ADM 1340 Lecture Notes - Lecture 9: Book Value, Asset Turnover, Income Statement

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13 Mar 2019

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ADM 1340 Full Course Notes

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Document Summary

Acquisition use & depreciation maintenance and repair improvements retirement. Categories: land, land improvements (ie. fencing, sidewalks, driveways), buildings, equipment. Ppe are tangible assets: they have physical substance. Held for use in the production of supply of goods and services , for rental to others, or for administrative purposes. Expected to be used during more than 1 period. Also called as: fixed assets or capital assets. Acquisition cost includes the purchase price and all normal and necessary expenditures to bring the asset to the location and condition for its intended use: land. Purchase cost, fees for realtor, survey & legal feeds, clearing, grading, filing, demolition of costs. Costs of structural additions made to land (ie. paving, fencing) Purchase price, closing costs (ie. legal fees, title) Purchase price, provincial sales tax, freight charges and insurance during transit paid by the purchaser, assembling and installing and testing. Repair costs if an asset is damaged during installation.

Related Questions

Samtech Manufacturing purchased land and building for $4 million. In addition to the purchase price, Samtech made the following expenditures in connection with the purchase of the land and building:


Title insurance	$	25,000
Legal fees for drawing the contract		9,500
Pro-rated property taxes for the period after acquisition		45,000
State transfer fees		4,900

An independent appraisal estimated the fair values of the land and building, if purchased separately, at $3 and $2 million, respectively. Shortly after acquisition, Samtech spent $91,000 to construct a parking lot and $49,000 for landscaping.

Required:

Determine the initial valuation of each asset Samtech acquired in these transactions. (Enter your answers in whole dollars.)

Assets	Initial Valuation
Land	$2,423,640
Building	$1,615,760
Land improvements

Determine the initial valuation of each asset, assuming that immediately after acquisition, Samtech demolished the building. Demolition costs were $340,000 and the salvaged materials were sold for $5,500. In addition, Samtech spent $88,000 clearing and grading the land in preparation for the construction of a new building. (Enter your answers in whole dollars.)

Assets	Initial Valuation
Land	$4,461,900
Building	$0
Land improvements

amberguinea-pig623

In January 2013, Mitzu Co. pays $2,700,000 for a tract of land with two buildings on it. It plans to demolish Building 1 and build a new store in its place. Building 2 will be a company office; it is appraised at $579,500, with a useful life of 20 years and an $90,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $549,000 that are expected to last another 18 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $1,921,500. The company also incurs the following additional costs:


Cost to demolish Building 1	$	338,400
Cost of additional land grading		187,400
Cost to construct new building (Building 3), having a useful life of 25 years and a $400,000 salvage value		2,282,000
Cost of new land improvements (Land Improvements 2) near Building 2 having a 20-year useful life and no salvage value		173,000

value:
10.00 points

Required information

Required:

1.	Allocate the costs incurred by Mitzu to the appropriate columns and total each column.

Allocation of purchase price	Appraised Value	Percent of Total Appraised Value	x	Total cost of acquisition	=	Apportioned Cost
Land			x		=
Building 2			x		=
Land Improvements 1			x		=
Totals

	Land	Building 2		Building 3		Land Improvements 1	Land Improvements 2
Purchase Price
Demolition
Land grading
New building (Construction cost)
New improvements cost
Totals

Prepare a single journal entry to record all the incurred costs assuming they are paid in cash on January 1, 2013.

2.Journal entry worksheet

Record the costs of the plant assets.

Note: Enter debits before credits.

Date	General Journal	Debit	Credit
Jan 01

3.	Using the straight-line method, prepare the December 31 adjusting entries to record depreciation for the 12 months of 2013 when these assets were in use.

Record the year-end adjusting entry for the depreciation expense of Building 2.

Date	General Journal	Debit	Credit
Dec 31

carminesea-lion120

Questions for a practice study test for final. Use ABCD in youranswer instead of writing it out. Thank You!

1 of 35

Which of the following would NOT be considered part of the costof a constructed building?

	Contractor charges
	Architectural fees
	Building permit fees
	Realtor commissions

Question

2 of 35

Under the direct write-off method, to record the receipt of cashafter an account has previously being written off, you wouldfirst

	debit Bad Debt Expense.
	debit Allowance for DoubtfulAccounts.
	reinstate the customer'saccount.
	debit Cash and credit thecustomer's account.

Question

3 of 35

Which of the following would be considered a naturalresource?

	Wheat
	Corn
	Livestock
	Timber

Question

4 of 35

An asset has a cost of $50,000 with a residual value of $10,000.It has a life of 5 years and was purchased on January 1. Its fourthfull year of depreciation expense under double-declining-balancewill be

	$7,200.
	$800.
	$4,320.
	$0.

Question

5 of 35

Which would be considered part of land improvements?

	Signs
	Removing unwanted buildings fromthe land
	Fencing
	In-ground sprinkler systems

Question

6 of 35

Cesario Corporation purchases a machine for $125,000. It has anestimated salvage value of $10,000 and is expected to produce50,000 units in its lifetime. During the first year of operation,it produced 14,500 units. To the nearest dollar, the depreciationfor the first year under the units of production method will be

	$35,500.
	$33,350.
	$36,250.
	$31,250.

Question

7 of 35

When using the allowance method for uncollectible accounts, theaging method is called the

	Allowance approach.
	Income Statement approach.
	Direct write-off approach.
	Balance Sheet approach.

Question

8 of 35

Which of the following would be considered a cashequivalent?

	Time deposits
	Checks
	Currency
	Money orders

Question

9 of 35

Leo Company has a petty cash fund of $300. At the end of themonth, $42.38 remains in the fund along with $260.75 in variousreceipts for purchases. The journal entry to replenish the fundwould be

	debit various expenses, $260.75,and credit Cash for $260.75.
	debit Petty Cash for $257.62, andcredit Cash for $257.62.
	debit various expenses, $260.75;credit Cash Over for $3.13, and credit Cash for $257.62.
	debit various expenses, $254.49;debit Cash Short for $3.13, and credit Cash for $257.62.

Question

10 of 35

Gallego & Co. reported sales of $515,000; beginning netAccounts Receivable of $212,000; and ending net Accounts Receivableof $224,000. Gallego & Co.'s receivable collection period(rounded to the nearest day) is

	159.
	150.
	106.
	155.

Question

11 of 35

When companies extend credit to customers

	the likelihood of not collectingmoney from customers increases.
	sales generally decrease.
	the likelihood of not collectingmoney from customers decreases.
	the amount of business stays thesame.

Question

12 of 35

Lionworks Company has cash of $143,000; net Accounts Receivableof $89,000; short-term investments of $35,000; and prepaid expensesof $40,000. It also has $50,000 in current liabilities and $80,000in long-term liabilities. The quick ratio for Lionworks Companyis

	6.14.
	5.34.
	3.34.
	4.64.

Question

13 of 35

Which of the following is NOT true concerning NSF checks?

	NSF checks represent customerchecks that the business previously deposited but have turned outto be worthless.
	The amount of the NSF check willneed to be added to the book balance.
	NSF stands for nonsufficientfunds.
	The amount of the NSF check willneed to be subtracted from the book balance.

Question

14 of 35

Leo's Lawn Care purchased equipment on January 1. The cost was$15,000, and the equipment had a residual value of $4,000. Theequipment was given a useful life of 7 years. After the end of twoyears, it was determined that the equipment would be obsolete in 3more years, and the residual value would still be $4,000. What willbe the depreciation under the straight-line method to the nearestdollar for the third year?

	$2,619
	$7,857
	$3,142
	$1,571

Question

15 of 35

Goodwill is defined as

	liabilities minus assets.
	the acquisition costs of afranchise.
	excess of the cost of the purchaseof a business over the market value of its net assets.
	assets minus liabilities.

Question

16 of 35

During the month, Evergreen Roofing settled $300 in warrantyclaims by replacing defective flashing. Evergreen uses an estimatedwarranty account. The journal entry to record the settled claimswould have been

	debit Warranty Expense $300; creditCash $300.
	debit Estimated Warranty Payable$300; credit Inventory $300.
	debit Estimated Warranty Payable$300; credit Cash $300.
	debit Warranty Expense $300; creditEstimated Warranty Payable $300.

Question

17 of 35

TLR Productions reported Interest expense of $8,300, Income taxexpense of $26,400, and Net income of $88,700. TLR's interestcoverage ratio is (rounded to three decimals)

	0.067.
	0.072.
	14.867.
	13.867.

Question

18 of 35

The entry to record S&C, Inc. selling 1,000 shares of $12par common stock for $20 per share would be to

	debit Cash $12,000; debit Paid-InCapital in Excess of ParâCommon $8,000; credit Common Stock$20,000.
	debit Cash $12,000; credit CommonStock $12,000.
	debit Cash $20,000; credit CommonStock $20,000.
	debit Cash $20,000; credit CommonStock $12,000; credit Paid-In Capital in Excess of Par-Common Stock$8,000.

Question

19 of 35

The entry to record selling 300 shares of stated value $60common stock for $70 per share would be

	debit Cash $21,000; credit CommonStock $18,000; credit Paid-in Capital in Excess of StatedValueâ$3,000.
	debit Cash $21,000; credit CommonStock $21,000.
	debit Cash $18,000; debit Paid-inCapital in Excess of Stated Valueâ$3,000; credit Common Stock$21,000.
	debit Cash $18,000; credit CommonStock $18,000.

Question

20 of 35

Salty's Seafood has 2,000 shares of $10-par common stockoutstanding. During the current year, the company distributed a 10%stock dividend. The market value of the stock at that time was$16/share. After the distribution, Salty's total Stockholders'Equity should increase or decrease by

	$1,200.
	$2,000.
	($3,200).
	$0.

Question

21 of 35

The rate of interest that is printed on a bond is called the________ rate of interest.

	variable
	stated
	maturity
	market

Question

22 of 35

The adjusting entry to record incurred but not yet paid employeewages includes

	a debit to Cash.
	a debit to Wages Payable.
	a debit to Wages Expense.
	a debit to Wages Earned.

Question

23 of 35

At least one class of stock MUST have

	voting rights.
	liquidation rights.
	preemptive rights.
	dividend rights.

Question

24 of 35

On October 31, 2014, Aspen Inc. recorded their semiannual bondinterest expense that contained a credit to Discount on bondspayable of $1,200. The adjusting entry on December 31, 2014 willshow a credit to Discount on bonds payable of

	$400.
	$600.
	$800.
	$1,200.

Question

25 of 35

Charmed, Inc. reacquired 5,000 shares of its $15-par commonstock for $13/share. The debit to Treasury Stock will be

	$65,000.
	$75,000.
	$10,000.
	based on the last treasury stocktransaction.

Question

26 of 35

The basic unit of stock is called a(n)

	authorization.
	ownership record.
	certificate.
	share.

Question

27 of 35

Accrued liabilities, such as interest payable, would beconsidered a(n)

	unknown liability.
	known liability.
	contingent liability.
	estimated liability.

Question

28 of 35

By NOT accruing warranty expense

	reported expenses will beunderstated, and net income will be understated.
	reported expenses will beoverstated, and reported liabilities will be understated.
	reported liabilities will beunderstated, and net income will be overstated.
	reported liabilities will beoverstated, and net income will be understated.

Question

29 of 35

Which of the following would NOT be a liability?

	An obligation that is estimated inamount
	The signing of a three-yearemployment contract at a fixed annual salary
	A note payable with no specificmaturity date
	An obligation to provide goods orservices in the future

Question

30 of 35

One type of liability that is easy to overlook is a(n)

	tax liability.
	account payable.
	contingent liability.
	note payable.

Question

31 of 35

Inventory turnover measures the relationship between

	total assets and merchandiseinventory.
	cost of goods sold and totalliabilities.
	cost of goods sold and merchandiseinventory.
	merchandise inventory and currentliabilities.

Question

32 of 35

Transactions involving the purchase and sale of long-termassets, lending money, and collecting the principal on loans arecalled

	operating activities.
	investing activities.
	financing activities.
	buying and selling activities.

Question

33 of 35

The Statement of Cash Flows reports the sources and uses of cashfrom all of the following EXCEPT

	financing activities.
	managerial activities.
	operating activities.
	investing activities.

Question

34 of 35

Which of the following ratios measures the earnings of a companyon each dollar of assets invested?

	Return on equity
	Return on assets
	Return on sales
	Current ratio

Question

35 of 35

Are all decreases to cash the result of an unfavorablesituation?

	No. Cash could decrease as a resultof acquiring long-term assets the company needs to expand or staycompetitive.
	Yes. Cash could decrease as aresult of paying off long-term debt, which is an unfavorable actionto take.
	No. Cash could decrease because thecompany issued more stock.
	Yes. Decreases to cash are alwaysbad.

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ADM 1340 Lecture Notes - Lecture 9: Book Value, Asset Turnover, Income Statement

ADM 1340 Full Course Notes

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