To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 008: Plant and Equipment True / False Questions Tangible long-lived, productive assets differ from intangible long-lived, productive assets in that intangible assets have physical substance whereas tangible assets have no physical substance FALSE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: Patents and trademarks are examples of tangible assets FALSE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: Because of its large investment in equipment, Southwest Air Lines closely monitors the unused seats on flights since it may be more profitable to reduce fares to fill more seats thereby using more of the capacity TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: Building and equipment are recorded at their cost at acquisition and are subsequently reported at cost plus accumulated depreciation FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 8-1 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 008: Plant and Equipment The cash-equivalent cost of an asset received is measured as any cash given plus the current market value of the non-cash consideration given up If this value is not determinable, the current market value of what is received should be used instead TRUE AACSB Tag: Relative Thinking Difficulty: Hard L.O.: If a second-hand machine is purchased for productive use in a business, all renovation and repair costs on the used machine incurred by the purchaser prior to its productive use should be excluded from the cost of the asset FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: In accounting for depreciation, acquisition cost and useful life usually are known quantities, whereas residual value is an estimate because it relates to an amount in the future FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: If an accountant calculates depreciation expense on an asset without taking into account the asset's residual value of $10,000, depreciation expense for the periods will be higher than it should have been TRUE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 8-2 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 008: Plant and Equipment On January 1, 2009 equipment was purchased for $80,000 and its estimated residual value is $15,000 with an year useful life In the first year, the depreciation expense under the double declining-balance method is $16,250 FALSE AACSB Tag: Analytic Difficulty: Medium L.O.: 10 If a long-lived asset has been impaired, then the entry will require a debit to a loss account and a credit to the long-lived asset account TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 11 If a company has an asset with a book value of $5.0 million and estimates the future cash flows to be received over the asset's remaining life equal to $5.5 million, no impairment has occurred and no loss would be recognized TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 12 The first step in recording the disposal of a long-lived asset is to recognize depreciation expense for the period of time since the last depreciation adjustment was made TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 8-3 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 008: Plant and Equipment 13 Using a shorter estimated useful life for their fixed assets allows a company to reduce reported net income over the fixed assets' useful lives However, early disposal of these assets could create reported gains thereby boosting income upon their disposal TRUE AACSB Tag: Relative Thinking Difficulty: Hard L.O.: 14 The systematic and rational allocation of the acquisition cost of natural resources to those periods in which the resources contribute to revenue is called depletion TRUE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 15 Goodwill is the most commonly reported intangible asset and is recorded only when an existing company is bought by another company and the purchase price exceeds the book value of the purchased company's net assets FALSE AACSB Tag: Relative Thinking Difficulty: Hard L.O.: 16 Research and development costs are most commonly expensed as incurred and not capitalized TRUE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 8-4 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 008: Plant and Equipment 17 Depreciation expense, as computed for financial reporting, has a direct effect on a corporation's cash flow FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 18 For capital intensive companies like US Steel, depreciation is a significant non-cash expense included in deriving net income TRUE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 19 Depreciation expense is added to net income under the indirect method when computing cash flow from investing activities FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 20 When either the estimated useful life or estimated residual value (or both) of a long-lived, productive asset are changed, all prior financial statements are reissued reflecting the correction retroactively FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: Sup A 8-5 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 008: Plant and Equipment Multiple Choice Questions 21 Long-lived, productive assets not include the following kind of assets A land held for resale B plant and equipment in use C patents in use D mineral deposits being mined AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 22 Rockwell, Inc., a manufacturing company, is preparing their annual financial statements Which of the following accounts would not be grouped under long-lived, productive assets? A Buildings B Land on which the building is located C Equipment D Finished goods inventory AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 23 Long-lived, productive assets that have physical substance are A Long-term investments B Intangible assets C Tangible assets D Current assets AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 8-6 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 008: Plant and Equipment 24 Tangible assets include A Land, buildings and natural resources B Land, buildings and leaseholds C Natural resources, buildings, and franchises D Licenses, trademarks, and land AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 25 Intangible assets include A Natural resources, patents, and trademarks B Accounts receivable, franchises, and trademarks C Copyrights, licenses, and land D Leaseholds, patents and copyrights AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 26 Which statement is false? A Shortening the estimated useful lives of operational assets will lead to a higher fixed asset turnover B Using an accelerated depreciation method instead of straight-line will lead to reporting a higher fixed asset turnover C Acquiring more long-lived, productive assets when a company is growing will lead to a lower fixed asset turnover D Selling off long-lived, productive assets while maintaining sales will lead to a lower fixed asset turnover AACSB Tag: Relative Thinking Difficulty: Hard L.O.: 8-7 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 008: Plant and Equipment 27 On March 1, Wright Company purchased new equipment for $50,000 Wright paid cash for the equipment Other costs associated with the equipment were: transportation costs, $1,000; sales tax paid $3,000; and installation cost, $2,500 The cost recorded for the equipment was A $56,500 B $54,000 C $51,000 D $50,000 AACSB Tag: Analytic Difficulty: Medium L.O.: 28 The amount of sales tax paid on the purchase of new machinery should be debited to A the machinery account B a separate deferred charge account C a sales tax expense account D accumulated depreciation for machinery AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 29 On August 1, Red Company purchased computer equipment for $10,000 cash and also gave 100 shares of White common stock held by Red Company as an investment The White common stock cost Red Company $5,000 and on August had a market value of $4,200 The installation cost was $700 and the shipping cost was $500 What amount should be the total amount debited to the computer equipment account? A $14,200 B $15,000 C $15,400 D $16,200 AACSB Tag: Analytic Difficulty: Medium L.O.: 8-8 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 008: Plant and Equipment 30 Salvia Company recently purchased a truck The price negotiated with the dealer was $40,000 Salvia Company also paid sales tax of $2,000 on the purchase, shipping and preparation costs of $3,000, and insurance for the first year of operation of $4,000 For the truck, what amount should be debited to the asset account Vehicles? A $40,000 B $42,000 C $43,000 D $45,000 AACSB Tag: Analytic Difficulty: Medium L.O.: 31 The book value of a tangible long-lived, productive asset is the A acquisition cost B current estimated market value C acquisition cost minus the balance in accumulated depreciation D total depreciation that has been recorded on the asset to date AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 32 Which of the following costs would be subtracted from the acquisition cost of equipment purchased from a supplier? A Cost to install the equipment B A purchase discount offered by the supplier C The cost to widen an entrance in the building to bring the equipment into the facilities D The cost of freight paid to get the equipment into the facilities AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 8-9 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 008: Plant and Equipment 33 If an expenditure is treated as a capital expenditure, instead of as a revenue expenditure, which of the following statements is true? A The current year's net income will be lower and future depreciation expense will be higher B The current year's net income will be higher and future depreciation expense will be lower C The current year's net income will be higher and future depreciation expense will be higher D The current year's net income will be lower and future depreciation expense will be lower AACSB Tag: Relative Thinking Difficulty: Hard L.O.: 34 Which of the following would not be included in the acquisition cost of a building? A The purchase price of a building including title transfer fees B The cost of putting new windows and doors in the building before it opens for operations C The cost of paving the parking lot and outdoor lighting in the lot D The cost of paying an architect to design the remodeling modifications of the building before the store opens AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 35 A company acquires land by issuing 10,000 shares of its $10 par value common stock currently trading at $20 per share and the appraised value of the land is $250,000 We would record the land by A Using its appraised value of $250,000 and recognize a gain of $50,000 since we are issuing stock only currently worth $200,000 B Record the land at the value of the consideration given up, $200,000 C Record the land at the average of its appraised value of $250,000 and the $200,000 value of the stock issued, thereby recognizing a $25,000 gain D Record the land at the par value of the stock given up, $100,000 AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 8-10 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 008: Plant and Equipment 89 Cherokee Company acquired a machine on January 1, 2009, that cost $2,700 and had an estimated residual value of $200 Complete the following schedule using the three methods of depreciation: A straight-line, B units-of-production, C 150% declining-balance AACSB Tag: Analytic Difficulty: Medium L.O.: 8-31 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 008: Plant and Equipment 90 Covey Company purchased a machine on January 2, 2008, by paying cash of $250,000 The machine has an estimated useful life of five years (or the production of 500,000 units) and an estimated residual value of $25,000 Required: A Determine depreciation expense (to the nearest dollar) for each year of the machine's useful life under (1.) straight-line depreciation; and (2.) the 200% declining balance method B What is the book value of the machine after three years using the 200% declining- balance method? C What is the book value of the machinery after three years with straight-line depreciation? D If the machine was used to produce and sell 120,000 units in 2008, what would the depreciation expense be under the units of production method? A Straight-line depreciation for years through = ($250,000 $45,000 Declining balance method 200% acceleration rate $25,000/5 years) = *Amount to reduce book value to $5,000 B $250,000 100,000 60,000 36,000 = $54,000 C $250,000 ($45,000 3) = $115,000 D (250,000 25,000)/500,000 = $.45/unit $.45 120,000 = $54,000 AACSB Tag: Analytic Difficulty: Hard L.O.: 8-32 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 008: Plant and Equipment 91 Hubbard Company purchased a truck on January 1, 2009, at a cost of $34,000 The company estimated that the truck would have a useful life of years and a residual value of $4,000 Required: A Calculate depreciation expense under straight line and double declining balance for 20092012 B Which of the two methods in part would result in: (1.) Lower net income in 2010? (2.) Lower net income in 2012? A Straight-line: ($34,000 4,000)/4 years = $7,500 Declining-balance: 2009 ¼ 200% $34,000 = $17,000 2010 ¼ 200% ($34,000 $17,000) = $8,500 2011 ¼ 200% ($34,000 $25,500) = $4,250 2012 Book value $4,250 $4,000 target book value = $250 B Lower net income: (1.) 2010 Double declining-balance; (2.) 2012 Straight-line AACSB Tag: Analytic Difficulty: Medium L.O.: 8-33 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 008: Plant and Equipment 92 Allison Company purchased a machine for $1,200,000 on January 1, 2009 It was using the double declining-balance (200%) method to depreciate the asset and its useful life was estimated to be years with a residual value of $200,000 At December 31, 2010 (year 2), Allison Company estimates the future cash flows from the asset to be equal to $500,000 What is the amount of the impairment loss? Zero At the end of year two, the machine's book value would be $432,000 (year depreciation $480,000 plus year depreciation of $288,000 would be deducted from the asset's cost of $1,200,000) Since the future cash flows are not below the asset's book value, there is no impairment loss AACSB Tag: Analytic Difficulty: Medium L.O.: 93 A company purchased equipment for $800,000 and has depreciated it using the straightline method for the past years when its original life was estimated to be 10 years with a $200,000 residual value The equipment's utility to the company has declined because they expect it to generate a net cash flow over the remaining years of $200,000 from its operation If the asset has been impaired, record the journal entry to recognize the loss AACSB Tag: Analytic Difficulty: Medium L.O.: 8-34 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 008: Plant and Equipment 94 Beckworth Company purchased a truck on January 1, 2009, at a cash cost of $10,600 The estimated residual value was $400 and the estimated useful life was years The company uses straight-line depreciation computed monthly On July 1, 2012, the company sold the truck for $1,700 cash A What was the depreciation expense amount per month? B What was the amount of accumulated depreciation at July 1, 2012? C Give the required journal entries on the date of disposal, July 1, 2012 (Assume no 2012 depreciation had yet been recorded) A ($10,600 $400) 48 = $212.50 per month B 212.50 months = $1,275 C AACSB Tag: Analytic Difficulty: Medium L.O.: 3, 95 Lue Company sold used equipment for $450,000 cash The equipment was purchased years ago for a cost of $800,000 It has been depreciated using the straight-line method over an estimated useful life of 10 years with an estimated residual value of $50,000 Record the journal entry at the end of year five for the asset's disposal assuming the fifth year's depreciation had been recorded AACSB Tag: Analytic Difficulty: Medium L.O.: 8-35 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 008: Plant and Equipment 96 Bennett Corporation sold a piece of equipment on June 30, 2012 for $50,000 cash The equipment had been purchased on January 1, 2008 for $150,000 It had an estimated useful life of years and a $30,000 residual value Bennett Corporation has been using the straightline method of depreciation and has a year-end of December 31st Give any journal entry (ies) required at the time of disposal Round final calculations to nearest whole dollar AACSB Tag: Analytic Difficulty: Hard L.O.: 8-36 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 008: Plant and Equipment 97 Spa Sources Corporation purchased a machine that had an original cost of $60,000 and an estimated residual value of $10,000 The useful life was expected to be years and straightline depreciation is used At the end of 2010, the book value of the machine was $35,000 Spa Sources Corporation sold the machine for $32,000 cash on October 1, 2011 Required: A Prepare the journal entry to record depreciation for 2011 up to the date of sale Round the amount to the nearest dollar B Prepare the journal entry to record the sale of the machine AACSB Tag: Analytic Difficulty: Hard L.O.: 8-37 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 008: Plant and Equipment 98 Give the required adjusting entry at December 31, 2011, the end of the annual accounting period for the three items below If no entry is required, explain why A Polk Company acquired a patent that cost $6,000 on January 1, 2011 The patent was registered on January 1, 2006 The legal life of a patent is 20 years from registration Polk expects to use the patent the remaining legal life B Polk Company acquired a gravel pit on January 1, 2011, that cost $24,000 The company estimates that 30,000 tons of gravel can be extracted economically During 2011 4,000 tons were extracted and sold C On January 1, 2011, Polk Company acquired a dump truck that cost $6,000 to use hauling gravel The company estimated a residual value of 10% of cost and a useful life years The company uses straight-line depreciation AACSB Tag: Analytic Difficulty: Medium L.O.: 3, 8-38 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 008: Plant and Equipment 99 Benson Mining Company purchased a site containing a mineral ore deposit in 2008 The purchase price was $820,000, and the site is estimated to contain 400,000 tons of extractable ore Benson Mining Company constructed a building at the site, at a cost of $500,000, to be used while the ore is being extracted When the ore reserves are gone, the building will have no further value Required: A Explain the purpose for recording depletion on natural resources B Calculate Benson Mining Company depreciation rate per ton of ore for this deposit C Make the journal entry to record depletion for the year 2008, when Benson mined and sold 150,000 tons of ore D Make the journal entry to record depreciation on the building for 2008 Benson Mining Company calculates depreciation on the building using the units of production method based on the amount of ore extracted (150,000 tons in 2008) A The purpose of recording depletion is to match the cost of a natural resource with revenues earned from extracting and selling the resource B $820,000/400,000 tons = $2.05/ton AACSB Tag: Analytic Difficulty: Medium L.O.: 8-39 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 008: Plant and Equipment 100 On January 1, 2009 Gordon Company purchased a patent for $420,000 from an inventor who had developed a new manufacturing process At the time of the purchase, the patent had a remaining legal life of 10 years Required: A Prepare the journal entry to record Gordon Company's purchase of the patent B Prepare the journal entry to record amortization of the patent on December 31, 2009 assuming that no contra account is used C At the end of 2012 after amortization had been recorded through December 31, 2011, Gordon Company concluded that the estimated future cash flows from the patent to be $200,000 as required to test for impairment Record the impairment if necessary Computations: [420,000 (42,000 4) = 252,000 200,000] AACSB Tag: Analytic Difficulty: Medium L.O.: 101 Pier has been in business years with stores in the San Francisco Bay Area Their local reputation for making savory pies such as curried potatoes is well recognized A national food distributor has offered to purchase the company Pier has $1.2 million of assets on their books but those assets have a fair market value of $1.5 million and $.3 million of liabilities If the distributor offers to buy Pier for $3.5 million and assume the liabilities of Pier 5, how much will be recorded as goodwill based on the offered purchase price? $2.3 million ($3.5 million minus {$1.5 million minus $.3 million}) AACSB Tag: Analytic Difficulty: Medium L.O.: 8-40 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 008: Plant and Equipment 102 Landmark Restaurants reported net income of $45.9 million in 2008 They reported depreciation and amortization of plant and equipment of $48.8 million and cash paid for additions to property, plant and equipment of $162.9 million in 2008 Explain where each of these items would be reported and their impact on cash flows on the statement of cash flows The net income would be reported as the first item in the operating activities section and would have a positive impact on cash flow The depreciation and amortization would be added to net income in the operating activities section and would have a positive effect on cash flow Finally the cash paid for new property, plant and equipment would be in the investing activities section and would have a negative cash flow effect AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 8-41 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 008: Plant and Equipment 103 Frankel Feed purchased a new machine on January 1, 2009: It is now the beginning of year and the management reevaluated the estimates related to the machine Compute the depreciation expense for year under each of the following independent cases: A (26,000 B (26,000 C (26,000 12,000 12,000 12,000 2,000) 1,000) 3,000) (15 years (10 years (7 years years) = $1,200 Depreciation expense years) = $2,600 Depreciation expense years) = $5,500 Depreciation expense AACSB Tag: Analytic Difficulty: Medium L.O.: Sup A 8-42 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 008: Plant and Equipment 104 Sadler Corporation purchased equipment to be used in manufacturing The purchase was made at January 1, 2009 by paying cash of $150,000 The equipment has an estimated residual value of 10,000 and an expected useful life of 10 years At January 1, 2011, Sadler Corporation concluded that the total useful life of the equipment will be years rather than 10, and that the residual value will be zero Sadler uses the straight-line method for depreciation Required: A Make the journal entry to record depreciation on the equipment for 2010 B Make the journal entry to record depreciation on the equipment for 2011, including the effect of the changes in estimates C Describe how a business should account for a change in the estimated useful life and/or residual value of a depreciable asset Computations: $150,000 $28,000 (14,000 depreciation/year years) = $122,000 remaining depreciable value $122,000/6 year remaining useful life = $20,333 C A change in estimate of residual value or useful life requires the company to calculate a new annual depreciation amount The change in estimates affects the amount of depreciation for current and future years There is no restatement of financial statements for prior years AACSB Tag: Analytic Difficulty: Medium L.O.: Sup A 8-43 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 008: Plant and Equipment Matching Questions 105 Match the assets with the cost allocation method Long-term investment in stock of Swift Tea, Inc Tex-Mex Chile Franchise (in use) Building Uranium reserves (being exploited) Depletion Depreciation Amortization None AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 106 Match each type of asset category with the appropriate allocation method Property, plant, and equipment Natural resources Intangible assets Amortization Depletion Depreciation AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 8-44 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 008: Plant and Equipment 107 Match the definition with the term Causes the depreciation expense for an asset to vary with the use of the asset: units-ofproduction depreciation Expenditure for an asset that is debited to an asset account An ordinary repair Cost minus accumulated depreciation of a tangible long-lived, productive asset Causes the depreciation expense for an asset to vary with the use of the asset Estimated amount to be recovered at the end of the useful life of an long-lived, productive asset Causes the depreciation expense for an asset to decrease with passage of time Rights granted to a lessee under the terms of a contract Allocation of the cost of a natural resource to the periods in which revenues are generated A heading used on the balance sheet for tangible long-lived, productive assets 10 An asset that confers rights upon the owner and that lacks physical substance 11 An exclusive right to make a product or use a particular process 12 Allocation of the cost of an intangible asset to the periods when it is used capital expenditure patent 11 property, plant and equipment depletion leasehold residual value intangible asset 10 book value units-of-production depreciation declining-balance depreciation revenue expenditure amortization 12 AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 8-45 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e ... ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank, visit visithttp://downloadslide.blogspot.com... ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank, visit visithttp://downloadslide.blogspot.com... ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank, visit visithttp://downloadslide.blogspot.com