978-1337276337 Test Bank Chapter 8 Part 4

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143. Loss on sale of patent

a. Balance sheet—Property, Plant, and Equipment

b. Balance sheet—Intangible Assets

c. Balance sheet—Current Assets

d. Balance sheet—Other Assets

e. Income statement—Operating section

f. Income statement—Other Revenue and Expense section

g. Statement of cash flows

Select the financial statement on which the user would most likely find the answer to the question given. (Select all that

apply.)

144. How much depreciation expense did the company report during the year?

a. Income statement

b. Balance sheet

c. Statement of cash flows

d. Statement of retained earnings

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145. Did the company sell any property, plant, and equipment during the year at a gain or loss?

a. Income statement

b. Balance sheet

c. Statement of cash flows

d. Statement of retained earnings

146. Did the company purchase any intangible assets during the year?

a. Income statement

b. Balance sheet

c. Statement of cash flows

d. Statement of retained earnings

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Completion

147. Please complete the following sentences:

a. Accumulated amortization is used with _______________.

b. Accumulated depreciation is used with _______________.

148. Acquisition cost is also referred to as __________.

149. Land is not a depreciable asset, but the amount allocated to the building is subject to __________.

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150. Interest included as part of the construction cost of the asset is referred to as __________ of interest.

151. The three reasons why a company might choose an accelerated depreciation method are _______________,

_______________, and ________________.

Please answer the following questions regarding depreciation:

152. __________ depreciation is the GAAP depreciation method used most frequently.

153. __________ depreciation is the GAAP depreciation method considered to be “accelerated” in nature.

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154. The two items that must be estimated with respect to a plant asset in order to properly allocate cost to the affected

accounting periods are _______________ and _______________.

155. A change in estimate should be recorded __________.

For each of the following sentences 156–159, select the word or group of words that best completes the statement.

Patent Copyright

Goodwill Revenue expenditure

Natural resources Research and development costs

Trademark Capital expenditure

156. _____________ is(are) the expenditure(s) incurred in the discovery of new knowledge and the translation of research

into a design or plan for a new product.

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157. _______________ is(are) a cost(s) that improves an operating asset and is (are) added to the asset account.

158. _____________ is(are) the right to produce or sell a published work.

159. __________ is an account that can only exist if one company purchases another business and the cost exceeds the

fair market values of the identifiable net assets at the time acquired.

160. With respect to operating assets, the two different transactions that would appear in the Investing Activities category

of the statement of cash flows are __________ and __________.

Matching

For each of the following items, indicate whether each would be treated as a

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a. capital expenditure

b. revenue expenditure

DIFFICULTY: Moderate

REFERENCES: p. 358 and pp. 366–368

LEARNING OBJECTIVES: FACC.PONO.18.8-02 – LO: 8-02

FACC.PONO.18.8-07 – LO: 8-07

NATIONAL STANDARDS: United States – BUSPROG: Communications

ACCREDITING STANDARDS: ACBSP: APC-13 – APC-13-Long-Term Assets Reporting

AICPA: FN-Reporting

KEYWORDS: Bloom’s: Understanding

161. Costs related to acquiring an asset, such as sales or excise taxes, transportation, insurance during shipment

162. Costs incurred prior to using the asset, such as costs to prepare the asset for use, installation costs

163. Costs incurred after putting the asset into service that keep the asset in normal operating condition

164. Costs incurred after putting the asset into service that would extend the asset’s useful life

ANSWER: a

Select the account that would be increased to show each of the following costs.

a. Land

b. Land Improvements

c. Buildings

d. Machinery and Equipment

e. An expense account

DIFFICULTY: Moderate

REFERENCES: p. 358, pp. 359–361, and pp. 366–368

LEARNING OBJECTIVES: FACC.PONO.18.8-02 – LO: 8-02

FACC.PONO.18.8-04 – LO: 8-04

FACC.PONO.18.8-07 – LO: 8-07

NATIONAL STANDARDS: United States – BUSPROG: Communications

ACCREDITING STANDARDS: ACBSP: APC-13 – APC-13-Long-Term Assets Reporting

AICPA: FN-Reporting

KEYWORDS: Bloom’s: Understanding

165. The transportation charges related to the acquisition costs of a new piece of machinery

166. The interest costs incurred during the construction period of a new building built by a company for its own use

167. The costs paid to clear land

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168. The annual painting costs of an office building

169. The sales taxes paid related to a machine purchased

170. The costs to pave a parking lot

ANSWER: b

Exeter Corporation purchased a piece of equipment with a price of $80,000 on March 1, 2019. The amounts below are

related to the equipment purchase. Match the items below and explain why each revenue expenditure is not capitalized.

a. This item should be included as part of the cost of the equipment.

b. This item should be considered a revenue expenditure.

DIFFICULTY: Moderate

REFERENCES: p. 358 and pp. 366–368

LEARNING OBJECTIVES: FACC.PONO.18.8-02 – LO: 8-02

FACC.PONO.18.8-07 – LO: 8-07

NATIONAL STANDARDS: United States – BUSPROG: Communications

ACCREDITING STANDARDS: ACBSP: APC-13 – APC-13-Long-Term Assets Reporting

AICPA: FN-Reporting

KEYWORDS: Bloom’s: Applying

171. Terms of the purchase were 2/10, net 30. Exeter paid for the purchase on March 8.

172. $3,000 freight costs were paid to ship the equipment from the manufacturer.

173. A state agency required that a pollution control device be installed on the equipment at a cost of $5,000.

174. During the installation, the equipment was damaged and repair costs of $2,000 were incurred.

175. It was necessary for an architect to redesign the work space to accommodate the new equipment. A fee of $6,000 was

paid.

176. The company purchased a three-year liability insurance policy to cover possible damage caused by the new

equipment at a cost of $6,000.

177. The company financed the equipment purchase with a bank loan. Interest of $3,000 was paid on the loan during

2019.

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187. Accumulated amortization

Given the following list of methods of depreciation, select the method that is best for the situation or purpose given. Some

answers may be used more than once, while others may not be used at all.

a. Straight-line

b. Units-of-production

c. Double-declining-balance

d. MACRS

DIFFICULTY: Easy

REFERENCES: pp. 361-365

LEARNING OBJECTIVES: FACC.PONO.18.8-05 – LO: 8-05

NATIONAL STANDARDS: United States – BUSPROG: Communications

ACCREDITING STANDARDS: ACBSP: APC-13 – APC-13-Long-Term Assets Reporting

AICPA: FN-Reporting

KEYWORDS: Bloom’s: Understanding

188. Early in the life of the asset, this method maximizes net income.

189. This method is the easiest to use.

190. This method is the best for management bonus plans.

191. This method minimizes taxable income (early in the asset’s life).

ANSWER: d

Given below is a list of items that may be reported on a statement of cash flows. Identify each as one of the following

using the indirect method:

a. Operating

b. Investing

c. Financing

d. Not separately reported on a statement of cash flows

DIFFICULTY: Moderate

REFERENCES: pp. 376-378

LEARNING OBJECTIVES: FACC.PONO.18.8-11 – LO: 8-11

NATIONAL STANDARDS: United States – BUSPROG: Communications

ACCREDITING STANDARDS: ACBSP: APC-13 – APC-13-Long-Term Assets Reporting

AICPA: FN-Reporting

KEYWORDS: Bloom’s: Applying

192. Proceeds from the sale of a building

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193. Depreciation expense

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194. Cost incurred to acquire a patent

195. Payment of research and development costs

196. Loss of the sale of equipment

198. Purchase of equipment for cash

Select the financial statement on which the user would most likely find the answer to the question given.

a. Income statement

b. Balance sheet

c. Statement of cash flows

d. Statement of retained earnings

DIFFICULTY: Moderate

REFERENCES: p. 358 and pp. 376–378

LEARNING OBJECTIVES: FACC.PONO.18.8-02 – LO: 8-02

FACC.PONO.18.8-11 – LO: 8-11

NATIONAL STANDARDS: United States – BUSPROG: Communications

ACCREDITING STANDARDS: ACBSP: APC-13 – APC-13-Long-Term Assets Reporting

AICPA: FN-Reporting

KEYWORDS: Bloom’s: Applying

199. What amount of cash was used to purchase property, plant, and equipment during the year?

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Subjective Short Answer

200. Aliquippa Co. purchased equipment at the beginning of 2017 for $60,000. In addition, Aliquippa paid $2,000 for

delivery of the equipment to its plant and $1,000 for installation of the equipment. The equipment has an estimated

residual value of $7,000 and an estimated life of seven years or 70,000 hours of operation. Aliquippa is looking at

alternative depreciation methods for the equipment. Calculate the following:

A. The depreciation expense for the year 2017 using the straight-line depreciation method.

B. The total accumulated depreciation at December 31, 2018, using the units-of-production depreciation method.

Assume that the equipment is operated for 15,000 hours in 2017 and 12,000 hours in 2018.

C. The book value of the equipment at December 31, 2017, using the double-declining-balance depreciation method.

D. Which of the above methods is considered accelerated?

E. What are the advantages of using an accelerated depreciation method as compared to the straight-line method for

lowering taxes early in the life of the equipment?

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201. Imperial Corp. purchased land and a building for $425,000. The appraised values of the land and the building were

$150,000 and $450,000, respectively. In addition, the attorney was paid $10,000 for handling the closing on the property.

A. What amounts will be recorded as the costs of the land and building?

B. What is the accounting justification against increasing the Land and Building accounts for their appraised values?

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202. Florence, Inc. purchased equipment at the beginning of 2017 for $140,000. The company decided to depreciate the

equipment over a ten-year period using the double-declining-balance method. The company estimated the equipment’s

salvage value at $12,000. Show how the costs should be presented on Florence’s financial statements at December 31,

2018. Label the statements properly.

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203. Tasty Catering purchased a van on January 1, 2015, for $48,000. The company decided to depreciate the van over a

five-year period using the straight-line method. The company estimated its residual value at $3,000. Show how the costs

should be presented on Tasty’s balance sheet and income statement for the full year ended June 30, 2017. Label the

statements properly.

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204. Fulsom Co. began construction of a new factory at the beginning of 2017. At the end of the year, construction was

completed, and construction costs totaled $200,000. Fulsom borrowed $180,000 at the beginning of 2017 to finance the

construction and repaid the loan at the end of 2017. The interest rate on the loan was 9%. Determine the following

amounts.

A.

The actual interest incurred on the construction loan during 2017.

B.

The interest to be capitalized for 2017.

C.

The total cost of the factory reported on the balance sheet.

D.

What impact does capitalizing interest have on net income for 2017? Explain.

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205. Given below are several accounts and balances from Carrier Corporation’s 2017 financial statements. Prepare the

Property, Plant, and Equipment section of the balance sheet and a partial income statement in the space provided below

using the accounts provided.

Depreciation expense $ 59,800

Accumulated depreciation 257,400

Gain on sale of plant asset 19,500

Building 585,000

Land 120,000

Cash received from sale of plant asset 52,000

BALANCE SHEET INCOME STATEMENT

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206. On January 1, 2017, Humansville Company purchased a piece of equipment with a list price of $80,000. The

following amounts were related to the equipment purchase:

• Terms of the purchase were 2/10, net 30. Humansville paid for the purchase on January 8.

• Freight costs of $1,250 were incurred.

• A state agency required that a pollution control device be installed on the equipment at a cost of $3,300.

• During installation, the equipment was damaged and repair costs of $4,200 were incurred.

• Architect’s fees of $6,100 were paid to redesign the work space to accommodate the new equipment.

• Humansville purchased liability insurance to cover possible damage to the asset. The three-year policy cost $8,700.

• Humansville financed the purchase with a bank loan. Interest of $4,600 was paid on the loan during 2017.

Required

Determine the acquisition cost of the equipment.

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207. On January 1, 2017, Aaron Simpson bought a farm store from a small competitor for $620,000. An appraiser, hired

to assess the acquired assets’ value, determined that the land, building, and equipment had market values of $300,000,

$215,000, and $270,000, respectively.

Required

1. What is the acquisition cost of each asset? Analyze the accounts affected to record the acquisition (rounded to the

nearest dollar).

2. Simpson plans to depreciate the building on a straight-line basis for 30 years and the equipment over 16 years.

Determine the amount of depreciation expense for 2017 on these newly acquired assets (rounded to the nearest dollar).

You can assume zero residual value for all assets.

3. How would the assets appear on the balance sheet as of December 31, 2017?

2. The amount of depreciation expense that should be recorded for 2017 is as follows:

Land = $0