Reference no: EM132450050

Discussion Questions

1. O'Neil Office Supplies has a fleet of automobiles and trucks for use by salespersons and for delivery of office supplies and equipment. Collins Auto Sales Co. has automobiles and trucks for sale. Under what caption would the automobiles and trucks be reported in the balance sheet of (a) O'Neil Office Supplies and (b) Collins Auto Sales Co.?

2. Bullwinkle Co. acquired an adjacent vacant lot with the hope of selling it in the future at a gain. The lot is not intended to be used in Bullwinkle business operations. Where should such real estate be listed on the balance sheet?

3. Alpine Company solicited bids from several contractors to construct an addition to its office building. The lowest bid received was for $1,200,000. Alpine decided to construct the addition itself at a cost of $1,100,000. What amount should be recorded in the building account?

4. Keyser Company purchased a machine that has a manufacturer's suggested life of 20 years. The company plans to use the machine on a special project that will last 12 years. At the completion of the project, the machine will be sold. Over how many years should the machine be depreciated?

5. Is it necessary for a business to use the same method of computing depreciation for all classes of its depreciable assets?

6.

1. Under what conditions is the use of the straight-line depreciation method most appropriate?
2. Under what conditions is the use of the units-of-activity depreciation method most appropriate?
3.  Under what conditions is the use of the double-declining-balance depreciation method most appropriate?

7. Distinguish between the accounting for capital expenditures and revenue expenditures.

8. Immediately after a used truck is acquired, a new motor is installed at a total cost of $3,850. Is this a capital expenditure or a revenue expenditure?

9. For some of the fixed assets of a business, the balance in Accumulated Depreciation is equal to the cost of the asset. (a) Is it permissible to record additional depreciation on the assets if they are still useful to the business? Explain. (b) When should an entry be made to remove the cost and the accumulated depreciation from the accounts?

10.

1. Over what period of time should the cost of a patent acquired by purchase be amortized?
2. In general, what is the required accounting treatment for research and development costs?