Question 1

AC Heating & Cooling uses the indirect method to prepare the statement of cash flows.During 2X03,AC Heating & Cooling had $100,000 in net income,which included a gain of $10,000 from the sale of a plant asset.To calculate operating cash flows,AC Heating & Cooling must

Accepted Answer

The gain from the sale of a plant asset is a non-operating item and needs to be deducted from net income in the operating activities section of the statement of cash flows to arrive at the operating cash flows. Therefore, deducting $10,000 from net income in the operating activities section of the statement of cash flows is the correct choice.

Question 2

If an improvement increases operating efficiency,then the depreciation schedule is revised.

Accepted Answer

If an improvement increases operating efficiency, it may change the expected useful life or salvage value of the asset, which would require a revision to the depreciation schedule.

Question 3

Gains or losses on sales of tangible plant assets are usually measured by the difference between the cash received and the net book value of the asset given up.

Accepted Answer

This is true according to generally accepted accounting principles (GAAP) which state that gains or losses on sales of assets should be calculated as the difference between the cash received and the asset's net book value (which is its original cost minus accumulated depreciation).

Question 4

Equipment costing $20,000 with $17,800 of accumulated depreciation is sold for $2,500 cash.The journal entry will involve a

Accepted Answer

When equipment is sold, the accumulated depreciation associated with the equipment must be removed from the books. This is done by debiting the accumulated depreciation account for the amount of depreciation taken on the asset over its useful life. Therefore, the correct journal entry would be a debit to accumulated depreciation for $17,800. Additionally, since the company received cash for the equipment, there would be a credit to cash for $2,500. The difference between the cash received and the carrying amount of the asset (equipment cost - accumulated depreciation) represents a loss on the sale of the asset, which would result in a debit to the loss on sale of equipment account for $100 ([$20,000 - $17,800] - $2,500).

Question 5

Businesses do not capitalize improvements.

Accepted Answer

Businesses do capitalize improvements by adding the costs of improvements to the asset's book value. This increases the value of the asset on the balance sheet and can provide tax benefits through depreciation deductions.

Question 6

A gain will result when the cash received from the sale of a plant asset exceeds the book value of the asset.

Accepted Answer

This statement is true. A gain on the sale of a plant asset occurs when the cash received from the sale exceeds the asset's book value at the time of sale. The book value is calculated by subtracting the accumulated depreciation from the original cost of the asset. If the cash received is greater than the book value, a gain is recorded on the sale. Conversely, if the cash received is less than the book value, a loss is recorded.

Question 7

A recoverability test for impairment

Accepted Answer

A recoverability test for impairment is used to determine if an asset's carrying amount is not recoverable, indicating that the asset is impaired.

Question 8

The sale of a plant asset may result in a gain but not a loss.

Accepted Answer

The sale of a plant asset may result in a gain or a loss, depending on whether the sale price is higher or lower than the asset's book value (original cost minus accumulated depreciation). A gain occurs if the sale price is higher than the book value, while a loss occurs if the sale price is lower than the book value.

Question 9

Elton Enterprises has recently upgraded its delivery truck. The various expenditures related to the upgrades occurred at the end of year 2 and are as follows:
$\begin{array}{lccc}
\underline {   \text { Item and amounts}}&\underline {   \text { Capital expenditure/Operating expense}}\
  \text { 1) Oil changes,  \$ 20 }&------\
  \text { 2) All four tires on truck replaced,  \$ 800}&------\
  \text { 3) Engine replacement, \$ 900}&------\
  \text { 4) Changed truck colors from blue to green,\$ 500}&------\
  \text { 5) Replaced brakes, \$ 400}&------\
\end{array}$

Required:
1) Determine whether the expenditure is a capital improvement or ordinary operating expense.
2) Suppose the delivery truck with an original cost of $35,000 was being depreciated using straight line depreciation over 5 years and was expected to have a $3,000 residual value, however the upgrades are expected to increase the useful life from 5 years to 7 years. Based on the upgrades above, what is the revised depreciation expense for years 3 through 7?

Accepted Answer

The answer of Elton Enterprises has recently upgraded its delivery...

Question 10

Once a company begins to make revaluation adjustments for plant assets,it must continue to make them.

Accepted Answer

Once a company makes the decision to revalue its plant assets, it must continue to make revaluation adjustments in order to maintain accurate financial statements. This requirement is outlined in accounting standards such as IAS 16 Property, Plant and Equipment. Failure to continue making revaluation adjustments could lead to financial statements that are materially misstated.

Question 11

Appott Technologies recently sold some equipment for $6,800 cash.The equipment cost $23,000 and had accumulated depreciation through the date of sale totaling $17,250.The journal entry to record the sale of the equipment will include a

Accepted Answer

The journal entry to record the sale of equipment will include a debit to cash for $6,800, a credit to equipment for $23,000, and a credit to accumulated depreciation for $17,250. The difference between the equipment's cost and its accumulated depreciation is a gain on sale. 
Therefore, there should be a credit to gain on the sale of equipment for $1,050 ($23,000 - $17,250 - $6,800 = $1,050). The correct answer is D.

Question 12

Gains on disposal of plant assets are generally shown as "other income" on the income statement.

Accepted Answer

Gains on disposal of plant assets are considered non-operating items and are typically reported as "other income" on the income statement.

Question 13

The entry to journalize the impairment loss on equipment would include

Accepted Answer

The answer of The entry to journalize the impairment loss...

Question 14

An improvement or betterment is an expenditure that is intended to add to the future benefits from an existing fixed asset.

Accepted Answer

An improvement or betterment is indeed an expenditure that is intended to increase or enhance the future benefits from an existing fixed asset.

Question 15

Equipment costing $45,000 with a book value of $12,000 is sold for $21,500.The journal entry will involve a

Accepted Answer

The book value of the equipment is $12,000, therefore the difference between the sale price of $21,500 and the book value is a gain of $9,500. The journal entry should debit cash for $21,500, credit equipment for $45,000, credit accumulated depreciation for $33,000 (which is the difference between the equipment cost and the book value), and recognize a gain on sale of $9,500. Therefore, option C, a debit to accumulated depreciation for $33,000, is the correct answer.

Question 16

Companies electing to revalue their fixed assets under IFRS are allowed to

Accepted Answer

Companies electing to revalue their fixed assets under IFRS are allowed to increase or decrease the carrying value of the fixed asset. This means that the carrying value can be adjusted upward to reflect an increase in the fair value of the asset, or downward to reflect a decrease in the fair value of the asset. This approach allows companies to more accurately reflect the value of their fixed assets on the balance sheet.

Question 17

A loss will result on the sale of a plant asset when the book value of the asset exceeds the cash received.

Accepted Answer

A loss occurs on the sale of a plant asset when the selling price (cash received) is less than the book value (cost minus accumulated depreciation) of the asset.

Question 18

If land was acquired many years ago,and inflation has occurred over time,the value of the land on the financial statements should be increased to reflect some of the change in the land's valuation.However,the land will still be valued at a relatively conservative amount.The company does not follow IFRS.

Accepted Answer

Under most accounting frameworks, including US GAAP, land is recorded at its historical cost and is not adjusted for changes in market value or inflation.

Question 19

On January 1,2009,First Bank acquired 10 cars for company use.The cost of each car was $15,000 and the bank estimated that each car would have a 4-year useful life and a residual value of $2,000.
Required:
a.Provide the journal entry needed on December 31,2010,if four cars were sold for a total of $17,500 and First Bank uses double-declining-balance depreciation.
b.Provide the journal entry needed on December 31,2010,if four cars were sold for a total of $17,500 and First Bank uses straight-line depreciation.
c.Assume instead of the above information that on December 31,2010,one of the cars was wrecked.Provide the journal entry needed on December 31,2010,if First Bank's insurance company paid $2,900 for the wrecked car and the company uses straight-line depreciation.

Accepted Answer

The answer of On January 1,2009,First Bank acquired 10 cars...

Question 20

Exam Laboratories gathered the following data for the year ended December 31,20X3,related to its equipment.
 $\begin{array}{llc}
&&\text { Accumulated}\
&\text { Equipment }&\text { Depreciation } \
&&\text { Equipment }\
\text { January } 1,20 \times 3, \text { belance } & \$ 85,000 & \$ 40,000 \
\text { Total debits to the account } & 55,000 & ? \
\text { Total credits to the account } & ? & 51,000 \
\text { December } 31,20 \times 3 \text {, balance } & 92,000 & 56.000
\end{array}$ 
Based on the above data,prepare the journal entry to record the sale of equipment during the year
for $11,500 cash.

Accepted Answer

The answer of Exam Laboratories gathered the following data for...

Quiz 8: Long-Lived Assets