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Exam 8: Accounting for Long-Term Assets

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Question 21

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On April 1,Year 1,Astor Corp.purchased and placed a plant asset in service.The following information is available regarding the plant asset: $\begin{array} { l l } \text { Acquisition cost } & \$ 130,000 \\\text { Estirnated salvage value } & \$ 15,000 \\\text { Estimated useful life } & 5 \text { years }\end{array}$ Make the necessary adjusting journal entries at December 31,Year 1,and December 31,Year 2 to record depreciation for each year under the straight-line depreciation method.

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Question 22

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Granite Company purchased a machine costing $120,000,terms 1/10,n/30.The machine was shipped FOB shipping point and freight charges were $2,000.The machine requires special mounting and wiring connections costing $10,000.When installing the machine,$1,300 in damages occurred.Compute the cost recorded for this machine assuming Granite paid within the discount period.

A) $129,800.
B) $132,100.
C) $130,800.
D) $118,800.
E) $120,100.

F) None of the above
G) B) and E)

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Question 23

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On January 1,Year 1,Naples purchased a computer system that cost $1,480,000.The estimated useful life of the computer is 3 years and salvage value is $40,000.Straight-line depreciation is to be used.On January 1,Year 2,Naples determined that the estimated useful life of the computer would be 4 years instead of 3 years.The estimated salvage value will only be $10,000. Prepare the journal entry to record depreciation expense for Year 1. Prepare the journal entry to record depreciation expense for Year 2.

On April 1,2015,due to obsolescence resulting from a new technology,a company discarded a computer that cost $5,000,had a useful life of 4 years,and a salvage value of $400.Based on straight-line depreciation,the accumulated depreciation as of December 31,2014 was $3,450. a.Prepare the journal entry to record depreciation up to the date of disposal of the computer. b.Prepare the journal entry to record the disposal of the computer.

Revenue expenditures:

An asset can be disposed of by all of the following except:

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.

Plant assets can be disposed of by discarding,selling,or exchanging them.

A building was purchased for $370,000 and depreciated for ten years on a straight-line basis under the assumption it would have a twenty-year life and a $10,000 salvage value.At the beginning of the building's eleventh year it was recognized the building had eight years of remaining life instead of ten and that at the end of the remaining eight years its salvage value would be $16,000.What amount of depreciation should be recorded in each of the building's remaining eight years?

The units-of-production method of depreciation charges a varying amount of expense for each period of an asset's useful life depending on its usage.

A company purchased a delivery van on October 1 of the current year at a cost of $40,000.The van is expected to last six years and has a salvage value of $2,200.The company's annual accounting period ends on December 31. 1.What is the depreciation expense for the current year,assuming the straight-line method is used? 2.What is the book value of the van at the end of the first year?

Plant assets are reported on a balance sheet at their undepreciated costs (book value),not at fair (market)values.

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.

A company purchased a special purpose machine on September 15 of the past year,and it was installed and ready to run on January 1 of this year.The following costs were incurred in the purchase and installation of the machine.Determine the total cost of the machine. $\begin{array} { l l } \text { Invoice price plus sales tax } & \$ 1,270,500 \\\text { Freight costs } & 9,000 \\\text { Setup costs } & 51,000 \\\text { Costs to adjust machine to appropriate specifications } & 36,000 \\\text { Electrical connections } & 32,000 \\\text { Maintenance supplies for future use } & 108,000 \\\text { Traffic fine incurred during transport of machine } & 300 \\\text { Cost of special foundation for machine } & 18,500\end{array}$

During the current year,Beldon Co.acquired a new computer with a cash price of $12,800 by exchanging an old one on which the company received a $1,500 trade-in allowance (with the balance of $11,300 paid in cash).The old computer cost $9,000 and its accumulated depreciation was $5,500 as of the exchange date.Assuming the exchange transaction had commercial substance,prepare the journal entry to record the exchange.

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: a) Land $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\$$$\underline{\quad\quad\quad\quad\quad\quad}$ b) Land Improvements $\quad$$\$$$\underline{\quad\quad\quad\quad\quad\quad}$ c) Building $\quad$$\quad$$\quad$$\quad$$\quad$$\$$$\underline{\quad\quad\quad\quad\quad\quad}$

Match each of the following terms with the appropriate definitions. -A measure of a company's effectiveness in using its assets to generate sales.

A company purchased land with a building for a lump-sum cost of $2,570,000 ($500,000 paid in cash and the balance on a long-term note).It was estimated that the land and building had market values of $600,000 and $2,400,000,respectively. Determine the cost to be apportioned to the land and to the building and prepare the journal entry to record the acquisition.

Riverboat Adventures pays $310,000 plus $15,000 in closing costs to buy out a competitor.The real estate consists of land appraised at $35,000,a building appraised at $105,000,and paddleboats appraised at $210,000. -Compute the cost that should be allocated to the building.

Record the following events and transactions for Leonard Company for the current year. 1.On January 2,Leonard purchased a patent for $35,000 with a remaining useful life of 10 years.Prepare the journal entry to amortize the patent at the end of the first year. 2.On January 3,Leonard made an advance payment on a leasehold of $840,000.The leasehold expires in 15 years.Prepare the journal entry to amortize the leasehold at the end of the first year. 3.On January 4,Leonard purchased a music distributor's collection of lyrics and songs for $1,425,000.The copyrights have a remaining life of another 30 years.Prepare the journal entry to amortize the copyright at the end of the first year.