Chapter 8 business 1a

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

A delivery van that cost $45,000 with accumulated depreciation of $15,000 is sold for $20,000. How much gain or loss will be recognized on this sale?

$10,000 loss

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

Straight-line depreciation can be calculated by taking:

(cost minus salvage value)/useful life

Digg Co. installs a manufacturing machine in its factory at the beginning of the year at a cost of $36,000. The machine's useful life is estimated at 10 years, or 300,000 units of product, with a $6,000 salvage value. During its first year, the machine produces 14,000 units of product. Determine the machine's first year depreciation expense under the units-of-production method.

1,400

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

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

PT Co. purchased land and an existing building for $200,000. In addition, PT paid closing costs of $15,000. PT removed the building and regraded the land for a total cost of $35,000. PT should record the cost of the land for:

250,000

Rino Co. pays $35,000 for equipment. The machine's useful life is estimated at 10 years, or 50,000 units of product with a $5,000 salvage value. During the first year, the machine produced 12,000 units of product. How much depreciation expense will Rino record this first year based on the units-of-production depreciation method?

7,200

Ella Co. owns a mineral deposit and recognizes $15,000 of depletion expense during the period. This entry will be recorded with a credit to:

Accumulated Depletion - Mineral Deposit

Which depreciation method will compute the most depreciation expense over the life of the asset?

All methods will produce equal depreciation expense over the life of the asset.

Accumulated depreciation is recorded on which of the following financial statements?

Balance sheet

Accumulated depreciation is reported on which of the following financial statements?

Balance sheet

_________ are expenditures that make a plant asset more efficient or productive, but do not always increase an asset's useful life.

Betterments

(Capital/Revenue) expenditures are additional costs of plant assets that provide benefits extending beyond the current period, such as a plant expansion, or machine overhaul.

Capital

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

Copy machine Mineral deposit

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

Cost of asset Useful life Salvage value

_______ is the process of allocating the cost of a natural resource to the period when it is consumed.

Depletion

______ is the process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use.

Depreciation

Which of the following items related to depreciating equipment would be found on a company's income statement?

Depreciation Expense - Equipment

ATZ Co. sells equipment that cost $9,000 with current accumulated depreciation of $8,000 for $2,000 cash. To record this transaction, ATZ will credit which accounts? (Check all that apply.)

Equipment Gain on Sale of Equipment

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

Equipment being used in operations Building being used for operations

Forward Co. discarded a machine that cost $5,000 and was fully depreciated. The entry to record this transaction would include a credit to the _________ account.

Machinery

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

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

Natural resources

Determine which of the following expenses related to a building would be classified as a capital expenditure. (Check all that apply.)

New air conditioning system Room addition

Determine which of the following expenses are considered revenue expenditures related to a company vehicle. (Check all that apply.)

Oil change Dent repair Car wash

_______ are expenditures that keep an asset in normal, good operating condition. They are necessary if an asset is to perform to expectations over its useful life.

Ordinary repairs

(Plant/Current) assets purchased as a group in a single transaction for a lump-sum price (also called a lump-sum, group, bulk, or basket purchase) 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

Accumulated depletion is a contra asset account, and is therefore reported on the .

balance sheet

Niren Co. made modifications to a manufacturing machine that increased its productivity by 40%. Niren would classify this expense as a(n):

betterment

The asset's acquisition costs less its accumulated depreciation is called:

book value

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 all of the following, except:

book value.

Wyatt Co. purchased a popular symbol that doubled its sales in the first year. The cost of this symbol is an asset called a:

trademark

To calculate depletion expense in a period, a company should multiply the depletion per unit by:

units extracted and sold in the period

Grand Co. owns one copier that was purchased for $10,000 three years ago. The depreciation expense taken on the copier each year has been $2,700; $1,800; and $2,200, based on the number of copies that have been made on the copier. Based on this information, the company uses the ________ depreciation method.

units-of-production

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

units-of-production

The life (also called service life) is the length of time the asset is productively used in a company's operations.

useful

The ______ life of a plant asset is the length of time it is productively used in a company's operations

useful

Ion Co. purchased land for $190,000. Ion also paid $5,000 in brokerage fees, $1,000 in legal fees, and $500 in title costs. Ion should record the cost of this land to be:

196,500

Trio Co. reported that maintenance and repair costs are expensed as incurred. If Trio's current year machinery and equipment repair costs are $8,200, which accounts would be impacted to complete the journal entry? (Check all that apply.)

Credit Cash. Debit Repairs expense.

A company sells a machine that cost $7,000 for $500 cash. The machine had $6,500 accumulated depreciation. The entry to record this transaction will include which of the following entries? (Check all that apply.)

Debit to Cash for $500. Credit to Machinery for $7,000. Debit to Accumulated Depreciation - Machinery for $6,500.

______ value, also called residual value or scrap value, is an estimate of the asset's value at the end of its benefit period.

Salvage

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.)

Shipping charges Testing Assembling

A plant asset is (depreciated/discarded/obsolete) when it is no longer useful to the company, and it has no market value.

discarded

Sioux Co. replaced the roof on its existing building, therefore increasing the building's life by 10 years. The cost of the roof is considered a(n):

extraordinary repair

The amount by which a company's value exceeds the value of its individual assets and liabilities is called .

goodwill

A permanent decline in the fair value of an asset relative to its book value is called asset

impairment

A(n) _________ is a permanent decline in the market value of an asset relative to its book value.

impairment

Intangible assets, such as goodwill, continue indefinitely into the future and are not amortized. The values of these assets are tested annually for ________.

impairment

Land are assets that increase the benefits of land, have a limited useful life, and are depreciated—such as walkways and fences.

improvements

The inability of a company's plant assets to meet its demands is called:

inadequacy

Teshin Co. purchases a piece of land with several land improvements for $180,000. The land appraises at $120,000 and the land improvements appraise at $80,000. The land should be recorded at what cost?

108,000

Arc Co. purchased a piece of equipment for $25,000. At the end of the year, the book value of the equipment is $12,000. The salvage value is 0. How much is accumulated depreciation at the end of the period?

13,000

Ring Co. owns a delivery van that was purchased two years ago for $25,000. Ring has depreciated the van for two years at a straight-line amount of $4,000 per year. The book value of this van at the end of the second year would be $

17000

On January 3, ATA Company purchases a copy machine for $11,500. The machine is expected to last five years and have a salvage value of $1,500. Compute depreciation expense for the first year, assuming the company uses the straight-line method.

2,000

Bina Co. purchased a vehicle on January 1st for $15,000 and estimates it will use the vehicle for eight years with a $3,000 salvage value. Using the double declining-balance depreciation method, compute the vehicle's second year depreciation expense.

2,812.50

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

On January 24, Bora Co. purchased a delivery van for $22,000. Bora expects to drive the van for approximately 5 years or 100,000 miles, before disposing of it for an estimated salvage value of $2,000. During the first year, Bora drives the van for 18,000 miles. How much would depreciation expense be if Bora uses the units-of-production depreciation method?

3,600

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

350,000

Nimo Co. purchased a machine for $12,000 and estimates it will use the machine for five-years with a $2,000 salvage value. Using the double declining-balance depreciation method, compute the machine's first year depreciation expense.

4,800

Geo Co. purchased a building for $400,000. In addition, Geo paid $35,000 closing fees (including title 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

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

On January 2, Dice Co. purchases a mixing machine for $25,500. The machine is expected to last four years and have a salvage value of $5,500. Assuming the company uses the straight-line method, depreciation expense should be $ per year.

5000

Cen Co. purchases land and a building for $130,000. The land is appraised at $100,000 and the building at $150,000. Allocating the cost based on market values, the land should be recorded at what amount?

52,000

At the beginning of the year, Jobs Co. owned one piece of office equipment, a copier. The copier was purchased two years ago for $12,000. At the beginning of the year, the balance in accumulated depreciation was $4,000. Jobs uses straight-line depreciation of $2,000 per year with a zero salvage value. How much is accumulated depreciation at the end of the year?

6,000

Rojo's Roses Co. received an invoice for replacement of the engine on its main delivery van. The replacement will extend the life of the van an additional three years. The entry to record receipt of the invoice would include which of the following entries? (Check all that apply.)

Debit to Equipment. Credit to Accounts Payable.

Zion Co. paid cash for an upgrade to an existing machine that would reduce the amount of waste produced by the machine (and therefore, increasing efficiency). The journal entry to record this upgrade would include which of the following entries? (Check all that apply.)

Debit to Machinery Credit to Cash

True or false: Modified Accelerated Cost Recovery System (MACRS) is a depreciation method that allows companies to delay depreciation expense for tax purposes.

False

True or false: The cost of plant assets should include all of the normal and reasonable expenditures necessary to get the asset in place and ready for its intended use, including repairs to damages incurred after installation

False

Sangmoon Co. sells equipment for $1,000 cash. The equipment cost Sangmoon $6,500 and is fully depreciated at the time of sale and has no salvage value. Sangmoon will record the sale with a credit to which account and for how much?

Gain on Sale of Equipment for $1,000.

Which of the following intangible assets is not amortized using straight-line amortization?

Goodwill

Amortization expense is recorded on which financial statement?

Income statement

Depreciation Expense is reported on which of the following financial statements?

Income statement

Depreciation expense is reported as a decrease in which of the following financial statements?

Income statement

_______ are nonphysical assets (used in operations) that confer on their owners long-term rights, or competitive advantages.

Intangible assets

On December 31, Briar Co. disposed of a piece of equipment that cost $6,000 with accumulated depreciation of $4,500. The entry to record this disposal would include a debit to which account and for how much?

Loss on Disposal of Equipment for $1,500

When considering the sale of a plant asset, match the following outcomes to the appropriate situations.

Loss on sale of asset Gain on sale of asset No gain or loss recognized

The cost of a plant asset includes the following:

Purchase price Cost to prepare it for use

Ordinary repairs, such as repairs and maintenance to a vehicle, would be recorded with a debit to which of the following accounts?

Repairs expense

Which of the following expenses would not be considered an ordinary repair?

Replacing an engine

(Revenue/Capital) expenditures are additional costs of plant assets that do not materially increase the asset's life or productive capabilities.

Revenue

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

Shipping fees Taxes Purchase price Installation

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

True

True or false: The cost of a plant asset consists of all necessary and reasonable expenditures to acquire it and prepare it for its intended use.

True

Book value can be calculated by taking an asset's acquisition costs less its

accumulated depreciation

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

amortization

Accumulated depreciation is a asset account (one that is linked with the plant asset account, but has an opposite normal balance) and is reported on the balance sheet.

contra

Consistent with the ________ principle, plant assets should be recorded at cost, which includes all the normal and reasonable expenditures necessary to get the asset in place and ready for its intended use.

cost

Privo Co. purchases a machine that cost $15,000. Privo estimates a 5-year life with no salvage value. The first three years of depreciation expense are $6,000; $3,600; and $2,160, respectively. Based on this information, Privo is using the ________ depreciation method.

declining-balance

The depreciation method that determines the depreciation charge for the period by multiplying a depreciation rate (often twice the straight-line rate) by the asset's beginning-period book value is known as the __________ method.

declining-balance

An oil company recognizes the cost of discovering and operating oil wells by recording ______ expense for each unit of oil used.

depletion

Assets that increase the benefits of land, have a limited useful life, and are depreciated—such as parking lots and street lights—are called:

land improvements.

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

lump-sum

Modified Accelerated Cost Recovery System is acceptable for financial reporting purposes.

not

The term ______ refers to a plant asset that is in process of becoming outdated and no longer used.

obsolescence

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

patent

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

salvage