Question 1

Accounting terminology
Listed below are nine technical accounting terms introduced in this chapter:  Each of the following statements may (or may not)describe one of these technical terms.In the space provided below each statement,indicate the accounting term described,or answer "None" if the statement does not correctly describe any of the terms.
________ (a. )An expenditure that will benefit only the current accounting period.
________ b. )The accelerated depreciation system used in federal income tax returns for depreciable assets purchased after 1986.
________ c. )A policy that fractional-period depreciation on assets acquired or sold during the period should be computed to the nearest month.
________ d. )An intangible asset representing the present value of future earnings in excess of normal return on net identifiable assets.
________ e. )Expenditures that could lead to the introduction of new products,but which,according to the FASB,should be viewed as an expense when incurred.
________ f. )Depreciation methods that take less depreciation in the early years of an asset's useful life,and more depreciation in the later years.
________ g. )An account showing the portion of the cost of a plant asset that has been written off to date as depreciation expense.

Accepted Answer

The answer of Accounting terminology
Listed below are nine technical accounting...

Question 2

Prepare journal entries for the following:

Accepted Answer

The answer of Prepare journal entries for the following:
 ...

Question 3

The following expenditures are related to land,land improvements,and buildings,which were acquired on November 1,2018.
  Required:
Determine the cost of the land,the building and the improvements (Round to the nearest dollar)
Prepare journal entries on December 31,2018 for depreciation assuming the building will have a useful life of 20 years and no residual value.Use double declining balance method and the half-year convention.Depreciate the land improvements using straight-line method,a 5-year life,to the nearest month with zero residual value (to the nearest dollar).

Accepted Answer

The answer of The following expenditures are related to land,land...

Question 4

In February 2018,Brilliant Industries purchased the Topaz Mine at a cost of $10,000,000.The mine is estimated to contain 500,000 carats of stone and to have a residual value of $500,000 after mining operations are completed.During 2018,50,000 carats of stone were removed from the mine and sold.In this situation:
A)The book value of the mine is $9,000,000 at the end of 2018.
B)The amount of depletion deducted from revenue during 2018 is $950,000.
C)The amount of depletion deducted from revenue during 2018 is $1,000,000.
D)The mine is classified as an intangible asset and amortized over a period not to exceed 40 years.

Accepted Answer

The depletion per carat is calculated as ($10,000,000 - $500,000) / 500,000 carats = $19 per carat. For 50,000 carats, the depletion is 50,000 * $19 = $950,000.

Question 5

Briefly explain the difference between a revenue expenditure and a capital expenditure.

Accepted Answer

The answer of Briefly explain the difference between a revenue...

Question 6

Effects of depreciation on income and cash flows
In its financial statements,Flysafe Airlines has for many years depreciated its aircraft over an estimated useful life of 12 years.In preparing this year's financial statements,management decided to revise the estimate from 12 years to 15.Briefly explain how this revision in estimated life is likely to affect this year's:
(a)Net income.
(b)Net cash flow.
(c)Taxable income.

Accepted Answer

The answer of Effects of depreciation on income and cash...

Question 7

Early in the current year,Amazon Co.purchased the Rio Silver Mine at a cost of $30,000,000.The mine was estimated to contain 400,000 tons of ore and to have a residual value of $7,500,000 after mining operations are completed.During the year,115,000 tons of ore were removed from the mine.At year-end,the book value of the mine is:
A)$22,500,000.
B)$6,468,750.
C)$23,531,250.
D)$30,000,000.

Accepted Answer

The book value of the mine at year-end is calculated by subtracting the depletion expense from the original cost. The depletion expense is calculated based on the number of tons of ore removed. The cost to allocate is $30,000,000 - $7,500,000 = $22,500,000. The depletion per ton is $22,500,000 / 400,000 tons = $56.25 per ton. For 115,000 tons removed, the depletion expense is 115,000 tons * $56.25 = $6,468,750. Therefore, the book value at year-end is the original cost of $30,000,000 minus the depletion expense of $6,468,750, which equals $23,531,250.

Question 8

Wanda Company sold an asset for $10,000 on September 6,2018.The historical cost of the asset was $22,000,and the asset's accumulated depreciation at the date of sale was $14,500.Which of the following statements is correct?
A)Wanda will record a cash inflow from operating activities of $10,000 in its 2018 financial statements.
B)Wanda will record a cash inflow from investing activities of $10,000 in its 2018 financial statements.
C)Wanda will record a cash inflow from investing activities of $2,500 in its 2018 financial statements.
D)Wanda will record no cash flows related to this asset on its 2018 statement of cash flows.

Accepted Answer

Since Wanda sold an asset, it will record a cash inflow from investing activities of $10,000 in its 2018 financial statements. Additionally, it will need to adjust for the difference between the asset's historical cost and accumulated depreciation. The gain on the sale of the asset will be calculated as $10,000 (sale price) - $7,500 (book value) = $2,500. This gain will be reported as a cash inflow from investing activities on the statement of cash flows.

Question 9

Depreciation and disposal-a comprehensive problem
Domino,Inc uses straight-line depreciation with a half-year convention in its financial statements.On March 10,2018,Domino acquired a computer system at a cost of $98,800.Estimated useful life is six years,with residual value of $5,200.
(a)Complete the following schedule,showing depreciation expense Domino expects to recognize each year in the financial statements.
  (b)Assume Domino sells the computer system on October 3,2021,for $26,650.

Accepted Answer

The answer of Depreciation and disposal-a comprehensive problem
Domino,Inc uses straight-line...

Question 10

Depreciation in financial statements
Dynasty Co.uses straight-line depreciation in its financial statements,with depreciation for a partial year rounded to the nearest full month.
On September 28,2018 Dynasty purchased equipment at a cost of $140,000.For financial reporting purposes,the useful life of this equipment was estimated at 5 years,with a $30,000 salvage value.
Compute the depreciation expense relating to this equipment that Dynasty will recognize in its financial statements in the following years.If no depreciation will be recognized in a particular year,write zero.

Accepted Answer

The answer of Depreciation in financial statements
Dynasty Co.uses straight-line depreciation...

Question 11

Wilbur Company purchased $10,000 of equipment on December 20,2018 on terms 2/15,net 30.Wilbur paid for the equipment on the 15th day following purchase and took advantage of the discount.Which of the following statements is correct?
A)Wilbur will record a cash outflow from investing activities of $10,000 in its 2018 financial statements.
B)Wilbur will record a cash outflow from investing activities of $9,800 in its 2018 financial statements.
C)Wilbur will record a cash outflow from investing activities of $10,000 in its 2019 financial statements.
D)Wilbur will record a cash outflow from investing activities of $9,800 in its 2019 financial statements.

Accepted Answer

The answer of Wilbur Company purchased $10,000 of equipment on...

Question 12

Depreciation;gains and losses in financial statements
In 2016,Amalfi,Inc.purchased equipment with an estimated 10-year life for $42,600.The residual value was estimated at $9,900.Amalfi uses straight-line depreciation and applies the half-year convention.
On April 18,2018,Amalfi closed one of its plants and sold this equipment for $33,600.Under these assumptions,compute the following for this equipment:

Accepted Answer

The answer of Depreciation;gains and losses in financial statements
In 2016,Amalfi,Inc.purchased...

Question 13

Various depreciation methods-two years
On September 6,2017,East River Tug Co.purchased a new tugboat for $400,000.The estimated life of the boat was 20 years,with an estimated residual value of $40,000.
Compute the depreciation on this tugboat in 2017 and 2018 using the following methods.Apply the half-year convention.(If necessary,round to the nearest dollar. )

Accepted Answer

The answer of Various depreciation methods-two years
On September 6,2017,East River...

Question 14

Wilbur Company purchased $10,000 of equipment on January 20,2017.Wilbur uses the straight-line method to depreciate the equipment.The equipment has a 5-year useful life with no salvage value.Which of the following statements is correct?
A)Wilbur will record a cash inflow from operating activities of $2,000 in its 2018 financial statements.
B)Wilbur will record a cash outflow from operating activities of $2,000 in its 2018 financial statements.
C)Wilbur will record a cash outflow from investing activities of $2,000 in its 2018 financial statements.
D)Wilbur will record no cash flows related to this asset on its 2018 statement of cash flows.

Accepted Answer

Wilbur will not record any cash flows related to this asset on its 2018 statement of cash flows because the equipment was purchased in 2017 and the depreciation expense will be recorded as a non-cash expense over the 5-year useful life of the asset.

Question 15

Determining cost of plant assets
New equipment was purchased by Hunter Corporation at a list price of $94,000,with credit terms of 2/10,n/30.Payment was made within the discount period and included $7,800 sales tax in addition to the net purchase price.The company also paid delivery charges of $940 and labor costs of $1,380 for installing the new equipment at the appropriate location.During installation,an inexperienced employee punctured several containers with a forklift,causing damage to the equipment.Cost to repair the damage was $1,960.What is the total cost of Hunter's equipment?

Accepted Answer

The answer of Determining cost of plant assets
New equipment was...

Question 16

Total stockholders' equity of Tucker Company is $4,000,000.The fair market value of Tucker 's net identifiable assets (assets less liabilities)is $5,000,000.Empire Corporation makes an offer to purchase Tucker 's entire business for $5,800,000.In this situation:
A)Tucker Company should report goodwill of $800,000 in its balance sheet.
B)Tucker Company should report goodwill of $1,800,000 in its balance sheet.
C)Empire Corporation is willing to pay $1,800,000 for goodwill generated by Tucker,and Empire will report this goodwill in its balance sheet if the purchase is finalized.
D)Empire Corporation is willing to pay $800,000 for goodwill generated by Tucker,and Empire will report this goodwill in its balance sheet if the purchase is finalized.

Accepted Answer

The answer of Total stockholders' equity of Tucker Company is...

Question 17

Declining balance depreciation
On July 6,2017,Grayson purchased new machinery with an estimated useful life of 10 years.The cost of the equipment was $80,000,with a residual value of $8,000.
Compute the depreciation on this machinery in 2017 and 2018 using each of the following methods.

Accepted Answer

The answer of Declining balance depreciation
On July 6,2017,Grayson purchased new...

Question 18

Trade-ins
Dietz owned a delivery van with a book value of $2,000.It traded this old van for a new one that cost $16,000.The dealer allowed Dietz a trade-in allowance of $3,500 on the old van,and Dietz paid the remainder in cash.
Compute the following:

Accepted Answer

The answer of Trade-ins
Dietz owned a delivery van with a...

Question 19

In February 2018,Gemstone Industries purchased the Opal Mine at a cost of $20,000,000.The mine is estimated to contain 500,000 carats of stone and to have a residual value of $1,000,000 after mining operations are completed.During 2018,50,000 carats of stone were removed from the mine and sold.In this situation:
A)The book value of the mine is $19,000,000 at the end of 2018.
B)The amount of depletion deducted from revenue during 2018 is $1,900,000.
C)The amount of depletion deducted from revenue during 2018 is $1,000,000.
D)The mine is classified as an intangible asset and amortized over a period not to exceed 40 years.

Accepted Answer

The depletion per carat is calculated as ($20,000,000 - $1,000,000) / 500,000 carats = $38 per carat. For 50,000 carats, the depletion is 50,000 * $38 = $1,900,000.

Question 20

Early in the current year,Tokay Co.purchased the Silverton Mine at a cost of $20,000,000.The mine was estimated to contain 200,000 tons of ore and to have a residual value of $5,000,000 after mining operations are completed.During the year,105,000 tons of ore were removed from the mine.At year-end,the book value of the mine (cost minus accumulated depletion)is:
A)$15,000,000.
B)$12,125,000.
C)$7,875,000.
D)$9,500,000.

Accepted Answer

The depletion expense can be calculated as:
Depletion per ton = (Cost - Residual value) / Estimated tons of ore
Depletion per ton = ($20,000,000 - $5,000,000) / 200,000 tons = $75 per ton

Total depletion expense for the year = Depletion per ton x Tons of ore removed
Total depletion expense = $75 per ton x 105,000 tons = $7,875,000

The book value of the mine can be calculated as:
Book value = Cost - Accumulated depletion
Book value = $20,000,000 - $7,875,000 = $12,125,000

Therefore, the best choice is B.

Quiz 9: Plant and Intangible Assets

Prepare journal entries for the following:

Briefly explain the difference between a revenue expenditure and a capital expenditure.

Wanda Company sold an asset for $10,000 on September 6,2018.The historical cost of the asset was $22,000,and the asset's accumulated depreciation at the date of sale was $14,500.Which of the following statements is correct?

Wilbur Company purchased $10,000 of equipment on December 20,2018 on terms 2/15,net 30.Wilbur paid for the equipment on the 15th day following purchase and took advantage of the discount.Which of the following statements is correct?

Wilbur Company purchased $10,000 of equipment on January 20,2017.Wilbur uses the straight-line method to depreciate the equipment.The equipment has a 5-year useful life with no salvage value.Which of the following statements is correct?

Total stockholders' equity of Tucker Company is $4,000,000.The fair market value of Tucker 's net identifiable assets (assets less liabilities) is $5,000,000.Empire Corporation makes an offer to purchase Tucker 's entire business for $5,800,000.In this situation:

Declining balance depreciation On July 6,2017,Grayson purchased new machinery with an estimated useful life of 10 years.The cost of the equipment was $80,000,with a residual value of $8,000. Compute the depreciation on this machinery in 2017 and 2018 using each of the following methods.

Trade-ins Dietz owned a delivery van with a book value of $2,000.It traded this old van for a new one that cost $16,000.The dealer allowed Dietz a trade-in allowance of $3,500 on the old van,and Dietz paid the remainder in cash. Compute the following: