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Exam 8: Accounting for Long-Term Assets

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Question 31

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Explain the purpose of and method of depreciation for partial years.

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Partial years' depreciation is often req...

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Question 32

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Hunter Sailing Company exchanged an old sailboat for a new one.The old sailboat had a cost of $160,000 and accumulated depreciation of $100,000.The new sailboat had an invoice price of $270,000.Hunter received a trade in allowance of $70,000 on the old sailboat,which meant the company paid $200,000 in addition to the old sailboat to acquire the new sailboat.If this transaction has commercial substance,what amount of gain or loss should be recorded on this exchange?

A) $0 gain or loss.
B) $10,000 gain.
C) $10,000 loss.
D) $60,000 loss.
E) $70,000 loss.

F) B) and C)
G) B) and E)

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Question 33

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On April 1,Year 1,Raines Co.purchased and placed a plant asset in service.The following information is available regarding the plant asset: Make the necessary adjusting journal entries at December 31,Year 1,and December 31,Year 2 to record depreciation for each year under the double-declining balance depreciation method:

The cost of equipment might include all of the following except:

Spears Co.had net sales of $35,400 million.Its average total assets for the period were $14,700 million.Spears' total asset turnover equals:

A company paid $595,000 for property that included land appraised at $384,000; land improvements appraised at $128,000; and a building appraised at $288,000.The plan is to use the building as a manufacturing plant.Determine the amounts that should be recorded as:

On January 1,a machine costing $260,000 with a 6-year life and an estimated $5,000 salvage value was purchased.It was also estimated that the machine would produce 500,000 units during its life.The actual units produced during its first year of operation were 110,000.Determine the amount of depreciation expense for the first year under each of the following assumptions: 1.The company uses the straight-line method of depreciation. 2.The company uses the units-of-production method of depreciation. 3.The company uses the double-declining-balance method of depreciation.

Accounting for the exchange of assets depends on whether the transaction has commercial substance; commercial substance implies that it alters the company's future cash flows.

Holding a copyright:

Edmond reported average total assets of $9,965 million and net sales of $10,430 million.Its total asset turnover equals .96.

A company purchased a cooling system on January 2 for $225,000.The system had an estimated useful life of 15 years.After using the system for 13 full years,the company completed a renovation of the system at a cost of $33,000 and now expects the system to be more efficient and last 8 years beyond the original estimate.The company uses the straight-line method of depreciation. (a)Prepare the journal entry at January 3,to record the renovation of the cooling system. (b)Prepare the journal entry at December 31,to record the revised depreciation for the thirteenth year.

The formula to compute annual straight-line depreciation is:

McClintock Co.had the following transactions involving plant assets during Year 1.Unless otherwise indicated,all transactions were for cash. Prepare the general journal entries to record these transactions.

If an asset is sold above its book value,the selling company records a loss.

A company needed a new building.It found a suitable location with an existing old building on the land.The company reached an agreement to buy the land and the building for $960,000 cash.The old building was demolished to make way for the needed new building.Following is information regarding the demolition of the old building and construction of the new one: Construction cost of new building $8,900,000 Cost for parking lot……………………………………….$260,000 Demolition of old building…………………………… 200,000 Proceeds from sale of salvaged materials from old building 70,000 Prepare a single journal entry to record the above costs assuming all transactions are paid in cash.

What are the general accounting procedures for recording asset disposals?

An accelerated depreciation method yields larger depreciation expense in the early years of an asset's life and less depreciation expense in later years.

Once the estimated depreciation expense for an asset is calculated:

Depreciation:

Decision makers and other users of financial statements are especially interested in evaluating a company's ability to use its assets in generating sales.