ACG Conceptual

Depreciation expense is added to net income under the indirect method of preparing a statement of cash flows in order to:
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Terms in this set (28)
Depreciation expense is added to net income under the indirect method of preparing a statement of cash flows in order to:
Reverse the non-cash deduction from NI
The direct method and the indirect method are alternative presentations for presenting cash flows from a
Operating cash flow activities
A purchase utility patent has a remaining legal life of 15 years. The patent should
Amortized over useful life if less than 15 years, shorter of legal/useful life.
Which of the following is not properly classified as property, plant, and equipment
A truck held for resale by an automobile dealership
Transaction: On 12/31/2016, made the first annual $30,000 cash payment on a capital lease that began on 1/1/2016.
REV: NE
EXP: +
NI: -
A: -
L: -
E: -
Transaction: On 1/1/16, signed a non-cancelable operating lease to use equipment for the next four years, effective immediately.
REV: NE
EXP: NE
NI: NE
A: NE
L: NE
E: NE
Transaction: Paid annual interest incurred of $100,000 on all outstanding debt. The entire $100,000 related to interest computed on the weighted-average amount of accumulated expenditures for a building the company is constructing for its own use.
REV: NE
EXP: NE
NI: NE
A: NE
L: NE
E: NE
Transaction: During the period, spent $7million cash in research and development costs which resulted in a new patent. Ignore any amortization.
REV: NE
EXP: +
NI: -
A: -
L: NE
E: -
A company might prefer to structure a lease as an operating lease in order to obtain "off balance-sheet financing." Which of the following describes this concept best?
an intentional effect by a company to structure its financial arrangements so as to avoid showing liabilities on the balance sheet (B/S)
A lessee mistakenly treated an operating lease as a capital lease. How does this mistake impact the following at the inception of the lease?
Total Liabilities overstated, Total assets overstated
Transaction: sold an asset that costs $10,000 and had accumulated depreciation associated with it of $9,000 for $1,500 cash.REV: + EXP: NE NI: + A: + L: NE E: +A machine has a current book value of 75k and fair market value of 100k. it has been determined that the machine has suffered an impairment loss.REV: NE EXP: NE NI: NE A: NE L: NE E: NEA machine has a current book value of 100k and fair market value of 75k. it has been determined that the machine has suffered an impairment loss.REV: NE EXP: + NI: - A: - L: NE E: -Transaction: On 12/31/16, made the first annual $30,000 cash payment on an operating lease that began on 1/1/2016REV: NE EXP: + NI: - A: - L: NE E: -Equipment with a ten-year estimated useful life and no salvage value is sold at the end of the third year of its useful life. How would using the straight-line method of depreciation instead of the double-declining balance method of depreciation affect a gain on the sale of the equipment?Be a higher gain with double declining balance, because Net Income is lower in earlier yearsTransaction: Spent $80,000 cash on expenditures designed to maintain goodwill.REV: NE EXP: + NI: - A: - L: NE E: -What happens to the balance of a capital lease liability as payments are made each period?liabilities decrease over payment periods until 0 at end of lifeOrange Bowl company reported plant assets, net of accumulated depreciation for the latest fiscal year of $5million. From this information, which of the following is an accurate statement about the company?Book Value= 5 millionTransaction: Recorded amortization and depreciation expense for the period.REV: NE EXP: + NI: - A: - L: NE E: -Transaction: Paid $7 million cash to acquire patent rights from other firms. Ignore any amortizationREV: NE EXP: NE NI: NE A: NE L: NE E: NEOn 1/1/16, signed a capital lease to use equipment for the next four years, effective immediately.REV: NE EXP: NE NI: NE A: + L: + E: NETransaction: Spent $80,000 cash to repair a broken water main.REV: NE EXP: + NI: - A: - L: NE E: -Transaction: Spent $100,000 cash to install an improved electrical system.REV: NE EXP: NE NI: NE A: NE L: NE E: NETransaction: An asset that was previously recorded as impaired has recovered most of its value.REV: NE EXP: NE NI: NE A: NE L: NE E: NEWhich of the following costs of goodwill should be capitalized and amortized? Options?Neither goodwill purchased or developed internally is amortized. Goodwill is Neither capitalized only when incurred in the purchase of another entityThe difference between the expense charged with a capital lease and an operating lease is:Operating lease isn't a liability listed on the balance sheet. When you have an expense from an operating lease, it is considered an operational expense. When you have an expense with a capital lease your assets and liabilities are going down with the expenses included in the asset.What happens to the balance of a capital lease liability as payments are made each period?liabilities decrease over payment periods until 0 at end of lifeXYZ Company purchased a truck on January 1, 2016 for $20,000 and intends to use the straight-line method of depreciation. The company accountant incorrectly used a sixyear life instead of the appropriate ten-year life in depreciating the truck. The effect of this error on the 2016 financial statements would be to make:NI Understated , expenses overstated , assets understated, equity understated