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Exam 6: Accounting for Long-Term Operational Assets

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Question 81

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Schultz Corporation purchased equipment on January 2, 2014 for $50,000. Schultz used the straight-line method of depreciation with a $5,000 salvage value and a useful life of 5 years. On January 1, 2016 Schultz sold this equipment for $26,000. Required: Calculate the book value of the equipment on January 1, 2016 and the gain or loss Schultz should recognize from this sale.

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Question 82

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With an accelerated depreciation method, an asset can be depreciated below its salvage value.

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B) False

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Question 83

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Smith Corporation purchased land and a building for $300,000. The appraised value of the land is $150,000 and the appraised value of the building is $250,000. What amount of the purchase price will be allocated to the land and what amount will be allocated to the building?

How should a company record an expenditure that extends the life of an asset?

What type of account is Accumulated Depreciation?

The Rogers Company purchased the Romer Company in January of 2014. Romer's balance sheet included $100,000 of assets, $25,000 of liabilities and equity of $75,000. Rogers agreed to assume the liabilities and to pay Romer $110,000 in cash. An independent appraiser assessed the fair market value of Romer's assets to be $115,000. Indicate whether each of the following statements about this transaction is true or false. 1. Rogers should record Romer's liabilities in the amount of $25,000 2. In recording the acquisition of Romer, Rogers will recognize $20,000 of goodwill 3. The goodwill recorded by Rogers will be amortized in the same manner as patents 4. Goodwill is considered to have an indefinite useful life 5. Rogers should record Romer's assets at their book value of $100,000

On January 1, 2014, Doyle Co. purchased a machine for $25,000. Doyle estimated the useful life of the machine to be 10 years and the salvage value to be $5,000. Indicate whether each of the following statements is true or false. 1. The accumulated depreciation at the end of 2015 under the double declining method would be $6,000 2. The depreciation expense for 2014 under the double declining method would be $5,000 3. At the end of 2015, the book value of the machine under the double declining method would be $16,000 4. The depreciation expense for 2014 under the straight-line method would be $2,500 5. The accumulated depreciation at the end of 2015 under the straight-line method would be $5,000

In 2014, Harold Corporation Co. acquired a patent from a competitor for $65,000. At the time of purchase, it had 12 years of its legal life remaining; however, Harold believes that the patent will only be useful for 7 years. Compute the amortization expense for 2014.

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. $\text { Increase } = \mathrm { I } \quad \text { Decrease } = \mathrm { D } \quad \text { No Effect } = \mathrm { N }$ Rembrandt Company purchased an asset on January 1, 2009 for $100,000. The asset had a $20,000 salvage value and a 10 year life. The asset was sold on January 1, 2014 for $80,000. Show how the sale will affect Rembrandt's financial statements, assuming that Rembrandt uses straight-line depreciation. $\begin{array}{|l|l|l|l|l|l|}\text { Assets Liabilities } & \text { Equity } & \text { Revenues and gains} & \text { Expenses and losses } & \begin{array}{c}\text { Net } \\\text { Income }\end{array} & \begin{array}{c}\text { Cash } \\\text { Flow }\end{array}\\\hline&&&\end{array}$

Gains and losses are reported as non-operating items on the income statement.