ACCT 1A Lecture Notes - Lecture 5: Operating Lease, Finance Lease, Title Insurance

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magentamuskrat366

9 Aug 2020

School

Irvine Valley College

Department

Accounting

Course

ACCT 1A

Professor

urell

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Document Summary

The cost principle requires that all reasonable and necessary costs incurred in acquiring a long-lived asset, placing it in its operational setting, and preparing it for use should be recorded in a designated asset account. We say that the costs are capitalized when they are recorded as assets on the statement of financial position instead of as expenses on the statement of earnings in the current period. These costs, including any sales taxes, legal fees, transportation costs, and installation costs are added to the purchase price of the asset. Special discounts and interest charges associated with the purchase should not be included in the cost of the asset. Interest charges should be reported as interest expense. Because land is not subject to depreciation, it must be recorded as a. Sometimes, a company purchases an old building or used machinery for use.

Related Questions

Pharoah Co. purchased land as a factory site for $432,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months. The company paid $45,360 to raze the old buildings and sold salvaged lumber and brick for $6,804. Legal fees of $1,998 were paid for title investigation and drawing the purchase contract. Pharoah paid $2,376 to an engineering firm for a land survey, and $73,440 for drawing the factory plans. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $1,620, and a liability insurance premium paid during construction was $972. The contractorâs charge for construction was $2,959,200. The company paid the contractor in two installments: $1,296,000 at the end of 3 months and $1,663,200 upon completion. Interest costs of $183,600 were incurred to finance the construction. Determine the cost of the land and the cost of the building as they should be recorded on the books of Pharoah Co. Assume that the land survey was for the building. Cost of the Land $ Cost of the Building $

ceriseantelope850

1. Which of the following identifies the proper order of theaccounting cycle?

A. Analyze, Journalize, Unadjusted Trial Balance

B. Analyze, Post, Unadjusted Trial Balance

C. Journalize, Post, Adjusted Trial Balance

D. Unadjusted Trial Balance, Adjusted Trial Balance, Close

E. Adjusted Trial Balance, Adjustments, Financial Statements

2. Interim financial statements refer to financial reports:

A. That cover less than one year, usually spanning one, three orsix-month periods

B. That are prepared before any adjustments have beenrecorded

C. That show the assets above the liabilities and theliabilities above the equity

D. Where revenues are reported on the income statement when cashis received and expenses are reported when cash is paid

E. Where the adjustment process is used to assign revenues tothe periods in which they are earned and to match expenses withrevenues

3. The accounting principle that requires revenue to be reportedwhen earned is the:

A. Matching principle

B. Revenue recognition principle

C. Time period principle

D. Accrual reporting principle

E. Going-concern principle

4. Adjusting entries:

A. Affect only income statement accounts

B. Affect only balance sheet accounts

C. Affect both income statement and balance sheet accounts

D. Affect only cash flow statement accounts

E. Affect only equity accounts

5. The system of preparing financial statements based onrecognizing revenues when the cash is received and reportingexpenses when the cash is paid is called:

A. Accrual basis accounting

B. Operating cycle accounting

C. Cash basis accounting

D. Revenue recognition accounting

E. Current basis accounting

6. If throughout an accounting period the fees for legalservices paid in advance by clients are recorded in an accountcalled Unearned Legal Fees, the end-of-period adjusting entry torecord the portion of those fees that has been earned is:

A. Debit Cash and credit Legal Fees Earned

B. Debit Cash and credit Unearned Legal Fees

C. Debit Unearned Legal Fees and credit Legal Fees Earned

D. Debit Legal Fees Earned and credit Unearned Legal Fees

E. Debit Unearned Legal Fees and credit Accounts Receivable

7. A company had no office supplies available at the beginningof the year. During the year, the company purchased $250 worth ofoffice supplies. On December 31, $75 worth of office suppliesremained. How much should the company report as office suppliesexpense for the year? A. $75 B. $125 C. $175 D. $250 E. $325 8. OnJanuary 1 a company purchased a five-year insurance policy for$1,800 with coverage starting immediately. If the purchase wasrecorded in the Prepaid Insurance account and the company recordsadjustments only at year-end, the adjusting entry at the end of thefirst year is:

A. Debit Prepaid Insurance, $1,800; credit Cash, $1,800

B. Debit Prepaid Insurance, $1,440; credit Insurance Expense,$1,440

C. Debit Prepaid Insurance, $360; credit Insurance Expense,$360

D. Debit Insurance Expense, $360; credit Prepaid Insurance,$360

E. Debit Insurance Expense, $360; credit Prepaid Insurance,$1,440

9. Unearned revenue is reported on the financial statementsas:

A. A revenue on the balance sheet

B. A liability on the balance sheet

C. An unearned revenue on the income statement

D. An asset on the balance sheet

E. An operating activity on the statement of cash flows

10. Which of the following assets is not depreciated?

A. Store fixtures

B. Computers

C. Land

D. Buildings

E. Vehicles

11. On April 30, 2011, a three-year insurance policy waspurchased for $18,000 with coverage to begin immediately. What isthe amount of insurance expense that would appear on the company'sincome statement for the year ended December 31, 2011? A. $500 B.$4,000 C. $6,000 D. $14,000 E. $18,000 12. Expenses incurred butunpaid that are recorded during the adjusting process with a debitto an expense and a credit to a liability are:

A. Intangible expenses

B. Prepaid expenses

C. Unearned expenses

D. Net expenses

E. Accrued expenses

13 The difference between the cost of an asset and theaccumulated depreciation for that asset is called

A. Depreciation Expense

B. Unearned Depreciation

C. Prepaid Depreciation

D. Depreciation Value

E. Book Value

14. A company purchased a new truck at a cost of $42,000 on July1, 2011. The truck is estimated to have a useful life of 6 yearsand a salvage value of $3,000. How much depreciation expense willbe recorded for the truck for the year ended December 31, 2011?

A. $3,250

B. $3,500

C. $4,000

D. $6,500

E. $7,000

15. A company's Office Supplies account shows a beginningbalance of $600 and an ending balance of $400. If office suppliesexpense for the year is $3,100, what amount of office supplies waspurchased during the period?

A. $2,700

B. $2,900

C. $3,300

D. $3,500

E. $3,700

chocolatereindeer731

China Express purchased land for $140,000. Prior to construction on the new building, the land had to be cleared of trees and brush. Construction costs incurred during the first year are listed below:

Land clearing costs	$ 5,000
Architect fees (for new building)	30,000
Legal fees for title investigation of land	1,000
Property taxes on land (for the first year)	2,500
Building construction costs	440,000

Required:
Determine the amounts that should be recorded in the land and the new building accounts.

2. Diamond Autobody purchased some new equipment. The new equipment cost $90,000. The company estimates the equipment will have a residual value of $10,000. Cheetah Copy also estimates it will use the equipment for four years or about 5,000 total hours.

Required:

Prepare a depreciation schedule for three years using the following methods:

1. Straight-line.
2. Double-declining-balance.
3. Activity-based. Actual use per year was as follows:

Year	Hours Used
1	1,200
2	1,400
3	1,500
4	1,100

3. The Snack Stop had the following long-term asset balances as of January 1, 2015:

	Cost	Accumulated Depreciation	Book Value
Land	$90,000	â	$90,000
Building	600,000	($60,000)	540,000
Equipment	200,000	(72,000)	128,000

All of the assets were purchased at the beginning of 2013. The building is depreciated over a 20-year service life using the straight-line method and estimating no residual value. The equipment is depreciated over a 10-year useful life using the double-declining-balance method with an estimated residual value of $10,000. Depreciation has already been calculated for the first two years.

Required:

1. For the year ended December 31, 2015, record depreciation expense for buildings and equipment. Land is not depreciated.

2. Calculate the book value for each of the four long-term assets at December 31, 2015.

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ACCT 1A Lecture Notes - Lecture 5: Operating Lease, Finance Lease, Title Insurance

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