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Questions and Answers of Accounting

A building that was purchased December 31, 1986, for $2,500,000 was originally estimated to have a life of 50 years with no salvage value at the end of that time. Depreciation has been recorded
Charlie Parker, president of Spinners Company, has recently noted that depreciation increases cash provided by operations and therefore depreciation is a good source of funds. Do you agree? Discuss.
Andrea Torbert purchased a computer for $8,000 on July 1, 2010. She intends to depreciate it over 4 years using the double-declining-balance method. Salvage value is $1,000. Compute depreciation for
Walkin Inc. is considering the write-down of its long-term plant because of a lack of profitability. Explain to the management of Walkin how to determine whether a write-down is permitted.
Last year Wyeth Company recorded an impairment on an asset held for use. Recent appraisals indicate that the asset has increased in value. Should Wyeth record this recovery in value?
Toro Co. has equipment with a carrying amount of $700,000. The expected future net cash flows from the equipment are $705,000, and its fair value is $590,000. The equipment is expected to be used in
Explain how gains or losses on impaired assets should be reported in income.
It has been suggested that plant and equipment could be replaced more quickly if depreciation rates for income tax and accounting purposes were substantially increased. As a result, business
Neither depreciation on replacement cost nor depreciation adjusted for changes in the purchasing power of the dollar has been recognized as generally accepted accounting principles for inclusion in
List(a) The similarities and(b) The differences in the accounting treatments of depreciation and cost depletion.
Describe cost depletion and percentage depletion. Why is the percentage depletion method permitted?
In what way may the use of percentage depletion violate sound accounting theory?
In the extractive industries, businesses may pay dividends in excess of net income. What is the maximum permissible? How can this practice be justified?
The following statement appeared in a financial magazine: “RRA—or Rah-Rah, as it’s sometimes dubbed—has kicked up quite a storm. Oil companies, for example, are convinced that the approach is
Shum way Oil uses successful-efforts accounting and also provides full-cost results as well. Under full-cost, Shum way Oil would have reported retained earnings of $42 million and net income of $4
Target Corporation in 2007 reported net income of $2.9 billion, net sales of $61.5 billion, and average total assets of $41.0 billion. What is Target’s asset turnover ratio? What is Target’s
Where can authoritative iGAAP guidance be found related to property, plant, and equipment?
Briefly describe some of the similarities and differences between U.S. GAAP and iGAAP with respect to the accounting for property, plant, and equipment.
Man dive Corp., in accordance with iGAAP, applies revaluation accounting to plant assets with a carrying value of $400,000, a useful life of 4 years, and no salvage value. At the end of year 1,
At a recent executive committee meeting, the controller for Ricardo Company remarked, “With only a single key difference between U.S. GAAP and iGAAP for property, plant, and equipment, it should be
What is a modified accelerated cost recovery system (MACRS)? Speculate as to why this system is now required for tax purposes.
Fernandez Corporation purchased a truck at the beginning of 2010 for $50,000. The truck is estimated to have a salvage value of $2,000 and a useful life of 160,000 miles. It was driven 23,000 miles
Lockard Company purchased machinery on January 1, 2010, for $80,000. The machinery is estimated to have a salvage value of $8,000 after a useful life of 8 years.(a) Compute 2010 depreciation expense
Use the information for Lockard Company given in BE11-2.(a) Compute 2010 depreciation expense using the sum-of-the-years’-digits method.(b) Compute 2010 depreciation expense using the
Use the information for Lockard Company given in BE11-2.(a) Compute 2010 depreciation expense using the double-declining-balance method.(b) Compute 2010 depreciation expense using the
Cominsky Company purchased a machine on July 1, 2011, for $28,000. Cominsky paid $200 in title fees and county property tax of $125 on the machine. In addition, Cominsky paid $500 shipping charges
Dickinson Inc. owns the following assets. Compute the composite depreciation rate and the composite life of Dickinson's assets.
Holt Company purchased a computer for $8,000 on January 1, 2009. Straight-line depreciation is used, based on a 5-year life and a $1,000 salvage value. In 2011, the estimates are revised. Holt now
Jurassic Company owns machinery that cost $900,000 and has accumulated depreciation of $380,000. The expected future net cash flows from the use of the asset are expected to be $500,000. The fair
Everly Corporation acquires a coal mine at a cost of $400,000. Intangible development costs total $100,000. After extraction has occurred, Everly must restore the property (estimated fair value of
In its 2007 annual report Campbell Soup Company reports beginning-of-the-year total assets of $7,745 million, end-of-the-year total assets of $6,445 million, total sales of $7,867 million, and net
Francis Corporation purchased an asset at a cost of $50,000 on March 1, 2010. The asset has a useful life of 8 years and a salvage value of $4,000. For tax purposes, the MACRS class life is 5 years.
Lansbury Company purchases equipment on January 1, Year 1, at a cost of $518,000. The asset is expected to have a service life of 12 years and a salvage value of $50,000.(a) Compute the amount of
Depreciation?Conceptual Understanding Hassel back Company acquired a plant asset at the beginning of Year 1. The asset has an estimated service life of 5 years. An employee has prepared Depreciation
Depreciation Computations—SYD, DDB—Partial Periods Cosby Company purchased a new plant asset on April 1, 2010, at a cost of $774,000. It was estimated to have a service life of 20 years and a
Depreciation Computations—Five Methods Wenner Furnace Corp. purchased machinery for $279,000 on May 1, 2010. It is estimated that it will have a useful life of 10 years, salvage value of $15,000,
Depreciation Computations—Four Methods Maserati Corporation purchased a new machine for its assembly process on August 1, 2010. The cost of this machine was $150,000. The company estimated that the
Depreciation Computations—Five Methods, Partial Periods Agazzi Company purchased equipment for $304,000 on October 1, 2010. It is estimated that the equipment will have a useful life of 8 years and
Different Methods of Depreciation Jeeter Industries presents you with the following information. Complete the table for the year ended December 31, 2011. The company depreciates all assets using the
Depreciation Computation—Replacement, Nonmonetary Exchange Goldman Corporation bought a machine on June 1, 2008, for $31,800, f.o.b. the place of manufacture. Freight to the point where it was set
Composite Depreciation Presented below is information related to Morrow Manufacturing Corporation. (a) Compute the rate of Depreciation per year to be applied to the plant assets under the composite
Depreciation Computations, SYD Pippen Company purchased a piece of equipment at the beginning of 2007. The equipment cost $502,000. It has an estimated service life of 8 years and an expected salvage
Depreciation—Change in Estimate Machinery purchased for $52,000 by Carver Co. in 2006 was originally estimated to have a life of 8 years with a salvage value of $4,000 at the end of that time.
Depreciation Computation—Addition, Change in Estimate In 1983, Abraham Company completed the construction of a building at a cost of $1,900,000 and first occupied it in January 1984. It was
Depreciation—Replacement, Change in Estimate Peloton Company constructed a building at a cost of $2,400,000 and occupied it beginning in January 1991. It was estimated at that time that its life
Error Analysis and Depreciation, SL and SYD Kawasaki Company shows the following entries in its Equipment account for 2011. All amounts are based on historical cost. (a) Prepare any correcting
Depreciation for Fractional Periods On March 10, 2012, No Doubt Company sells equipment that it purchased for $240,000 on August 20, 2005. It was originally estimated that the equipment would have a
Impairment Presented below is information related to equipment owned by Pujols Company at December 31, 2010. Cost
Impairment Assume the same information as E11-16, except that Pujols intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $20,000.(a) Prepare the
Impairment the management of Sprague Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence. This equipment has a cost of
Depletion Computations—Timber Hernandez Timber Company owns 9,000 acres of timberland purchased in 1999 at a cost of $1,400 per acre. At the time of purchase the land without the timber was valued
Depletion Computations—Oil Federer Drilling Company has leased property on which oil has been discovered. Wells on this property produced 18,000 barrels of oil during the past year that sold at an
Depletion Computations—Timber Jonas Lumber Company owns a 7,000-acre tract of timber purchased in 2003 at a cost of $1,300 per acre. At the time of purchase the land was estimated to have a value
Depletion Computations—Mining Henrik Mining Company purchased land on February 1, 2010, at a cost of $1,250,000. It estimated that a total of 60,000 tons of mineral was available for mining. After
Depletion Computations—Minerals At the beginning of 2010, Callaway Company acquired a mine for $850,000. Of this amount, $100,000 was ascribed to the land value and the remaining portion to the
Ratio Analysis the 2007 Annual Report of Eastman Kodak contains the following information. Compute the following ratios for Eastman Kodak for 2007. (a) Asset turnover ratio. (b) Rate of return on
Book vs. Tax (MACRS Depreciation) Annunzio Enterprises purchased a delivery truck on January 1, 2010, at a cost of $41,000. The truck has a useful life of 7 years with an estimated salvage value of
Book vs. Tax (MACRS Depreciation) Elwood Inc. purchased computer equipment on March 1, 2010, for $36,000. The computer equipment has a useful life of 10 years and a salvage value of $3,000. For tax
Depreciation for Partial Period—SL, SYD, and DDB Alladin Company purchased Machine #201 on May 1, 2010. The following information relating to Machine #201 was gathered at the end of
Depreciation for Partial Periods—SL, Act, SYD, and DDB the cost of equipment purchased by Charleston, Inc., on June 1, 2010 is $89,000. It is estimated that the machine will have a $5,000 salvage
Depreciation?SYD, Act., SL, and DDB the following data relate to the Plant Assets account of Eshkol, Inc. at December 31, 2010. *In the year an asset is purchased, Eshkol, Inc. does not record any
Depreciation and Error Analysis A depreciation schedule for semi-trucks of Ichiro Manufacturing Company was requested by your auditor soon after December 31, 2011, showing the additions, retirements,
Depletion and Depreciation—Mining Khamsah Mining Company has purchased a tract of mineral land for $900,000. It is estimated that this tract will yield 120,000 tons of ore with sufficient mineral
Depletion, Timber, and Extraordinary Loss Conan O’Brien Logging and Lumber Company owns 3,000 acres of timberland on the north side of Mount Leno, which was purchased in 1998 at a cost of $550 per
Natural Resources—Timber Bronson Paper Products purchased 10,000 acres of forested timberland in March 2010. The company paid $1,700 per acre for this land, which was above the $800 per acre most
Comprehensive Fixed-Asset Problem Darby Sporting Goods Inc. has been experiencing growth in the demand for its products over the last several years. The last two Olympic Games greatly increased the
Impairment Roland Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2009 for $10,000,000 and had an estimated useful life of 8 years with no
Comprehensive Depreciation Computations Kohl beck Corporation, a manufacturer of steel products, began operations on October 1, 2009. The accounting department of Kohl beck has started the
Depreciation for Partial Periods—SL, Act, SYD, and DDB on January 1, 2008, a machine was purchased for $90,000. The machine has an estimated salvage value of $6,000 and an estimated useful life of
Depreciation—SL, DDB, SYD, Act., and MACRS On January 1, 2009, Locke Company, a small machine-tool manufacturer, acquired for $1,260,000 a piece of new industrial equipment. The new equipment had a
Depreciation Basic Concepts Burnitz Manufacturing Company was organized January 1, 2010. During 2010, it has used in its reports to management the straight-line method of depreciating its plant
Unit, Group, and Composite Depreciation The certified public accountant is frequently called upon by management for advice regarding methods of computing depreciation. Of comparable importance,
Depreciation—Strike, Units-of-Production, Obsolescence Presented below and are three different and unrelated situations involving depreciation accounting. Answer the question(s) at the end of each
Depreciation Concepts As a cost accountant for San Francisco Cannery, you have been approached by Phil Perriman, canning room supervisor, about the 2010 costs charged to his department. In
Depreciation Choice Jerry Prior, Beeler Corporation’s controller is concerned that net income may be lower this year. He is afraid upper-level management might recommend cost reductions by lying
Why do some accountants prepare an end-of-period spreadsheet (work sheet)?
Is the end-of-period spreadsheet (work sheet) a substitute for the financial statements?Discuss.
In the Income Statement columns of the end-of-period spreadsheet (work sheet) for Steward Consulting Co. for the current year, the Debit column total is $675,450 and the Credit column total is
Describe the nature of the assets that compose the following sections of a balance sheet: (a) Current assets, (b) Property, plant, and equipment.
What is the difference between a current liability and a long-term liability?
Why are closing entries required at the end of an accounting period?
What is the difference between adjusting entries and closing entries?
Describe the four entries that close the temporary accounts.
(a) What is the most important output of the accounting cycle? (b) Do all companies have an accounting cycle? Explain.
Why might a department store select a fiscal year ending January 31, rather than a fiscal year ending December 31?
The balances for the accounts listed below appear in the Adjusted Trial Balance columns of the end-of-period spreadsheet (work sheet). Indicate whether each balance should be extended to (a) An
The balances for the accounts listed below appear in the Adjusted Trial Balance columns of the end-of-period spreadsheet (work sheet). Indicate whether each balance should be extended to (a) An
Meg Ostermiller owns and operates 4U Delivery Services. On January 1, 2009, Meg Ostermiller, Capital had a balance of $900,500. During the year, Meg made no additional investments and withdrew
Rod Zoot owns and operates Steuben Advertising Services. On January 1, 2009, Rod Zoot, Capital had a balance of $475,000. During the year, Rod invested an additional $75,000 and withdrew $30,000. For
The following accounts appear in an adjusted trial balance of Gondola Consulting. Indicate whether each account would be reported in the (a) Current asset; (b) Property, plant, and equipment; (c)
The following accounts appear in an adjusted trial balance of Resolve Consulting. Indicate whether each account would be reported in the (a) Current asset; (b) Property, plant, and equipment; (c)
After the account have been adjusted at November 30, the end of the fiscal year, the following balances were taken from the ledger of Pond Landscaping Co.:Brett Maxim, Capital
After the accounts have been adjusted at July 31, the end of the fiscal year, the following balances were taken from the ledger of Rabbit Delivery Services Co.:Sherry Kerney, Capital
From the following list of steps in the accounting cycle, identify what two steps are missing.a. Transactions are analyzed and recorded in the journal.b. Transactions are posted to the ledger.c. An
From the following list of steps in the accounting cycle, identify what two steps are missing.a. Transactions are analyzed and recorded in the journal.b. Transactions are posted to the ledger.c. An
From the following list of steps in the accounting cycle, identify what two steps are missing.a. Transactions are analyzed and recorded in the journal.b. An unadjusted trial balance is prepared.c.
The balances for the accounts listed below appear in the Adjusted Trial Balance columns of the end-of-period spreadsheet (work sheet). Indicate whether each balance should be extended to (a) An
Balances for each of the following accounts appear in an adjusted trial balance. Identify each as (a) Asset, (b) Liability, (c) Revenue, or (d) Expense.1. Accounts Payable 2. Equipment 3. Fees
Alpine Consulting is a consulting firm owned and operated by Scott Young. The end-of- period spreadsheet (work sheet) shown below was prepared for the year ended March 31, 2010. Based on the
Aardvark Consulting is a consulting firm owned and operated by Jan Sullivan. The following end-of-period spreadsheet (work sheet) was prepared for the year ended November 30, 2010. Based upon the
The following account balances were taken from the adjusted trial balance for 3 Rivers Messenger Service, a delivery service firm, for the current fiscal year ended September 30, 2010:Depreciation

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