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Exam 8: Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

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Question 51

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Allison Company purchased a machine for $1,200,000 at the beginning of 2015. Allison was using the double-declining-balance (200%) method to depreciate the asset and its useful life was estimated to be 5 years with a residual value of $200,000. At the end of 2016, Allison Co. estimates the future cash flows from the asset to be equal to $500,000 and the fair value to be $450,000. Required: What is the amount of the impairment loss?

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At the end of year two, the machine's bo...

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Question 52

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Which of the following properly describes the accounting for goodwill?

A) Goodwill is recorded when it is internally generated.
B) Goodwill is amortized over its useful life.
C) Goodwill is the difference between the amount paid for a company relative to the book value of the acquired company's net assets.
D) Goodwill is written down when it has been determined to be impaireD.Goodwill is not amortized.Instead, it is reviewed for impairment and is written down when it has been determined to be impaired.

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Question 53

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Which of the following is correct regarding gain or loss on disposal of a long-lived asset?

The method of depletion used to allocate the cost of natural resources to future periods is most similar to the straight-line depreciation method.

Which method of depreciation results in periodic depreciation expense that fluctuates from one period to the next, not necessarily in a steadily upward or downward direction?

Smith Company exchanges assets to acquire a building. The market price of the Smith stock on the exchange date was $35 per share and the building's book value on the books of the seller was $250,000. Which of the following journal entries is correct for Smith Company when Smith issues 10,000 shares of $10 par value common stock and pays $20,000 cash in exchange for the building?

Which of the following transactions would not increase the fixed asset turnover ratio?

A company has some bottling equipment which cost $8.5 million, has a net book value of $4.1 million, estimated future cash flows of $3.7 million, and a fair value of $3.1 million. How much is the asset impairment loss?

Which of the following is correct when recording the disposal of equipment for a gain?

On December 31, 2016, Hamilton Inc. sold a used industrial crane for $600,000 cash. The original cost of the crane was $5.0 million and its accumulated depreciation equaled $4.2 million on December 31, 2016. What is the gain or loss from the December 31, 2016 equipment sale?

Selling a depreciable asset for a gain results in an increase in both net income and assets.

What is the effect on the 2016 financial statements when a capital expenditure during 2016 was incorrectly recorded as a repairs and maintenance expense?

Warren Company plans to depreciate a new building using the double declining-balance depreciation method. The building cost $800,000. The estimated residual value of the building is $50,000 and it has an expected useful life of 25 years. What is the building's book value at the end of the first year?

Which of the following is true when a company constructs an asset for its own use?

In Year 4, Landmark Restaurants reported the cost of property and equipment at $1,189.8 million and the accumulated depreciation at $224.2 million. In that same year, Coca Cola reported $10,149 million in long-lived, productive assets and accumulated depreciation on them of $4,058. Required: A.Estimate the approximate percent of remaining life of the assets for Landmark and Coca Cola. B.Which company appears to have newer assets with longer remaining lives?

The equipment cost initially reported on the balance sheet includes the equipment-related installation and transportation costs.

Schager Company purchased a computer system on January 1, 2016, at a cash cost of $25,000. The estimated useful life is 10 years, and the estimated residual value is $3,000. The company will use the double declining-balance depreciation method. What is the accumulated depreciation balance as of December 31, 2017?

Which of the following properly describes the accounting for a patent?

Amanda Company purchased a computer that cost $10,000. It had an estimated useful life of five years and a residual value of $1,000. The computer was depreciated by the straight-line method and was sold at the end of the third year of use for $5,000 cash. How much of a gain or loss should Amanda record?

Carter Company disposed of an asset at the end of the eighth year of its estimated life for $10,000 cash. The asset's life was originally estimated to be 10 years. The original cost was $50,000 with an estimated residual value of $5,000. The asset was being depreciated using the straight-line method. What was the gain or loss on the disposal?