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Exam 8: Reporting and Analyzing Long-Term Assets

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Question 131

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Depreciation expense under the double-declining-balance method is equal to the book value of the asset at the beginning of the period multiplied by twice the straight-line depreciation rate.

A) True
B) False

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Question 132

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When an asset is purchased (or disposed of)at a time other than the beginning or the end of an accounting period,depreciation is recorded for part of a year so that the year of purchase or the year of disposal is charged with its share of the asset's depreciation.

A) True
B) False

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Question 133

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A company's property records revealed the following information about one of its plant assets: Calculate the depreciation expense for the asset in Year 1 and Year 2 for the year ended December 31. Year 1________ Year 2 ________

A company purchased property for $100,000.The property included a building,a parking lot,and land.The building was appraised at $62,000; the land at $35,000,and the parking lot at $18,000.Land should be recorded in the accounting records with an allocated cost of:

Allyn Company purchased equipment costing $55,000 on January 1,Year 1.The equipment is estimated to have a salvage value of $5,000 and an estimated useful life of 5 years.Straight-line depreciation is used,and all depreciation has been recorded as of December 31,Year 4.If the equipment is sold on December 31,Year 4 for $20,000,the journal entry to record the sale is:

A benefit of using an accelerated depreciation method is that:

Phoenix Agency leases office space for $7,000 per month.On January 3,Phoenix incurs $65,000 to improve the leased office space.These improvements are expected to yield benefits for 8 years.Phoenix has 5 years remaining on its lease.Compute the amount of expense that should be recorded the first year related to the improvements.

Total depreciation expense over an asset's useful life will be identical under all methods of depreciation.

On July 1 of the current year,Timberlake Company signed a contract to sublease space in a building for 7 years.Timberlake Company paid $56,000 for the right to sublease this space.After taking possession of the leased space,Timberlake pays $140,000 for improving the office portion of the lease space.The improvements are paid on July 6 of the current year,and are estimated to have a useful life equal to the 14 years remaining in the life of the building.Prepare entries for Timberlake to record (a)its payment for the right to sublease the building space,(b)its payment for the office improvements,(c)the December 31 year-end entry to amortize the cost of the sublease,(d)the December 31 year-end entry to amortize the office improvements.

Marks Consulting purchased equipment costing $45,000 on January 1,Year 1.The equipment is estimated to have a salvage value of $5,000 and an estimated useful life of 8 years.Straight-line depreciation is used.If the equipment is sold on July 1,Year 5 for $20,000,the journal entry to record the sale will include a:

Total asset cost plus depreciation expense equals book value.

The Oberon Company purchased a delivery truck for $95,000 on January 2.The truck was estimated to have a $3,000 salvage value and a 4 year life.The truck was depreciated using the straight-line method.At the beginning of the third year,it was obvious that the truck's total useful life would be 6 years rather than 4,and the salvage at the end of the 6th year would be $1,500.Determine the depreciation expense for the truck for the 6 years of its life.

A company purchased a delivery van for $28,000 with a salvage value of $3,000 on September 1,Year 1.It has an estimated useful life of 5 years.Using the straight-line method,how much depreciation expense should the company recognize on December 31,Year 1?

A company used straight-line depreciation for an item of equipment that cost $12,000,had a salvage value of $2,000 and a five-year useful life.After depreciating the asset for three complete years,the salvage value was reduced to $1,200 but its total useful life remained the same.Determine the amount of depreciation to be charged against the equipment during each of the remaining years of its useful life:

Revising an estimate of the useful life or salvage value of a plant asset is referred to as a change in accounting estimate and is reflected in the current,and future financial statements.

A company purchased and installed equipment on January 1 at a total cost of $72,000.Straight-line depreciation was calculated based on the assumption of a five-year life and no salvage value.The equipment was disposed of on July 1 of the fourth year.The company uses the calendar year. 1.Prepare the general journal entry to update depreciation to July 1 in the fourth year. 2.Prepare the general journal entry to record the disposal of the equipment under each of these three independent situations: a.The equipment was sold for $22,000 cash. b.The equipment was sold for $15,000 cash. c.The equipment was totally destroyed in a fire and the insurance company settled the claim for $18,000 cash.

The double-declining-balance method is applied by (1)computing the asset's straight-line depreciation rate,(2)doubling it,(3)subtracting salvage value from cost,and (4)multiplying the rate times the net value.