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survey of accounting

Questions and Answers of Survey of Accounting

=+12.a. Under what conditions is the use of an accelerated depreciation method most appropriate?
=+vb. Why is an accelerated depreciation method often used for income tax purposes?
=+vvc. What is the Modified Accelerated Cost Recovery System (MACRS), and under what conditions is it used?
=+14. How is depletion determined?
=+15.a. Over what period oftime should the cost of a patent acquired by purchase be amortized?
=+b. In general, what is the required accounting treat¬ment for research and development costs?
=+c. How should goodwill be amortized?Exercises
=+Kelly Melnik owns and operates Aaladin Print Co. During July, Aaladin Print Co. incurred the following costs in acquiring two printing presses. One printing press was new, and the other was used by
=+1. Sales tax on purchase price
=+2. Insurance while in transit(continued)
=+E7-1 Costs ofacquiring fixed assets Obj 1 262 Chapter 7 3. Freight 4. Special foundation 5. Fee paid to factory representative for installation 6. New parts to replace those damaged in unloading
=+12. Repair of damage incurred in reconditioning the press
=+a. Indicate which costs incurred in acquiring the new printing press should be debited to the asset account.
=+b. Indicate which costs incurred in acquiring the used printing press should be debited to the asset account.
=+E7-2 Determine cost ofland Obj 1 Serenity Ski Co. has developed a tract ofland into a ski resort. The company has cut the trees, cleared and graded the land and hills, and constructed ski lifts,
=+E7-3 Determine cost ofland Obj 1/ $224,650 Next Day Delivery Company acquired an adjacent lot to construct a new warehouse, paying$25,000 and giving a short-term note for $175,000. Legal fees paid
=+E7-4 Capital and revenue expenditures Obj 1 incurred the following costs related to trucks and vans used in operating its delivery 1. Change the oil and greased the joints of all the trucks and
=+3. Changed the radiator fluid on a truck that had been in service for the past four years
=+4. Installed a hydraulic lift to a van.
=+5. Removed a two-way radio from one ofthe trucks and installed a new radio with a greater range of communication. 5
=+6. Overhauled the engine on one ofthe trucks that had been purchased three years ago.mted the back and side windows of one ofthe vans to discourage theft of contents 8. Repaired a flat tire on one
=+9. Rebuilt the transmission on one ofthe vans that had been driven 40,000 miles. The van was no longer under warranty.
=+10' "?he“drSi0n SySkm W"h 3 "eW SUSPenSi0n ,hat *ws th'Classify each ofthe costs as a capital expenditure or a revenue expenditure.Fixed Assets and Intangible Assets 263
=+E7-5 Capital and revenue expenditures Obj 1 Felix Little owns and operates Big Sky Transport Co. During the past year, Felix incurred the following costs related to his 18-wheel truck.1. Replaced a
=+3. Installed a television in the sleeping compartment ofthe truck.4. Removed the old CB radio and replaced it with a newer model with a greater range.5. Replaced a shock absorber that had worn
=+7. Replaced the old radar detector with a newer model that detects the KA frequencies now used by many ofthe state patrol radar guns. The detector is wired directly into the cab, so that it is
=+8. Changed engine oil.
=+9. Replaced the hydraulic brake system that had begun to fail during his latest trip through the Rocky Mountains.
=+10. Modified the factory-installed turbo charger with a special-order kit designed to add 50 more horsepower to the engine performance.Classify each ofthe costs as a capital expenditure or a
=+E7-6 Nature ofdepreciation Obj 2 Armored Metal Co. reported $975,600 for equipment and $600,000 for accumulated deprecia¬tion-equipment on its balance sheet.Does this mean (a) that the replacement
=+E7-7 Straight-line depreciation rates Obj 2/a. 50%Convert each ofthe following estimates of useful life to a straight-line depreciation rate, stated as a percentage, assuming that the residual
=+E7-8 Straight-line depreciation Obj 2/ $11,200 A refrigerator used by a meat processor has a cost of $198,500, an estimated residual value of$30,500, and an estimated useful life of 15 years. What
=+E7-9 Depreciation by two methods Obj 2/a. $2,800 A John Deere tractor acquired on January 5 at a cost of $44,800 has an estimated useful life of 16 years. Assuming that it will have no residual
=+E7-10 Depreciation by two methods Obj 2/a. $9,500 A storage tank acquired at the beginning ofthe fiscal year at a cost of $86,000 has an esti¬mated residual value of $10,000 and an estimated
=+E7-11 Partial-year depreciation Obj 2/a. First year, $1,250 Sandblasting equipment acquired at a cost of $68,000 has an estimated residual value of $18,000 and an estimated useful life of 10 years.
=+E7-12 Book value offixed assets Obj 2 The following data were taken from recent annual reports ofInterstate Bakeries Corporation(IBC). Interstate Bakeries produces, distributes, and sells fresh
=+a. Compute the book value ofthe fixed assets for 2006 and 2005 and explain the differences, if any.
=+b. Would you normally expect the book value offixed assets to increase or decrease during the year?
=+E7-13 Sale ofasset Obj 3/a. $250,000 Equipment acquired on January 3, 2005, at a cost of $360,000, has an estimated useful life of 12 years, has an estimated residual value of $30,000, and is
=+a. What was the book value ofthe equipment at December 31, 2008, the end ofthe year?
=+b. Assuming that the equipment was sold on April 1, 2009, for $220,000, illustrate the effects on the accounts and financial statements of(1) depreciation for the three months until the sale date,
=+E7-14 Disposal offixed asset Obj 3 7b. $98,750 Equipment acquired on January 3, 2005, at a cost of $147,500, has an estimated useful life of eight years and an estimated residual value of $17,500.
=++a. What was the annual amount of depreciation for the years 2005, 2006, and 2007, using the straight-line method of depreciation?
=+. What was the book value ofthe equipment on January 1, 2008?
=+c. Assuming that the equipment was sold on January 2, 2008, for $95,000, illustrate the effects on the accounts and financial statements ofthe sale.
=+d. Assuming that the equipment had been sold on January 2, 2008, for $100,000 instead of$95,000, illustrate the effects on the accounts and financial statements ofthe sale.
=+E7-15 Recording depletion Obj 4/a. $4,500,000 Rainbow Mining Co. acquired mineral rights for $30,000,000. The mineral deposit is estimated at 75,000,000 tons. During the current year, 11,250,000
=+a. Determine the amount of depletion expense for the current year.
=+b. Illustrate the effects on the accounts and financial statements ofthe depletion expense.
=+E7-16 Recording amortization Obj 5/a. $52,850 Venture Company acquired patent rights on January 3, 2005, for $661,500. The patent has a use¬ful life equal to its legal life of 15 years. On January
=+b. Journalize the adjusting entry to recognize the amortization.
=+Fixed Assets and Intangible Assets 265
=+n January 1, 2005, StreetSmart Financial, Inc., purchased the assets of NIT Insurance Co.will impairment for $40,000,000, a price reflecting a $15,000,000 goodwill premium. On December 31,2008,
=+a. Determine the book value ofthe goodwill on December 31, 2008, prior to making the impairment adjustment.
=+b. Illustrate the effects on the accounts and financial statements ofthe December 31, 2008, adjustment for the goodwill impairment.Apple Computer, Inc., designs, manufactures, and markets personal
=+Machinery, equipment, and internal-use software 595 470 Office furniture and equipment 94 81 Other fixed assets related to leases 760 569 Accumulated depreciation and amortization (794) (664)
=+a. Compute the book value ofthe fixed assets for 2006 and 2005 and explain the differences, if any.
=+b. Would you normally expect the book value offixed assets to increase or decrease during the year?
=+E7-19 List the errors you find in the following partial balance sheet:Balance sheet presentation PLANET BRONZE COMPANY Balance Sheet December 31, 2008 Assets Total current assets $ 478,000
=+Problems P7-1 Allocate payments and receipts to fixed asset accounts Ob] 1 SPREADSHEET
=+/ 2. Land, $322,400 The following payments and receipts are related to land, land improvements, and acquired for use in a wholesale apparel business. The receipts are identified by ana. Finder’s
=+e. Cost ofrazing and removing building
=+f. Cost offilling and grading land g. Proceeds from sale ofsalvage materials from old building h. Architects and engineers fees for plans and supervision i. Special assessment paid to city for
=+k. Money borrowed to pay building contractor l. Cost oftrees and shrubbery planted m. Cost ofrepairing windstorm damage during construction n. Cost ofrepairing vandalism damage during construction
=+Cost ofpaving parking lot to be used by customers Proceeds from insurance company for windstorm and vandalism damage
=+Interest incurred on building loan during construction Payment to building contractor for new building Refund ofpremium on insurance policy (j) canceled after 10 months buildings asterisk.o.$ 7.500
=+1. Assign each payment and receipt to Land (unlimited life), Land Improvements (limited life), Building, or Other Accounts. Indicate receipts by an asterisk. Identify each item by letter and list
=+2. Determine the amount increases to Land, Land Improvements, and Building.
=+3. The costs assigned to the land, which is used as a plant site, will not be depreciated while the costs assigned to land improvements will be depreciated. Explain this seemingly contra¬dictory
=+P7-2 Compare two depreciation methods Obj 2/a. 2007: straightline depreciation,$107,500 Seal Coatings Company purchased waterproofing equipment on January 2, 2007, for $475 000 The equ.pment was
=+Determine the amount of depreciation expense for the years ended December 31 2007 2008 2009, and 2010, by (a) the straight-line method, and (b) the double-declining-bahnce method Also determine the
=+P7-3 Depreciation by two meth¬ods; partialyears Qhj 2 SPREADSHEET ya. 2006, $1,255 P7-4 Depreciation by two meth¬ods; sale offixed asset Gbjs 2, 3/ 1.b. Year 1, $70,000 depreciation expense P7-5
=+Covershot Company purchased plastic laminating equipment on July 1, 2006, for $7,830. The equipment was expected to have a useful life of 3 years, and a residual value of $300.Instructions
=+Determine the amount of depreciation expense for the years ended December 31, 2006, 2007, 2008, and 2009, by (a) the straight-line method, and (b) the double-declining-balance method.New
=+1. Determine the annual depreciation expense for each ofthe estimated five years of use, the accumulated depreciation at the end of each year, and the book value ofthe equipment at the end of each
=+3. Illustrate the effects on the accounts and financial statements ofthe sale, assuming a sale price of $20,000 instead of $25,000.
=+Data related to the acquisition oftimber rights and intangible assets during the current year ended December 31 are as follows:
=+a. Timber rights on a tract ofland were purchased for $648,000 on July 5. The stand oftimber is estimated at 3,600,000 board feet. During the current year, 1,200,000 board feet oftimber were cut
=+b. Goodwill in the amount of $27,000,000 was purchased on January 7.
=+c. Governmental and legal costs of $780,000 were incurred on October 4 in obtaining a patent with an estimated economic life of 12 years. Amortization is to be for one-fourth year.Instructions
=+1. Determine the amount ofthe amortization or depletion expense for the current year for each ofthe preceding items.
=+2. Illustrate the effects on the accounts and financial statements ofthe adjustments for the amortization or depletion expense for each item.ss 268 Chapter 7 Activities
=+A7-1 Ethics and professional conduct in business ETHICS A7-2 The following is an excerpt from a conversation between two employees ofResource TechnoloFinancial vs. tax gies> Haley Eubanks and Clay
=+How would you respond to Clay and Haley ifyou were Amber?
=+A7-3 Effect ofdepreciation on net income Cowboy Construction Co. specializes in building replicas of historic houses. Tom Askew, presi¬dent ofCowboy Construction, is considering the purchase
=+Compute depreciation for each ofthe years (2006, 2007, 2008, 2009, 2010, and 2011) of use ful life by (a) the straight-line method and (b) MACRS. In using the straight-line method, one-half
=+Assuming that income before depreciation and income tax is estimated to be $300 000 uni formly per year and that the income tax rate is 30%, compute the net income for each ofthe years 2006, 2007,
=+What factors would you present for Tom’s consideration in the selection of a depreciation method? K
=+A7-4 Shopping for a delivery truck You are planning to acquire a delivery truck for use in your business for three years. In groups of three or four, explore a local dealer’s purchase and leasing
=+A7-5 Ethics and professional conduct in business ETHICS The following is an excerpt from a conversation between the chief executive officer, Harry Balmer, and the chieffinancial officer, Connie
=+Connie (CFO): Yeah right. We had to shut the old Robert Company operations down this year because those products were no longer selling. Thus, our auditor is going to insist that we write offthe
=+How should Connie respond to the CEO?
=+A7-6 Applying for patents, copyrights, and trademarks Go to the Internet and review the procedures for applying for a patent, a copyright, and a trade¬mark. One Internet site that is useful for
=+Prepare a written summary ofthese procedures.
=+2. Which ofthe following taxes are employers usually not required to withhold from employees?A. Federal income tax B. Federal unemployment compensation tax C. FICA tax D. State and local income tax
=+3. Employers do not incur an expense for which ofthe following payroll taxes?A. FICA tax B. Federal unemployment compensation tax C. State unemployment compensation tax D. Employees’ federal
=+4. If a corporation plans to issue $1,000,000 of 12% bonds when the market rate for similar bonds is 10%, the bonds can be expected to sell at:A. Their face amount B. A premium C. A discount D. A
=+2. When are short-term notes payable issued?
=+5. Delta Air Lines’ SkyMiles program allows frequent fly¬ers to earn credit toward free tickets and other ameni¬ties. (a) Does Delta Air Lines have a contingent liability for award redemption
=+(b) When should a contingent liability be recorded?

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