Chapter 10 Plant Assets, Natural Resoures, and Intangibles

MULTIPLE CHOICE QUESTIONS

Plant assets refer to nonphysical assets that are used in the operations of a business.

• 1. True
  2. False

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. Plant assets are used in operations and have useful lives that extend over more than one accounting period.

True

• 1. False

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. If land is purchased as a building site, the cost of removing existing structures is not charged to the Land account.

True

• 1. False

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

The phrase capital-intensive refers to companies with large amounts invested in plant assets.

• 1. True
  2. False

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. The process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use is called depletion.

True

• 1. False

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

Salvage value is an estimate of an asset's value at the end of its benefit period.

• 1. True
  2. False

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. When plant assets are purchased as a group in a single transaction for a lump-sum price, the cost of the purchase is allocated among the different types of assets acquired based on their relative market values.

True

• 1. False

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. Obsolescence refers to the insufficient capacity of a company's plant assets to meet the company's growing productive demands.

True

• 1. False

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Depreciation does not measure the decline in market value of an asset each period.

• 1. True
  2. False

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

A plant asset's useful life is the length of time it is productively used in a company's operations.

• 1. True
  2. False

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. It is necessary to report both the cost and the accumulated depreciation of plant assets in the financial statements.

True

• 1. False

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

1. Depreciation expense is calculated using its cost, estimates of an asset's salvage value, and an estimated useful life.

True

• 1. False

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

Once an asset's book value equals its salvage value, depreciation stops.

• 1. True
  2. False

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

1. When an asset is purchased (or disposed of) at a time other than the beginning or the end of an accounting period, depreciation is recorded for part of a year so that the year of purchase or the year of disposal is charged with its share of the asset's depreciation.

True

• 1. False

Learning Objective: 10-C2 Explain depreciation for partial years and changes in estimates. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. Revising an estimate of the useful life or salvage value of a plant asset is referred to as a change in accounting estimate and is reflected in the current, and future financial statements.

True

• 1. False

Learning Objective: 10-C2 Explain depreciation for partial years and changes in estimates. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement; FN Reporting

1. Plant assets are reported on a balance sheet at their undepreciated costs (book value), not at fair (market) values.

True

• 1. False

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

1. Total depreciation expense over an asset's useful life will be identical under all methods of depreciation.

True

• 1. False

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

1. Financial accounting and tax accounting require the same recordkeeping and there should be no difference in results between the two accounting systems.

True

• 1. False

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

1. Depreciation is higher in earlier years and income is lower in the later years when using straight-line versus accelerated methods.

True

• 1. False

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

1. The book value of an asset when using double-declining-balance depreciation is always greater than the book value from using straight-line depreciation, except at the beginning and the end of the asset's useful life, when it is the same.

True

• 1. False

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Understand AACSB: Reflective Thinking

AICPA: BB Industry; FN Measurement

The straight-line depreciation method yields a steady pattern of depreciation expense.

• 1. True
  2. False

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Understand AACSB: Reflective Thinking

AICPA: BB Industry; FN Measurement

1. The Modified Accelerated Cost Recovery System (MACRS) is part of the U.S. federal income tax laws and may be used for financial reporting.

True

• 1. False

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement; BB Legal

1. Decision makers and other users of financial statements are especially interested in evaluating a company's ability to use its assets in generating sales.

True

• 1. False

Learning Objective: 10-A1 Compute total asset turnover and apply it to analyze a company's use of assets. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

Asset turnover is computed by dividing net sales by average total assets.

• 1. True
  2. False

Learning Objective: 10-A1 Compute total asset turnover and apply it to analyze a company's use of assets. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

1. Companies that have a relatively large amount invested in assets to generate a given level of sales are considered capital-intensive.

True

• 1. False

Learning Objective: 10-A1 Compute total asset turnover and apply it to analyze a company's use of assets. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

1. Duncan reported net sales of $2,523 million and average total assets of $1,476 million. Its total asset turnover equals 1.71.

True

• 1. False

Learning Objective: 10-A1 Compute total asset turnover and apply it to analyze a company's use of assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

Total asset turnover is calculated by dividing net sales by average total assets.

• 1. True
  2. False

Learning Objective: 10-A1 Compute total asset turnover and apply it to analyze a company's use of assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

Total asset turnover is calculated by dividing average total assets by net sales.

• 1. True
  2. False

Learning Objective: 10-A1 Compute total asset turnover and apply it to analyze a company's use of assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

1. Edmond reported average total assets of $9,965 million and net sales of $10,430 million. Its total asset turnover equals .96.

True

• 1. False

Learning Objective: 10-A1 Compute total asset turnover and apply it to analyze a company's use of assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

1. An asset's cost includes all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use.

True

• 1. False

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

If a machine is damaged during unpacking, the repairs are added to its cost.

• 1. True
  2. False

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. The purchase of a property that included land, building, and related improvements is called a lump-sum or basket purchase.

True

• 1. False

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. When a company constructs a building, the cost of the building includes materials and labor but not design fees, building permits, or insurance during construction.

True

• 1. False

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. Additions to land that increase the usefulness of the land such as parking lots, fences, and lighting are not depreciated.

True

• 1. False

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. The cost of fees for insuring the title and any accrued property taxes are included in the cost of land.

True

• 1. False

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

Total asset cost plus depreciation expense equals book value.

• 1. True
  2. False

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

1. The units-of-production method of depreciation charges a varying amount of expense for each period of an asset's useful life depending on its usage.

True

• 1. False

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

1. An accelerated depreciation method yields larger depreciation expense in the early years of an asset's life and less depreciation expense in later years.

True

• 1. False

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

1. The double-declining balance method is applied by (1) computing the asset's straight-line depreciation rate, (2) doubling it, (3) subtracting salvage value from cost, and (4) multiplying the rate times the net value.

True

• 1. False

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Measurement

1. A company purchased a plant asset for $60,000. The asset has an estimated salvage value of

$4,000, and an estimated useful life of 7 years. The annual depreciation expense using the straight-line method is $4,000 per year.

True

• 1. False

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Revenue expenditures, also called income statement expenditures, are additional costs of plant assets that do not materially increase the assets' life or productive capabilities.

True

• 1. False

Learning Objective: 10-C3 Distinguish between revenue and capital expenditures, and account for them. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. Capital expenditures, also called balance sheet expenditures, are additional costs of plant assets that provide benefits extending beyond the current period.

True

• 1. False

Learning Objective: 10-C3 Distinguish between revenue and capital expenditures, and account for them. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. Extraordinary repairs are expenditures extending the asset's useful life beyond its original estimate, and are capital expenditures because they benefit future periods.

True

• 1. False

Learning Objective: 10-C3 Distinguish between revenue and capital expenditures, and account for them. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

Revenue expenditures are also called balance sheet expenditures.

• 1. True
  2. False

Learning Objective: 10-C3 Distinguish between revenue and capital expenditures, and account for them. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

Betterments are a type of capital expenditure.

• 1. True
  2. False

Learning Objective: 10-C3 Distinguish between revenue and capital expenditures, and account for them. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

Plant assets can be disposed of by discarding, selling, or exchanging them.

• 1. True
  2. False

Learning Objective: 10-P2 Account for asset disposal through discarding or selling an asset. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

The first step in accounting for an asset disposal is to calculate the gain or loss on disposal.

• 1. True
  2. False

Learning Objective: 10-P2 Account for asset disposal through discarding or selling an asset. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. Accounting for the exchange of assets depends on whether the transaction has commercial substance; commercial substance implies that it alters the company's future cash flows.

True

• 1. False

Learning Objective: 10-P5 Appendix 10A-Account for asset exchanges. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

No gain or loss is recorded for exchanges of plant assets without commercial substance.

• 1. True
  2. False

Learning Objective: 10-P5 Appendix 10A-Account for asset exchanges. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

If an asset is sold above its book value, the selling company records a loss.

• 1. True
  2. False

Learning Objective: 10-P2 Account for asset disposal through discarding or selling an asset. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. Gain or loss on the disposal of assets is determined by comparing the disposed asset's book value to the market value of any assets received.

True

• 1. False

Learning Objective: 10-P2 Account for asset disposal through discarding or selling an asset. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. A loss on disposal of a plant asset occurs if the cash proceeds received from the asset sale is less than the asset's book value.

True

• 1. False

Learning Objective: 10-P2 Account for asset disposal through discarding or selling an asset. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

Natural resources are assets that include standing timber, mineral deposits, and oil and gas fields.

• 1. True
  2. False

Learning Objective: 10-P3 Account for natural resource assets and their depletion. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. Amortization is the process of allocating the cost of natural resources to periods when they are consumed.

True

• 1. False

Learning Objective: 10-P3 Account for natural resource assets and their depletion. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. Depletion is the process of allocating the cost of natural resources to periods when they are consumed.

True

• 1. False

Learning Objective: 10-P3 Account for natural resource assets and their depletion. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. Natural resources may be reported under either plant assets or their own separate category on the balance sheet.

True

• 1. False

Learning Objective: 10-P3 Account for natural resource assets and their depletion. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. When the usefulness of plant assets used to extract natural resources is directly related to the depletion of a natural resource, their costs are depreciated using the units-of-production method of depreciation, as long as the assets will not be moved to and used at another site when extraction of the natural resources is complete.

True

• 1. False

Learning Objective: 10-P3 Account for natural resource assets and their depletion. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. The cost of an intangible asset is systematically allocated to depreciation expense over its estimated useful life.

True

• 1. False

Learning Objective: 10-P4 Account for intangible assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

A leasehold refers to the rights the lessor grants to the lessee under the terms of the lease.

• 1. True
  2. False

Learning Objective: 10-P4 Account for intangible assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making; BB Legal

1. Intangible assets are nonphysical assets used in operations that confer on their owners' long-term rights, privileges, or competitive advantages.

True

• 1. False

Learning Objective: 10-P4 Account for intangible assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making; BB Legal

Since goodwill is an intangible asset, it is amortized each year using the straight-line method.

• 1. True
  2. False

Learning Objective: 10-P4 Account for intangible assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement; BB Legal

1. A patent is an exclusive right granted to its owner to manufacture and sell a patented device or to use a process for 20 years.

True

• 1. False

Learning Objective: 10-P4 Account for intangible assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making; BB Legal

1. A copyright gives its owner the exclusive right to publish and sell a musical, literary, or artistic work during the life of the creator plus 17 years.

True

• 1. False

Learning Objective: 10-P4 Account for intangible assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making; BB Legal

1. A trademark is an exclusive right granted to its owner to publish and sell a musical, literary, or artistic work during the life of the creator plus 70 years.

True

• 1. False

Learning Objective: 10-P4 Account for intangible assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making; BB Legal

Plant assets are defined as:

• 1. Current assets.
  2. Tangible assets that have a useful life of more than one accounting period and are used in the operation of a business.
  3. Intangible assets used in the operations of a business that have a useful life of more than one accounting period.
  4. Tangible assets used in the operation of business that have a useful life of less than one accounting period.

Held for sale.

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

One characteristic of plant assets is that they are:

• 1. Long-term investments.
  2. Intangible.
  3. Used in operations.
  4. Natural resources.
  5. Current assets.

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

The relevant factors in computing depreciation do not include:

• 1. Salvage value.
  2. Cost.
  3. Depreciation method.
  4. Useful life.
  5. Market value.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Remember AACSB: Reflective Thinking

AICPA: BB Industry; FN Decision Making

Salvage value is:

• 1. A factor relevant to amortizing an intangible asset with an indefinite life.
  2. A factor relevant to determining depreciation under MACRS.
  3. An estimate of the asset's value at the end of its benefit period.
  4. A factor relevant to determining depreciation that cannot be revised during an asset's useful life.

Not a factor relevant to determining depletion.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Remember AACSB: Reflective Thinking

AICPA: BB Industry; FN Decision Making

Depreciation:

• 1. Measures the decline in market value of an asset.
  2. Measures physical deterioration of an asset.
  3. Is the process of allocating the cost of a plant asset to expense.
  4. Is applied to land.
  5. Is an outflow of cash from the use of a plant asset.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Remember AACSB: Reflective Thinking

AICPA: BB Industry; FN Decision Making

The useful life of a plant asset is:

• 1. Never related to its physical life.
  2. Determined by law.
  3. Determined by the FASB.
  4. Its productive life, but not to exceed one year.
  5. The length of time it is productively used in a company's operations.

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Remember

AACSB: Reflective Thinking

AICPA: BB Industry; FN Decision Making

The term inadequacy, as it relates to the useful life of an asset, refers to:

• 1. An asset that is no longer useful in producing goods and services.
  2. The condition where the asset's salvage value is less than its cost.
  3. The insufficient capacity of a company's plant assets to meet the company's growing production demands.

An asset that is worn out.

• 1. The condition where the salvage value is too small to replace the asset.

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Remember

AACSB: Reflective Thinking

AICPA: BB Industry; FN Decision Making

The term, obsolescence, as it relates to the useful life of an asset, refers to:

• 1. The end of an asset's useful life.
  2. Intangible assets that have been fully amortized.
  3. The insufficient capacity of a company's plant assets to meet the company's productive demands.
  4. A plant asset that is no longer useful in producing goods and services with a competitive advantage.

An asset's salvage value becoming less than its replacement cost.

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Remember

AACSB: Reflective Thinking

AICPA: BB Industry; FN Decision Making

Once the estimated depreciation expense for an asset is calculated:

• 1. The estimate itself cannot be changed; however, new information should be disclosed in financial statement footnotes.

Any changes are accumulated and recognized when the asset is sold.

• 1. It may be revised based on new information.
  2. It cannot be changed, based on the historical cost principle.
  3. It cannot be changed, based on the consistency principle.

Learning Objective: 10-C2 Explain depreciation for partial years and changes in estimates. Bloom's: Understand

AACSB: Reflective Thinking

AICPA: BB Industry; FN Decision Making

1. A machine originally had an estimated useful life of 6 years, but after 4 complete years, it was decided that the original estimate of useful life should have been 10 years. At that point the remaining cost to be depreciated should be allocated over the remaining:

16 years. B) 2 years. C) 10 years. D) 4 years. E) 6 years.

Learning Objective: 10-C2 Explain depreciation for partial years and changes in estimates. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

A change in an accounting estimate is:

• 1. Reflected in future financial statements and also requires modification of past statements.
  2. Not allowed under current accounting rules.
  3. Reflected in current and future years' financial statements, not in prior statements.
  4. Considered an error in the financial statements.
  5. Reflected in past financial statements.

Learning Objective: 10-C2 Explain depreciation for partial years and changes in estimates. Bloom's: Understand

AACSB: Reflective Thinking

AICPA: BB Industry; FN Decision Making

1. When originally purchased, a vehicle costing $23,000 had an estimated useful life of 8 years and an estimated salvage value of $3,000. After 4 years of straight-line depreciation, the asset's total estimated useful life was revised from 8 years to 6 years and there was no change in the estimated salvage value. The depreciation expense in year 5 equals:

A) $11,500. B) $2,875. C) $5,000. D) $2,500. E) $5,750.

Learning Objective: 10-C2 Explain depreciation for partial years and changes in estimates. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. A company used straight-line depreciation for an item of equipment that cost $12,000, had a salvage value of $2,000 and a five-year useful life. After depreciating the asset for three complete years, the salvage value was reduced to $1,200 but its total useful life remained the same. Determine the amount of depreciation to be charged against the equipment during each of the remaining years of its useful life:

A) $2,400 B) $2,000 C) $5,400 D) $1,800 E) $1,000

Learning Objective: 10-C2 Explain depreciation for partial years and changes in estimates. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Beckman Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $100,000. The asset is expected to have a salvage value of $20,000 at the end of its five-year useful life. If the asset is depreciated on the double-declining-balance method, the asset's book value on December 31, Year 2 will be:

A) $54,000 B) $90,000 C) $16,000 D) $36,000 E) $42,000

Learning Objective: 10-C2 Explain depreciation for partial years and changes in estimates.; 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Peavey Enterprises purchased a depreciable asset for $22,000 on April 1, Year 1. The asset will be depreciated using the straight-line method over its four-year useful life. Assuming the asset's salvage value is $2,000, what will be the amount of accumulated depreciation on this asset on December 31, Year 3?

A) $13,750 B) $15,000 C) $20,000 D) $15,125 E) $5,000

Learning Objective: 10-C2 Explain depreciation for partial years and changes in estimates.; 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Peavey Enterprises purchased a depreciable asset for $22,000 on April 1, Year 1. The asset will be depreciated using the straight-line method over its four-year useful life. Assuming the asset's salvage value is $2,000, Peavey Enterprises should recognize depreciation expense in Year 2 in the amount of:

A) $5,000 B) $20,000 C) $9,250 D) $10,000 E) $5,500

Learning Objective: 10-C2 Explain depreciation for partial years and changes in estimates.; 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. The following information is available on a depreciable asset owned by Mutual Savings Bank:

The asset's book value is $70,000 on July 1, Year 3. On that date, management determines that the asset's salvage value should be $5,000 rather than the original estimate of $10,000. Based on this information, the amount of depreciation expense the company should recognize during the last six months of Year 3 would be:

A) $3,750.00 B) $4,062.50 C) $7,375.00 D) $7,812.50 E) $8,125.00

Learning Objective: 10-C2 Explain depreciation for partial years and changes in estimates.; 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

A benefit of using an accelerated depreciation method is that:

• 1. It is preferred by the tax code.
  2. It yields a higher income in the early years of the asset's useful life.
  3. It yields larger depreciation expense in the early years of an asset's life.
  4. The results are identical to straight-line depreciation.
  5. It is the simplest method to calculate.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Remember AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

The modified accelerated cost recovery system (MACRS):

• 1. Does not allow partial year depreciation.
  2. Is an outdated system that is no longer used by companies.
  3. Is identical to units of production depreciation.
  4. Is required for financial reporting.
  5. Is included in the U.S. federal income tax rules for depreciating assets.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement; BB Legal

The straight-line depreciation method and the double-declining-balance depreciation method:

• 1. Are the only acceptable methods of depreciation for financial reporting.
  2. Produce the same total depreciation over an asset's useful life.
  3. Produce the same depreciation expense each year.
  4. Are acceptable for tax purposes only.
  5. Produce the same book value each year.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Measurement

Total asset turnover is used to evaluate:

• 1. The relation between asset cost and book value.
  2. The efficient use of assets to generate sales.
  3. The cash flows used to acquire assets.
  4. The necessity for asset replacement.
  5. The number of times operating assets were sold during the year.

Learning Objective: 10-A1 Compute total asset turnover and apply it to analyze a company's use of assets. Bloom's: Understand

AACSB: Communication

AICPA: BB Resource Management; FN Risk Analysis

A total asset turnover ratio of 3.5 indicates that:

• 1. For every $1 in assets, the firm earned $3.50 in net income.
  2. For every $1 in assets, the firm produced $3.50 in net sales during the period.
  3. For every $1 in assets, the firm paid $3.50 in expenses during the period.
  4. For every $1 in assets, the firm earned gross profit of $3.50 during the period.
  5. For every $1 in sales, the firm acquired $3.50 in assets during the period.

Learning Objective: 10-A1 Compute total asset turnover and apply it to analyze a company's use of assets. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

The calculation of total asset turnover is:

• 1. Net assets multiplied by total assets.
  2. Average total assets multiplied by net sales.
  3. Gross profit divided by average total assets.
  4. Average total assets divided by gross profit.
  5. Net sales divided by average total assets.

Learning Objective: 10-A1 Compute total asset turnover and apply it to analyze a company's use of assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Resource Management; FN Risk Analysis

1. A company had average total assets of $887,000. Its gross sales were $1,090,000 and its net sales were $1,000,000. The company's total asset turnover equals:

A) 1.23. B) 1.09. C) 1.13. D) 0.81. E) 0.89.

Learning Objective: 10-A1 Compute total asset turnover and apply it to analyze a company's use of assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

1. Spears Co. had net sales of $35,400 million. Its average total assets for the period were $14,700 million. Spears' total asset turnover equals:

A) 3.54. B) 0.42. C) 1.48. D) 2.41. E) 0.35.

Learning Objective: 10-A1 Compute total asset turnover and apply it to analyze a company's use of assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

Land improvements are:

• 1. Assets that increase the usefulness of land, but that have a limited useful life and are subject to depreciation.

Expensed in the period incurred.

• 1. Included in the cost of the land account.
  2. Assets that increase the usefulness of land, and like land, are not depreciated.
  3. Also called basket purchases.

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

Which of the following is not classified as plant assets?

• 1. Buildings.
  2. Patent.
  3. Land improvements.
  4. Land.
  5. Machinery and equipment.

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

The cost of land would not include:

• 1. Government assessments.
  2. Purchase price.
  3. Cost of parking lot lighting.
  4. Fees for insuring the title.
  5. Costs of removing existing structures.

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. A company paid $150,000, plus a 7% commission and $5,000 in closing costs for a property. The property included land appraised at $87,500, land improvements appraised at $35,000, and a building appraised at $52,500. What should be the allocation of this property's costs in the company's accounting records?

Land $82,750; Land Improvements, $33,100; Building, $49,650.

• 1. Land $75,000; Land Improvements, $30,800; Building, $46,200.
  2. Land $80,250; Land Improvements, $32,100; Building, $48,150.
  3. Land $77,500; Land Improvements; $31,000; Building; $46,500.
  4. Land $75,000; Land Improvements, $30,000; Building, $45,000.

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Merchant Company purchased property for a building site. The costs associated with the property were:

What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building?

$200,000 to Land; $6,700 to Building.

• 1. $185,000 to Land; $21,700 to Building.
  2. $200,700 to Land; $6,000 to Building.
  3. $206,700 to Land; $0 to Building.
  4. $187,700 to Land; $19,000 to Building.

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. A company purchased property for $100,000. The property included a building, a parking lot, and land. The building was appraised at $62,000; the land at $35,000, and the parking lot at $18,000. Land should be recorded in the accounting records with an allocated cost of:

A) $0. B) $100,000. C) $35,000. D) $30,435. E) $46,087.

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

The formula to compute annual straight-line depreciation is:

• 1. Cost divided by useful life in units.
  2. Depreciable cost divided by useful life in units.
  3. (Cost minus salvage value) divided by the useful life in years.
  4. Cost multiplied by useful life in years.
  5. (Cost plus salvage value) divided by the useful life in years.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

The total cost of an asset less its accumulated depreciation is called:

• 1. Current (market) value.
  2. Present value.
  3. Book value.
  4. Replacement cost.
  5. Historical cost.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

1. The depreciation method that charges the same amount of expense to each period of the asset's useful life is called:

Units-of-production depreciation.

• 1. Modified accelerated cost recovery system (MACRS) depreciation.
  2. Accelerated depreciation.
  3. Declining-balance depreciation.
  4. Straight-line depreciation.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

1. The depreciation method that allocates an equal portion of the total depreciable cost for a plant asset to each unit produced is called:

Accelerated depreciation.

• 1. Modified accelerated cost recovery system (MACRS) depreciation.
  2. Units-of-production depreciation.
  3. Straight-line depreciation.
  4. Declining-balance depreciation.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

1. The depreciation method in which a plant asset's depreciation expense for a period is determined by applying a constant depreciation rate to the asset's beginning-of-period book value is called:

Units-of-production depreciation.

• 1. Declining-balance depreciation.
  2. Book value depreciation.
  3. Modified accelerated cost recovery system (MACRS) depreciation.
  4. Straight-line depreciation.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

1. The depreciation method that produces larger depreciation expense during the early years of an asset's life and smaller expense in the later years is a(an):

Unrealized depreciation method.

• 1. Accelerated depreciation method.
  2. Straight-line depreciation method.
  3. Book value depreciation method.
  4. Units-of-production depreciation method.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

1. A company purchased a delivery van for $28,000 with a salvage value of $3,000 on September 1, Year 1. It has an estimated useful life of 5 years. Using the straight-line method, how much depreciation expense should the company recognize on December 31, Year 1?

A) $1,667. B) $1,400. C) $2,067. D) $1,250. E) $5,000.

Learning Objective: 10-C2 Explain depreciation for partial years and changes in estimates. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Marlow Company purchased a point of sale system on January 1 for $3,400. This system has a useful life of 10 years and a salvage value of $400. What would be the depreciation expense for the second year of its useful life using the double-declining-balance method?

A) $600. B) $680. C) $480. D) $544. E) $300.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Marlow Company purchased a point of sale system on January 1 for $3,400. This system has a useful life of 10 years and a salvage value of $400. What would be the depreciation expense for the first year of its useful life using the double-declining-balance method?

A) $2,320. B) $680. C) $300. D) $600. E) $2,720.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Marlow Company purchased a point of sale system on January 1 for $3,400. This system has a useful life of 10 years and a salvage value of $400. What would be the accumulated depreciation at the end of the second year of its useful life using the double-declining-balance method?

A) $544. B) $1,200. C) $1,224. D) $600. E) $2,176.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Marlow Company purchased a point of sale system on January 1 for $3,400. This system has a useful life of 10 years and a salvage value of $400. What would be the book value of the asset at the end of the first year of its useful life using the double-declining-balance method?

A) $2,320. B) $680. C) $2,720. D) $300. E) $600.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. A company purchased a weaving machine for $190,000. The machine has a useful life of 8 years and a residual value of $10,000. It is estimated that the machine could produce 75,000 bolts of woven fabric over its useful life. In the first year, 15,000 bolts were produced. In the second year, production increased to 19,000 units. Using the units-of-production method, what is the amount of depreciation expense that should be recorded for the second year?

A) $22,500. B) $48,133. C) $23,750. D) $81,600. E) $45,600.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. A company purchased a weaving machine for $190,000. The machine has a useful life of 8 years and a residual value of $10,000. It is estimated that the machine could produce 75,000 bolts of woven fabric over its useful life. In the first year, 15,000 bolts were produced. In the second year, production increased to 19,000 units. Using the units-of-production method, what is the amount of accumulated depreciation at the end of the second year?

A) $48,133. B) $23,750. C) $86,133. D) $45,600. E) $81,600.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. A company purchased a weaving machine for $190,000. The machine has a useful life of 8 years and a residual value of $10,000. It is estimated that the machine could produce 75,000 bolts of woven fabric over its useful life. In the first year, 15,000 bolts were produced. In the second year, production increased to 19,000 units. Using the units-of-production method, what is the book value of the machine at the end of the second year?

A) $81,600. B) $190,000. C) $180,000. D) $144,400. E) $108,400.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

Revenue expenditures:

• 1. Are debited to asset accounts when incurred.
  2. Extend the asset's useful life.
  3. Are additional costs of plant assets that do not materially increase the asset's life or its productive capabilities.

Are known as balance sheet expenditures because they relate to plant assets.

• 1. Substantially benefit future periods.

Learning Objective: 10-C3 Distinguish between revenue and capital expenditures, and account for them. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Another name for a capital expenditure is:

• 1. Long-term expenditure.
  2. Balance sheet expenditure.
  3. Contributed capital expenditure.
  4. Asset expenditure.
  5. Revenue expenditure.

Learning Objective: 10-C3 Distinguish between revenue and capital expenditures, and account for them. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

To capitalize an expenditure is to:

• 1. Debit an expense account.
  2. Credit an expense account.
  3. Debit an asset account.
  4. Credit an asset account.
  5. Credit the owner's capital account.

Learning Objective: 10-C3 Distinguish between revenue and capital expenditures, and account for them. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Extraordinary repairs:

• 1. Are revenue expenditures.
  2. Are expensed when incurred.
  3. Extend the useful life of an asset beyond its original estimate.
  4. Are additional costs of plants assets that do not materially increase the asset's life.
  5. Are credited to accumulated depreciation.

Learning Objective: 10-C3 Distinguish between revenue and capital expenditures, and account for them. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Which of the following is an example of an extraordinary repair?

• 1. Replacement of all florescent light tubes in an office.
  2. Carpet cleaning and repair.
  3. Routine machine maintenance.
  4. Replacing the roof on a manufacturing warehouse.
  5. New tires for a truck.

Learning Objective: 10-C3 Distinguish between revenue and capital expenditures, and account for them. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Ordinary repairs meet all of the following criteria except:

• 1. Are necessary if an asset is to perform to expectations over its useful life.
  2. Include cleaning, lubricating, and normal adjusting.
  3. Extend the useful life of an asset beyond its original estimate.
  4. Are treated as expenses.
  5. Are expenditures to keep an asset in normal operating condition.

Learning Objective: 10-C3 Distinguish between revenue and capital expenditures, and account for them. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Betterments are:

• 1. Revenue expenditures.
  2. Expenditures making a plant asset more efficient or productive.
  3. Credited against the asset account when incurred.
  4. Also called ordinary repairs.
  5. Always increase an asset's life.

Learning Objective: 10-C3 Distinguish between revenue and capital expenditures, and account for them. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. An asset's book value is $18,000 on December 31, Year 5. The asset has been depreciated at an annual rate of $3,000 on the straight-line method. Assuming the asset is sold on December 31, Year 5 for $15,000, the company should record:

Neither a gain nor a loss is recognized on this transaction.

• 1. A loss on sale of $3,000.
  2. A gain on sale of $3,000.
  3. A loss on sale of $12,000.
  4. A gain on sale of $12,000.

Learning Objective: 10-P2 Account for asset disposal through discarding or selling an asset. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Martinez owns an asset that cost $87,000 with accumulated depreciation of $40,000. The company sells the equipment for cash of $42,000. At the time of sale, the company should record:

A gain on sale of $2,000.

• 1. A loss on sale of $45,000.
  2. A loss on sale of $5,000.
  3. A loss on sale of $2,000.
  4. A gain on sale of $5,000.

Learning Objective: 10-P2 Account for asset disposal through discarding or selling an asset. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Martinez owns machinery that cost $87,000 with accumulated depreciation of $40,000. The company sells the machinery for cash of $42,000. The journal entry to record the sale would include:

A debit to Accumulated Depreciation of $47,000.

• 1. A credit to Accumulated Depreciation of $40,000.
  2. A debit to Cash of $42,000.
  3. A credit to Gain on Sale of $2,000.
  4. A credit to Machinery of $47,000.

Learning Objective: 10-P2 Account for asset disposal through discarding or selling an asset. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. An asset's book value is $36,000 on January 1, Year 6. The asset is being depreciated $500 per month using the straight-line method. Assuming the asset is sold on July 1, Year 7 for $25,000, the company should record:

A loss on sale of $2,000.

• 1. A loss on sale of $1,000.
  2. Neither a gain or loss is recognized on this type of transaction.
  3. A gain on sale of $1,000.
  4. A gain on sale of $2,000.

Learning Objective: 10-P2 Account for asset disposal through discarding or selling an asset. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Marks Consulting purchased equipment costing $45,000 on January 1, Year 1. The equipment is estimated to have a salvage value of $5,000 and an estimated useful life of 8 years. Straight-line depreciation is used. If the equipment is sold on July 1, Year 5 for $20,000, the journal entry to record the sale will include a:

Debit to accumulated depreciation for $22,500.

• 1. Credit to loss on sale for $10,000.
  2. Credit to cash for $20,000.
  3. Debit to loss on sale for $10,000.
  4. Debit to gain on sale for $2,500.

Learning Objective: 10-P2 Account for asset disposal through discarding or selling an asset. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. A machine costing $75,000 is purchased on September 1, Year 1. The machine is estimated to have a salvage value of $10,000 and an estimated useful life of 4 years. Double-declining-balance depreciation is used. If the machine is sold on December 31, Year 3 for $13,000, the journal entry to record the sale will include:

A debit to loss on sale for $3,042.

• 1. A credit to gain on sale for $4,979.
  2. A credit to gain on sale for $8,000.
  3. A credit to accumulated depreciation for $59,375.
  4. A debit to loss on sale for $2,625.

Learning Objective: 10-P2 Account for asset disposal through discarding or selling an asset. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

An asset can be disposed of by all of the following except:

• 1. Donating it to charity.
  2. Selling it.
  3. Continuing to use it after it is fully depreciated.
  4. Exchanging it for another asset.
  5. Discarding it.

Learning Objective: 10-P2 Account for asset disposal through discarding or selling an asset. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. A company sold equipment that originally cost $100,000 for $60,000 cash. The accumulated depreciation on the equipment was $40,000. The company should recognize a:

A) $20,000 loss. B) $60,000 gain. C) $20,000 gain. D) $40,000 loss.

E) $0 gain or loss.

Learning Objective: 10-P2 Account for asset disposal through discarding or selling an asset. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. A company discarded a computer system originally purchased for $18,000. The accumulated depreciation was $17,200. The company should recognize a(an):

A) $7,200 loss. B) $8,000 loss.

1. $800 loss.
2. $800 gain.
3. $0 gain or loss.

Learning Objective: 10-P2 Account for asset disposal through discarding or selling an asset. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. A company had a tractor destroyed by fire. The tractor originally cost $85,000 with accumulated depreciation of $60,000. The proceeds from the insurance company were $20,000. The company should recognize:

A gain of $20,000.

• 1. A loss of $5,000.
  2. A gain of $65,000.
  3. A gain of $5,000.
  4. A loss of $20,000.

Learning Objective: 10-P2 Account for asset disposal through discarding or selling an asset. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

Natural resources are:

• 1. Not subject to allocation to expense over their useful lives.
  2. Consumable assets such standing timber, mineral deposits, and oil and gas fields.
  3. Depleted using a straight-line method.
  4. Tangible assets used in the operations of the business.
  5. Current assets because they are depleted.

Learning Objective: 10-P3 Account for natural resource assets and their depletion. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Which of the following would be classified as a natural resource?

• 1. Land held as an investment.
  2. Diamond mine.
  3. Patent on an oil extraction process.
  4. Goodwill.
  5. Timber purchased by a lumber yard.

Learning Objective: 10-P3 Account for natural resource assets and their depletion. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Depletion is:

• 1. Also called amortization.
  2. An increase in the value of a natural resource when incurred.
  3. Calculated using the double-declining balance method.
  4. The process of allocating the cost of natural resources to the period when it is consumed.
  5. The process of allocating the cost of intangibles to periods when they are used.

Learning Objective: 10-P3 Account for natural resource assets and their depletion. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. A company purchased a tract of land for its natural resources at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected to be

$250,000. The depletion expense per ton of ore is:

A) $0.625. B) $6.00. C) $0.875. D) $8.00. E) $0.75.

Learning Objective: 10-P3 Account for natural resource assets and their depletion. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. A company purchased a tract of land for its natural resources at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected to be

$250,000. If 150,000 tons of ore are mined during the first year, the journal entry to record the depletion is:

Debit Depletion Expense $112,500; credit Accumulated Depletion $112,500.

• 1. Debit Depletion Expense $93,750; credit Accumulated Depletion $93,750.
  2. Debit Depletion Expense $93,750; credit Natural Resources $93,750.
  3. Debit Cash $93,750; credit Accumulated Depletion $93,750.
  4. Debit Cash $112,500; credit Natural Resources $112,500.

Learning Objective: 10-P3 Account for natural resource assets and their depletion. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. A company purchased a tract of land for its natural resources at a cost of $1,000,000. It expects to harvest 5,000,000 board feet of timber from this land. The salvage value of the land is expected to be $200,000. The depletion expense per board foot of timber is:

A) $0.75. B) $0.20. C) $0.24. D) $0.04. E) $0.16.

Learning Objective: 10-P3 Account for natural resource assets and their depletion. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. A company purchased a mineral deposit for $800,000. It expects this property to produce 120,000 tons of minerals and to have a salvage value of $50,000. In the current year, the company mined and sold 9,000 tons of minerals. Its depletion expense for the current period equals:

A) $60,000. B) $139,500. C) $150,000. D) $56,250. E) $15,000.

Learning Objective: 10-P3 Account for natural resource assets and their depletion. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

Intangible assets do not include:

• 1. Trademarks.
  2. Copyrights.
  3. Patents.
  4. Land held as an investment.
  5. Goodwill.

Learning Objective: 10-P4 Account for intangible assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Amortization is:

• 1. The systematic allocation of the cost of an intangible asset to expense over its estimated useful life.
  2. The process of allocating to expense the cost of a plant asset to the accounting periods benefiting from its use.

Also called depletion.

• 1. An accelerated form of expensing an asset's cost.
  2. The process of allocating the cost of natural resources to periods when they are consumed.

Learning Objective: 10-P4 Account for intangible assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Owning a patent:

• 1. Gives the owner exclusive rights to manufacture and sell a patented item or to use a process for 20 years.
  2. Gives the owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 70 years.
  3. Gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 17 years.
  4. Gives its owner an exclusive right to manufacture and sell a device or to use a process for 50 years.
  5. Indicates that the value of a company exceeds the fair market value of a company's net assets if purchased separately.

Learning Objective: 10-P4 Account for intangible assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Holding a copyright:

• 1. Gives its owner an exclusive right to manufacture and sell a device or to use a process for 50 years.
  2. Gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 20 years.
  3. Gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 70 years.
  4. Indicates that the value of a company exceeds the fair market value of a company's net assets if purchased separately.
  5. Gives its owner an exclusive right to manufacture and sell a patented item or to use a process for 20 years.

Learning Objective: 10-P4 Account for intangible assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

A leasehold is:

• 1. The same as a patent.
  2. The rights granted to the lessee by the lessor of a lease.
  3. Recorded as revenue expenditure when paid.
  4. A short-term rental agreement.
  5. An asset held as an investment.

Learning Objective: 10-P4 Account for intangible assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

The specific meaning of goodwill in accounting is:

• 1. The cost of developing, maintaining, or enhancing the value of a trademark.
  2. The amount by which a company's value exceeds the value of its individual assets and liabilities.

The support of the board of directors for the operating decisions of management.

• 1. Long term assets held as investment.
  2. Rights granted an entity to deliver a product or service under specified conditions.

Learning Objective: 10-P4 Account for intangible assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. A company's old machine that cost $40,000 and had accumulated depreciation of $22,000 was traded in on a new machine having an estimated 20-year life with an invoice price of $45,000. The company also paid $33,000 cash, along with its old machine to acquire the new machine. If this transaction has commercial substance, the new machine should be recorded at:

A) $51,000. B) $18,000. C) $40,000. D) $33,000. E) $45,000.

Learning Objective: 10-P5 Appendix 10A-Account for asset exchanges. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Hunter Sailing Company exchanged an old sailboat for a new one. The old sailboat had a cost of

$160,000 and accumulated depreciation of $100,000. The new sailboat had an invoice price of

$270,000. Hunter received a trade in allowance of $70,000 on the old sailboat, which meant the company paid $200,000 in addition to the old sailboat to acquire the new sailboat. If this transaction has commercial substance, what amount of gain or loss should be recorded on this exchange?

A) $10,000 gain.

1. $0 gain or loss. C) $60,000 loss. D) $10,000 loss. E) $70,000 loss.

Learning Objective: 10-P5 Appendix 10A-Account for asset exchanges. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Cliff Company traded in an old truck for a new one. The old truck had a cost of $75,000 and accumulated depreciation of $60,000. The new truck had an invoice price of $125,000. Huffington was given a $12,000 trade-in allowance on the old truck, which meant they paid $113,000 in addition to the old truck to acquire the new truck. If this transaction has commercial substance, what is the recorded value of the new truck?

A) $75,000 B) $15,000 C) $128,000 D) $113,000 E) $125,000

Learning Objective: 10-P5 Appendix 10A-Account for asset exchanges. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. A company bought new heating system for $42,000 and was given a trade-in of $2,000 on an old heating system, so the company paid $40,000 cash with the trade-in. The old system had an original cost of $37,000 and accumulated depreciation of $34,000. If the transaction has commercial substance, the company should record the new heating system at:

A) $43,000. B) $40,000. C) $2,000. D) $42,000. E) $3,000.

Learning Objective: 10-P5 Appendix 10A-Account for asset exchanges. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. A company purchased equipment valued at $66,000. It traded in old equipment for a $9,000 trade-in allowance and the company paid $57,000 cash with the trade-in. The old equipment cost

$44,000 and had accumulated depreciation of $36,000. This transaction has commercial substance. What is the recorded value of the new equipment?

A) $66,000. B) $9,000. C) $65,000. D) $57,000. E) $8,000.

Learning Objective: 10-P5 Appendix 10A-Account for asset exchanges. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Which of the following statements regarding increases in the value of plant assets under U.S. GAAP and IFRS is true?

IFRS prohibits upward asset revaluations.

• 1. Under GAAP, a company can reverse an impairment and record that increase in income.
  2. U.S. GAAP prohibits companies from recording increases in the value of plant assets.
  3. U.S. GAAP allows companies to record increases in the value of plant assets.
  4. Under IFRS, an impairment increase beyond as asset's original cost is not recorded.

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Understand

AACSB: Communication

AICPA: FN Reporting; BB Global

1. Granite Company purchased a machine costing $120,000, terms 1/10, n/30. The machine was shipped FOB shipping point and freight charges were $2,000. The machine requires special mounting and wiring connections costing $10,000. When installing the machine, $1,300 in damages occurred. Compute the cost recorded for this machine assuming Granite paid within the discount period.

A) $129,800. B) $132,100. C) $130,800. D) $120,100. E) $118,800.

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $87,000. The machine's useful life is estimated to be 5 years, or 400,000 units of product, with a $7,000 salvage value. During its second year, the machine produces 84,500 units of product. Determine the machines' second year depreciation under the straight-line method.

A) $20,880. B) $17,400. C) $16,900. D) $16,000. E) $18,379.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $87,000. The machine's useful life is estimated to be 5 years, or 400,000 units of product, with a $7,000 salvage value. During its second year, the machine produces 84,500 units of product. Determine the machines' second year depreciation under the double-declining-balance method.

A) $17,400. B) $20,880. C) $16,000. D) $18,379. E) $16,900.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $87,000. The machine's useful life is estimated to be 5 years, or 400,000 units of product, with a $7,000 salvage value. During its second year, the machine produces 84,500 units of product. Determine the machines' second year depreciation under the units-of-production method.

A) $16,000. B) $20,880. C) $17,400. D) $18,379. E) $16,900.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $87,000. The machine's useful life is estimated to be 5 years, or 400,000 units of product, with a $7,000 salvage value. During its second year, the machine produces 84,500 units of product. What journal entry would be needed to record the machines' second year depreciation under the units-of-production method?

Debit Depletion Expense $16,900; credit Accumulated Depletion $16,900.

• 1. Debit Depreciation Expense $16,900; credit Accumulated Depreciation $16,900.
  2. Debit Depletion Expense $16,000; credit Accumulated Depletion $16,000.
  3. Debit Amortization Expense $16,900; credit Accumulated Amortization $16,900.
  4. Debit Depreciation Expense $16,000; credit Accumulated Depreciation $16,000.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Minor Company installs a machine in its factory at the beginning of the year at a cost of $135,000. The machine's useful life is estimated to be 5 years, or 300,000 units of product, with a $15,000 salvage value. During its first year, the machine produces 64,500 units of product. Determine the machines' first year depreciation under the straight-line method.

A) $27,000. B) $23,779. C) $25,800. D) $29,025. E) $24,000.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Minor Company installs a machine in its factory at the beginning of the year at a cost of $135,000. The machine's useful life is estimated to be 5 years, or 300,000 units of product, with a $15,000 salvage value. During its first year, the machine produces 64,500 units of product. Determine the machines' first year depreciation under the double-declining-balance method.

A) $48,000. B) $24,000. C) $66,000. D) $25,800. E) $54,000.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Minor Company installs a machine in its factory at the beginning of the year at a cost of $135,000. The machine's useful life is estimated to be 5 years, or 300,000 units of product, with a $15,000 salvage value. During its first year, the machine produces 64,500 units of product. Determine the machines' first year depreciation under the units-of-production method.

A) $54,000. B) $48,000. C) $24,000. D) $27,000. E) $25,800.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Minor Company installs a machine in its factory at the beginning of the year at a cost of $135,000. The machine's useful life is estimated to be 5 years, or 300,000 units of product, with a $15,000 salvage value. During its first year, the machine produces 64,500 units of product. What journal entry would be needed to record the machines' first year depreciation under the units-of-production method?

Debit Depletion Expense $29,025; credit Accumulated Depletion $29,025.

• 1. Debit Depreciation Expense $25,800; credit Accumulated Depreciation $25,800.
  2. Debit Amortization Expense $24,000; credit Accumulated Amortization $24,000.
  3. Debit Depletion Expense $25,800; credit Accumulated Depletion $25,800.
  4. Debit Depreciation Expense $29,025; credit Accumulated Depreciation $29,025.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Fortune Drilling Company acquires a mineral deposit at a cost of $5,900,000. It incurs additional costs of $600,000 to access the deposit, which is estimated to contain 2,000,000 tons and is expected to take 5 years to extract. Compute the depletion expense for the first year assuming 418,000 tons were mined.

A) $1,180,000.

B) $1,280,000.

C) $1,300,000.

D) $1,358,500.

E) $1,233,100.

Learning Objective: 10-P3 Account for natural resource assets and their depletion. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Fortune Drilling Company acquires a mineral deposit at a cost of $5,900,000. It incurs additional costs of $600,000 to access the deposit, which is estimated to contain 2,000,000 tons and is expected to take 5 years to extract. What journal entry would be needed to record the expense for the first year assuming 418,000 tons were mined?

Debit Depreciation Expense $1,358,500; credit Accumulated Depreciation $1,358,500.

• 1. Debit Depreciation Expense $1,233,100; credit Accumulated Depreciation $1,233,100.
  2. Debit Depletion Expense $1,233,100; credit Accumulated Depletion $1,233,100.
  3. Debit Amortization Expense $1,358,500; credit Accumulated Amortization $1,358,500.
  4. Debit Depletion Expense $1,358,500; credit Accumulated Depletion $1,358,500.

Learning Objective: 10-P3 Account for natural resource assets and their depletion. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Bering Rock acquires a granite quarry at a cost of $590,000, which is estimated to contain 200,000 tons of granite and is expected to take 6 years to remove. Compute the depletion expense for the first year assuming 38,000 tons were removed and sold.

A) $112,100. B) $12,881. C) $98,333. D) $93,158. E) $38,000.

Learning Objective: 10-P3 Account for natural resource assets and their depletion. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Bering Rock acquires a granite quarry at a cost of $590,000, which is estimated to contain 200,000 tons of granite and is expected to take 6 years to remove. What journal entry would be needed to record the expense for the first year assuming 38,000 tons were removed and sold?

Debit Depletion Expense $112,100; credit Accumulated Depletion $112,100.

• 1. Debit Amortization Expense $112,100; credit Natural Resources $112,100.
  2. Debit Depletion Expense $93,158; credit Accumulated Depletion $93,158.
  3. Debit Depreciation Expense $93,158; credit Accumulated Depreciation $93,158.
  4. Debit Depreciation Expense $98,333; credit Accumulated Depreciation $98,333.

Learning Objective: 10-P3 Account for natural resource assets and their depletion. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Phoenix Agency leases office space for $7,000 per month. On January 3, Phoenix incurs $65,000 to improve the leased office space. These improvements are expected to yield benefits for 8 years. Phoenix has 5 years remaining on its lease. Compute the amount of expense that should be recorded the first year related to the improvements.

A) $65,000. B) $8,125. C) $6,000. D) $20,000. E) $13,000.

Learning Objective: 10-P4 Account for intangible assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Crestfield leases office space for $7,000 per month. On January 3, the company incurs $12,000 to improve the leased office space. These improvements are expected to yield benefits for 10 years. Crestfield has 4 years remaining on its lease. What journal entry would be needed to record the expense for the first year related to the improvements?

Debit Depletion Expense $3,000; credit Accumulated Depletion $3,000.

• 1. Debit Depreciation Expense $1,200; credit Accumulated Depreciation $1,200.
  2. Debit Amortization Expense $1,200; credit Accumulated Amortization $1,200.
  3. Debit Amortization Expense $3,000; credit Accumulated Amortization $3,000.
  4. Debit Depletion Expense $12,000; credit Accumulated Depletion $12,000.

Learning Objective: 10-P4 Account for intangible assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Ngu owns equipment that cost $93,500 with accumulated depreciation of $64,000. Ngu asks

$35,000 for the equipment but sells the equipment for $33,000. Compute the amount of gain or loss on the sale.

A) $5,500 loss. B) $3,500 gain. C) $5,500 gain. D) $3,000 gain. E) $3,500 loss.

Learning Objective: 10-P2 Account for asset disposal through discarding or selling an asset. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Gaston owns equipment that cost $90,500 with accumulated depreciation of $61,000. Gaston asks

$30,000 for the equipment but sells the equipment for $26,000. Which of the following would not be part of the journal entry to record the disposal of the equipment?

Credit Gain on Disposal of Equipment $3,500.

• 1. Debit Accumulated Depreciation $61,000.
  2. Debit Loss on Disposal of Equipment $3,500.
  3. Credit Equipment $90,500.
  4. Debit Cash $26,000.

Learning Objective: 10-P2 Account for asset disposal through discarding or selling an asset. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Flask Company reports net sales of $4,315 million; cost of goods sold of $2,808 million; net income of $283 million; and average total assets of $2,136. Compute its total asset turnover. A) 2.02. B) 1.31. C) .76. D) .13. E) .50.

Learning Objective: 10-A1 Compute total asset turnover and apply it to analyze a company's use of assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Riverboat Adventures pays $310,000 plus $15,000 in closing costs to buy out a competitor. The real estate consists of land appraised at $35,000, a building appraised at $105,000, and paddleboats appraised at $210,000. Compute the cost that should be allocated to the building.

A) $93,000. B) $105,000. C) $97,500. D) $140,000. E) $89,178.

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Riverboat Adventures pays $310,000 plus $15,000 in closing costs to buy out a competitor. The real estate consists of land appraised at $35,000, a building appraised at $105,000, and paddleboats appraised at $210,000. Compute the cost that should be allocated to the land.

A) $32,500. B) $93,000. C) $140,000. D) $97,500. E) $31,000.

Learning Objective: 10-C1 Explain the cost principle for computing the cost of plant assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Victory Company purchases office equipment at the beginning of the year at a cost of $15,000. The machine is depreciated using the straight-line method. The machine's useful life is estimated to be 7 years with a $1,000 salvage value. The journal entry to record the first year's depreciation is:

Debit Depreciation Expense $2,000, credit Accumulated Depreciation $2,000.

• 1. Debit Office Equipment $2,000, credit Accumulated Depreciation $2,000.
  2. Debit Depreciation Expense $2,000, credit Office Equipment $2,000.
  3. Debit Depreciation Expense $2,143, credit Accumulated Depreciation $2,143.
  4. Debit Accumulated Depreciation $2,143; credit Office Equipment $2,143.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Victory Company purchases office equipment at the beginning of the year at a cost of $15,000. The machine is depreciated using the straight-line method. The machine's useful life is estimated to be 7 years with a $1,000 salvage value. The book value at the end of 7 years is:

A) $2,143. B) $1,000. C) $2,000. D) $0. E) $14,000.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine is depreciated using the straight-line method. The machine's useful life is estimated to be 5 years with a $4,000 salvage value. Depreciation expense in year 2 is:

A) $4,800. B) $20,000. C) $9,600. D) $0. E) $4,000.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine is depreciated using the straight-line method. The machine's useful life is estimated to be 5 years with a $4,000 salvage value. The book value of the machine at the end of year 2 is:

A) $12,000. B) $16,000. C) $20,000. D) $4,000. E) $8,000.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine is depreciated using the double-declining-balance method. The machine's useful life is estimated to be 5 years with a $4,000 salvage value. Depreciation expense in year 2 is:

A) $9,600. B) $8,000. C) $14,400. D) $4,800. E) $5,760.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine is depreciated using the double-declining-balance method. The machine's useful life is estimated to be 5 years with a $4,000 salvage value. The machine's book value at the end of year 2 is:

A) $8,640. B) $14,400. C) $7,200. D) $12,000. E) $9,600.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine is depreciated using the units-of-production method. The company estimates it will use the machine for 5 years, during which time it anticipates producing 40,000 units. The machine is estimated to have a $4,000 salvage value. The company produces 9,000 units in year 1 and 6,000 units in year 2. Depreciation expense in year 2 is:

A) $3,000. B) $4,000. C) $9,600. D) $4,500. E) $14,400.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Martin Company purchases a machine at the beginning of the year at a cost of $60,000. The machine is depreciated using the straight-line method. The machine's useful life is estimated to be 4 years with a $5,000 salvage value. Depreciation expense in year 4 is:

A) $15,000. B) $55,000. C) $0. D) $60,000. E) $13,750.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Martin Company purchases a machine at the beginning of the year at a cost of $60,000. The machine is depreciated using the straight-line method. The machine's useful life is estimated to be 4 years with a $5,000 salvage value. The book value of the machine at the end of year 4 is:

A) $13,750. B) $0. C) $55,000. D) $30,000. E) $5,000.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Martin Company purchases a machine at the beginning of the year at a cost of $60,000. The machine is depreciated using the double-declining-balance method. The machine's useful life is estimated to be 4 years with a $5,000 salvage value. Depreciation expense in year 4 is:

A) $3,750. B) $30,000. C) $5,000. D) $2,500. E) $13,750.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Martin Company purchases a machine at the beginning of the year at a cost of $60,000. The machine is depreciated using the double-declining-balance method. The machine's useful life is estimated to be 4 years with a $5,000 salvage value. The machine's book value at the end of year 3 is:

A) $45,000. B) $30,000. C) $7,500. D) $6,875. E) $52,500.

Learning Objective: 10-P1 Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

SHORT ANSWER QUESTIONS

1. Match each of the following terms with the appropriate definitions.
2. Depletion
3. Betterment
4. Ordinary repairs
5. Units-of production method
6. Intangible assets
7. Accelerated depreciation
8. Amortization
9. Goodwill
10. Total asset turnover
11. Revenue expenditure

_____ 1. The amount by which the company's value exceeds the value of its individual assets and liabilities.

_____ 2. A cost reported as an expense on the current income statement because it does not provide a material benefit in future periods.

_____ 3. An expenditure that makes a plant asset more efficient or productive.

_____ 4. A method of depreciation that yields larger expense during the early years of an asset's life and smaller expense in the later years.

_____ 5. Expenditures to keep a plant asset in normal, good operating condition.

_____ 6. The process of allocating the cost of a natural resource to the period when it are consumed.

_____ 7. A measure of a company's effectiveness in using its assets to generate sales.

_____ 8. The process of systematically allocating the cost of an intangible asset to expense over its estimated useful life.

_____ 9. A depreciation method that charges a varying amount to expense for each period of an asset's useful life depending on its usage.

_____ 10. Certain nonphysical assets used in operations that confer long-term rights, privileges, or competitive advantages on their owners.

Learning Objective: 10-C3; 10-A1; 10-P1; 10-P3; 10-P4

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. Match each of the following terms with the appropriate definitions.
2. Extraordinary repairs
3. Obsolescence
4. Leasehold improvements
5. Depletion
6. Salvage value
7. Book value
8. Land improvements
9. Copyright
10. Inadequacy
11. Patent

_____ 1. An estimate of an asset's value at the end its benefit period.

_____ 2. Major repairs that extend the useful life of a plant asset beyond its original estimate.

_____ 3. Alternations or improvements to leased property made by the lessee.

_____ 4. A right granted that gives its owner the exclusive privilege to publish and sell musical, literary, or artistic work during the life of the creator plus 70 years.

_____ 5. A condition where a plant asset is no longer useful in producing goods or services with a competitive advantage.

_____ 6. The total cost of a plant asset less its accumulated depreciation.

_____ 7. The process of allocating the cost of natural resources to the periods when they are consumed.

_____ 8. An exclusive right granted to its owner to manufacture and sell an item, or to use a process, for 20 years.

_____ 9. The insufficient capacity of plant assets to meet the company's productive demands.

_____ 10. Assets that increase the benefits of land, have a limited useful life, and are subject to

depreciation.

Learning Objective: 10-C1; 10-C3; 10-P1; 10-P3; 10-P4

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

ESSAY QUESTIONS

Define plant assets and identify the four primary issues in accounting for them.

Learning Objective: 10-C1 Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Decision Making

What is depreciation of plant assets? What are the factors necessary in computing depreciation?

Learning Objective: 10-P1 Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Decision Making

What are some of the variables that make a plant asset's useful life difficult to predict?

Learning Objective: 10-C1 Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Decision Making

Explain the purpose of and method of depreciation for partial years.

Learning Objective: 10-C2 Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

Explain the impact, if any, on depreciation when estimates that determine depreciation change.

Learning Objective: 10-C2 Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Measurement

1. Compare the different depreciation methods (straight-line, units-of-production, and

double-declining-balance) with respect to the amounts of depreciation expense per period and the total depreciation over the life of the asset.

Learning Objective: 10-P1 Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Measurement

1. Explain how to calculate total asset turnover. Describe what it reveals about a company's financial condition, whether a higher or lower ratio is desirable, and how it is best applied for comparative purposes.

Learning Objective: 10-A1 Bloom's: Understand AACSB: Analytic

AICPA: BB Resource Management

How is the cost principle applied to plant asset acquisitions, including lump-sum purchases?

Learning Objective: 10-C1 Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. Explain in detail how to compute each of the following depreciation methods: straight-line, units-of-production, and double-declining-balance.

Learning Objective: 10-P1 Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Measurement

1. Explain the difference between revenue expenditures and capital expenditures and how they are recorded in the accounting system.

Learning Objective: 10-C3 Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Decision Making

What are the general accounting procedures for recording asset disposals?

Learning Objective: 10-P2; 10-P5

Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Measurement

1. Describe the accounting for natural resources, including their acquisition, cost allocation, and account titles.

Learning Objective: 10-P3 Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Measurement

1. Describe the accounting for intangible assets, including their acquisition, cost allocation, and accounts involved.

Learning Objective: 10-P4 Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Measurement

1. A company's property records revealed the following information about its plant assets:

Calculate the depreciation expense for each machine in Year 1 and Year 2 for the year ended December 31.

Machine 1:

Year 1______________________ Year 2 _______________________

Machine 2:

Year 1 ______________________ Year 2 _______________________

Learning Objective: 10-C2; 10-P1

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company's property records revealed the following information about its plant assets:

Calculate the depreciation expense for each machine in Year 1 and Year 2 for the year ended December 31.

Machine 1:

Year 1______________________ Year 2 _______________________

Machine 2:

Year 1 ______________________ Year 2 _______________________

Learning Objective: 10-C2; 10-P1

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company's property records revealed the following information about one of its plant assets:

Calculate the depreciation expense for the asset in Year 1 and Year 2 for the year ended December 31.

Year 1______________________ Year 2 _______________________

Learning Objective: 10-C2; 10-P1

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company's property records revealed the following information about one of its plant assets:

Calculate the depreciation expense in Year 1 and Year 2 for the year ended December 31.

Year 1 ______________________ Year 2 _______________________

Learning Objective: 10-P1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company purchased a delivery van on October 1 of the current year at a cost of $40,000. The van is expected to last six years and has a salvage value of $2,200. The company's annual accounting period ends on December 31.
2. What is the depreciation expense for the current year, assuming the straight-line method is used?
3. What is the book value of the van at the end of the first year?

Learning Objective: 10-C2; 10-P1

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A building was purchased for $370,000 and depreciated for ten years on a straight-line basis under the assumption it would have a twenty-year life and a $10,000 salvage value. At the beginning of the building's eleventh year it was recognized the building had eight years of remaining life instead of ten and that at the end of the remaining eight years its salvage value would be $16,000. What amount of depreciation should be recorded in each of the building's remaining eight years?

Learning Objective: 10-C2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Greene Company purchased a machine for $75,000 that was expected to last 6 years and to have a salvage value of $6,000. At the beginning of the machine's fourth year the company decided that the estimated useful life should be revised to a total of 10 years instead of 6 years. Also, the salvage value was re-estimated to be $5,500. Straight-line depreciation was used throughout the machine's life. Calculate the depreciation expense for the fourth year of the machine's useful life.

Diff: 3

Topic: Change in Estimates Learning Objective: 10-C2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. On April 1 of the current year, a company purchased and placed in service a machine with a cost of

$240,000. The company estimated the machine's useful life to be four years or 60,000 units of output with an estimated salvage value of $60,000. During the current year, 12,000 units were produced.

Prepare the necessary December 31 adjusting journal entry to record depreciation for the current year assuming the company uses:

1. The straight-line method of depreciation
2. The units-of-production method of depreciation
3. The double-declining balance method of depreciation

Learning Objective: 10-C2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. On September 30 of the current year, a company acquired and placed in service a machine at a cost of $700,000. It has been estimated that the machine has a service life of five years and a salvage value of $40,000. Using the double-declining-balance method of depreciation, complete the schedule below showing depreciation amounts for all six years (round answers to the nearest dollar). The company closes its books on December 31 of each year.

Learning Objective: 10-C2; 10-P1

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. On April 1, Year 1, Astor Corp. purchased and placed a plant asset in service. The following information is available regarding the plant asset:

Acquisition cost $130,000

Estimated salvage value $15,000

Estimated useful life 5 years

Make the necessary adjusting journal entries at December 31, Year 1, and December 31, Year 2 to record depreciation for each year under the straight-line depreciation method.

Learning Objective: 10-C2; 10-P1

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. On April 1, Year 1, Raines Co. purchased and placed a plant asset in service. The following information is available regarding the plant asset:

Acquisition cost $130,000

Estimated salvage value $15,000

Estimated useful life 5 years

Make the necessary adjusting journal entries at December 31, Year 1, and December 31, Year 2 to record depreciation for each year under the double-declining balance depreciation method:

Learning Objective: 10-C2; 10-P1

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. On January 1, Year 1, Naples purchased a computer system that cost $1,480,000. The estimated useful life of the computer is 3 years and salvage value is $40,000. Straight-line depreciation is to be used. On January 1, Year 2, Naples determined that the estimated useful life of the computer would be 4 years instead of 3 years. The estimated salvage value will only be $10,000.

Prepare the journal entry to record depreciation expense for Year 1. Prepare the journal entry to record depreciation expense for Year 2.

Learning Objective: 10-C2; 10-P1

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. The Oberon Company purchased a delivery truck for $95,000 on January 2. The truck was estimated to have a $3,000 salvage value and a 4 year life. The truck was depreciated using the straight-line method. At the beginning of the third year, it was obvious that the truck's total useful life would be 6 years rather than 4, and the salvage at the end of the 6th year would be $1,500. Determine the depreciation expense for the truck for the 6 years of its life.

Learning Objective: 10-C2; 10-P1

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. McClintock Co. had the following transactions involving plant assets during Year 1. Unless otherwise indicated, all transactions were for cash.

Jan. 2 Purchased a truck for $70,000 plus sales taxes of $3,000. The truck is expected to have a

$14,000 salvage value and a 4 year life.

Jan. 3 Paid $2,500 to have the company's logo painted on the truck. This did not change the truck's salvage value.

Dec. 31 Recorded straight-line depreciation on the truck.

Prepare the general journal entries to record these transactions.

Learning Objective: 10-C2; 10-C3; 10-P1

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. In year one, McClintock Co. acquired a truck that cost $75,500 with an estimated $14,000 salvage value and 4 year estimated useful life. Depreciation in the first year was $15,375. McClintock had the following transactions involving plant assets during Year 2. Unless otherwise indicated, all transactions were for cash.

Jan. 5 Paid $5,000 to put a new engine in the truck that is expected to make the truck run more efficiently and increase the truck's useful life by one year. The salvage value did not change.

Mar. 1 Paid $2,000 to replace a broken tailgate that was damaged when a heavy carton was inadvertently dropped on it.

Dec. 31 Recorded straight-line depreciation on the truck.

Prepare the general journal entries to record these transactions.

Learning Objective: 10-C2; 10-C3; 10-P1

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company purchased a cooling system on January 2 for $225,000. The system had an estimated useful life of 15 years. After using the system for 13 full years, the company completed a renovation of the system at a cost of $33,000 and now expects the system to be more efficient and last 8 years beyond the original estimate. The company uses the straight-line method of depreciation.
2. Prepare the journal entry at January 3, to record the renovation of the cooling system.
3. Prepare the journal entry at December 31, to record the revised depreciation for the thirteenth year.

Learning Objective: 10-C2; 10-C3; 10-P1

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company purchased and installed equipment on January 1 at a total cost of $72,000. Straight-line depreciation was calculated based on the assumption of a five-year life and no salvage value. The equipment was disposed of on July 1 of the fourth year. The company uses the calendar year.
2. Prepare the general journal entry to update depreciation to July 1 in the fourth year.
3. Prepare the general journal entry to record the disposal of the equipment under each of these three independent situations:
   1. The equipment was sold for $22,000 cash.
   2. The equipment was sold for $15,000 cash.
   3. The equipment was totally destroyed in a fire and the insurance company settled the claim for

$18,000 cash.

Learning Objective: 10-C2; 10-P2

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company purchased and installed machinery on January 1 at a total cost of $93,000. Straight-line depreciation was calculated based on the assumption of a five-year life and no salvage value. The machinery was disposed of on July 1 of year four. The company uses the calendar year.
2. Prepare the general journal entry to update depreciation to July 1 in year four.
3. Prepare the general journal entry to record the sale of the machine for $27,000 cash.

Learning Objective: 10-C2; 10-P2

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. On April 1, Year 5 a company discarded a machine that had cost $10,000 and had accumulated depreciation of $8,000 as of December 31, Year 4. The asset had a 5-year life and no salvage value. Prepare the journal entries to record the updating of the depreciation expense and discarding of this asset in Year 5.

Diff: 2

Topic: Partial-Year Depreciation; Disposals of Plant Assets Learning Objective: 10-C2; 10-P2

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. On January 1, 2016, a company disposed of equipment for $16,200 cash that had cost $35,000, a salvage value of $5,000, and a useful life 10 years. The double-declining-balance depreciation method was used. On December 31, 2015, accumulated depreciation was $20,664. Prepare a journal entry to record the disposal of the equipment.

Diff: 2

Topic: Disposals of Plant Assets Learning Objective: 10-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. On January 2, 2010, a company purchased a delivery truck for $45,000 cash. The truck had an estimated useful life of seven years and an estimated salvage value of $3,000. The straight-line method of depreciation was used. Prepare the journal entries to record depreciation expense and the disposition of the truck on September 1, 2014, under each of the following assumptions:
2. The truck and $45,000 cash were given in exchange for a new delivery truck that had a cash price of $60,000. This transaction has commercial substance.
3. The truck and $40,000 cash were exchanged for a new delivery truck that had a cash price of

$60,000. This transaction has commercial substance.

Learning Objective: 10-C2; 10-P5

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company had net sales of $230,000 for 2015 and $288,000 for 2016. The company's average total assets for 2015 were $150,000 and $180,000 for 2016. Calculate the total asset turnover for each year and comment on the company's efficiency in the use of its assets.

Learning Objective: 10-A1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Critical Thinking; FN Risk Analysis

1. A company had net sales of $1,540,500 in 2015 and $1,495,000 in 2016. Its average assets were

$810,000 for 2015 and $800,000 for 2016. (1) Calculate the total asset turnover for each year. (2) Interpret and comment on the company's efficiency in the use of its assets.

Learning Objective: 10-A1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Critical Thinking; FN Risk Analysis

1. Schwartz Co. paid $780,000 cash to buy the plant assets of Kimberly Co. that went out of business. An independent appraiser assigned the following values to the assets acquired:

Prepare Schwartz' journal entry to record the acquisition of these assets.

Diff: 3

Topic: Cost of Plant Assets Learning Objective: 10-C1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company purchased a special purpose machine on September 15 of the past year, and it was installed and ready to run on January 1 of this year. The following costs were incurred in the purchase and installation of the machine. Determine the total cost of the machine.

Learning Objective: 10-C1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company paid $595,000 for property that included land appraised at $384,000; land improvements appraised at $128,000; and a building appraised at $288,000. The plan is to use the building as a manufacturing plant. Determine the amounts that should be recorded as:

Learning Objective: 10-C1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Prepare journal entries to record the following transactions of a company during the current year:

Mar 1 Purchased a truck for $40,000 with a 5-year useful life and a $5,000 salvage value. Also paid 6% sales tax, $350 for the annual truck license, $300 to paint the truck with the company's colors and name, and $1,500 for maintenance supplies for the future. All payments were in cash. Mar 10 Purchased a garage from a neighboring business with a 7%, 4-year, $67,000 note. The seller's book value for the garage was $42,750. The estimated remaining useful life of the garage is 10 years.

July 5 Paid $800 cash to replace (uninsured) garage windows broken during a storm.

Aug 25 Purchased used shop equipment for $10,700 cash. Sales tax was $825, freight costs $250,

$3,200 for a special base to house the equipment, and reconditioning costs $900, all of which were paid in cash. The estimated useful life of the equipment is 3 years and salvage value is $500.

Oct 5 Purchased office equipment for $11,500 cash. Paid $1,290 in sales tax, $550 for repairs incurred from damage during installation, and $2,200 for supplies to be used for periodic preventive maintenance. The estimated useful life of the equipment is 8 years and salvage value is $1,200.

Learning Objective: 10-C1; 10-C3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company purchased equipment on June 28 of the current year and placed it in service on August

1. The following costs were incurred in acquiring the equipment:

Diff: 2

Topic: Cost of Plant Assets Learning Objective: 10-C1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company purchased land with a building for a lump-sum cost of $2,570,000 ($500,000 paid in cash and the balance on a long-term note). It was estimated that the land and building had market values of $600,000 and $2,400,000, respectively.

Determine the cost to be apportioned to the land and to the building and prepare the journal entry to record the acquisition.

Diff: 3

Topic: Cost of Plant Assets Learning Objective: 10-C1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company needed a new building. It found a suitable location with an existing old building on the land. The company reached an agreement to buy the land and the building for $960,000 cash. The old building was demolished to make way for the needed new building. Following is information regarding the demolition of the old building and construction of the new one:

Prepare a single journal entry to record the above costs assuming all transactions are paid in cash.

Diff: 2

Topic: Cost of Plant Assets Learning Objective: 10-C1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company purchased land on which to construct a new building for a cost of $350,000. Additional costs incurred were:

What total dollar amount should be charged to Land and what amount should be charged to Building or other accounts?

Learning Objective: 10-C1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company made the following expenditures in connection with the construction of a new building:

Prepare a schedule showing the amounts to be recorded as Land, Buildings, and Machinery.

Learning Objective: 10-C1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A new machine costing $1,800,000 cash and estimated to have a $60,000 salvage value was purchased on January 1. The machine is expected to produce 600,000 units of product during its 8-year useful life. Calculate the depreciation expense in the first year under the following independent situations:
2. The company uses the units-of-production method and the machine produces 70,000 units of product during its first year.
3. The company uses the double-declining-balance method.
4. The company uses the straight-line method.

Learning Objective: 10-P1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company purchased a machine on January 1 of the current year for $750,000. Calculate the annual depreciation expense for each year of the machine's life (estimated at 5 years or 20,000 hours, with a salvage value of $75,000) using each of the below-mentioned methods. During the machine's 5-year life its hourly usage was: 3,000; 4,000; 5,000; 5,000; and 3,000 hours.

Learning Objective: 10-P1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company purchased an equipment system for $325,000 on January 2. The company expects the equipment to last for eight years or 81,250 hours of operation, with no estimated salvage value. During the first year, the equipment was in operation for 8,000 hours, while in the second year, the equipment was in operation for 8,700 hours. Compute the depreciation expense relating to the equipment for Year 1 and Year 2 using the following depreciation methods:
2. Straight-line.
3. Double-declining-balance.
4. Units-of-production.

Learning Objective: 10-P1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. On January 1, a machine costing $260,000 with a 6-year life and an estimated $5,000 salvage value was purchased. It was also estimated that the machine would produce 500,000 units during its life. The actual units produced during its first year of operation were 110,000. Determine the amount of depreciation expense for the first year under each of the following assumptions:
2. The company uses the straight-line method of depreciation.
3. The company uses the units-of-production method of depreciation.
4. The company uses the double-declining-balance method of depreciation.

Learning Objective: 10-P1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Suarez Company uses the straight-line method of depreciation. The company purchased a computer system on January 1, Year 1, for $1,600,000 with an expected life of six years and a salvage value of $130,000. Assuming the computer is sold on July 1, Year 3 for $1,000,000 cash, prepare the journal entries to record depreciation for the first 6 months of Year 3 and the sale of the computer.

Learning Objective: 10-C2; 10-P2

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company paid $320,000 for equipment that was expected to last five years and to have a salvage value of $40,000. During the third year of the equipment's life, $39,000 cash was paid for replacement parts that were expected to increase productivity by 10% each year. Prepare the journal entry to record the $39,000 cost incurred in the third year.

Learning Objective: 10-C3 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. On January 1, a company purchased machinery for $75,000 that had a 6-year useful life and a salvage value of $6,000. After three years of straight-line depreciation, the company paid $8,500 cash at the beginning of the year to improve the efficiency of the machinery. The productivity of the machinery was improved without increasing its remaining useful life or changing its salvage value. Straight-line depreciation is used throughout the machinery's life.
2. Prepare the journal entry to record the $8,500 expenditure.
3. Prepare the journal entry to record depreciation expense for the fourth year.

Diff: 3

($75,000 — $6,000)/6 x 3 = $34,500 Accumulated depreciation after 3 years

$75,000 — $34,500 = $40,500 Book value after 3 years ($40,500 + $8,500 — 6,000)/3 = $14,333 Depreciation for the fourth year

Topic: Change in Estimates; Revenue and Capital Expenditure; Depreciation Methods Learning Objective: 10-C2; 10-C3; 10-P1

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company sold a machine that originally cost $90,000 for $28,000 cash. The accumulated depreciation on this machine was $47,000 at the time of the sale. What was the company's gain or loss on this sale?

Diff: 2

Topic: Disposals of Plant Assets Learning Objective: 10-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Wallace Company had a building that was destroyed by fire. The building originally cost $650,000, and its accumulated depreciation as of the date of the fire was $300,000. The company received

$320,000 cash from an insurance policy that covered the building and will use that money to help rebuild. Prepare the single journal entry to record the disposal of the building and the receipt of cash from the insurance company.

Diff: 2

Topic: Disposals of Plant Assets Learning Objective: 10-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. On April 1, 2015, due to obsolescence resulting from a new technology, a company discarded a computer that cost $5,000, had a useful life of 4 years, and a salvage value of $400. Based on straight-line depreciation, the accumulated depreciation as of December 31, 2014 was $3,450.
2. Prepare the journal entry to record depreciation up to the date of disposal of the computer.
3. Prepare the journal entry to record the disposal of the computer.

Diff: 3

($3,450 + $287.50 = $3,737.50 total accumulated depreciation)

Topic: Partial-Year Depreciation; Disposals of Plant Assets Learning Objective: 10-C2; 10-P2

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. On April 1 of the current year, a company disposed of a truck that had cost $20,000. The truck had a salvage value of $2,000, and a useful life of 5 years. The accounting records showed accumulated depreciation for this truck of $8,100 as of April 1 of the current year. The asset was discarded after an accident, and $10,500 cash was received from an insurance claim. Prepare the journal entry to record the disposal of the truck.

Diff: 2

Topic: Disposals of Plant Assets Learning Objective: 10-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Anderson Company sold a piece of equipment for $28,000 cash on December 31 after recording the annual depreciation on the asset. The equipment had an original cost of $97,500 and accumulated depreciation of $63,000. Prepare the general journal entry to record the sale of this asset.

Learning Objective: 10-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company purchased mining property for $1,560,000. The property was estimated to contain 13,000,000 tons of ore. In the current year, the company removed and sold 263,000 tons of ore. Calculate the depletion expense for the current year.

Learning Objective: 10-P3 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company purchased mining property for $4,875,000 containing an estimated 15,000,000 tons of ore. In Year 1, it mined 689,000 tons of ore and in Year 2, it mined 935,000 tons. Calculate the depletion expense for Year 1 and Year 2 and determine the book value of the property at the end of Year 2.

Learning Objective: 10-P3 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company purchased mining property for $1,837,500 containing an estimated 7,350,000 tons of ore. In Year 1, it mined and sold 857,000 tons of ore. Calculate the depletion expense for Year 1 and prepare the journal entry to record the depletion.

Learning Objective: 10-P3 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Record the following events and transactions for Leonard Company for the current year.
2. On January 2, Leonard purchased a patent for $35,000 with a remaining useful life of 10 years. Prepare the journal entry to amortize the patent at the end of the first year.
3. On January 3, Leonard made an advance payment on a leasehold of $840,000. The leasehold expires in 15 years. Prepare the journal entry to amortize the leasehold at the end of the first year.
4. On January 4, Leonard purchased a music distributor's collection of lyrics and songs for

$1,425,000. The copyrights have a remaining life of another 30 years. Prepare the journal entry to amortize the copyright at the end of the first year.

Learning Objective: 10-P4 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company traded an old forklift for a new forklift, receiving a $13,500 trade-in allowance and paying the remaining $47,200 in cash. The old forklift had cost $43,000, a 5-year useful life and a

$5,000 salvage value. Straight-line accumulated depreciation of $27,200 had been recorded as of the exchange date.

1. What was the book value of the old forklift on the date of the exchange?
2. What amount of gain or loss (indicate which) should be recognized in recording the exchange, assuming the transaction has commercial substance?
3. What amount should be recorded as the cost of the new forklift?

Diff: 3

3. In this case, the new forklift should be recorded at its market value of $60,700.

Topic: Depreciation Methods; Exchanging Plant Assets Learning Objective: 10-P1; 10-P5

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A machine had an original cost of $60,000. After $45,000 of depreciation was recorded, the machine was traded in on a new machine priced at $75,000. A $10,500 trade-in allowance was received on the old machine and the balance of $64,500 was paid in cash. This transaction has commercial substance. Prepare the general journal entry to record this trade-in.

Diff: 3

Topic: Exchanging Plant Assets Learning Objective: 10-P5 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company exchanged its used machine for a new machine in a transaction that had commercial substance. The old machine cost $68,000, and the new one had a cash price of $95,000. The company had taken $59,000 depreciation on the old machine and was allowed a $2,500 trade-in allowance and the balance of $92,500 was paid in cash. What gain or loss should be recorded on the exchange?

Diff: 3

Topic: Exchanging Plant Assets Learning Objective: 10-P5 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company exchanged an old automobile for a newer model. The old automobile account had a cost of $36,000 and accumulated depreciation of $25,000 as of the exchange date. The new automobile had a cash price of $34,000, but the company was given a $15,000 trade-in allowance and the balance of $19,000 was paid in cash. Prepare the journal entry to record the exchange, if the transaction has commercial substance.

Diff: 3

Topic: Exchanging Plant Assets Learning Objective: 10-P5 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. During the current year, a company exchanged an old truck costing $58,000 with accumulated depreciation of $52,000 for a new truck. The new truck had a cash price of $80,000 and the company received a $16,000 trade-in allowance on the old truck with the balance of $64,000 paid in cash. Prepare the journal entry to record the exchange, assuming the transaction has commercial substance.

Diff: 3

Topic: Exchanging Plant Assets Learning Objective: 10-P5 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. During the current year, Beldon Co. acquired a new computer with a cash price of $12,800 by exchanging an old one on which the company received a $1,500 trade-in allowance (with the balance of $11,300 paid in cash). The old computer cost $9,000 and its accumulated depreciation was $5,500 as of the exchange date. Assuming the exchange transaction had commercial substance, prepare the journal entry to record the exchange.

Diff: 3

Topic: Disposals of Plant Assets Learning Objective: 10-P5 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company purchased store equipment for $4,300 by trading in old equipment with a cost of

$2,000 and that had accumulated depreciation of $1,900 as of the exchange date. The company received a $75 trade-in allowance for the old equipment with the balance of $4,225 paid in cash. Prepare the journal entry to record the exchange, assuming the transaction had commercial substance.

Diff: 3

Topic: Exchanging Plant Assets Learning Objective: 10-P5 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. On April 1 of the current year, a company traded an old machine that originally cost $32,000 and that had accumulated depreciation of $24,000 for a similar new machine that had a cash price of $40,000.
2. Prepare the entry to record the exchange under the assumption that a $5,000 trade-in allowance was received and the balance of $35,000 was paid in cash. Assume the exchange transaction had commercial substance.
3. Prepare the entry to record the exchange under the assumption that instead of a $5,000 trade-in allowance, a $12,500 trade-in allowance was received and the balance of $27,500 was paid in cash. Assume the exchange transaction has commercial substance.

Learning Objective: 10-P5 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Identify the balance sheet classification of each of the following assets by placing an X in the correct classification: Plant Assets, Natural Resources, or Intangibles.

Learning Objective: 10-C1; 10-P3; 10-P4

Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Reporting

1. A machine costing $450,000 with a 4-year life and an estimated salvage value of $30,000 is installed by Peters Company on January 1. The company estimates the machine will produce 1,050,000 units of product during its life. It actually produces the following units for the first 2 years: Year 1, 260,000; Year 2, 275,000. Enter the depreciation amounts for years 1 and 2 in the table below for each depreciation method. Show calculation of amounts below the table.

Double-

Units-of- Declining-

Year Straight-Line Production Balance Year 1

Year 2

Learning Objective: 10-P1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. On July 1 of the current year, Glover Mining Co. pays $5,400,000 for land estimated to contain 7,200,000 tons of recoverable ore. It installs machinery on July 3 costing $864,000 that has an 8 year life and no salvage value and is capable of mining the ore deposit in six years. The company removes and sells 745,000 tons of ore during its first six months of operations ending on December

31. Depreciation of the machinery is in proportion to the mine's depletion as the machinery will be abandoned after the ore is mined. Prepare the entries Glover must record for (a) the purchase of the ore deposit, (b) the costs and installation of the machinery, (c) the depletion assuming the land has a zero salvage value, and (d) the depreciation on the machinery.

Diff: 3

Topic: Cost Determination; Natural Resources Learning Objective: 10-C1; 10-P3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. On July 1 of the current year, Timberlake Company signed a contract to sublease space in a building for 7 years. Timberlake Company paid $56,000 for the right to sublease this space. After taking possession of the leased space, Timberlake pays $140,000 for improving the office portion of the lease space. The improvements are paid on July 6 of the current year, and are estimated to have a useful life equal to the 14 years remaining in the life of the building. Prepare entries for Timberlake to record (a) its payment for the right to sublease the building space, (b) its payment for the office improvements, (c) the December 31 year-end entry to amortize the cost of the sublease,

(d) the December 31 year-end entry to amortize the office improvements.

Diff: 3

Topic: Intangible Assets Learning Objective: 10-P4 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Westport Company reports the following in millions: net sales of $25,300 for 2016 and $22,640 for 2015; end-of-year total assets of $14,875 for 2016 and $13,680 for 2015. Compute its total asset turnover for 2016 and assess its level if competitors average a total asset turnover of 2.0 times.

Learning Objective: 10-A1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Resource Management; FN Risk Analysis

SHORT ANSWER QUESTIONS

is an estimate of an asset's value at the end of its benefit period (or useful life).

Learning Objective: 10-C1 Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. The insufficient capacity of a company's plant asset to meet the company's productive demands is called ________.

Learning Objective: 10-C1 Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. ________ refers to a plant asset that is no longer useful in producing goods or services with a competitive advantage because of new inventions and improvements.

Learning Objective: 10-C1 Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

A results from revising estimates of the useful life or salvage value of a plant asset.

Learning Objective: 10-C2 Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Reporting

The federal income tax rules for depreciating assets are known as ________.

Learning Objective: 10-P1 Bloom's: Remember AACSB: Communication

AICPA: BB Legal; FN Measurement

1. The depreciation method that recognizes equal amounts of annual depreciation over the life of an asset is ________.

Learning Objective: 10-P1 Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. The depreciation method that charges a varying amount to expense for each period of an asset's useful life depending on its usage is ________.

Learning Objective: 10-P1 Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. The depreciation method that uses a depreciation rate that is a multiple of the straight-line rate and applies it to an asset's beginning-of-period book value is ________.

Learning Objective: 10-P1 Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. Capital expenditures that extend an asset's useful life beyond its original estimate are called

________.

Learning Objective: 10-C3 Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. Additional costs of plant assets that do not materially increase the asset's life or productive capabilities are recorded as ________.

Learning Objective: 10-C3 Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. Additional costs of plant assets that provide benefits extending beyond the current period; they increase or improve the type or amount of service an asset provides are treated as ________.

Learning Objective: 10-C3 Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. Revenue expenditures to keep an asset in normal, good operating condition; they are necessary if an asset is to perform to expectations over its useful life are called ________.

Learning Objective: 10-C3 Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. are capital expenditures that make a plant asset more productive but do not always increase an asset's life; they often involve adding a component to an asset or replacing one of its old components with a better one.

Learning Objective: 10-C3 Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making