Question 1

Grannis Corporation purchased land adjacent to its plant to improve access for trucks making deliveries.Expenditures incurred by the company were as follows: purchase price,$40,000;broker's fees,$7,000;title search and other fees,$6,000;demolition of an old building on the property,$3,700;grading,$1,200;digging foundation for the road,$3,000;laying and paving driveway,$25,000;lighting,$7,500;signs,$1,500.List the items and the amounts that should be included in the cost of the land and recorded in the Land account.

Accepted Answer

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Question 2

Improperly classifying large expenditures as assets rather than expenses
A)could constitute fraud.
B)understates income for the period.
C)understates equity on the balance sheet.
D)results in none of these options.

Accepted Answer

Improperly classifying large expenditures as assets rather than expenses could be considered fraud, as it misrepresents the true financial position of the company. This is because assets are recorded on the balance sheet and increase the company's value, while expenses are recorded on the income statement and decrease the company's net income. Therefore, classifying an expense as an asset could overstate the company's assets and understate its expenses, and thus its true financial position.

Question 3

Which of the following is the proper formula for computing free cash flow?
A)= Net Cash Flows from Investing Activities - Purchases of Plant Assets
B)= Net Cash Flows from Financing Activities + Sales of Plant Assets - Dividends
C)= Net Cash Flows from Investing,Financing,and Operating Activities - Purchases of Plant Assets + Sales of Plant Assets
D)= Net Cash Flows from Operating Activities - Dividends - Purchases of Plant Assets + Sales of Plant Assets

Accepted Answer

Free cash flow is the cash a company generates after accounting for capital expenditures like purchasing of plant assets and payment of dividends. The formula for computing free cash flow is Net Cash Flows from Operating Activities minus Dividends minus Purchases of Plant Assets plus Sales of Plant Assets. Option D correctly represents this formula.

Question 4

If net cash flows from operating activities total $115,000,net cash flows from financing activities total $50,000,net cash flows from investing activities total $60,000,purchases of plant assets total $30,000,dividends total $12,000,and sales of plant assets total $17,000,the free cash flow equals
A)$90,000.
B)$174,000.
C)$116,000.
D)$56,000.

Accepted Answer

Free cash flow = Net cash flows from operating activities - Capital expenditures + Proceeds from sale of plant assets= $115,000 - $30,000 + $17,000= $90,000

Question 5

Mercado Photography purchased photographic equipment for $75,000.The equipment was to be used for ten years and had a $5,000 estimated residual value.After the company took three years of straight-line depreciation,it decided that the equipment would instead have a $2,000 residual value and a total useful life of eleven years.Calculate depreciation expense that should be recorded in year 4.(Show your work. )

Accepted Answer

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Question 6

If the purchase of machinery is treated incorrectly as a revenue expenditure,what will be the effect on net income and total assets in the year of purchase and in the following year,and why?

Accepted Answer

The answer of If the purchase of machinery is treated...

Question 7

What commitments must a company account for in determining its free cash flow?

Accepted Answer

The answer of What commitments must a company account for...

Question 8

Under what circumstances will a loss be recorded on the sale of equipment,and what effect will the loss have on stockholders' equity?

Accepted Answer

The answer of Under what circumstances will a loss be...

Question 9

The following machines were purchased during 2014:
Machine A for $6,000 on April 5
Machine B for $4,000 on August 24
Machine C for $5,000 on November 10
Assuming that each machine has an estimated useful life of six years and a 10 percent residual value,calculate total depreciation expense for 2014 (assume straight-line depreciation and round to the nearest month and the company reports on a calendar-year basis).

Accepted Answer

The answer of The following machines were purchased during 2014:
Machine...

Question 10

Suppose an accounting intern mistakenly calculated depreciation expense on the Land account.She assigned it a 50-year life and a residual value of $10,000,000.Using the cost of the land (assume it was $811,000,000)and the straight-line method of depreciation,discuss the dollar effect of this error on pretax earnings and total assets.

Accepted Answer

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Question 11

Discuss the difference between the successful efforts and full-costing methods of accounting for oil and gas resources.What type of company is most likely to use each method?

Accepted Answer

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Question 12

If a company's free cash flow is $90,000,net cash flows from operating activities total $220,000,purchases of plant assets total $100,000,and sales of plant assets total zero,what amount is committed to dividends?
A)$20,000
B)$30,000
C)$60,000
D)Impossible to determine from the facts given.

Accepted Answer

Free cash flow = net cash flows from operating activities - purchases of plant assets + sales of plant assets
$90,000 = $220,000 - $100,000 + $0
Cash available for dividends = free cash flow = $90,000
Therefore, the amount committed to dividends is $30,000 (assuming the entire free cash flow is committed to dividends). The correct answer is choice B.

Question 13

Present two arguments in favor of the use of accelerated depreciation.

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Question 14

What is goodwill and when may it be recorded?

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Question 15

Russell Company's air-conditioning system has just completed the eighth year of an estimated ten-year life.The system cost $60,000 and now has accumulated depreciation of $48,000.At the beginning of the ninth year,the company expects to spend $16,000 on a complete renovation of the system and expects the total life of the system to be fifteen years.Neither the capacity of the system nor the residual value was increased.The company uses the straight-line method to determine depreciation.Determine the following: (a)the account debited for the cost of renovation, (b)the carrying value of the system after renovation,and (c)the depreciation expense for the ninth year.

Accepted Answer

The answer of Russell Company's air-conditioning system has just completed...

Question 16

Free cash flow is
A)a financial ratio.
B)an important measure of a company's ability to finance long-term assets.
C)what remains after deducting dividends declared from net income.
D)an important measure of a company's ability to invest in short-term assets.

Accepted Answer

Free cash flow is an important measure of a company's ability to finance long-term assets. It is the cash flow a company generates from its operations after accounting for capital expenditures needed to maintain or expand its asset base. This amount can be used to invest in long-term assets or pay dividends to shareholders.

Question 17

Which of the following is not a component of free cash flow?
A)Purchases of plant assets
B)Net income
C)Dividends
D)Net cash flows from operating activities

Accepted Answer

Net income is not a component of free cash flow; free cash flow is calculated using net cash flows from operating activities, capital expenditures (like purchases of plant assets), and dividends.

Question 18

If a company's free cash flow is $66,000,net cash flows from operating activities total $133,000,purchases of plant assets total $61,000,and the payment of dividends was $20,000,what amount was obtained from the sale of plant assets?
A)$7,000
B)$14,000
C)$28,000
D)Impossible to determine from the facts given.

Accepted Answer

The answer of If a company's free cash flow is...

Question 19

Boulder Company had net cash flows of $150,000 from operating activities.It extended $60,000 for purchases of plant assets,sold plant assets for $5,000,and paid dividends of $70,000.The company's free cash flow is
A)$25,000.
B)$50,000.
C)$60,000.
D)$75,000.

Accepted Answer

Free cash flow is calculated as net cash flows from operating activities minus capital expenditures. Here, it's $150,000 (operating activities) - $60,000 (purchase of plant assets) = $90,000. Then, adding the $5,000 from the sale of plant assets gives $95,000. However, paying dividends is not considered in calculating free cash flow, so the final calculation remains $95,000 - $70,000 (an incorrect subtraction not relevant to free cash flow calculation) does not apply. The correct calculation should simply be $150,000 - $60,000 = $90,000, indicating an error in the provided choices and explanation. Given the options, none directly match the correct calculation of free cash flow based on the standard definition. The closest option based on the initial incorrect explanation was A) $25,000, but this was based on a misunderstanding of how free cash flow is calculated. The correct free cash flow, without considering dividends (since they're not part of its calculation), would indeed be $90,000, which is not an option provided.

Question 20

In general,how does one determine whether or not an expenditure should be included in the acquisition cost of property,plant,and equipment?

Accepted Answer

The answer of In general,how does one determine whether or...

Quiz 10: Long -Term Assets

Improperly classifying large expenditures as assets rather than expenses

Which of the following is the proper formula for computing free cash flow?

If net cash flows from operating activities total $115,000,net cash flows from financing activities total $50,000,net cash flows from investing activities total $60,000,purchases of plant assets total $30,000,dividends total $12,000,and sales of plant assets total $17,000,the free cash flow equals

If the purchase of machinery is treated incorrectly as a revenue expenditure,what will be the effect on net income and total assets in the year of purchase and in the following year,and why?

What commitments must a company account for in determining its free cash flow?

Under what circumstances will a loss be recorded on the sale of equipment,and what effect will the loss have on stockholders' equity?

Discuss the difference between the successful efforts and full-costing methods of accounting for oil and gas resources.What type of company is most likely to use each method?

If a company's free cash flow is $90,000,net cash flows from operating activities total $220,000,purchases of plant assets total $100,000,and sales of plant assets total zero,what amount is committed to dividends?

Present two arguments in favor of the use of accelerated depreciation.

What is goodwill and when may it be recorded?

Free cash flow is

Which of the following is not a component of free cash flow?

If a company's free cash flow is $66,000,net cash flows from operating activities total $133,000,purchases of plant assets total $61,000,and the payment of dividends was $20,000,what amount was obtained from the sale of plant assets?

Boulder Company had net cash flows of $150,000 from operating activities.It extended $60,000 for purchases of plant assets,sold plant assets for $5,000,and paid dividends of $70,000.The company's free cash flow is

In general,how does one determine whether or not an expenditure should be included in the acquisition cost of property,plant,and equipment?