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Quiz Questions:

<>Q12-1

Defining capital assets.

Explain the difference between (a) capital assets and current assets; (b) capital assets and inventory; and (c) capital assets and temporary investments.

Quiz Questions: <>Q12-1 Defining capital assets. <a href=[Go to bottom] Explain the difference between (a) capital assets and current assets; (b) capital assets and inventory; and (c) capital assets and temporary investments. <>Q12-2 Cost of capital assets. Starbuck Lanes installed automatic score-keeping equipment. The electrical work required to prepare for the installation was $18,000. The invoice price of the equipment was $180,000. Additional costs were $3,000 for delivery and $12,600, sales tax. During the installation a component of the equipment was damaged because it was carelessly left on a lane and hit by the automatic lane cleaning machine during a daily maintenance run. The cost of repairing the component was $2,250. What is the cost of the automatic score-keeping equipment? <>Q12-3 Alternate amortization methods. On January 2, 19X1, Crossfire acquired sound equipment for concert performances at a cost of $55,900. The rock band estimated they would use this equipment for four years, during which time they anticipated performing about 12 concerts. They estimated that at that point they could sell the equipment for $1,900. During 19X1, the band performed four concerts. Compute the 19X1 amortization using (a) the straight-line method and (b) the units-of-production method. 1 " id="pdf-obj-0-12" src="pdf-obj-0-12.jpg">

<>Q12-2

Cost of capital assets.

Starbuck Lanes installed automatic score-keeping equipment. The electrical work required to prepare for the installation was $18,000. The invoice price of the equipment was $180,000. Additional costs were $3,000 for delivery and $12,600, sales tax. During the installation a component of the equipment was damaged because it was carelessly left on a lane and hit by the automatic lane cleaning machine during a daily maintenance run. The cost of repairing the component was $2,250. What is the cost of the automatic score-keeping equipment?

Quiz Questions: <>Q12-1 Defining capital assets. <a href=[Go to bottom] Explain the difference between (a) capital assets and current assets; (b) capital assets and inventory; and (c) capital assets and temporary investments. <>Q12-2 Cost of capital assets. Starbuck Lanes installed automatic score-keeping equipment. The electrical work required to prepare for the installation was $18,000. The invoice price of the equipment was $180,000. Additional costs were $3,000 for delivery and $12,600, sales tax. During the installation a component of the equipment was damaged because it was carelessly left on a lane and hit by the automatic lane cleaning machine during a daily maintenance run. The cost of repairing the component was $2,250. What is the cost of the automatic score-keeping equipment? <>Q12-3 Alternate amortization methods. On January 2, 19X1, Crossfire acquired sound equipment for concert performances at a cost of $55,900. The rock band estimated they would use this equipment for four years, during which time they anticipated performing about 12 concerts. They estimated that at that point they could sell the equipment for $1,900. During 19X1, the band performed four concerts. Compute the 19X1 amortization using (a) the straight-line method and (b) the units-of-production method. 1 " id="pdf-obj-0-20" src="pdf-obj-0-20.jpg">

<>Q12-3

Alternate amortization methods.

On January 2, 19X1, Crossfire acquired sound equipment for concert performances at a cost of $55,900. The rock band estimated they would use this equipment for four years, during which time they anticipated performing about 12 concerts. They estimated that at that point they could sell the equipment for $1,900. During 19X1, the band performed four concerts. Compute the 19X1 amortization using (a) the straight-line method and (b) the units-of-production method.

Quiz Questions: <>Q12-1 Defining capital assets. <a href=[Go to bottom] Explain the difference between (a) capital assets and current assets; (b) capital assets and inventory; and (c) capital assets and temporary investments. <>Q12-2 Cost of capital assets. Starbuck Lanes installed automatic score-keeping equipment. The electrical work required to prepare for the installation was $18,000. The invoice price of the equipment was $180,000. Additional costs were $3,000 for delivery and $12,600, sales tax. During the installation a component of the equipment was damaged because it was carelessly left on a lane and hit by the automatic lane cleaning machine during a daily maintenance run. The cost of repairing the component was $2,250. What is the cost of the automatic score-keeping equipment? <>Q12-3 Alternate amortization methods. On January 2, 19X1, Crossfire acquired sound equipment for concert performances at a cost of $55,900. The rock band estimated they would use this equipment for four years, during which time they anticipated performing about 12 concerts. They estimated that at that point they could sell the equipment for $1,900. During 19X1, the band performed four concerts. Compute the 19X1 amortization using (a) the straight-line method and (b) the units-of-production method. 1 " id="pdf-obj-0-28" src="pdf-obj-0-28.jpg">

<>Q12-4

Computing revised amortization.

Refer to the facts in Q12-3. Assume that Crossfire chose straight-line amortization but recognized during the second year that due to concert bookings beyond expectations, this equipment would only last a total of three years. The salvage value would remain unchanged. Compute the revised amortization for the second year and the third year.

<>Q12-4 Computing revised amortization. Refer to the facts in Q12-3. Assume that Crossfire chose straight-line amortization

<>Q12-5

Double-declining balance method.

A fleet of refrigerated delivery trucks acquired on January 5, 19X1, at a cost of $930,000 had an estimated useful life of eight years and an estimated salvage value of $150,000. Compute the amortization expense for the first three years under the double-declining balance method for financial accounting purposes.

<>Q12-4 Computing revised amortization. Refer to the facts in Q12-3. Assume that Crossfire chose straight-line amortization

<>Q12-6

Revenue and capital expenditures.

  • a. Classify the following expenditures as revenue or capital expenditures:

    • 1. The cost of annual tune-ups for delivery trucks.

    • 2. The cost of replacing a compressor for a meat packing firm's refrigeration system that extends the estimated life of the system for four years, $30,000.

    • 3. The cost of $220,000 for an addition of a new wing on an office building.

    • 4. The monthly replacement cost of filters on an air-conditioning system, $175.

  • b. Prepare the journal entry to record each of the above.

  • <>Q12-4 Computing revised amortization. Refer to the facts in Q12-3. Assume that Crossfire chose straight-line amortization

    <>Q12-7

    Dissimilar asset exchanges.

    Spectrum Flooring owned an automobile with a $15,000 cost and $13,500 accumulated amortization. In a transaction with a neighbouring computer retailer, Spectrum exchanged this auto for a computer with a fair market value of $4,500. Spectrum was required to pay an additional $3,750 cash. Prepare the entry to record this transaction for Spectrum.

    Dissimilar asset exchanges. Spectrum Flooring owned an automobile with a $15,000 cost and $13,500 accumulated amortization.

    <>Q12-8

    Similar asset exchange.

    Mayes Co. owns an industrial machine that cost $38,400 and has been amortized $20,400. Mayes exchanged the machine for a newer model that has fair market value of $17,000. Record the exchange assuming that Mayers (a) paid $1,500 and (b) received

    $1,000.

    Dissimilar asset exchanges. Spectrum Flooring owned an automobile with a $15,000 cost and $13,500 accumulated amortization.

    <>Q12-9

    Cash impacts from acquisitions and disposals.

    Identify the section in the cash flow statement where the following transactions are reported along with whether it is a source or use of cash. Key:

    • A. Source of cash from investing activities

    • B. Use of cash for investing activities.

    ___

    1. Cash purchase of machinery

    ___

    2. Sale of patents for cash

    ___

    3. Purchase of productive timberland for cash

    ___

    4. Cash sale of factory warehouse

    Dissimilar asset exchanges. Spectrum Flooring owned an automobile with a $15,000 cost and $13,500 accumulated amortization.

    <>Q12-10

    Computing total asset turnover.

    Photo Film Company reported the following facts in its 19X2 annual report: net sales of $13,557 million for 19X2 and $12,670 million for 19X1; total end-of-year assets of $14,968 million for 19X2 and $18,810 million for 19X1. Compute the total asset turnover for 19X2.

    <>Q12-10 Computing total asset turnover. Photo Film Company reported the following facts in its 19X2 annual

    <>Q12-11

    Natural resources and depletion.

    Sudbury Industries acquired an ore mine at cost of $1,300,000. It was necessary to incur $200,000 to access the mine. The mine is estimated to hold 500,000 tonnes of ore and the estimated value of the land after the ore is removed is $150,000.

    • a. Prepare the entry to record the acquisition.

    • b. Prepare the year-end adjusting entry assuming that 90,000 tonnes of ore were removed from the mine this year.

    <>Q12-10 Computing total asset turnover. Photo Film Company reported the following facts in its 19X2 annual

    <>Q12-12

    Intangible assets and natural resources.

    Which of the following assets should be reported on the balance sheet as intangible assets? Which should be reported as natural resources? (a) leasehold, (b) salt mine, (c) building, (d) oil well, (e) trademark.

    <>Q12-10 Computing total asset turnover. Photo Film Company reported the following facts in its 19X2 annual

    <>Q12-13

    Intangible assets and amortization.

    On January 4 of the current year, Amber's Boutique incurred a $95,000 cost to modernize its store. The improvements included new floors, lighting, and shelving for the merchandise. It was estimated that these improvements would last for 10 years. Amber's leases its retail space and has eight years remaining on the lease. Prepare the entry to record the modernization and the adjusting entry at the end of the current year.

    On January 4 of the current year, Amber's Boutique incurred a $95,000 cost to modernize its[Return to top] [Go to bottom] Answers: <>A12-1 a. The main difference between capital assets and current assets is that current assets are consumed or converted into cash within a short period of time while capital assets have a useful life of more than one accounting period. b. The main difference between capital assets and inventory is that inventory is held for resale and capital assets are not. c. The main difference between capital assets and temporary investments is that capital assets are used in the primary operation of the business and investments are not. [Return to question] 5 " id="pdf-obj-4-4" src="pdf-obj-4-4.jpg">

    Answers:

    <>A12-1

    • a. The main difference between capital assets and current assets is that current assets are consumed or converted into cash within a short period of time while capital assets have a useful life of more than one accounting period.

    • b. The main difference between capital assets and inventory is that inventory is held for resale and capital assets are not.

    • c. The main difference between capital assets and temporary investments is that capital assets are used in the primary operation of the business and investments are not.

    On January 4 of the current year, Amber's Boutique incurred a $95,000 cost to modernize its[Return to top] [Go to bottom] Answers: <>A12-1 a. The main difference between capital assets and current assets is that current assets are consumed or converted into cash within a short period of time while capital assets have a useful life of more than one accounting period. b. The main difference between capital assets and inventory is that inventory is held for resale and capital assets are not. c. The main difference between capital assets and temporary investments is that capital assets are used in the primary operation of the business and investments are not. [Return to question] 5 " id="pdf-obj-4-25" src="pdf-obj-4-25.jpg">

    <>A12-2

    $18,000 + $180,000 + $3,000 + $12,600 = $213,600

    The $2,250 repair is an expense because it is not a normal and reasonable expenditure necessary to get the asset in place and ready for use.

    <>A12-2 $18,000 + $180,000 + $3,000 + $12,600 = $213,600 The $2,250 repair is an expense[Return to question] <>A12-3 a. Straight-line: ($55,900 - $1,900)/4 = $13,500 amortization per year b. Units of production: ($55,900 - $1,900)/12 = $ 4,500 per concert x 4 concerts in 19X1 $18,000 amortization in 19X1 [Return to question] 6 " id="pdf-obj-5-10" src="pdf-obj-5-10.jpg">

    <>A12-3

    • a. Straight-line: ($55,900 - $1,900)/4 = $13,500 amortization per year

    • b. Units of production:

    ($55,900 - $1,900)/12 =

    $ 4,500

    per concert

     

    x 4

    concerts in 19X1

     

    $18,000

    amortization in 19X1

    <>A12-4 $ 55,900 cost - 13,500 accumulated amortization (one year) $ 42,400 book value at point[Return to question] 7 " id="pdf-obj-6-2" src="pdf-obj-6-2.jpg">

    <>A12-4

    $ 55,900

    cost

    - 13,500

    accumulated amortization (one year)

    $ 42,400

    book value at point of revision

    1,900

    salvage

    $ 40,500

    remaining amortizable cost

    / 2

    years

    $ 20,250

    amortization per year for years 2 and 3

    <>A12-5 a. First year (100%/8) x 2 = 25% $930,000 x 25% = $232,500 (declining balance)[Return to question] 8 " id="pdf-obj-7-2" src="pdf-obj-7-2.jpg">

    <>A12-5

    a.

    First year

     

    (100%/8) x 2 = 25%

     

    $930,000 x 25% = $232,500 (declining balance)

       

    b.

    Second year

     

    ($930,000 - $232,500) x 25% = $174, 375

       

    c.

    Third year

     

    ($930,000 - $232,500 - $174,375) x 25% = $130,781.25

    <>A12-6 a. 1. revenue 2. capital 3. capital 4. revenue b. (1) Repairs and Maintenance xx.x

    <>A12-6

    a.

     
    • 1. revenue

    • 2. capital

    • 3. capital

    • 4. revenue

    b.

    (1)

    Repairs and Maintenance

    xx.x

     
     

    Accounts Payable

     

    xx.x

           

    (2)

    Refrigeration system

    30,000.00

     
     

    Cash

     

    30,000.00

           

    (3)

    Building

    220,000.00

     
     

    Cash

     

    220,000.00

           

    (4)

    Repairs and Maintenance

    175.00

     
     

    Accounts payable

     

    175.00

    (4) Repairs and Maintenance 175.00 Accounts payable 175.00 <a href=[Return to question] <>A12-7 Computer Equipment 4,500.00 Accumulated Amortization 13,500.00 Loss on Exchange of Assets 750.00 Automobile 15,000.00 Cash 3,750.00 [Return to question] 10 " id="pdf-obj-9-22" src="pdf-obj-9-22.jpg">

    <>A12-7

    Computer Equipment

    4,500.00

     

    Accumulated Amortization

    13,500.00

     

    Loss on Exchange of Assets

    750.00

     

    Automobile

     

    15,000.00

    Cash

     

    3,750.00

    <>A12-8 a. Machines 17,000.00 Accumulated Amortization 20,400.00 Loss on exchange of machines 2,500.00 Machines 38,400.00 Cash[Return to question] 11 " id="pdf-obj-10-2" src="pdf-obj-10-2.jpg">
     

    <>A12-8

    a.

    Machines

    17,000.00

     
     

    Accumulated Amortization

    20,400.00

     
     

    Loss on exchange of machines

    2,500.00

     
     

    Machines

     

    38,400.00

     

    Cash

     

    1,500.00

           

    b.

    Cash

    1,000.00

     
     

    Machines

    17,000.00

     
     

    Accumulated Amortization

    20,400.00

     
     

    Machines

     

    38,400.00

    <>A12-9 1. B 2. A 3. B 4. A <a href=[Return to question] <>A12-10 (in millions) 12 " id="pdf-obj-11-2" src="pdf-obj-11-2.jpg">

    <>A12-9

    • 1. B

    • 2. A

    • 3. B

    • 4. A

    <>A12-9 1. B 2. A 3. B 4. A <a href=[Return to question] <>A12-10 (in millions) 12 " id="pdf-obj-11-16" src="pdf-obj-11-16.jpg">

    <>A12-10

    (in millions)

    $13,557

     

    -------------------------- =

    0.8 times

    ($14,968 + $18,810)/2

     
    $13,557 -------------------------- = 0.8 times ($14,968 + $18,810)/2 <a href=[Return to question] <>A12-11 a. Ore Mine 1,500,000 Cash 1,500,000 To record acquisition of mine and prepare for intended use b. $1,500,000 - $150,000 Depletion per unit = ---------------------------- = $2.70/tonne 500,000 13 " id="pdf-obj-12-18" src="pdf-obj-12-18.jpg">

    <>A12-11

    a.

    Ore Mine

    1,500,000

     

    Cash

     

    1,500,000

    To record acquisition of mine and prepare for intended use

       

    b.

     

    $1,500,000 - $150,000

     

    Depletion per unit =

    ---------------------------- =

    $2.70/tonne

     

    500,000

     

    Depletion Expense, Ore Mine

    243,000

     

    Accumulated Depletion, Ore Mine

     

    243,000

    To record depletion of the ore deposit

       
    Depletion Expense, Ore Mine 243,000 Accumulated Depletion, Ore Mine 243,000 To record depletion of the ore[Return to question] <>A12-12 Intangible Assets: a) leasehold e) trademark Natural Resources: b) salt mine d) oil well [Return to question] 14 " id="pdf-obj-13-23" src="pdf-obj-13-23.jpg">

    <>A12-12

    Intangible Assets:

    • a) leasehold

    • e) trademark

    Natural Resources:

    • b) salt mine

    • d) oil well

    <>A12-13 Leasehold Improvements 95,000 Cash 95,000 To record leasehold improvements Rent Expense, Leasehold Improvements 11,875 Leasehold[Return to question] [Return to top] 15 " id="pdf-obj-14-2" src="pdf-obj-14-2.jpg">

    <>A12-13

    Leasehold Improvements

    95,000

     

    Cash

     

    95,000

    To record leasehold improvements

       
         

    Rent Expense, Leasehold Improvements

    11,875

     

    Leasehold Improvements

     

    11,875

    To record the amortization of the leasehold over the remaining life of the lease

       
    <>A12-13 Leasehold Improvements 95,000 Cash 95,000 To record leasehold improvements Rent Expense, Leasehold Improvements 11,875 Leasehold[Return to question] [Return to top] 15 " id="pdf-obj-14-49" src="pdf-obj-14-49.jpg">

    Q12-1

    What is a Capital Asset? What are the four main issues of dealing with Capital Assets?

    Q12-1 What is a Capital Asset? What are the four main issues of dealing with Capital

    Q12-2

    What is the total capital cost of a new piece of machinery used in a soft drink manufacturing company based on the following data?

    Purchase price (including all taxes)

    $50,000

    Delivery cost of machine

    $500

    Special electrical wiring for machine

    $1,200

    Installation costs of machine

    $1,500

    Office supplies purchased for president's secretary

    $350

    Lease payment on president's car

    $1,250

    Q12-1 What is a Capital Asset? What are the four main issues of dealing with Capital

    Q12-3

    What is the definition of Amortization (Depreciation)?

    Q12-1 What is a Capital Asset? What are the four main issues of dealing with Capital

    Q12-4

    Calculate the yearly amortization of a capital asset using the Straight-line method, Units-of-Production method and the Declining Balance method based on the following data:

    Total Cost of Machine

    $15,000

    Salvage value

    $3,000

    Useful life

    6 years

    Maximum unit capacity

    50,000

    Units made in first year

    10,000

    Total Cost of Machine $15,000 Salvage value $3,000 Useful life 6 years Maximum unit capacity 50,000

    Q12-5

    "You will always get the same amount of amortization expense per year no matter what method you use." State why this statement is incorrect.

    Total Cost of Machine $15,000 Salvage value $3,000 Useful life 6 years Maximum unit capacity 50,000

    Q12-6

    What would the new yearly amortization expense be using the Straight-line method for the following situation?

    Asset Machine

    $15,000

    Useful life when purchased on Jan 2/98

    5 years

    Salvage value when purchased

    $1,500

    Modifications made to machine on Jan

    $5,000

    2/99

    Useful life after modifications

    2 extra years

    Company year-end

    December 31st

    Q12-7 Briefly state the difference between Revenue Expenditures and Capital Expenditures. Q12-8 What would the entry

    Q12-7

    Briefly state the difference between Revenue Expenditures and Capital Expenditures.

    Q12-7 Briefly state the difference between Revenue Expenditures and Capital Expenditures. Q12-8 What would the entry

    Q12-8

    What would the entry be if you sold your equipment, discarded your equipment or exchanged your equipment based on the data below?

    Equipment original cost

    $25,000

    Accumulated Amortization to date

    $18,000

    Sold equipment for cash

    $5,000

    Exchanged equipment for market value of a new unit (the new unit will expire at the same time the old one would)

    $7,000

    Q12-7 Briefly state the difference between Revenue Expenditures and Capital Expenditures. Q12-8 What would the entry

    Q12-9

    What is the entry for the current year's depletion of the coal mine your company owns based on the following data?

    Salvage value of mine

    $50,000

    Purchase price of mine

    $1,000,000

    Accumulated Depletion

    $25,545

    Mine's yield

    4 million tons of coal

    Coal depleted in this year

    1 million tons of coal

    Coal depleted in this year 1 million tons of coal Q12-10 Name four types of "Intangible[Return to top] [Go to bottom] 19 " id="pdf-obj-18-8" src="pdf-obj-18-8.jpg">

    Q12-10

    Name four types of "Intangible Assets". What would the entry be to record the yearly amortization of an Intangible Asset?

    Coal depleted in this year 1 million tons of coal Q12-10 Name four types of "Intangible[Return to top] [Go to bottom] 19 " id="pdf-obj-18-14" src="pdf-obj-18-14.jpg">

    Q12-11

    Match the correct completion for each statement from the following choices:

    Choices

    (A) use of cash

     

    (B) source of cash

    Statement #1 Acquisitions are a ______________.

    Statement #2 Disposals are a ________________.

    Coal depleted in this year 1 million tons of coal Q12-10 Name four types of "Intangible[Return to top] [Go to bottom] 19 " id="pdf-obj-18-36" src="pdf-obj-18-36.jpg">

    Q12-12

    What is the calculation for the Total Asset Turnover ratio? What does it measure?

    Coal depleted in this year 1 million tons of coal Q12-10 Name four types of "Intangible[Return to top] [Go to bottom] 19 " id="pdf-obj-18-42" src="pdf-obj-18-42.jpg">

    Answers:

    A12-1

    A Capital Asset is a tangible asset that is used in the operations of a company over a period of more than one year.

    The main issues of dealing with a Capital Asset are:

    What is the actual cost of the asset?

    Allocating costs of the asset to the period in use.

    Accounting for subsequent expenditures.

    Recording the disposal of the asset.

    Answers: A12-1 A Capital Asset is a tangible asset that is used in the operations of[Return to question] A12-2 Total cost that would be capitalized for machine is $53,200 50,000 + 500 + 1,200 + 1,500 [Return to question] 20 " id="pdf-obj-19-36" src="pdf-obj-19-36.jpg">

    A12-2

    Total cost that would be capitalized for machine is $53,200

    50,000 + 500 + 1,200 + 1,500

    A12-3 Amortization (Depreciation) is the systematic writing down of a capital asset over its useful life,[Return to question] A12-4 Straight-line Method 21 " id="pdf-obj-20-2" src="pdf-obj-20-2.jpg">

    A12-3

    Amortization (Depreciation) is the systematic writing down of a capital asset over its useful life, leaving only the salvage value remaining in the company books when the asset's life is expired.

    A12-3 Amortization (Depreciation) is the systematic writing down of a capital asset over its useful life,[Return to question] A12-4 Straight-line Method 21 " id="pdf-obj-20-10" src="pdf-obj-20-10.jpg">

    A12-4

    Straight-line Method

    15,000 3,000

     

    12,000

     

    $2,000 per year

    6

    =

    6

    =

    Units-of-Production Method

     
       

    0.24

       

    15,000 3,000

    50,000

    =

    x

    10,000 units

    =

    $2,400 for the first year

    Declining Balance Method

     

    15,000 x (2000/12000 x

     

    15,000 x (0.167 x

     

    $5,010 for the first

    2)

    =

    2)

    =

    year

    15,000 – 3,000 12,000 $2,000 per year 6 = 6 = Units-of-Production Method 0.24 15,000 –[Return to question] A12-5 Each method will yield a different yearly expense with the exception of the Straight-line method, which will remain the same every year of the asset's useful life. What will always remain the same is the cost of the depreciable asset, its salvage value and its useful life. 22 " id="pdf-obj-21-91" src="pdf-obj-21-91.jpg">

    A12-5

    Each method will yield a different yearly expense with the exception of the Straight-line method, which will remain the same every year of the asset's useful life. What will always remain the same is the cost of the depreciable asset, its salvage value and its useful life.

    <a href=[Return to question] A12-6 Amortization when purchased (15,000 – 1,500) / 5 = $2,700 per year After modifications Asset purchase value $15,000 Less: Amortization to date - 2,700 Book value on Jan 2/99 $12,300 Add: Modification + 5,000 New value of machine $17,300 Less: salvage value - 1,500 Total value to depreciate $15,800 One year has now passed on the original machine, leaving 4 years of useful life before the modification took place. The modification adds an additional 2 years of useful life to the machine; therefore, the machine is to be depreciated now over 6 years. $15,800 / 6 = $2,633.33 per year 23 " id="pdf-obj-22-4" src="pdf-obj-22-4.jpg">

    A12-6

    Amortization when purchased

    (15,000 1,500) / 5 = $2,700 per year

    After modifications

    Asset purchase value

    $15,000

    Less: Amortization to date

    -

    2,700

    Book value on Jan 2/99

    $12,300

    Add: Modification

    + 5,000

    New value of machine

    $17,300

    Less: salvage value

    -

    1,500

    Total value to depreciate

    $15,800

    One year has now passed on the original machine, leaving 4 years of useful life before the modification took place. The modification adds an additional 2 years of useful life to the machine; therefore, the machine is to be depreciated now over 6 years.

    $15,800 / 6 = $2,633.33 per year

    <a href=[Return to question] A12-7 Revenue Expenditures are expenses shown on the Income Statement that reflect the costs of earning revenue in a given period (Matching Principle). Capital Expenditures are normally a large outlay of cash to obtain an asset that will benefit the company's future operations (i.e. equipment, land, and investments). [Return to question] 24 " id="pdf-obj-23-4" src="pdf-obj-23-4.jpg">

    A12-7

    Revenue Expenditures are expenses shown on the Income Statement that reflect the costs of earning revenue in a given period (Matching Principle).

    Capital Expenditures are normally a large outlay of cash to obtain an asset that will benefit the company's future operations (i.e. equipment, land, and investments).

    <a href=[Return to question] A12-7 Revenue Expenditures are expenses shown on the Income Statement that reflect the costs of earning revenue in a given period (Matching Principle). Capital Expenditures are normally a large outlay of cash to obtain an asset that will benefit the company's future operations (i.e. equipment, land, and investments). [Return to question] 24 " id="pdf-obj-23-14" src="pdf-obj-23-14.jpg">

    A12-8

    Sell unit

    DR Loss on Disposal

    $2,000

     

    DR Accumulated Amortization

    $18,000

     

    DR Bank

    $5,000

     

    CR Equipment

     

    $25,000

    Discard unit

    DR Accumulated Amortization

    $18,000

     

    DR Loss on Disposal

    $7,000

     

    CR Equipment

     

    $25,000

    Exchange unit

    No entry is required because the new unit's useful life expires at the same time as the old unit. The $7,000 represents the market value, not the amount paid for the unit; therefore, no change is made to the asset accounts (Cost Principle).

    A12-9 Cost – Salvage Value 1,000,000 – 50,000 Units of Production = 4,000,000 950,000 = 4,000,000[Return to question] 26 " id="pdf-obj-25-2" src="pdf-obj-25-2.jpg">

    A12-9

    Cost Salvage Value

     

    1,000,000 50,000

    Units of Production

    =

    4,000,000

       

    950,000

    =

    4,000,000

     

    =

    $0.2375 per ton

    This year they mined a total of 1 million tons of coal, therefore:

    1,000,000 x $0.2375 = $237,500

    Entry would be:

    DR Depletion Expense

    $237,500

     

    CR Accumulated Depletion

     

    $237,500

    A12-10 Intangible Assets can be:  Patents  Goodwill  Copyrights  Trademarks  Franchise Fees[Return to question] 27 " id="pdf-obj-26-2" src="pdf-obj-26-2.jpg">

    A12-10

    Intangible Assets can be:

    Patents

    Goodwill

    Copyrights

    Trademarks

    Franchise Fees

    Leaseholds & Leasehold Improvements

    Incorporation Costs

    Entry would be:

    DR Amortization Expense

    CR

    ______

    (whatever intangible asset you are depreciating i.e. Patents)

    A12-11 Statement #1 (A) Statement #2 (B) <a href=[Return to question] A12-12 Calculation is: 28 " id="pdf-obj-27-2" src="pdf-obj-27-2.jpg">

    A12-11

    Statement #1 (A)

    Statement #2 (B)

    A12-11 Statement #1 (A) Statement #2 (B) <a href=[Return to question] A12-12 Calculation is: 28 " id="pdf-obj-27-12" src="pdf-obj-27-12.jpg">

    A12-12

    Calculation is:

    Net Sales

    Average Total Assets

    This ratio measures a company's ability to use its assets to generate sales. It is interpreted as the dollar of net sales for each dollar of assets.