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1.On August 7, Green River InflatablesCo. paid $1,675 to purchase and install a hydraulic lift, and $40for an air filter for one of its delivery trucks.

a.Journalize the entries for the newhydraulic lift and the air filter expenditure.

b.Why are expenditures on equipment andother fixed assets sometimes capitalized (treated as an asset) andother times expensed?

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Trinidad Tremblay
Trinidad TremblayLv2
28 Sep 2019

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1.On August 7, Green River InflatablesCo. paid $1,675 to purchase and install a hydraulic lift, and $40for an air filter for one of its delivery trucks.

a.Journalize the entries for the newhydraulic lift and the air filter expenditure.

b.Why are expenditures on equipment andother fixed assets sometimes capitalized (treated as an asset) andother times expensed?

2.Equipment acquired at the beginningof the year at a cost of $440,000 has an estimated residual valueof $25,000 and an estimated useful life of 8 years. Straight-linedepreciation is used. Determine (a) the total amount to bedepreciated over the life of the asset, (b) the amount ofdepreciation each year, (c) the journal entry to record the firstyear’s depreciation, (d) the book value of the asset at the end ofthe first year.

3.A tractor acquired at a cost of$275,000 has an estimated residual value of $39,000, an estimateduseful life of 40,000 hours, and was operated 2,660 hours duringthe first year. Determine (a) the total amount to be depreciatedover the life of the asset, (b) the amount of depreciation for theyear, (c) the journal entry to record the year’s depreciation, (d)the book value of the asset at the end of the first year, (e)explain why units of output may be preferred overstraight line as a method of depreciating the tractor.

4. Equipment acquired at the beginning of the year at a cost of$280,000 has an estimated residual value of $45,000 and anestimated useful life of 16 years. Determine: (a) thedouble-declining-balance rate, (b) the double-declining-balancedepreciation for the first year, (c) the journal entry to recordthe first year’s depreciation, (d) the book value at the end of thefirst year, (e) explain the advantages double-declining-balance may have over straight line in depreciatingassets.

5. A truck with a cost of $82,000 has an estimated residualvalue of $16,000, an estimated useful life of 12 years, and isdepreciated by the straight-line method. (a) Determine the amountof the annual depreciation, (b) Assuming that at the start of theeighth year the remaining life is estimated to be six years and theresidual value is estimated to be $12,000, determine thedepreciation expense for each of the remaining six years, (c)explain why depreciation is recalculated in situations likethis.

6. Equipment was acquired at the beginning of the year at a costof $465,000. The equipment was depreciated using the straight-linemethod based on an estimated useful life of 15 years and anestimated residual value of $45,000.

What was the depreciation for the first year?

Assuming the equipment was sold at the end of the eighth yearfor $235,000, determine the gain or loss on the sale of theequipment.

Journalize the entry to record the sale.

7. Glacier Mining Co. acquired mineral rights for $494,000,000.The mineral deposit is estimated at 475,000,000 tons. During thecurrent year, 31,500,000 tons were mined and sold.

Determine the depletion rate.

Determine the amount of the depletion expense for the currentyear.

Journalize the adjusting entry on December 31 to record thedepletion expense.

Why is depletion taken on mineral rights?

8. On December 31, it was estimated that goodwill of $6,000,000was impaired. In addition, a patent with an estimated usefuleconomic life of 12 years was acquired for $1,500,000 on April1.

Journalize the adjusting entry on December 31 for the impairedgoodwill.

What is goodwill?

What does it mean for goodwill to be impaired?

Journalize the adjusting entry on December 31 for theamortization of the patent rights.

Why are patents and other intangible assets amortized?

Read the 2015 annual report of Air France – KLM and answer the 20 questions asked regarding the accounting issues. Link is provided below:

http://www.airfranceklm.com/sites/default/files/publications/afkl_registration_doc_2015.pdf

1. Air France-KLM reports ‘Consolidated statement of recognized income and expenses’ for the year ended December 31, 2015. If this statement was a U.S. GAAP statement, what would be the title of this statement?

a. Consolidated statement of total net income

b. Consolidated statement of other comprehensive income

c. Consolidated statement of comprehensive income

d. Consolidated statement of recognized net income

2. What method does Air France-KLM use for the Statement of Cash Flows?

a. Indirect method

b. Direct method

c. Gross method

d. Net method

3. The basic and diluted earnings per share for the year ended December 31, 2015, indicates that Air France-KLM has:

a. no convertible debts.

b. some dilutive securities.

c. no preferred stocks.

d. some treasury stocks.

4. What method is used to account for investments in companies over which Air France-KLM can ‘exercise significant influence on financial and operating policy decisions?’

a. Cost method

b. Liability method

c. Equity method

d. Fair value method

5. Sale of passenger tickets is accounted for at the time of ticket sale as:

a. Sales revenue

b. Deferred revenue

c. Contingent asset

d. No recognition

6. How does Air France account for business combination costs other than those related to the issuance of debt or equity securities?

a. Expensed as incurred

b. Capitalized as incurred

c. Included in goodwill

d. Used to offset fair value of the acquisition

7. Which of the following is not an ‘accumulated other comprehensive income’ item among those reported in the ‘reserves and retained earnings’ in the 2015 consolidated balance sheet of Air France-KLM?

a. Available for sale securities reserves.

b. Derivatives reserves.

c. Legal reserves.

d. Pension defined benefits reserves.

8. What is the carrying amount of investments in debt and equity securities that are classified as available-for-sale?

a. Fair value Cost

b. Amortized cost

c. Lower of cost or market

9. Inventories are carried at:

a. The lower of the first-in-first-out cost or net realizable value.

b. The first-in-first-out cost.

c. The lower of the weighted-average cost or net realizable value.

d. The weighted-average cost.

10. Air France-KLM classifies its frequent flyer programs as:

a. Noncurrent liability

b. Current liability

c. Current asset

d. Other debt

11. The followings are included in Air France-KLM’s intangible assets, except for:

a. Trademarks

b. Leased aircraft

c. Customer relationships

d. Slots for takeoff and landing

12. Air France-KLM reports bank overdrafts as:

a. A contra account to cash and cash equivalents.

b. A current liability.

c. An expense.

d. A bank deposits in transit.

13. Which method does Air France-KLM use to record depreciation expense for its flight equipment?

a. The activity-based method.

b. The sum-of-years’-digit method.

c. The straight-line method.

d. The group method.

14. Which accounting standards does Air France-KLM use?

a. U.S. GAAP

b. French GAAP

c. Netherlands GAAP

d. International Financial Reporting Standards

15. As of December 31, 2015, what assets are held for sale?

a. Land

b. Aircraft

c. Equipment

d. Buildings

16. Which of the following is included in ‘income from operating activities’ but not in ‘income from current operations?

a. Sale of aircraft equipment

b. Research and development costs

c. Bad debt expense

d. Interest revenue

17. Which of the following is not true about accounting treatment for the overhaul cost of major airframe and engine?

a. The cost is treated as separate asset component.

b. The cost is capitalized.

c. The cost is depreciated over the remaining useful life.

d. The cost is expensed as incurred.

18. How are financial assets accounted for if the Air France-KLM intends to sell them in the near future to realize capital gains?

a. At fair value with fair value changes recognized in the current period profit and loss

b. At fair value with fair value changes recognized as other comprehensive income

c. At cost with no recognition of fair value changes

d. At amortized cost with no recognition of fair value changes

19. Which of the following is not true about impairment test?

a. Tangible fixed assets, intangible assets, goodwill, and other assets with indefinite useful life are subject to an impairment test.

b. The impairment test is done at least once a year.

c. Recoverable value is the lower of the net realizable value and value in use.

d. The value in use is determined according to the discounted future cash flow method.

20. Which of the following is not an ‘other non-current income and expenses’ item?

a. Restructuring costs

b. Gains and losses on disposal of shares available for sale

c. Gains and losses on disposal of subsidiaries and affiliates

d. Gains and losses on sale of trading securities

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