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Exam 8: Receivables, Bad Debt Expense, and Interest Revenue

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Question 41

Multiple Choice

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Fraser Ltd. has decided to change the estimate of the useful life of an asset that has been in service for two years. Which of the following statements describes the proper way to revise a useful life estimate?

A) Revisions in useful life are permitted if approved by Canada Revenue Agency.
B) Both the current and future years will be affected by the revision.
C) Retroactive changes must be made to correct previously recorded depreciation.
D) Only future years will be affected by the revision.

E) None of the above
F) B) and C)

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Question 42

Multiple Choice

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The Land account would include all of the following costs except

A) drainage costs.
B) the cost of building a fence.
C) title fees.
D) the cost of tearing down a building.

E) A) and C)
F) A) and D)

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Question 43

Multiple Choice

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In 20X2, Gamma Company made an ordinary repair to a delivery truck at a cost of $300. Gamma's accountant debited the asset account, Delivery Vehicles. Was this treatment an error, and if so, what will be the effect on the financial statements of Gamma?

Only the actual acquisition cost, the estimated useful life, and the method of depreciation of an operational asset are required to compute the depreciation expense for a period.

Depreciation expense and impairment losses are presented in the operating section of the income statement.

Macon Assembly Company purchased a machine on January 2, 20X3, by paying cash of $85,000. The machine has an estimated useful life of five years (or the production of 200,000 units) and an estimated residual value of $5,000. Required: 1. Determine depreciation expense (to the nearest dollar) for each year of the machine's useful life under (a). straight-line depreciation; and (b). the declining-balance method with a 200% acceleration rate. 2. What is the book value of the machine after three years with the declining-balance method and a 200% acceleration rate? 3. What is the book value of the machinery after three years with straight-line depreciation. 4. If the machine was used to produce and sell 48,000 units in 20X3, what would the depreciation expense be under the units of production method?

On January 2, 20X4, Daintry Company purchased a patent for $380,000 from an inventor who had developed a new manufacturing process. At the time of the purchase, the patent had a remaining legal life of 12 years, but Daintry estimated the useful life to the company to be only 10 years. Required: 1. Prepare the journal entry to record Daintry's purchase of the patent. 2. Prepare the journal entry to record amortization of the patent for 20X4, assuming that no contra account is used. 3. At the start of 20X7 , after amortization had been recorded for three years, Daintry concluded that the total useful life of the patent would be 7 years, rather than 10. Record Daintry's amortization expense for 20X7.

On July 1, 20X0, FEDWHY sold a truck for $10,000. The company originally paid $28,000 on June 30, 20X7 and has recorded accumulated depreciation on it to date of $15,000. The entry to record the sale would include a:

The amortization of finite life intangibles is recorded as:

A depreciable asset that cost $100,000 had an estimated useful life of 5 years and estimated residual value of $10,000. What is the first year for which depreciation would be greater under the straight-line method than under the declining-balance method with an acceleration rate of 200%?

The cost allocation method utilized affects the amount of net property, plant, and equipment that is used in the computation of the fixed asset turnover ratio.

Give the required adjusting entry at December 31, 20X6, the end of the annual accounting period for the three items below. If no entry is required, explain why. A. Web Company acquired a patent that cost $4,260 on January 1, 20X6. The patent was registered on January 1, 20X1. The legal life of a patent is 17 years from registration. Web expects to use the patent the remaining legal life. B. Web Company acquired a gravel pit on January 1, 20X6, that cost $24, 000. The company estimates that 30,000 tons of gravel can be extracted economically. During 20X6 4,000 tons were extracted and sold. C. On January 1, 20X6, W eb Company acquired a dump truck that cost $6,000 to use hauling gravel. The company estimated a residual value of 10% of cost and a useful life 4 years. The company uses straight-line depreciation.

The depreciable amount is:

Which of the following would most likely not be a revenue expenditure?

An item of property, plant, and equipment is considered to be impaired if its carrying amount exceeds its recoverable amount.

No clear line distinguishes capital expenditures (assets) from revenue expenditures (expenses); therefore, it requires managers to exercise judgment in making a subjective decision.

All the following statements are true, except:

Expenditures made after the asset is in use are always capital expenditures.

When a company acquires land by issuing 10,000 of its common shares currently trading for $20 per share, the company must get an appraisal of the land and recognize a gain if the appraised value is more than the $200,000 value of the shares issued.

If the proceeds from the sale of equipment exceed its carrying amount, a gain on disposal is reported.