year end.
Instructions
a. Record the purchase on March 31, 2014.
b. Record the depreciation expense for 2014 using the straight-line method assuming the company chooses to prorate depreciation based on the number of months the asset has been in use.

Accepted Answer

The answer of On March 31, 2014 Delhon Industries purchased...

Question 5

Match between columns
                        Premises: Overhaul of a truck motor. One year extension in useful life is expected
Painting and lettering of a used truck upon acquisition of the truck
Oil change on a company truck
Replacing a network server's hard drive, this increases data storage capacity by ten times. No extension of useful life expected
Purchased a wastebasket, with an expected useful life of five years, at a cost of $10
Construction of a new wing on an office building
Replacement of worn out gears on factory machinery
Painting the exterior of a building

Accepted Answer

The Answer of capital expenditures and operating expenditures. is...

Question 6

On May 5, 2014, Knottinghill Company purchased a property for $400,000 cash. The property included the following long-lived assets:  Instructions 
a. Give the journal entry to allocate the purchase price between the above assets. Round all amounts to the nearest dollar, if necessary.
b. Prepare a compound journal entry to record depreciation of the long-lived assets on December 31, 2014, assuming the following additional details:
  Prorate depreciation based on the number of months the asset has been in use.

Accepted Answer

The answer of On May 5, 2014, Knottinghill Company purchased...

Question 7

Intangible assets

Accepted Answer

Intangible assets are reported on the balance sheet as a separate classification because they have value and contribute to the future income of the company, despite lacking physical substance. They are not expensed immediately (unless they have an indefinite life and cannot be reliably measured), not excluded from the balance sheet, and are typically classified as non-current assets, not current assets.

Question 8

Equipment acquired on October 1, 2014, at a cost of $540,000 has an estimated useful life of 10 years. The residual value is estimated to be $55,000 at the end of the equipment's useful life. The company has a December 31 year end.
Instructions
Calculate the depreciation expense for December 31, 2014 and 2015 using:
a. the straight-line method.
b. the double diminishing-balance method.

Accepted Answer

The answer of Equipment acquired on October 1, 2014, at...

Question 9

A high return on assets indicates

Accepted Answer

A high return on assets indicates a profitable company because it shows that the company is effectively using its assets to generate earnings.

Question 10

Kabale Company purchased factory equipment with an invoice price of $92,000. Other costs incurred were freight costs, $2,500; installation of wiring and foundation, $2,200; material and labour costs in testing equipment, $700; oil lubricants and supplies to be used with equipment, $500; one-year fire insurance policy covering equipment, $1,400. The equipment is estimated to have an $8,000 residual value at the end of its 5-year useful service life.
Instructions
a. Calculate the acquisition cost of the equipment. Identify each element of cost clearly.
b. If the double diminishing-balance method of depreciation was used, the constant percentage applied to a diminishing carrying amount would be __________.

Accepted Answer

The answer of Kabale Company purchased factory equipment with an...

Question 11

Below are selected entries for Econi Co.
1. The $60 cost of repairing a printer was charged to Computer Equipment.
2. The $5,000 cost of a major engine overhaul was debited to Repair Expense. The overhaul is expected to increase the operating efficiency of the truck.
3. The $6,000 closing costs associated with the acquisition of land were debited to Legal Expense.
4. A $600 charge for transportation costs on new equipment purchased was debited to Delivery Expense.
5. Freight cost incurred bringing a new piece of machinery to the plant site was charged to Machinery
Instructions
For each entry below make a correcting entry if necessary. If the entry given is correct, then state "No entry required."

Accepted Answer

The answer of Below are selected entries for Econi Co.
1....

Question 12

Which of the following statements concerning financial statement presentation is NOT a true statement?

Accepted Answer

The balances of all individual assets, as they appear in the subsidiary long-lived asset ledger, do not need to be disclosed in the footnotes. Generally, financial statements provide summarized information rather than detailed listings of individual assets.

Question 13

Lussier Company purchased a new computer for $175,000. It is estimated that the computer will have a $15,000 residual value at the end of its 5-year useful service life. The double diminishing-balance method of depreciation will be used.
Instructions
Prepare a depreciation schedule which shows the annual depreciation expense on the computer for its 5-year life.

Accepted Answer

The answer of Lussier Company purchased a new computer for...

Question 14

Below are transactions for Oriel Company.
1. Purchased land for $900,000.
2. Paid $20,000 to demolish building located on land.
3. Paid $3,000 for building permit.
4. Paid $2,000 for architect fees.
5. Paid $3,000 for excavation costs.
6. Paid interest of $22,000 during construction of new building.
7. Paid $960,000 to complete the building.
8. Paid $30,000 to pave the parking lot.
9. Paid $4,000 for underground sprinkler.
10. Ordered new equipment, paid $30,000.
11. Paid $1,500 to install and test new equipment.
12. Paid $250 to insure equipment for one year.
13. Paid $2,500 to paint office walls in the new building.
14. Paid $2,000 to repair equipment.
15. Purchased a truck for $25,000.
16. Paid $250 for truck license.
17. Paid $60 for oil change on new truck.
18. Paid $15,000 for fences around the new building.
19. Purchased 2 cash registers for $1,100 each.
20. Paid $2,200 for annual yard maintenance.
Instructions
a. Determine if each item should be capitalized (C) or expensed (E).
b. Determine the balance in the land account and the building account.

Accepted Answer

The answer of Below are transactions for Oriel Company.
1. Purchased...

Question 15

Kelso Word Processing Service uses the straight-line method of depreciation. The company's fiscal year end is December 31. The following transactions and events occurred during the first three years.  Instructions
Prepare the necessary entries. (Show calculations.)

Accepted Answer

The answer of Kelso Word Processing Service uses the straight-line...

Question 16

Natural resources are generally shown on the balance sheet under

Accepted Answer

Natural resources such as oil reserves, minerals, and timber tracts are tangible assets that provide economic benefits to a business. They are classified under Property, Plant, and Equipment (PPE) on the balance sheet, as they are physical, long-term assets used in the operations of a business.

Question 17

A company has the following assets:  The total amount reported under property, plant, and equipment would be

Accepted Answer

The answer of A company has the following assets: ...

Question 18

Rust Company was organized on January 1. During the first year of operations, the following expenditures and receipts were recorded in random order in the account, Land.  Instructions
Analyze the above transactions using the following columns below. Insert the number of each transaction in the Item space and insert the amounts in the appropriate columns.

Accepted Answer

The answer of Rust Company was organized on January 1....

Question 19

At January 1, 2014, Benner Auto Repairs owned the following assets:  Prior to recording depreciation expense for 2014, Benner undertook a review of the assets' remaining life and value and determined that the following changes are warranted based on currently available information:
Building: No changes
Automotive: No changes
Computers: Obsolete
Furniture: Remaining life will be 10 years with $5,000 residual value.
Instructions
Calculate 2014 depreciation on each of these assets, taking the new information into account.

Accepted Answer

The answer of At January 1, 2014, Benner Auto Repairs...

Question 20

During the current year, Lui Company incurred several expenditures.
1. Spent $50,000 in legal costs in a patent defence suit. The patent was unsuccessfully defended.
2. Purchased a trademark from another company. The trademark can be renewed indefinitely. Lui Company expected the trademark to contribute to revenue indefinitely.
3. Lui Company acquires a patent for $2,000,000. The company selling the patent has spent $1,000,000 on the research and development of it. The patent has a remaining legal life of 15 years and an estimated 5-year useful life.
4. Lui Company is spending considerable time and money in developing a different patent for another product. So far $3,000,000 has been spent this year on research. Lui Company is very confident it will obtain this patent in the next few years.
Instructions
Briefly explain whether the expenditures listed above should be recorded as an operating expense or as an intangible asset. If you view the expenditure as an intangible asset, indicate whether the asset should be amortized or not, and if so, the number of years over which it should be amortized. Explain your answer.

Accepted Answer

The answer of During the current year, Lui Company incurred...

Quiz 9: Long-Lived Assets

Asset turnover is calculated as follows:

For the year ended December 31, 2014, Akito Co. has net sales of $1,000,000 and profit of $290,000. Total assets on January 1, 2014 were $1,750,000 and total assets at December 31, 2014 are $1,245,000. Akito's return on assets for 2014 is

Identify the following expenditures as capital expenditures or operating expenditures.

Intangible assets

A high return on assets indicates

Which of the following statements concerning financial statement presentation is NOT a true statement?

Kelso Word Processing Service uses the straight-line method of depreciation. The company's fiscal year end is December 31. The following transactions and events occurred during the first three years. Instructions Prepare the necessary entries. (Show calculations.)

Natural resources are generally shown on the balance sheet under

A company has the following assets: The total amount reported under property, plant, and equipment would be