Chapter 8

A company acquires a patent for $20,000 to manufacture and sell an item. The company intends to hold the patent for 5 years. Amortization for the first year will be recorded with a debit to Amortization Expense for $.

4000

_______ are nonphysical assets used in operations that give companies long-term rights, or competitive advantages.

Intangible assets

On October 30, Cleo Co. purchased a machine for $26,000 and estimates it will use the machine for four-years with a $2,000 salvage value. Using the straight-line depreciation method, compute the machine's first year partial depreciation expense for October 30 through December 31.

$1,000 (26000 - 2000) / 4 /12 * 2

Tops Co. purchases equipment for $12,000 and has been using straight-line depreciation, estimating a 5-year life and $500 salvage value. At the beginning of the third year, Tops decides to use the equipment for a total of 6-years with no salvage value. Compute the revised depreciation for the third year.

$1,850

Ion Co. purchased land for $190,000. Ion also paid $5,000 in real estate commissions, $1,000 in legal fees, and $500 in title insurance fees. Ion should record the cost of this land at:

$196,500

Daley Co. owns a mineral deposit with an estimated 600,000 tons of available ore. It was purchased for $300,000 and has no salvage value. During the current period, Daley mined and sold 40,000 tons of ore. Depletion expense for the period will be how much?

$20,000

Wen Co. purchased a building for $200,000. Wen paid $20,000 in lawyer and title fees. Wen also paid an additional $15,000 to modify the building in order to accommodate his business needs. Wen should record the cost of the building at:

$235,000

PT Co. purchased land and an existing building for $200,000. In addition, PT paid real estate commissions of $15,000. PT removed the unwanted building and graded the land for a total cost of $35,000. PT should record the cost of the land at:

$250,000

Alin Co. purchases a building for $300,000 and pays an additional $30,000 for title fees and lawyer fees. Alin also pays $20,000 in renovations, including painting, carpet, lighting, etc. Alin should record the cost of the building at:

$350,000.

Straight-line depreciation can be calculated by taking:

(cost minus salvage value)/useful life

Geo Co. purchased a building for $400,000. In addition, Geo paid $35,000 for taxes and lawyer fees. Geo also paid $60,000 to modify the building, changing the layout specifically for Geo's needs. Geo should record the building at $

495000

Plant assets should be recorded at cost, including all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use. This would include which of the following costs? (Check all that apply.)

Assembling Shipping charges Testing

Which of the following items are plant assets? (Check all that apply.)

Building being used for operations Equipment being used in operations

Which of the following asset(s) are not considered intangible assets? (Check all that apply.)

Copy machine Mineral deposit

Which of the following assets are amortized? (Check all that apply.)

Copyright Patent

______ is the process of allocating the cost of a plant asset to expense while it is in use.

Depreciation

______ are assets that are physically consumed when used, such as mineral deposits and oil and gas fields.

Natural resources

(Plant/Current) assets purchased as a group in a single transaction for a lump-sum price are allocated the purchase price based on their relative market values.

Plant

assets are assets used in a company's operations that have a useful life of more than one accounting period.

Plant

Which of the following factors determine depreciation? (Check all that apply.)

Salvage value Cost of asset Useful life

Copyrights, trademarks, and other intangible assets are expensed over their useful lives through the process of:

amortization

When a company revises an estimate used to record depreciation expense, the company should revise depreciation by using the formula (_______ - revised salvage value)/revised remaining useful life.

book value

The factors necessary to compute depreciation include (cost/selling price/market value), salvage value and useful life.

cost

Plant assets are recorded at cost, which includes all expenditures necessary to get the asset in place and ready for use. All of the following would be included as part of the cost of a plant asset except:

damage done when unpacking the plant asset

The process of allocating the cost of a natural resource to a period when it is consumed requires a debit entry to the account.

depletion expense

Land are assets that are additions to land and have limited useful lives, such as walkways and fences.

improvements

Assets that increase the benefits of land, have a limited useful life, such as parking lots and lighting systems, are called:

land improvements

The purchase of a group of plant assets for one price is called a ______ purchase.

lump-sum

Brice Co. purchases land in order to drill oil. This oil field would be classified as a(n) _______ on the balance sheet.

natural resource

Straight-line depreciation is calculated by taking cost minus (salvage/market) value divided by useful life.

salvage

On June 1, Harding Co. purchased a machine for $14,000 and estimates it will use the machine for five-years with a $2,000 salvage value. Using the straight-line depreciation method, compute the machine's first year (partial) depreciation expense for June 1st through December 31st.

$1,400 (Cost - salvage value) / useful life (14000 - 2000) / 5 / 12 * 7 = 1400

Seven Co. owns a coal mine with an estimated 1,000,000 tons of available coal. It was purchased for $300,000 and has $50,000 salvage value. During the current period, Seven mined and sold 200,000 tons of coal. Depletion expense for the period will be how much?

$50,000 Depletion per unit = (purchase cost - salvage value ) / original tons Depletion expense = depletion per unit * units extracted and sold in period Depletion per unit = (300,000 - 50,000 ) / 1,000,000 = 0.25 Depletion expense = 0.25 * 200,000 = 50,000

The cost at which a company records purchases of machinery and equipment should include which of the following? (Check all that apply.)

Installation Shipping fees Taxes Purchase price

To calculate depletion expense, first determine the depletion per unit. Depletion per unit can be calculated by taking (cost ______)/total units of capacity.

Minus salvage value

is the process of allocating the cost of a plant asset to expense while it is in use.

depreciation

A _______ is an exclusive right granted to its owner to manufacture and sell an item or use a process for 20 years.

patent