ACC 225 ACC225 Module 6 Homework Assignment Solution (AAU Online)
Part I: Short Response
1.What are the major characteristics of property, plant, and equipment?
2.A company that borrows money to construct its own building generally should include the interest paid on the loan during the construction period in the cost of the building. Why?
3.Companies usually depreciate assets like buildings even though those assets may be increasing in value. Why?
4.Sometimes long-term assets experience sudden dramatic decreases in value. For example, a waste dump might suddenly be constructed next to an office building. When such impairment of value occurs, should the decrease in value be recognized immediately, or should the same amount of depreciation expense be recognized as in past years?
5.When recording the disposal of a long-term operating asset, why is it necessary to debit the accumulated depreciation of the old asset?
6.Pekka Inc. has the option to purchase a new drilling machine for $50,000 today. The company expects a net cash flow of $13,000 per year from using the machine and the machine will last five years. According to the time value of money, the value today of $13,000 per year for five years is $46,862. Should the company purchase the new drilling machine?
7.Which one of the following characteristics of a lease would not cause the lease to be classified as a capital lease?
8.On September 30, Hoagland Company purchased a $34,000 delivery truck. The company estimates the truck will last six years and have a salvage value of $4,000 at the end of six years. Using the straight-line method of depreciation, compute the amount of depreciation in the first two years of the truck's service.
Part II: Application
1.Problem 9-45 “Acquisition, Depreciation, and Disposal of Assets” (p. 429) –
3.Problem 9-49 “Accounting for Leased Assets” (p. 430)
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