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ACCT 701 Chapter 10 In a Set of Financial Statements, What Information Is Conveyed about Property and Equipment Exam Questions and Answers$10.49
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ACCT 701 Chapter 10 In a Set of Financial Statements, What Information Is Conveyed about Property and Equipment Exam Questions and Answers
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Course
FIN701
Institution
FIN701
A company buys equipment for $100,000 with a ten-year life. Three years later, the company produces financial statements and prepares a balance sheet. The asset is not impaired in any way. What figure is reported for this equipment? - Answer-$100,000 less the accumulated depreciation recorded for t...
ACCT 701 Chapter 10 In a Set of
Financial Statements, What Information
Is Conveyed about Property and
Equipment Exam Questions and
Answers
A company buys equipment for $100,000 with a ten-year life. Three years later, the
company produces financial statements and prepares a balance sheet. The asset is not
impaired in any way. What figure is reported for this equipment? - Answer-$100,000
less the accumulated depreciation recorded for these three years.
Land, buildings, and equipment are reported on a company's balance sheet at net book
value, which is cost less any of that figure that has been assigned to expense. Over
time, the expensed amount is maintained in a contra asset account known as
accumulated depreciation. Thus, the asset's cost remains readily apparent as well as
the net book value. Land and any other asset that does not have a finite life remain at
cost. Unless the value of specific items has been impaired or an asset is to be sold in
the near future, fair value is not used for reporting land, buildings, and equipment. It is
not viewed as an objective or reliable amount. In addition, because the asset is not
expected to be sold, fair value is of limited informational use to decision makers. -
Answer-Key Takeaway
On January 1, Year One, a company buys a plot of land and proceeds to construct a
warehouse on that spot. One specific cost of $10,000 was normal and necessary to the
acquisition of the land. However, by accident, this charge was capitalized within the
building account. Which of the following statements is not correct? - Answer-The
building account will always be overstated by $10,000.
On January 1, Year One, the Ramalda Corporation pays $600,000 for a piece of
equipment that will produce widgets to be sold to the public. The company expects the
asset to carry out this function for ten years and then be sold for $50,000. The straight-
line method of depreciation is used. At the end of Year Two, company officials receive
an offer to buy the equipment for $500,000. They reject this offer because they believe
the asset is actually worth $525,000. What is the net reported balance for this
equipment on the company's balance sheet as of December 31, Year Two? - Answer-
$490,000
Tangible operating assets with lives of over a year are initially reported at historical cost.
All expenditures are capitalized if they are normal and necessary to put the property into
the position and condition to assist the company in generating revenue. If the asset has
a finite life, this cost is then assigned to expense over the years of expected use in
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