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Exam 8: Long-Term Assets

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Question 1

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January 2010, Giant Green Company pays $3,000,000 for a tract of land with two buildings on it. It plans to demolish Building 1 and build a new store in its place. Building 2 will be a company office; it is appraised at $742,000, with a useful life of 25 years and a $75,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $400,500 that are expected to last another 18 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $2,020,600. Giant Green also incurs the following additional costs: What is the amount that should be recorded for Building #1?

A) $600,200
B) $742,000
C) $667,000
D) $380,100
E) $487,921

F) A) and D)
G) B) and E)

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Question 2

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A company sold for $40,000 cash a machine that originally cost $90,000. The accumulated depreciation on this machine was $47,000 at the time of the sale. What was the company's gain or loss on this sale?

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\[\begin{array} { | r | l | } \hline \$ 90,000 & \text { original cost } \\ \hline \underline { - 47,000 } & \text { accumulated depreciation } \\ \hline \$ 43,000 & \text { book value } \\ \hline - 40,000 & \text { selling price } \\ \hline \$ 3,000 & \text { Loss } \\ \hline \end{array}\]

Question 3

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A company purchased equipment valued at $200,000 on January 1. The equipment has an estimated useful life of six years or five million units. The equipment is estimated to have a salvage value of $13,400. Assuming the straight-line method of depreciation, what is the annual depreciation for the second year if 1.5 million units were produced?

When a company constructs a building, the cost of the building includes materials and labor, design fees, building permits and insurance during construction.

______________ is the process of systematically allocating the cost of an intangible asset to expense over its estimated useful life.

_____________________ refers to the insufficient capacity of a company's plant asset to meet the company's productive demands.

A company's annual accounting period ends on December 31. During the current year a depreciable asset which cost $24,000 was purchased on October 1. The asset has a $1,000 estimated salvage value. The company uses straight-line depreciation and expects the asset to have a 6-year life. What is the total depreciation expense for the current year?

A copyright gives its owner the exclusive right to publish and sell a musical, literary or artistic work during the life of the creator plus 17 years.

Another name for a capital expenditure is:

A new machine is expected to produce 600,000 units of product during its 8-year useful life. The machine cost $1,800,000 cash and it is estimated to have a $60,000 salvage value. If the machine produces 70,000 units of product during its first year, what is the depreciation for the first year as calculated by the units-of-production method?

A company purchased equipment valued at $200,000 on January 1. The equipment has an estimated useful life of six years or five million units. The equipment is estimated to have a salvage value of $13,400. Assuming the double declining balance method of depreciation, what is the book value at the end of the second year if 1.5 million units were produced?

On April 1, 2010, a company discarded a computer that cost $15,000 and that had a useful life of 4 years and a salvage value of $1,000. Using straight-line depreciation, the accumulated depreciation as of December 31, 2009 was $10,700. 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.

Plant assets are:

_____________ are the federal income tax rules for depreciating assets.

A company purchased a machine on January 1 of the current year for $750,000. Calculate the annual depreciation expense for each year of the machine's life (estimated at 5 years or 20,000 hours, with a salvage value of $75,000). During the machine's 5-year life its hourly usage was: 3,000; 4,000; 5,000; 5,000; and 3,000 hours. $\begin{array} { | c | l | l | l | } \hline \text { Year } & \text { Straight-Line } & \begin{array} { c } \text { Units-of- } \\\text { Production }\end{array} & \begin{array} { c } \text { Double- } \\\text { Declining- } \\\text { Balance }\end{array} \\\hline \text { Year 1 } & \$ & \$ & \$ \\\hline \text { Year 2 } & & & \\\hline \text { Year 3 } & & & \\\hline \text { Year 4 } & & & \\\hline \text { Year 5 } & & & \\\hline \text { Totals } & & & \\\hline\end{array}$

A company purchased equipment valued at $825,000 on January 1. The equipment has an estimated useful life of seven years or six million units. The equipment is estimated to have a salvage value of $35,000. Assuming the straight-line method of depreciation, what is the annual depreciation for the second year if .5 million units were produced?

_______________________ are expenditures that extend an asset's useful life beyond its original estimate.

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

A company discarded a display case that it had originally purchased for $8,000. The case had $7,200 worth of accumulated depreciation. The company should recognize a(n) :

A company purchased equipment valued at $825,000 on January 1. The equipment has an estimated useful life of seven years or six million units. The equipment is estimated to have a salvage value of $35,000. Assuming the units of production method of depreciation, what is the annual depreciation for the second year if .5 million units were produced?