Questions and Answers of Corporate Financial Accounting

Depreciation by three methods; partial years Obj. 2 Perdue Company purchased equipment on April 1 for $270,000. The equipment was expected to have a useful life of three years or 18,000 operating
Comparing three depreciation methods Obj. 2 Dexter Industries purchased packaging equipment on January 8 for $72,000. The equipment was expected to have a useful life of three years, or 18,000
Allocating payments and receipts to fixed asset accounts Obj. 1 The following payments and receipts are related to land, land improvements, and buildings acquired for use in a wholesale ceramic
Entries for trade of fixed asset On October 1, Bentley Delivery Services acquired a new truck with a list price (fair market value)of $75,000. Bentley Delivery received a trade-in allowance (fair
Entries for trade of fixed asset On July 1, Twin Pines Co., a water distiller, acquired new bottling equipment with a list price(fair market value) of $220,000. Twin Pines received a trade-in
Asset traded for similar asset Assume the same facts as in Exercise 9-23, except that the book value of the press traded in is$108,500. (a) What is the amount of cash given? (b) What is the gain or
Asset traded for similar asset A printing press priced at a fair market value of $275,000 is acquired in a transaction that has commercial substance by trading in a similar press and paying cash for
Balance sheet presentation Obj. 6 List the errors you find in the following partial balance sheet:Burnt Red Company Balance Sheet December 31, 20Y2 Assets Total current assets . . . . . . . . . . . .
Book value of fixed assets Obj. 6 Apple Inc. (AAPL) designs, manufactures, and markets personal computers and related software.Apple also manufactures and distributes music players (iPod), mobile
Amortization entries Obj. 5 Kleen Company acquired patent rights on January 10 of Year 1 for $2,800,000. The patent has a useful life equal to its legal life of eight years. On January 7 of Year 4,
Depletion entries Obj. 4 Alaska Mining Co. acquired mineral rights for $67,500,000. The mineral deposit is estimated at 30,000,000 tons. During the current year, 4,000,000 tons were mined and sold.a.
Disposal of fixed asset Obj. 3 Equipment acquired on January 6 at a cost of $375,000 has an estimated useful life of 20 years and an estimated residual value of $25,000.a. What was the annual amount
Entries for sale of fixed asset Obj. 3 Equipment acquired on January 8 at a cost of $212,000 has an estimated useful life of 15 years, has an estimated residual value of $14,000, and is depreciated
Capital expenditure and depreciation Obj. 1, 2 Willow Creek Company purchased and installed carpet in its new general offices on April 30 for a total cost of $18,000. The carpet is estimated to have
Capital and revenue expenditures Obj. 1, 2 Quality Move Company made the following expenditures on one of its delivery trucks:Mar. 20. Replaced the transmission at a cost of $1,890.June 11. Paid
Capital and revenue expenditures Obj. 2 Jackie Fox owns and operates Platinum Transport Co. During the past year, Jackie incurred the following costs related to an 18-wheel truck:1. Changed engine
Capital and revenue expenditures Obj. 2 Warner Freight Lines Co. incurred the following costs related to trucks and vans used in operating its delivery service:1. Changed the oil and greased the
Revision of depreciation Obj. 2 A building with a cost of $1,800,000 has an estimated residual value of $125,000, has an estimated useful life of 40 years, and is depreciated by the straight-line
Partial-year depreciation Obj. 2 Equipment acquired at a cost of $105,000 has an estimated residual value of $12,000 and an estimated useful life of 10 years. It was placed into service on May 1 of
Depreciation by two methods Obj. 2 A storage tank acquired at the beginning of the fiscal year at a cost of $90,000 has an estimated residual value of $12,000 and an estimated useful life of 25
Depreciation by two methods Obj. 2 A Kubota tractor acquired on January 8 at a cost of $85,000 has an estimated useful life of 10 years.Assuming that it will have no residual value, determine the
Depreciation by units-of-activity method Obj. 2 Prior to adjustment at the end of the year, the balance in Trucks is $296,900 and the balance in Accumulated Depreciation—Trucks is $99,740. Details
Depreciation by units-of-activity method Obj. 2 A diesel-powered tractor with a cost of $120,000 and an estimated residual value of $16,400 is expected to have a useful operating life of 28,000
Straight-line depreciation Obj. 2 A refrigerator used by a wholesale warehouse has a cost of $82,000, an estimated residual value of $6,200, and an estimated useful life of 8 years. What is the
Straight-line depreciation rates Obj. 2 Convert each of the following estimates of useful life to a straight-line depreciation rate, stated as a percentage: (a) 4 years, (b) 8 years, (c) 10 years,
Nature of depreciation Obj. 2 Tri-City Ironworks Co. reported $65,500,000 for equipment and $33,415,000 for accumulated depreciation—equipment on its balance sheet.Does this mean (a) that the
Determining cost of land Obj. 1 On-Time Delivery Company acquired an adjacent lot to construct a new warehouse, paying $90,000 in cash and giving a short-term note for $50,000. Legal fees paid were
Determining cost of land Obj. 1, 2 Bridger Ski Co. has developed a tract of land into a ski resort. The company has cut the trees, cleared and graded the land and hills, and constructed ski lifts.(a)
Costs of acquiring fixed assets Obj. 1 Melinda Stoffers owns and operates ABC Print Co. During February, ABC incurred the following costs in acquiring two printing presses. One printing press was
Fixed asset turnover ratio Obj. 7 Select financial statement data for two recent years for Davenport Company are as follows:20Y5 20Y4 Sales $1,668,000 $1,125,000 Fixed assets:Beginning of year
Impaired goodwill and amortization of patent Obj. 5 On April 1, a patent with an estimated useful economic life of 12 years was acquired for $1,500,000.In addition, on December 31, it was estimated
Depletion Obj. 4 Glacier Mining Co. acquired mineral rights for $494,000,000. The mineral deposit is estimated at 475,000,000 tons. During the current year, 31,500,000 tons were mined and sold.a.
Sale of equipment Obj. 3 Equipment was acquired at the beginning of the year at a cost of $600,000. The equipment was depreciated using the double-declining-balance method based on an estimated
Capital and revenue expenditures Obj. 2 On February 14, Garcia Associates Co. paid $2,300 to repair the transmission on one of its delivery vans. In addition, Garcia paid $450 to install a GPS system
Revision of depreciation Obj. 2 Equipment with a cost of $240,000 has an estimated residual value of $18,600, has an estimated useful life of 12 years, and is depreciated by the straight-line method.
Double-declining-balance depreciation Obj. 2 A building acquired at the beginning of the year at a cost of $3,585,000 has an estimated residual value of $125,000 and an estimated useful life of 50
Units-of-activity depreciation Obj. 2 A truck acquired at a cost of $80,000 has an estimated residual value of $8,000, has an estimated useful life of 200,000 miles, and was driven 18,000 miles
Straight-line depreciation Obj. 2 A building acquired at the beginning of the year at a cost of $2,200,000 has an estimated residual value of $400,000 and an estimated useful life of 20 years.
a. Under what conditions is the use of an accelerated depreciation method most appropriate?b. Why is an accelerated depreciation method often used for income tax purposes?AppendixLO1
Is it necessary for a business to use the same method of computing depreciation (a) for all classes of its depreciable assets and (b) for financial statement purposes and in determining income
Keyser Company purchased a machine that has a manufacturer’s suggested life of 20 years. The company plans to use the machine on a special project that will last 12 years. At the completion of the
Immediately after a used truck is acquired, a new motor is installed at a total cost of $3,850. Is this a capital expenditure or a revenue expenditure?AppendixLO1
Distinguish between the accounting for capital expenditures and revenue expenditures.AppendixLO1
Alpine Company solicited bids from several contractors to construct an addition to its office building. The lowest bid received was for $1,200,000. Alpine decided to construct the addition itself at
Bullwinkle Co. acquired an adjacent vacant lot with the hope of selling it in the future at a gain. The lot is not intended to be used in Bullwinkle’s business operations. Where should such real
O’Neil Office Supplies has a fleet of automobiles and trucks for use by salespersons and for delivery of office supplies and equipment. Collins Auto Sales Co. has automobiles and trucks for sale.
Fixed asset turnover ratio Obj. 7 Select financial statement data for two recent years for DePuy Company are as follows:20Y8 20Y7 Sales $5,510,000 $4,880,000 Fixed assets:Beginning of year 1,600,000
Impaired goodwill and amortization of patent Obj. 5 On December 31, it was estimated that goodwill of $4,000,000 was impaired. In addition, a patent with an estimated useful economic life of 15 years
Depletion Obj. 4 Caldwell Mining Co. acquired mineral rights for $127,500,000. The mineral deposit is estimated at 425,000,000 tons. During the current year, 42,000,000 tons were mined and sold.a.
Sale of equipment Obj. 3 Equipment was acquired at the beginning of the year at a cost of $465,000. The equipment was depreciated using the straight-line method based on an estimated useful life of
Capital and revenue expenditures Obj. 2 On August 7, Green River Inflatables Co. paid $1,675 to install a hydraulic lift and $40 for an air filter for one of its delivery trucks. Journalize the
Revision of depreciation Obj. 2 A truck with a cost of $82,000 has an estimated residual value of $16,000, has an estimated useful life of 12 years, and is depreciated by the straight-line method.
Double-declining-balance depreciation Obj. 2 Equipment acquired at the beginning of the year at a cost of $175,000 has an estimated residual value of $12,000 and an estimated useful life of 10 years.
Units-of-activity depreciation Obj. 2 A tractor acquired at a cost of $420,000 has an estimated residual value of $30,000, has an estimated useful life of 25,000 hours, and was operated 1,850 hours
Straight-line depreciation Obj. 2 Equipment acquired at the beginning of the year at a cost of $340,000 has an estimated residual value of $45,000 and an estimated useful life of 10 years. Determine
Which of the following is an example of an intangible asset?a. Patentsb. Goodwillc. Copyrightsd. All of these AppendixLO1
Equipment purchased on January 3 for $80,000 was depreciated using the straight-line method based upon a five-year life and $7,500 residual value. The equipment was sold three years later on December
An example of an accelerated depreciation method is:a. straight-line.b. double-declining-balance.c. units-of-activity.d. depletion.AppendixLO1
What is the amount of depreciation, using the double-declining-balance method for the second year of use for equipment costing $9,000, with an estimated residual value of $600 and an estimated life
Which of the following expenditures incurred in connection with acquiring machinery is a proper charge to the asset account?a. Freightb. Installation costsc. Both (a) and (b)d. Neither (a) nor
Describe how depreciation expense is reported on an income statement and prepare a balance sheet that includes fixed assets and intangible assets.AppendixLO1
Describe the accounting for natural resources, including the journal entry for depletion.AppendixLO1
Journalize the disposal of fixed assets.AppendixLO1
Compute depreciation using the following methods: straight-line, units-of-activity, and double-declining-balance.AppendixLO1
Define, classify, and account for the cost of fixed assets.AppendixLO1
Describe the importance of control over inventory.AppendixLO1
Determine the cost of inventory under the perpetual inventory system, using the FIFO, LIFO, and weighted average cost methods.AppendixLO1
Determine the cost of inventory under the periodic inventory system, using the FIFO, LIFO, and weighted average cost methods.AppendixLO1
Describe and illustrate the reporting of inventory in the financial statements.AppendixLO1
The inventory costing method that is based on the assumption that costs should be charged against revenue in the order in which they were incurred is:a. FIFO.b. LIFO.c. weighted average cost.d.
The following units of a particular item were purchased and sold during the period:Beginning inventory 40 units at $20 First purchase 50 units at $21 Second purchase 50 units at $22 First sale 110
The following units of a particular item were available for sale during the period:Beginning inventory 40 units at $20 First purchase 50 units at $21 Second purchase 50 units at $22 Third purchase 50
If inventory is being valued at cost and the price level is steadily rising, the method of costing that will yield the highest net income is:a. LIFO.b. FIFO.c. average.d. periodic.AppendixLO1
If the inventory at the end of the year is understated by $7,500, the error will cause an:a. understatement of cost of goods sold for the year by $7,500.b. overstatement of gross profit for the year
Cost flow methods Obj. 2 The following three identical units of Item BZ1810 are purchased during November:Item BZ1810 Units Cost Nov. 2 Purchase 1 $ 55 14 Purchase 1 57 28 Purchase 1 62 Total 3 $174
Perpetual inventory using FIFO Obj. 3 Beginning inventory, purchases, and sales for Item ProX2 are as follows:Jan. 1 Inventory 60 units at $100 9 Sale 35 units 13 Purchase 50 units at $110 25 Sale 48
Perpetual inventory using LIFO Obj. 3 Beginning inventory, purchases, and sales for Item Zebra 9x are as follows:Apr. 1 Inventory 420 units at $8 10 Sale 300 units 18 Purchase 280 units at $9 27 Sale
Perpetual inventory using weighted average Obj. 3 Beginning inventory, purchases, and sales for 30xT are as follows:May 1 Inventory 50 units at $80 12 Sale 35 units 23 Purchase 60 units at $90 26
Periodic inventory using FIFO, LIFO, and weighted average cost methods Obj. 4 The units of an item available for sale during the year were as follows:Jan. 1 Inventory 12 units at $5,400 $ 64,800 Aug.
Lower-of-cost-or-market method Obj. 6 On the basis of the following data, determine the value of the inventory at the lower of cost or market. Apply lower of cost or market to each inventory item, as
Effect of inventory errors Obj. 6 During the taking of its physical inventory on August 31, 20Y4, Kate Interiors Company incorrectly counted its inventory as $366,900 instead of the correct amount of
Inventory turnover and number of days’ sales in inventory Obj. 7 Financial statement data for two years ending December 31 for Holland Company follow:20Y4 20Y3 Cost of goods sold $4,504,500
Why is it important to periodically take a physical inventory when using a perpetual inventory system?AppendixLO1
Do the terms FIFO, LIFO, and weighted average refer to techniques used in determining quantities of the various classes of inventory on hand? Explain.AppendixLO1
If inventory is being valued at cost and the price level is decreasing, which of the three methods of costing—FIFO, LIFO, or weighted average cost—will yield (a) the highest inventory cost,(b)
Which of the three methods of inventory costing—FIFO, LIFO, or weighted average cost—will in general yield an inventory cost most nearly approximating current replacement cost?AppendixLO1
If inventory is being valued at cost and the price level is steadily rising, which of the three methods of costing—FIFO, LIFO, or weighted average cost—will yield the lowest annual income tax
Using the following data, how should the inventory be valued under lower of cost or market?Original cost $1,350 Estimated selling price 1,475 Selling expenses 180 AppendixLO1
The inventory at the end of the year was understated by $14,750. (a) Did the error cause an overstatement or an understatement of the gross profit for the year? (b)Which items on the balance sheet at
Hutch Co. sold merchandise to Bibbins Company on May 31, FOB shipping point. If the merchandise is in transit on May 31, the end of the fiscal year, which company would report it in its financial
Cost flow methods Obj. 2 The following three identical units of Item P401C are purchased during April:Item Beta Units Cost Apr. 2 Purchase 1 $100 15 Purchase 1 120 20 Purchase 1 140 Total 3 $360
Perpetual inventory using FIFO Obj. 3 Beginning inventory, purchases, and sales for Item Zeta9 are as follows:Oct. 1 Inventory 200 units at $30 7 Sale 160 units 15 Purchase 180 units at $33 24 Sale
Perpetual inventory using LIFO Obj. 3 Beginning inventory, purchases, and sales for Item 88-HX are as follows:July 1 Inventory 90 units at $52 8 Sale 75 units 15 Purchase 125 units at $58 27 Sale 100
Perpetual inventory using weighted average Obj. 3 Beginning inventory, purchases, and sales for WCS12 are as follows:Oct. 1 Inventory 320 units at $10 13 Sale 180 units 22 Purchase 360 units at $12
Periodic inventory using FIFO, LIFO, and weighted average cost methods Obj. 4 The units of an item available for sale during the year were as follows:Jan. 1 Inventory 40 units at $165 $ 6,600 Aug. 13
Lower-of-cost-or-market method Obj. 6 On the basis of the following data, determine the value of the inventory at the lower of cost or market. Apply lower of cost or market to each inventory item, as
Effect of inventory errors Obj. 6 During the taking of its physical inventory on December 31, 20Y3, Waterjet Bath Company incorrectly counted its inventory as $728,660 instead of the correct amount
Inventory turnover and number of days’ sales in inventory Obj. 7 Financial statement data for years ending December 31 for Tango Company follow:20Y7 20Y6 Cost of goods sold $3,864,000 $4,001,500
Control of inventories Obj. 1 Triple Creek Hardware Store currently uses a periodic inventory system. Kevin Carlton, the owner and sole stockholder, is considering the purchase of a computer system
Control of inventories Obj. 1 Hardcase Luggage Shop is a small retail establishment located in a large shopping mall. This shop has implemented the following procedures regarding inventory items:a.

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