Question: Burbank Company owns the building occupied by

> In computing depreciation, three values must be known or estimated; identify and explain the nature of each.

> Distinguish among depreciation, depletion, and amortization.

> Distinguish between a. Capital expenditures and revenue expenditures. How is each accounted for? b. Ordinary repairs and improvements. How is each accounted for?

> Describe the relationship between the matching principle and accounting for long-lived assets.

> Under the cost principle, what amounts should be included in the acquisition cost of a long-lived asset?

> What are the classifications of long-lived assets? Explain each.

> At the end of a recent year, The Gap, Inc., reported total assets of $7,564 million, current assets of $4,005 million, total liabilities of $3,177 million, current liabilities of $2,158 million, and stockholders’ equity of $4,387 million. What is its cur

> Explain why stockholders’ equity is increased by revenues and decreased by expenses.

> How is the fixed asset turnover ratio computed? Explain its meaning.

> Define long-lived assets. Why are they considered to be a “bundle of future services”?

> Why is depreciation expense added to net income (indirect method) on the statement of cash flows?

> On January 2, 2012, Cruz Company bought a machine for use in operations. The machine has an estimated useful life of eight years and an estimated residual value of $2,600. The company provided the following expenditures: a. Invoice price of the machine

> Rungano Corporation is a global publisher of magazines, books, and music and video collections and is a leading direct mail marketer. Many direct mail marketers use high-speed Didde press equipment to print their advertisements. These presses can cost mo

> Starn Tool Company has five different intangible assets to be accounted for and reported on the financial statements. The management is concerned about the amortization of the cost of each of these intangibles. Facts about each intangible follow: a. Pat

> The notes to a recent annual report from Weebok Corporation included the following: Business Acquisitions During the current year, the Company acquired the assets of Sport Shoes, Inc. . . . Assume that Weebok acquired Sport Shoe

> During the 2011 annual accounting period, BSP Company completed the following transactions: a. On January 1, 2011, purchased a patent for $28,000 cash (estimated useful life, seven years). b. On January 1, 2011, purchased the assets (not detailed) of a

> Singapore Airlines reported the following information in the notes to a recent annual report (in Singapore dollars): Singapore Airlines also reported the following cash flow details: Required: 1. Reconstruct the information in Note 19 using T-account

> During 2012, Jensen Company disposed of three different assets. On January 1, 2012, prior to their disposal, the accounts reflected the following: The machines were disposed of in the following ways: a. Machine A: Sold on January 1, 2012, for $7,200 c

> Explain the matching principle.

> Which of the following statements are true regarding the balance sheet? 1. One cannot determine the true fair market value of a company by reviewing its balance sheet. 2. Certain internally generated assets, such as a trademark, are not reported on a c

> You are a financial analyst for Ford Motor Company and have been asked to determine the impact of alternative depreciation methods. For your analysis, you have been asked to compare methods based on a machine that cost $106,000. The estimated useful life

> Best Buy Co., Inc., headquartered in Richfield, Minnesota, is one of the leading consumer electronics retailers, operating more than 1,000 stores in the United States, Europe, Canada, China, and Mexico. The following was reported in a recent annual repor

> At the beginning of the year, Plummer’s Sports Center bought three used fitness machines from Advantage, Inc. The machines immediately were overhauled, installed, and started operating. The machines were different; therefore, each had t

> A recent annual report for FedEx included the following note: Assume that FedEx made extensive repairs on an existing building and added a new wing. The building is a garage and repair facility for delivery trucks that serve the Denver area. The existi

> Thornton Industries purchased a machine for $45,000 and is depreciating it with the straight-line method over a life of 10 years, using a residual value of $3,000. At the beginning of the sixth year, a major overhaul was made costing $5,000, and the tota

> When recording depreciation, which of the following statements is true? a. Total assets increase and stockholders’ equity increases. b. Total assets decrease and total liabilities increase. c. Total assets decrease and stockholders’ equity increases.

> Company X is going to retire equipment that is fully depreciated with no residual value. The equipment will simply be disposed of, not sold. Which of the following statements is false? a. Total assets will not change as a result of this transaction. b.

> How many of the following statements regarding goodwill are true? ■ Goodwill is not reported unless purchased in an exchange. ■ Goodwill must be reviewed annually for possible impairment. ■ Impairment of goodwill results in a decrease in net income. a.

> A company wishes to report the highest earnings possible for financial reporting purposes. Therefore, when calculating depreciation, a. It will follow the MACRS depreciation tables prescribed by the IRS. b. It will select the shortest lives possible fo

> Define accrual accounting and contrast it with cash basis accounting.

> What assets should be amortized using the straight-line method? a. Intangible assets with definite lives b. Intangible assets with indefinite lives c. Natural resources d. All of the above

> The Cash T-account has a beginning balance of $21,000. During the year, $98,000 was debited and $110,000 was credited to the account. What is the ending balance of Cash? a. $33,000 debit balance b. $9,000 credit balance c. $33,000 credit balance d. $

> Under what method(s) of depreciation is an asset’s net book value the depreciable base (the amount to be depreciated)? a. Straight-line method b. Declining-balance method c. Units-of-production method d. All of the above

> Ryan, Inc., uses straight-line depreciation for all of its depreciable assets. Ryan sold a used piece of machinery on December 31, 2012, that it purchased on January 1, 2011, for $10,000. The asset had a five-year life, zero residual value, and $2,000 ac

> Barber, Inc., followed the practice of depreciating its building on a straight-line basis. A building was purchased in 2011 and had an estimated useful life of 25 years and a residual value of $20,000. The company’s depreciation expense for 2011 was $20,

> Miga Company and Porter Company both bought a new delivery truck on January 1, 2008. Both companies paid exactly the same cost, $30,000, for their respective vehicles. As of December 31, 2011, the net book value of Miga’s truck was less than Porter Compa

> For each of the following long-lived assets, indicate its nature and the related cost allocation concept. Use the following symbols: Nature Cost Allocation Concept DR Depreciation DP L Land Building Equipment Natural resource Depletion E A Amortiza

> Wexler Company had the following activities for the year ended December 31, 2012: Sold land that cost $18,000 for $18,000 cash; purchased $181,000 of equipment, paying $156,000 in cash and signing a note payable for the rest; and recorded $5,500 in depre

> Elizabeth Pie Company has been in business for 50 years and has developed a large group of loyal restaurant customers. Giant Bakery Inc. has made an offer to buy Elizabeth Pie Company for $5,000,000. The book value of Elizabeth Pie’s recorded assets and

> As part of a major renovation at the beginning of the year, Scheffer’s Pharmacy, Inc., sold shelving units (store fixtures) that were 10 years old for $1,800 cash. The original cost of the shelves was $6,000 and they had been depreciated on a straight-li

> Refer to E2-13. Zeber Company has been operating for one year (2011). You are a member of the management team investigating expansion ideas that will require borrowing funds from banks. At the start of 2012, Zeber’s T-account balances

> For each of the following scenarios, indicate whether an asset has been impaired (Y for yes and N for no) and, if so, the amount of loss that should be recorded. Is Asset Impaired? Book Estimated Fair Amount Value Future Cash Flows Value of Loss $ 1

> Calculate the book value of a three-year-old machine that has a cost of $21,000, has an estimated residual value of $1,000 and an estimated useful life of 40,000 machine hours. The company uses units-of production depreciation and ran the machine 3,200 h

> Which of the following describes how assets are listed on the balance sheet? a. In alphabetical order b. In order of magnitude, lowest value to highest value c. From most liquid to least liquid d. From least liquid to most liquid

> Calculate the book value of a three-year-old machine that has a cost of $45,000, an estimated residual value of $5,000, and an estimated useful life of four years. The company uses double-declining-balance depreciation. Round to the nearest dollar.

> Calculate the book value of a three-year-old machine that has a cost of $31,000, an estimated residual value of $1,000, and an estimated useful life of five years. The company uses straight-line depreciation.

> For each of the following items, enter the correct letter to the left to show the type of expenditure. Use the following: Type of Expenditure Transactions Capital expenditure Revenue expenditure (1) Purchased a patent, $4,300 cash. (2) Paid $10,000

> The following information was reported by Kramer’s Air Cargo Service for 2008: Net fixed assets (beginning of year)......................$1,900,000 Net fixed assets (end of year)..................................2,300,000 Net sales for the year.........

> The following is a list of account titles and amounts (dollars in millions) from a recent annual report of Hasbro, Inc., a leading manufacturer of games, toys, and interactive entertainment software for children and families: Required: Prepare the ass

> At the end of the annual accounting period, December 31, 2012, O’Connor Company’s records reflected the following for Machine A: Cost when acquired............................$30,000 Accumulated depreciation....................10,200 During January 201

> Explain what the time period assumption means.

> Refer to E8-5. Information from E8-5: Nasoff Company operates a small manufacturing facility as a supplement to its regular service activities. At the beginning of 2011, an asset account for the company showed the following balances: Manufacturing equ

> You are considering investing the cash gifts you received for graduation in various stocks. You have received several annual reports of major companies. Required: For each of the following, indicate where you would locate the information in an annual r

> Starbucks Corporation is the leading roaster and retailer of specialty coffee, with nearly 17,000 company-operated and licensed stores worldwide. Assume that Starbucks planned to open a new store on Commonwealth Avenue near Boston University and obtained

> The T-account is a tool commonly used for analyzing which of the following? a. Increases and decreases to a single account in the accounting system. b. Debits and credits to a single account in the accounting system. c. Changes in specific account bal

> Refer to the financial statements of American Eagle Outfitters in Appendix B at the end of this book. Required: 1. Is the company a corporation, a partnership, or a sole proprietorship? How do you know? 2. The company shows on the balance sheet that inv

> Cheshire Company had three intangible assets at the end of 2011 (end of the accounting year): a. A copyright purchased on January 1, 2011, for a cash cost of $12,300. The copyright is expected to have a 10-year useful life to Cheshire. b. Goodwill of $

> Trotman Company had three intangible assets at the end of 2012 (end of the accounting year): a. Computer software and Web development technology purchased on January 1, 2011, for $70,000. The technology is expected to have a four-year useful life to the

> Freeport-McMoRan Copper & Gold Inc., headquartered in Phoenix, Arizona, is one of the world’s largest copper, gold, and molybdenum mining and production companies, with its principal asset in natural resource reserves (approximately 102.0 billion pounds

> On January 1, 2012, the records of Seward Corporation showed the following regarding a truck: Equipment (estimated residual value, $8,000).......................$18,000 Accumulated depreciation (straight-line, three years)................6,000 On Decem

> Marriott International is a worldwide operator and franchisor of hotels and related lodging facilities totaling over $1.4 billion in property and equipment. It also develops, operates, and markets time-share properties totaling nearly $2 billion. Assume

> Describe a typical business operating cycle.

> FedEx is the world’s leading express-distribution company. In addition to the world’s largest fleet of allcargo aircraft, the company has more than 654 aircraft and 51,000 vehicles and trailers that pick up and deliver packages. Assume that FedEx sold a

> In a recent 10-K report, United Parcel Service states it “is the world’s largest package delivery company, a leader in the U.S. less-than-truckload industry, and a global leader in supply chain management.â€

> Schrade Company bought a machine for $96,000 cash. The estimated useful life was four years, and the estimated residual value was $6,000. Assume that the estimated useful life in productive units is 120,000. Units actually produced were 43,000 in year 1

> A recent annual report for FedEx includes the following information: Required: Explain why FedEx uses different methods of depreciation for financial reporting and tax purposes. For financial reporting purposes, we record depreciation and amortizat

> A recent annual report for General Motors Corporation contained the following note: Required: Why do you think the company changed its depreciation method for real estate, facilities, and equipment placed in service after January 1, 2001, and subseque

> The dual effects concept can best be described as follows: a. When one records a transaction in the accounting system, at least two effects on the basic accounting equation will result. b. When an exchange takes place between two parties, both parties

> Sterling Steel Inc. purchased a new stamping machine at the beginning of the year at a cost of $580,000. The estimated residual value was $60,000. Assume that the estimated useful life was five years, and the estimated productive life of the machine was

> Purity Ice Cream Company bought a new ice cream maker at the beginning of the year at a cost of $10,000. The estimated useful life was four years, and the residual value was $1,000. Assume that the estimated productive life of the machine was 9,000 hours

> Refer to the information in E8-5. Information from E8-5: Nasoff Company operates a small manufacturing facility as a supplement to its regular service activities. At the beginning of 2011, an asset account for the company showed the following balances:

> Nasoff Company operates a small manufacturing facility as a supplement to its regular service activities. At the beginning of 2011, an asset account for the company showed the following balances: Manufacturing equipment..................................

> Cedar Fair, L.P. (Limited Partnership) is one of the largest regional amusement park operators in the world, owning 12 amusement parks, five outdoor water parks, one indoor water park, and six hotels. The parks include Cedar Point in Ohio, Valleyfair nea

> Ashkar Company ordered a machine on January 1, 2012, at an invoice price of $21,000. On the date of delivery, January 2, 2012, the company paid $6,000 on the machine, with the balance on credit at 10 percent interest. On January 3, 2012, it paid $1,000 f

> K-Delta Company bought a building for $71,000 cash and the land on which it was located for $107,000 cash. The company paid transfer costs of $9,000 ($3,000 for the building and $6,000 for the land). Renovation costs on the building were $23,000. Requir

> The following data were included in a recent Apple Inc. annual report ($ in millions): Required: 1. Compute Apple’s fixed asset turnover ratio for 2007, 2008, and 2009. 2. How might a financial analyst interpret the results? In

> Complete the requirements for each of the following independent cases: Case A. Dr Pepper Snapple Group, Inc., is a leading integrated brand owner, bottler, and distributor of nonalcoholic beverages in the United States, Canada, and Mexico. Key brands in

> Reuters provides lists of industries and the competitors in each at www.reuters.com. Click on “Sectors and Industries,” then “All Industries,” then one of the industries listed, then “Company Ranks.” When you skim down the page, you will find an alphabet

> A recent annual report for Eastman Kodak reported that the cost of property, plant, and equipment at the end of the current year was $6,805 million. At the end of the previous year, it had been $7,327 million. During the current year, the company bought

> Total liabilities on a balance sheet at the end of the year are $150,000, retained earnings at the end of the year is $80,000, net income for the year is $60,000, and contributed capital is $35,000. What amount of total assets would be reported on the ba

> Cain Company operates in both the beverage and entertainment industries. In June 2006, Cain purchased Good Time, Inc., which produces and distributes motion picture, television, and home video products and recorded music; publishes books; and operates th

> In its recent annual report, Sysco Corporation noted it “is the largest North American distributor of food and related products primarily to the foodservice ‘food-away-from-home’ industry. We provide products and related services to approximately 400,000

> Hess Corporation is a global energy company that explores, produces, refines, and markets crude oil and natural gas. The capitalization of interest associated with self-constructed assets was discussed in this chapter. A recent annual report for Hess Cor

> Following are account balances (in millions of dollars) from a recent FedEx annual report, followed by several typical transactions. Assume that the following are account balances on May 31, 2011: These accounts are not necessarily in good order and ha

> You are a financial analyst charged with evaluating the asset efficiency of companies in the hotel industry. Recent financial statements for Marriott include the following note: 8. Property and Equipment We record property and equipment at cost, includ

> Assume you work as a staff member in a large accounting department for a multinational public company. Your job requires you to review documents relating to the company’s equipment purchases. Upon verifying that purchases are properly a

> Refer to the financial statements of American Eagle Outfitters (Appendix B) and Urban Outfitters (Appendix C) and the Industry Ratio Report (Appendix D) at the end of this book. Required: 1. Compute the percentage of net fixed assets to total assets fo

> Refer to the financial statements of Urban Outfitters given in Appendix C at the end of this book. Required: For each question, answer it and indicate where you located the information to answer the question. 1. What method of depreciation does the co

> Refer to the financial statements of American Eagle Outfitters in Appendix B at the end of this book. Required: For each question, answer it and indicate where you located the information to answer the question. 1. How much did the company spend on pro

> On June 1, 2012, the Wallace Corp. bought a machine for use in operations. The machine has an estimated useful life of six years and an estimated residual value of $2,000. The company provided the following expenditures: a. Invoice price of the machine,

> Carey Corporation has five different intangible assets to be accounted for and reported on the financial statements. The management is concerned about the amortization of the cost of each of these intangibles. Facts about each intangible follow: a. Pate

> Which of the following is not an asset? a. Investments b. Land c. Prepaid Expense d. Contributed Capital

> During the 2012 annual accounting period, Nguyen Corporation completed the following transactions: a. On January 1, 2012, purchased a license for $7,200 cash (estimated useful life, four years). b. On January 1, 2012, repaved the parking lot of the bui

> During 2011, Rank Company disposed of three different assets. On January 1, 2011, prior to their disposal, the accounts reflected the following: The machines were disposed of in the following ways: a. Machine A: Sold on January 1, 2011, for $6,750 cas

> Refer to P3-4. Brianna Webb, a connoisseur of fine chocolate, opened Bri’s Sweets in Collegetown on February 1, 2011. The shop specializes in a selection of gourmet chocolate candies and a line of gourmet ice cream. You have been hired as manager. Your

> The Gap, Inc., is a global specialty retailer of casual wear and personal products for women, men, children, and babies under the Gap, Banana Republic, Old Navy, Athleta, and Piperlime brands. As of January 31, 2009, the Company operated 3,149 stores acr

> At the beginning of the year, Ramos Inc. bought three used machines from Santaro Corporation. The machines immediately were overhauled, installed, and started operating. The machines were different; therefore, each had to be recorded separately in the ac

> A recent annual report for AMERCO, the holding company for U-Haul International, Inc., included the following note: AMERCO subsidiaries own property, plant, and equipment that are utilized in the manufacture, repair, and rental of U-Haul equipment and

> Define goods available for sale. How does it differ from cost of goods sold?

> What are the general guidelines for deciding which items should be included in inventory?