ACC 100 Study Guide - Fixed Asset, Cash Flow, Net Income

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1 May 2014

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Depreciation expense = cost - estimated residual value / estimated useful life. Depreciation expense = (cost - accumulated depreciation at the beginning of the period) * rate. Depreciation expense = (# of units produced in the period / estimated # of units) * (cost - estimated residual value) Goodwill when one company purchases all or a majority of the shares of another company and pays more than the fair value of the assets and liabilities of the purchased company. Therefore, goodwill = purchase price - fair value of identifiable assets and liabilities purchased. Sold during year = part-year depreciation expense i. e. sold one quarter of the way through the year = depreciation expense * 0. 25. Proceeds from sale - carrying amount = gain or loss. If the carrying amount is larger than the sales proceeds it is a loss for the seller and a gain for.

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Using the data in the Option 2 Spreadsheet(linked at the bottom of the page), perform the accounting requiredfor the acquisition of Little, Inc. by Big, Inc. This is an 80%acquisition, where the book value of the assets acquired is lessthan the acquisition price. Within the worksheet, you are to:

1. Select an accounting method (either cost or equity) andexplain why you selected this method

2. Perform the required journal entries

3. Complete the consolidation worksheet

4. Prepare the consolidated balance sheet in good form

Big CompanyBalance Sheet		Which accountingmethod is most appropriate for representing an investment of thistype?			Prepare Elimination Entriesfor Stock Acquisition
Assets, Liabilities & Equities	Book Value				Account	DR	CR
Cash	$2,100,000
AR	$10,000
Inventory	$200,000
Land	$40,000
PP&E	$400,000
Accumulated Depreciation	-$150,000
Patent	$0
Total Assets	$2,600,000	Prepare thejournal entries for a 80% Asset Acquisition (using Big CompanyCash)
AP	$100,000
Common Stock ($10 par)	$450,000	Account	DR	CR
Additional Paid In Capital	$600,000
Retained Earnings	$1,450,000
Total Liabilities &Equity	$2,600,000	Prepare thejournal entries for a 80% Acquisition by issuing 10,000 shares ofBig Company Stock			Big Company Balance Sheet (Consolidated)
Little Company BalanceSheet					Assets, Liabilities & Equities
Assets, Liabilities & Equities	Book Value	Account	DR	CR	Cash
Cash	$35,000	Investment in Little			AR
AR	$10,000	Common Stock			Inventory
Inventory	$65,000	Additional Paid In Capital			Land
Land	$40,000	Allocation of Excess Schedule			PP&E (net)
PP&E	$400,000				Accumulated Depreciation
Accumulated Depreciation	-$150,000				Goodwill
Patent	$0				Patent
Total Assets	$400,000				Total Assets
AP	$100,000				AP
Common Stock	$100,000				Common Stock ($10 par)
Additional Paid In Capital	$50,000				Additional Paid In Capital
Retained Earnings	$150,000				Retained Earnings
Total Liabilities &Equity	$400,000				NCI
					Total Liabilities & Equity
Assumethat all noncash assets have a Fair Value that is 10% greater thanBook Value

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QUESTION 1 Which of the following is considered in computing depreciation expense using the straight-line method? A. Net income of the company B. Balance in accumulated depreciation C. Asset's fair value D. Cost of inventory produced by equipment E. Asset's historical cost

QUESTION 2 Which of the following methods of depreciation allocates an equal expense to each period in which the asset is used to generate revenue? A. The sum-of-years' digits method B. The units-of-production method C. The double-declining balance method D. The straight-line method E. The activity depreciation method

QUESTION 3 What type of an account is accumulated depreciation? A. Expense B. Equity C. Loss D. Liability E. Contra asset

4 Which of the following accounting principles dictates that an asset's cost should be expensed over its useful life? A. Matching B. Revenue recognition C. Going concern D. Conservatism E. Consistency 1

QUESTION 5 Opine Company uses the double-declining-balance method of depreciation. It purchases a building with a cost of $560,000, a salvage value of $32,000 and a useful life of 16 years. What is the depreciation expense for the second year? A. $61,250 B. $60,000 C. $57,750 D. $70,000 E. $66,000

QUESTION 6 Clark Company acquired a desk for $500. The estimated salvage value is $50 and the estimated life is 5 years. What journal entry should Clark make to record depreciation expense? A. Depreciation Expense 100 Desk 100 B. Depreciation Expense 90 Desk 90 C. Accumulated Depreciation 90 Depreciation Expense 90 D. Depreciation Expense 90 Accumulated Depreciation 90 E. Depreciation Expense 100 Accumulated Depreciation 100

QUESTION 7 Jacobs Company estimates that its new equipment will last 6 years and have a residual value of $3,000. The original cost of the equipment was $39,000. What would be the balance in the accumulated depreciation account at the end of year 4? A. $0 B. $26,000 C. $24,000 D. $39,000 E. $6,000

QUESTION 18 Which of the following accounts will be shown on the balance sheet with accumulated depreciation account? A. Building B. Prepaid rent C. Cash D. Land E. Goodwill

coralhippopotamus930

Property and equipment is reported at its:

	A.	historical cost.
	B.	market value.
	C.	book value.
	D.	fair value.
	E.	depreciation cost.

Uganda Corporation estimates the life of its building to be 30 years. It originally cost $300,000 and was given a residual value of $30,000. Depreciation expense per year should be:

	A.	$100,000.
	B.	$10,000.
	C.	$300,000.
	D.	$9,000.
	E.	$90,000.

QUESTION 3

Western Corporation purchased a machine for $20,000 with no residual value and a life of 4 years. What is the book value of the machine at the end of Year 4?

	A.	$5,000
	B.	$16,000
	C.	$4,000
	D.	$0
	E.	$20,000

QUESTION 4

The difference between the cost of an asset and its salvage value is its:

	A.	historical cost.
	B.	book value.
	C.	fair value.
	D.	depreciable base.
	E.	depreciation expense.

QUESTION 5

An asset costing $50,000 with accumulated depreciation of $20,000 is sold for $25,000. What is the resulting gain or loss?

		$5,000 gain
		$5,000 loss
		Cannot determine since salvage value is not provided in the question.

QUESTION 6

Which of the following is an example of an accelerated depreciation method?

	A.	The units-of-production method
	B.	The half-year convention method
	C.	The fixed assets turnover method
	D.	The double-declining balance method
	E.	The straight-line method

QUESTION 7

Mannow Company uses the units-of-production depreciation method. Mannow purchased a machine for $80,000 with no salvage value. Mannow believes the machine will produce 400,000 units. In the first year, 90,000 units are produced. In the second year, 70,000 units are produced. What is the balance in accumulated depreciation at the end of year two?

	A.	$14,000
	B.	$32,000
	C.	$10,000
	D.	$18,000
	E.	$16,000

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ACC 100 Study Guide - Fixed Asset, Cash Flow, Net Income

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