Chapter 8: Accounting for Long-Term Assets

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

The total asset turnover ratio is computed by

net sales divided by average total assets

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:

$190,000 + $5,000 + $1,000 + $500 = $196,500

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:

$200,000 + $15,000 + $35,000 = $250,000

On October 30, Cleo Company 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.

$26,000-$2,000 = $24,000/4 = $6,000 per year. $6,000 x 2/12 = $1,000

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?

$300,000/$600,000 x $40,000 = $20,000

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.

($12,000-$500)/5 = $2,300 per year. $2,300 x 2 yr. = $4,600 depreciation taken. Book value at beginning of year 3 = $12,000 -4,600 = $7,400/4 = $1,850

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 31.

($14,000-$2,000)/5 x 7/12 = $1,400 for partial year depreciation

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

_____ expenditures are additional costs of plant assets that do not materially increase the asset's life or capabilities

Revenue

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

amortization

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

discarded

A______ is an exclusive right granted to its owner to manufacture and sell an item or use a process for 20 years. Multiple choice question. goodwill leasehold patent copyright

patent

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?

($300,000 - $50,000)/$1,000,000 x $200,000 = $50,000

Which of the following situations will result in recognizing a gain on sale of a plant asset? A fully depreciated asset is sold for $1,000. An asset with a book value of $2,000 is sold for $1,500. An asset with book value of $2,000 is sold for $2,000. incorrect An asset that cost $5,000 with accumulated depreciation of $3,000 is sold for $1,500. A fully depreciated asset is discarded.

A fully depreciated asset is sold for $1,000

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

Straight-line depreciation can be calculated by this formula:

Cost minus salvage value/useful life

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. (True/False)

False

Book value is greater than the selling price Book value is less than the selling price Book value is equal to the selling price

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

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

Plant or Fixed

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 testing shipping charges