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ACCT 200 Lecture Notes - Lecture 25: Macrs, Financial Statement

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ivorysea-lion839
30 Aug 2018
School
University of Arizona
Department
Accounting
Course
ACCT 200
Professor
All

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Document Summary

Overall depreciation for all of the methods is the same. Income taxes: irs does not require taxpayer to use the same depreciation method on the tax return that is used in preparing financial statements. Irs requires the straight-line method or a special accelerated-depreciation method called the. But macrs is not acceptable under gaap for companies. Ordinary repairs are expenditures to maintain the operating efficiency and productive life of the unit. Additions and improvements are costs incurred to increase the operating efficiency, productive capacity, or useful life of a plant asset. One time cost go to the asset, recurring cost are normal course of business and expenses. (total cost - salvage value) / useful life = annual depreciation. Companies dispose of plant assets in three ways retirement, sale, or exchange. Step 1: record depreciation up to the date of disposal. Then eliminate asset by: (1)debiting accumulated depreciation, and (2)crediting the ppe asset account.

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Related Questions

Question 1Acompany purchased for cash a machine with a list price of $90,000.The machine was shipped FOB shipping point at a cost of $5,000.Installation and test runs of the machine cost $3,000. Therecorded acquisition costof the machine is whichamount?

1

$98,000
2

$128,000
3

$90,000
4

$93,000

Question 2Small, ordinary repairs made to keepa truck running over its useful life have been debited to theVehicles account. As a result of this, which of the followingoccurred?

1

The balance in the Vehicles account was correctly stated.
2

The balance in the Vehicles account was overstated.
3

The expenses for the period were overstated.
4

The net income for the period was understated.

Question 3 Whatis the annual straight-linedepreciation for an asset thatcost $34,600, has an estimated service life of 8 years, and anestimated salvage valueof $1,400?

1

$4,150
2

$1,450
3

$4,325
4

$4,500

Question 4An asset cost $50,000, has anestimated salvage valueof $1,500, and an estimated usefullife of 8 years. What is thedouble-declining-balance depreciationrate?

1

20.0%
2

25.0%
3

16.0%
4

32.5%

Question 5An asset having a four-year servicelife and a salvage valueof $5,000 was acquired for $45,000cash on June 20. Ignore the half-year convention and calculate the depreciation expense at the end of the first year, December 31?

1

$10,000, under the straight-line method
2

$22,500, under the double-declining-balance method
3

$7,000, under the straight-line method
4

$11,250, under the double-declining-balance method

Question 6 Publicly traded companies can use adepreciation method that does not conform to generallyaccepted accounting principles but is based on a declining-balancemethod. What is the name of this accelerated depreciation method?

1

Asset Cost Recovery Statement
2

Asset Cost Recognition System
3

Modified Accelerated Cost Recovery System
4

Accelerated Cost Recovery System

Question 7 OnJune 28, 2011, a business sold for$1,500 a plant assetthat cost $5,000.The asset had a 5-year useful life, nosalvage value, and had been used by the business sinceJanuary 1, 2008. Straight-linedepreciation was used. Thefiscal year ends on December 31. What was the result of selling theplant asset?

1

No gain or loss on the disposal of plant assets
2

A $1,000 gain on the disposal of plant assets
3

A $500 loss on the disposal of plant assets
4

A $500 unrecognized gain on the sale of a plant asset.

Question 8Your company currently is generatingnormal earnings that are equal to a 12% return on net identifiable assets of $450,000. A comparable company is generatingnormal earnings that are equal to 10% return on net identifiableassets of $450,000. What is the estimated goodwill ofyour company, when compared to the other company?

1

$90,000
2

$45,000
3

$9,000
4

$15,000

Question 9The Baker Mining Company acquired aniron ore deposit for $2,000,000. The company's geologist estimatedthe deposit to contain 1,500,000 tons of iron ore. At the end ofthe first year, 60,000 tons had been extracted. The end-of-yearjournal entry to record thedepletion of the iron ore wouldinclude which of the following?

1

A credit to Iron Ore Inventory of $45,000
2

A credit to Accumulated Depletion of $80,000
3

A debit to Iron Ore Inventory of $50,000
4

None the above, until all of the ore is extracted

Question 10 Which of the following are investing activities?

1

Selling a plant asset
2

Exchanging an old asset and cash for a new plant asset
3

Depreciating or amortizing an asset
4

Both (A) and (B)

Stellar Bright Solar (“SBS” or “the Company”) is a business that contracts to develop, construct, and operate solar power plants.

SBS entered into a contract to support the Big Desert solar power plant. According to the contract terms, SBS is responsible for the day-to-day operations of Big Desert as well as for general maintenance and repairs. Big Desert expects SBS to provide routine maintenance for continued operation of the plant and respond to equipment breakdowns and failures by providing immediate repairs. In addition, the terms of the contract require SBS to procure necessary materials to operate, maintain, and repair the plant. To comply with this requirement, the Company must maintain a certain level of materials and supplies (the “spare parts”) at all times.

On a regular basis, SBS reviews a listing provided by Big Desert of recommended spare parts for various components of the solar power plant and procures the necessary parts. Vendors deliver the parts to SBS along with a complete listing describing the quantity and cost of the parts provided. SBS maintains this listing, uses it to track expected usage of the spare parts, and to determine their expected useful lives.

The spare parts consist of customized and generic parts that vary in cost, procurement time, expected usage (i.e., emergency replacement, standard replacement), and expected useful life. The Company uses the composite depreciation method for substantially all of the plant, and it expenses all major plant maintenance.

Required:

How should SBS classify the spare parts that it expects to use within one year: as inventory or as a prepaid/other current asset?

When answering the questions, please cite the appropriate literature to support your analysis. The

FASB’s professional literature is now organized by topic. It is referred to as the “Accounting Standards

Codification (ASC).” FASB statements are no longer authoritative GAAP, and therefore, you should not

cite them (unless you are making a point regarding the history of the standards.)

1.The useful life of a plant asset is:

The length of time it is used productively in a company'soperations

Never related to its physical life

Its productive life, but not to exceed one year

Determined by the FASB

Determined by law

2. Depreciation:

Measures the decline in market value of an asset

Measures physical deterioration of an asset

Is the process of allocating to expense the cost of a plantasset

Is an outflow of cash from the use of a plant asset

Is applied to land

3. Plant assets are

Tangible assets used in the operation of a business that have auseful life of more than one accounting period

Current assets

Held for sale

Intangible assets used in the operations of a business that havea useful life of more than one accounting period

Tangible assets used in the operation of business that have auseful life of less than one accounting period

4. A company has net sales of $870,000 and average accountsreceivable of $174,000. What is its accounts receivable turnoverfor the period?

0.20

5.00

20.0

73.0

1,825

5. FICA taxes include:

Social Security taxes

Charitable giving

Employee income taxes

Unemployment taxes

6. Times interest earned is calculated by:

Multiplying interest expense times income

Dividing interest expense by income before interest expense

Dividing income before interest expense and any income tax byinterest expense

Dividing interest and income tax expense by income beforeinterest and income tax expense

7. Amortization:

Is the systematic allocation of the cost of an intangible assetto expense over its estimated useful life

Is the process of allocating to expense the cost of a plantasset to the accounting periods benefiting from its use

Is the process of allocating the cost of natural resources toperiods when they are consumed

Is an accelerated form of expensing an asset's cost

Is the same as depletion

8. A method of estimating bad debts expense that involves adetailed examination of outstanding accounts and their length oftime past due is the:

Direct write-off method

Aging of accounts receivable method

Percentage of sales method

Aging of investments method

Percent of accounts receivable method

9. A company purchased a tract of land for its natural resourcesat a cost of $1,500,000. It expects to mine 2,000,000 tons of orefrom this land. The salvage value of the land is expected to be$250,000. The depletion expense per ton of ore is:

$0.75

$0.625

$0.875

$6.00

$8.00

10. The matching principle requires:

That expenses be ignored if their effect on the financialstatements are less important than revenues to the financialstatement user

The use of the direct write-off method for bad debts

The use of the allowance method of accounting for bad debts

That bad debts be disclosed in the financial statements

That bad debts not be written off

11. Liabilities:

Must be certain

Must sometimes be estimated

Must be for a specific amount

Must always have a definite date for payment

Must involve an outflow of cash

12. In the accounting records of a defendant, lawsuits:

Are estimated liabilities

Should always be recorded

Should always be disclosed

Should be recorded if payment for damages is probable and theamount can be reasonably estimated

13. A contingent liability:

Is always of a specific amount

Is a potential obligation that depends on a future event arisingout of a past transaction or event

Is an obligation not requiring future payment

Is an obligation arising from the purchase of goods or serviceson credit

Is an obligation arising from a future event

14. Total asset turnover is calculated by dividing:

Gross profit by average total assets

Average total assets by gross profit

Net sales by average total assets

Average total assets by net sales

Net assets by total assets

15. If the times interest ratio:

Increases, then risk increases

Increases, then risk decreases

Is greater than 1.5, then the company is in default

Is less than 1.5, the company is carrying too little debt

16. Promissory notes that require the issuer to make a series ofpayments consisting of both interest and principal are:

Debentures

Discounted notes

Installment notes

Indentures

Investment notes

17. A company borrowed $300,000 cash from the bank by signing a5-year, 8% installment note. The present value factor for anannuity at 8% for 5 years is 3.9927. Each annuity payment equals$75,137. The present value of the note is:

$75,137

$94,013

$300,000

$375,685

18. A bond traded at 102