[SOLVED] Why is depreciation expense added to net

> When a company signs a capital lease, does it record an asset and/or a liability on its balance sheet?

> Define working capital. How is working capital computed?

> Define liability. Differentiate between a current liability and a long-term liability.

> Determine whether each of the following would be reported in the financing activities section of the statement of cash flows and, if so, specify whether it is a cash inflow or outflow. 1. Sale of bonds at a discount. 2. Payment of interest on a bond at m

> 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 Expense (1) Purchased a patent, $4,300 cash. (2) Paid $10,000 for monthly s

> In what section of the statement of cash flows would you find cash paid for principal when a bond matures? In what section would you find cash paid for interest each period?

> For each of the following items, specify whether the information would be found in the balance sheet, the income statement, the statement of cash flows, or the notes to the statements. 1. The amount of a bond liability. 2. A description of any bond coven

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

> A bond with a face value of $100,000 is sold on January 1. The bond has a coupon rate of 10 percent and matures in 10 years. When the bond was issued, the market rate of interest was 10 percent. On December 31, the market rate of interest increased to 11

> When using the effective-interest method of amortization, interest expense reported in the income statement is impacted by the a. Face value of the bonds. b. Coupon rate stated in the bond certificate. c. Market rate of interest on the date the bonds wer

> A State Lottery Commission ran the following advertisement: The Lotto jackpot for this month’s drawing is $10 million, which will be paid out to the winning ticket in equal installments at the end of each year over the next 20 years. Do you agree that th

> To determine whether a bond will be sold at a premium, at a discount, or at face value, one must know which of the following pairs of information? a. Face value and the coupon rate on the date the bond is issued. b. Face value and the market rate of inte

> A bond with a face value of $100,000 was issued for $93,500 on January 1 of this year. The stated rate of interest was 8 percent and the market rate of interest was 10 percent when the bond was sold. Interest is paid annually. How much interest will be p

> Which of the following is false when a bond is issued at a premium? a. The bond will issue for an amount above its par value. b. Bonds payable will be credited for an amount greater than the bond’s face value. c. Interest expense will exceed the cash int

> Which account would not be included in the debt-to-equity ratio calculation? a. Unearned Revenue. b. Retained Earnings. c. Income Taxes Payable. d. All of the above are included.

> A bond with a face value of $100,000 has a coupon rate of 8 percent. The bond matures in 10 years. When the bond is issued, the market rate of interest is 10 percent. What amount will investors pay for this bond? a. $100,000 b. $87,707 c. $49,157 d. $113

> Which of the following is not an advantage of issuing bonds when compared to issuing additional shares of stock in order to obtain additional capital? a. Stockholders maintain proportionate ownership percentages. b. Interest expense reduces taxable incom

> When using the effective-interest method of amortization, the book value of a bond changes by what amount on each interest payment date? a. Interest expense b. Cash interest payment c. The difference between interest expense and the cash interest payment

> Annual interest expense for a single bond issue continues to increase over the life of the bonds. Which of the following explains this? a. The market rate of interest has increased since the bonds were sold. b. The coupon rate has increased since the bon

> SmallFish Company borrowed $100,000 at 8% interest for three months. How much interest does the company owe at the end of three months? a. $8,000 b. $2,000 c. $800 d. $200

> The present value of an annuity of $10,000 per year for 10 years discounted at 8% is what amount? a. $5,002 b. $67,101 c. $53,349 d. $80,000

> You are a financial analyst charged with evaluating the asset efficiency of companies in the hotel industry. Recent financial statements for Marriott International include the following note: 12. PROPERTY AND EQUIPMENT We record property and equipment at

> How is working capital calculated? a. Current assets multiplied by current liabilities. b. Current assets plus current liabilities. c. Current assets minus current liabilities. d. Current assets divided by current liabilities.

> Which of the following transactions would usually cause accounts payable turnover to increase? a. Payment of cash to a supplier for merchandise previously purchased on credit. b. Collection of cash from a customer. c. Purchase of merchandise on credit. d

> A company is facing a lawsuit from a customer. It is possible, but not probable, that the company will have to pay a settlement that management estimates to be $2,000,000. How would this fact be reported in the financial statements to be issued at the en

> BigFish Company has borrowed $100,000 from the bank to be repaid over the next five years, with payments beginning next month. Which of the following best describes the presentation of this debt in the balance sheet as of today (the date of borrowing)? a

> Which of the following best describes accrued liabilities? a. Long-term liabilities. b. Current amounts owed to suppliers of inventory. c. Current liabilities to be recognized as revenue in a future period. d. Current amounts owed, but not yet paid, to v

> The university golf team needs to buy a car to travel to tournaments. A dealership in Lockhart has agreed to the following terms: $4,000 down plus 20 monthly payments of $750. A dealership in Leander will agree to $1,000 down plus 20 monthly payments of

> Fred received a gift from his grandmother of $100,000. She has promised to pay Fred the $100,000 in equal installments at the end of each year for the next 10 years. Fred wants to know how much the $100,000 is worth in today’s dollars. Which of the follo

> What is the present value factor for an annuity of five periods and an interest rate of 10%? a. 0.62092 b. 4.32948 c. 3.79079 d. 7.72173

> Irish Industries purchased a machine for $65,000 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 total e

> 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. d.

> 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 approved, y

> 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. N

> 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. T

> 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 for

> For each of the following transactions, determine whether cash flows from operating activities will increase, decrease, or remain the same: a. Purchased merchandise for cash. b. Paid salaries and wages that were earned last period, but not paid last peri

> 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

> Maks, Inc., uses straight-line depreciation for all of its depreciable assets. Maks sold a used piece of machinery on December 31, 2017, that it purchased on January 1, 2016, for $10,000. The asset had a five-year life, zero residual value, and $2,000 ac

> Leslie, Inc., followed the practice of depreciating its building on a straight-line basis. A building was purchased in 2016 and had an estimated useful life of 25 years and a residual value of $20,000. The company’s depreciation expense for 2016 was $15,

> Miga Company and Porter Company both bought a new delivery truck on January 1, 2014. Both companies paid exactly the same cost, $30,000, for their respective vehicles. As of December 31, 2017, the net book value of Miga’s truck was less than Porter Compa

> Explain what determines whether a bond is issued at a discount or a premium.

> Differentiate between a bond coupon rate and the market rate of interest.

> Pool Corporation, Inc., is the world’s largest wholesale distributor of swimming pool supplies and equipment. It is a publicly traded corporation that trades on the NASDAQ exchange. The majority of Pool’s customers are small, family-owned businesses. Ass

> What are the primary characteristics of a bond? For what purposes are bonds usually issued?

> When market interest rates increase, do bond prices increase or decrease?

> What is the formula used for calculating the cash payment bond investors will receive for interest each period? What is the formula used to calculate interest expense each period?

> Define contingent liability. What conditions must be met in order for a contingent liability to be reported on a company’s balance sheet?

> Define note payable. When must a company reclassify a long-term note payable as a current liability?

> Define goodwill. When is it appropriate to record goodwill as an intangible asset?

> Define intangible asset. What period should be used to amortize an intangible asset with a definite life?

> When equipment is sold for more than net book value, how is the transaction recorded? For less than net book value? What is net book value?

> Define accrued liability. What is an example of an accrued liability?

> Pool Corporation, Inc., is the world’s largest wholesale distributor of swimming pool supplies and equipment. It is a publicly traded corporation that trades on the NASDAQ exchange. The majority of Pool’s customers are small, family-owned businesses. Poo

> Over what period should an addition to an existing long-lived asset be depreciated? Explain.

> What type of depreciation expense pattern is used under each of the following methods and when is its use appropriate? a. The straight-line method. b. The units-of-production method. c. The double-declining-balance method.

> The estimated useful life and residual value of a long-lived asset relate to the current owner or user rather than all potential users. Explain this statement.

> 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 ordinary repairs and improvements. How is each accounted for?

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

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

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

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

> Pool Corporation, Inc., is the world’s largest wholesale distributor of swimming pool supplies and equipment. Assume Pool Corporation purchased for cash new loading equipment for the warehouse on January 1 of Year 1, at an invoice price of $72,000. It al

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

> Cron Corporation is planning to issue bonds with a face value of $700,000 and a coupon rate of 13 percent. The bonds mature in five years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. C

> Claire Corporation is planning to issue bonds with a face value of $100,000 and a coupon rate of 8 percent. The bonds mature in two years and pay interest quarterly every March 31, June 30, September 30, and December 31. All of the bonds were sold on Jan

> PowerTap Utilities is planning to issue bonds with a face value of $1,000,000 and a coupon rate of 10 percent. The bonds mature in 10 years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year.

> On January 1 of this year, Cunningham Corporation issued bonds with a face value of $200,000 and a coupon rate of 6 percent. The bonds mature in 10 years and pay interest annually every December 31. When the bonds were sold, the annual market rate of int

> Rosh Corporation is planning to issue bonds with a face value of $800,000 and a coupon rate of 8 percent. The bonds mature in four years and pay interest semiannually every June 30 and December 31. All of the bonds will be sold on January 1 of this year.

> On January 1 of this year, Barnett Corporation sold bonds with a face value of $500,000 and a coupon rate of 7 percent. The bonds mature in 10 years and pay interest annually on December 31. Barnett uses the effective-interest amortization method. Ignore

> On January 1 of this year, Nowell Company issued bonds with a face value of $100,000 and a coupon rate of 8 percent. The bonds mature in five years and pay interest semiannually every June 30 and December 31. When the bonds were sold, the annual market r

> Electrolux Corporation manufactures electrical test equipment. The company’s board of directors authorized a bond issue on January 1 of this year with the following terms: Face (par) value: $800,000 Coupon rate: 8 percent payable each December 31 Maturit

> French energy giant GDF Suez recently issued a zero coupon bond. This bond issuance garnered attention because it was the first time in 14 years that a zero coupon bond had been issued in euros. The zero coupon bond has a face value of €500 million and m

> Serotta Corporation is planning to issue bonds with a face value of $300,000 and a coupon rate of 12 percent. The bonds mature in two years and pay interest quarterly every March 31, June 30, September 30, and December 31. All of the bonds were sold on J

> On January 1 of this year, Olive Corporation issued bonds. Interest is payable once a year on December 31. The bonds mature at the end of four years. Olive uses the effective-interest amortization method. The partially completed amortization schedule bel

> Last year, Arbor Corporation reported the following: BALANCE SHEET Total Assets…………………………………………………. $800,000 Total Liabilities ……………………………………………….500,000 Total Shareholders’ Equity …………………………….$300,000 This year, Arbor is considering whether to issue mo

> For each of the following situations, determine whether the company should (a) report a liability on the balance sheet, (b) disclose a contingent liability in the footnotes, or (c) not report the situation. Justify your conclusions. 1. An automobile comp

> PepsiCo, Inc., is a dominant player in the beverage, snack food, and restaurant businesses. A recent PepsiCo annual report included the following note: At year-end, $3.5 billion of short-term borrowings were reclassified as long-term, reflecting PepsiCo’

> Columbia Sportswear is an outdoor and active lifestyle apparel and footwear company. Last year, Columbia reported cost of goods sold of $941 million. This year, cost of goods sold was $1,146 million. Accounts payable was $174 million at the end of last y

> Dell Computers is a leader in the computer industry with over $59 billion in sales each year. A recent annual report for Dell contained the following note: Warranty We record warranty liabilities at the time of sale for the estimated costs that may be in

> During its first year of operations, Walnut Company completed the following two transactions. The annual accounting period ends December 31. a. Paid and recorded wages of $130,000 during Year 1; however, at the end of Year 1, three days’ wages are unpaid

> Using data from the previous problem, complete the following: Required: For each transaction (including adjusting entries) listed in the previous problem, indicate the effects (e.g., cash + or −) using the format below. You do not need to include amount

> Refer to the financial statements of American Eagle Outfitters in Appendix B and Urban Outfitters in Appendix C. Financial statements of American Eagle: Financial statements of Urban Outfitters: Required: 1. How do American Eagleâs an

> Rogers Company completed the following transactions during Year 1. Rogersâs fiscal year ends on December 31. Required: 1. Prepare journal entries for each of these transactions. 2. Prepare all adjusting entries required on December 31.

> On January 1, Boston Company completed the following transactions (use a 7% annual interest rate for all transactions): a. Borrowed $115,000 for seven years. Will pay $6,000 interest at the end of each year and repay the $115,000 at the end of the 7th ye

> a. A friend of yours, Grace, wants to purchase a house in five years. To save for the house, Grace decides to deposit $112,000 in a savings account on January 1 of this year. The savings account will earn 6% annually. Any interest earned will be added to

> Mansfield Corporation purchased a new warehouse at the beginning of Year 1 for $1,000,000. The expected life of the asset is 20 years with no residual value. The company uses straight-line depreciation for financial reporting purposes and accelerated dep

> Vigeland Company completed the following transactions during Year 1. Vigelandâs fiscal year ends on December 31. Required: 1. Prepare journal entries for each of these transactions. 2. Prepare all adjusting entries required on December

> 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. Pate

> The notes to a recent annual report from Weebok Corporation indicated that the company acquired another company, Sport Shoes, Inc. Assume that Weebok acquired Sport Shoes on January 5 of the current year. Weebok acquired the name of the company and all o

> During the current year ending on December 31, BSP Company completed the following transactions: a. On January 1, purchased a patent for $28,000 cash (estimated useful life, seven years). b. On January 1, purchased the assets (not detailed) of another bu

> 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 21 using T-accounts f

> Refer to the financial statements of Urban Outfitters in Appendix C at the end of this book Financial statements of Urban Outfitters: Required: 1. Urban Outfitters does not report paying any cash for interest during the year. If it had, where would you

> On January 1 of this year, Thomas Insurance Corporation issued bonds with a face value of $4,000,000 and a coupon rate of 9 percent. The bonds mature in five years and pay interest annually every December 31. When the bonds were sold, the annual market r

> Nettle Corporation sold $100,000 par value, 10-year first mortgage bonds to Timberline Corporation on January 1, 20X5. The bonds, which bear a nominal interest rate of 12 percent, pay interest semiannually on January 1 and July 1. The current market inte

Question: Why is depreciation expense added to net