118.
The inclusion of the intangible asset goodwill in the financial statements of a company
indicates:
119.
Expenditures for research and development intended to lead to new products of
commercial value:
120.
The basic purpose of the matching principle is to allocate the cost of an asset to expense
over the years in which the asset contributes to revenue. Current accounting practice does
not strictly apply this principle to expenditures for:
121.
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:
122.
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:
123.
In February 2015, 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 2015, 50,000 carats of stone were
removed from the mine and sold. In this situation:
124.
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:
125.
In February 2015, 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 2015, 50,000 carats of stone
were removed from the mine and sold. In this situation:
126.
Wilbur Company purchased $10,000 of equipment on December 20, 2015 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?
127.
Wilbur Company purchased $10,000 of equipment on January 20, 2014. 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?
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128.
Wanda Company sold an asset for $10,000 on September 6, 2015. 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?
Essay Questions
129.
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 to pay an expense of the current 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 of the current accounting period.
_____ (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.
130.
Determining cost of plant assets
131.
The following expenditures are related to land, land improvements, and buildings, which
were acquired on November 1, 2015.
Required:
Determine the cost of the land, the building and the improvements (Round to the nearest
dollar)
Prepare journal entries on December 31, 2015 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).
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132.
Prepare journal entries for the following:
133.
Briefly explain the difference between a revenue expenditure and a capital expenditure.
134.
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.
135.
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, 2011 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.