Question 1

The Minneapolis Company spent $8,000 to improve the quality of one of its assets.

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Question 2

An impairment of an intangible asset reduces the asset,stockholders' equity,and net income.

Accepted Answer

An impairment of an intangible asset reduces its carrying value, which in turn reduces the total assets on the balance sheet. This reduction in assets also leads to a reduction in stockholders' equity. The impairment loss is recognized as an expense in the income statement, which reduces net income.

Question 3

Hamilton Mining Company recognized $2,000,000 of depletion expense.

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Question 4

A trademark has a total legal and useful life of 50 years.

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Question 5

The Borger Company purchased an asset for $20,000 on January 1,2007.The asset had a zero salvage value and an 8-year estimated useful life.On January 1,2012 the company spent $2,000 cash on routine repair and maintenance.What effect will recording the 2012 expenditure have on the company's financial statements for the year?

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Question 6

Baird Enterprises purchased equipment on account on January 1,2012.Show how the purchase affected the financial statements.

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Question 7

An asset purchased for $14,000 that had a $4,000 salvage and a 4-year life was depreciated using straight line depreciation for two years.At the beginning of the third year,the total useful life of the asset is revised to 5 years.Show how the revised depreciation expense will affect the financial statements.

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Question 8

Graettinger Manufacturing Company spent $4,000 to extend the useful life of one of its assets.

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Question 9

The XYZ Company purchased the ABC Company for $520,000 cash.ABC's assets had been appraised at $410,000.ABC had liabilities of $40,000,which XYZ assumed.How would the purchase of ABC affect XYZ's financial statements?

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Question 10

Bowen Company amortized $3,000 of patent cost.

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Question 11

The choice of depreciation methods for long-term assets affects the results of financial analysis for a company.

Accepted Answer

The choice of depreciation methods affects the timing and amount of expenses recorded on a company's financial statements which in turn affects its financial ratios such as earnings before interest and taxes (EBIT) and net income. This can impact the interpretation and analysis of a company's financial performance.

Question 12

Expenditures that extend the useful life of a plant asset are added to the asset account.

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Question 13

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 1,2012 for $80,000.Show how the sale will affect Rembrandt's financial statements,assuming that Rembrandt uses straight-line depreciation.

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Question 14

When Company X purchases Company Y,X should record Y's assets at their fair market value at the time of the acquisition.

Accepted Answer

According to the Generally Accepted Accounting Principles (GAAP), when Company X purchases Company Y, the assets of Company Y should be recorded at their fair market value at the time of the acquisition. This is known as the purchase price allocation method.

Question 15

Using double declining balance depreciation,instead of straight line,will have what effect on the financial statements in the first year of an asset's life?

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Question 16

An expenditure that improves the quality of service provided by a plant asset is added to the balance in the asset account.

Accepted Answer

An expenditure that improves the quality of service provided by a plant asset is considered a capital expenditure and is added to the balance in the asset account. This increases the value of the asset and reflects the improvement in its quality, durability, or efficiency. It is different from a revenue expenditure, which is an expense that is incurred for the routine upkeep, repair, or maintenance of the asset and is expensed in the period incurred.

Question 17

The Chandler Company purchased equipment for $16,000 on January 1,2010.The equipment had an estimated useful life of four years and an estimated salvage value of $4,000.At the beginning of 2012,the equipment was sold for $7,000.Show how the sale affected the financial statements for 2012.

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Question 18

Depletion is the process of expensing intangible assets.

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Question 19

Stanton Company recognized $5,000 of depreciation expense.

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Question 20

The cost of natural resources includes the purchase price,as well as exploration costs and surveys.

Accepted Answer

The cost of natural resources includes not only the purchase price but also other costs incurred during exploration and surveys.

Quiz 6: Accounting for Long-Term Operational Assets