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Exam 8: Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles

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Question 31

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Which of the following doesn't properly describe the depreciation process?

A) It is an allocation process.
B) It is consistent with the matching principle.
C) It involves the use of estimates.
D) It attempts to determine an asset's market value.

E) A) and D)
F) All of the above

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Question 32

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On March 1,2010,Anniston Company purchased an oil well at a cost of $1,000,000.It is estimated that 150,000 barrels of oil can be produced over the remaining life of the well and the residual value of the well will be $100,000.During 2010,15,000 barrels of oil were produced and 10,000 barrels were sold.Which of the following statements is correct with respect to the accounting for the oil well?

A) The 2010 cost of goods sold was $90,000.
B) The book value of the oil well decreased $60,000 during 2010.
C) The inventory of oil increased $30,000 during 2010.
D) The 2010 cost of goods sold was $30,000.

E) None of the above
F) All of the above

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Question 33

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Which of the following journal entries is correct for Smith Company when Smith issues 10,000 shares of $20 par value common stock and pays $20,000 cash in exchange for a building? The market price of the Smith stock on the exchange date was $35 per share and the building's book value on the books of the seller was $200,000.

Which of the following accounts would not be considered a tangible asset?

On January 1,2010 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 useful life of 10 years. Requirements: A.Prepare the journal entry to record Gordon's purchase of the patent. B.Prepare the journal entry to record amortization of the patent on December 31, 2010. C.At the end of 2013, after amortization had been recorded through December 31, 2013, Gordon concluded that the estimated future cash flows from the patent to be $250,000.The patent's estimated fair value on December 31, 2011 was $200,000.Prepare the journal entry to record the patent impairment, if necessary.

The fixed asset turnover ratio measures the amount of operating income generated per dollar of average fixed assets.

During 2010,a company purchased a mine at a cost of $3,000,000.The company spent an additional $600,000 getting the mine ready for its intended use.It is estimated that 300,000 tons of mineral can be removed from the mine and the residual value of the mine will be $600,000.During 2010,45,000 tons of mineral were removed from the mine and 35,000 tons were sold.Which of the following statements is correct with respect to the accounting for the mine?

The following information is available for Coca-Cola and PepsiCo: $\begin{array} { l r r } & \text { Coca-Cola } & \text { PepsiCo } \\\text { Net fixed assets (beginning of year) } & \$ 4,168 & \$ 5,266 \\\text { Net fixed assets (end of year) } & 4,435 & 5,438 \\\text { Net sales for the year } & 19,889 & 20,438 \\\text { Net income for the year } & 2,177 & 2,183\end{array}$ Compute the fixed asset turnover ratio for both Coca Cola and PepsiCo.

Which of the following statements is correct?

During 2010,the Bowtie Company reported net income of $1,872 million,depreciation expense of $1,412 million and $978 million paid for purchases of property,plant and equipment.What would be the effect on cash flows from operating activities during 2010?

Which of the following is correct when recording the disposal of equipment for a gain?

Selling a depreciable asset for a gain results in an increase in both stockholders' equity and assets.

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 reported as an expense on the income statement.

Which of the following would not be classified as property,plant and equipment on a balance sheet?

Determine the effect of the following transactions on the financial statement components identified.Code your answers as follows: A: If the transaction results in an increase in the financial statement component. B: If the transaction results in a decrease in the financial statement component. C.If the transaction does not affect the financial statement component.

Salvia Company recently purchased a truck.The price negotiated with the dealer was $40,000.Salvia 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.At what amount should the truck be recorded on the balance sheet prior to recording depreciation expense?

The units-of-production method of depreciation allocates an asset's cost over its useful life based on the current period's production relative to its total estimated production.

Warren Company plans to depreciate a new building using the double declining-balance depreciation method.The building cost $800,000.The estimated residual value of the building is $50,000 and it has an expected useful life of 25 years.Assuming the first year's depreciation expense was recorded properly,what would be the amount of depreciation expense for the second year?

The land cost initially reported on the balance sheet includes legal fees and title insurance.

During 2010,a company purchased a mine at a cost of $3,000,000.The company spent an additional $600,000 getting the mine ready for its intended use.It is estimated that 300,000 tons of mineral can be removed from the mine and the residual value of the mine will be $600,000.During 2010,45,000 tons of mineral were removed from the mine and 35,000 tons were sold.Which of the following statements is incorrect with respect to the accounting for the mine?