Accounting CH 8

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. $6,000 $1,500 $3,000 $1,000

$1,000 Reason: This is a partial year depreciation. $26,000 - 2,000 = $24,000/4 = $6000 per year. $6000 x 2/12 = $1,000.

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. $1,850 $2,375 $2,875 $1,250

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

Mohr Company purchases a machine at the beginning of the year at a cost of $36,000. The machine is depreciated using the double-declining-balance method. The machine's useful life is estimated to be 5 years with a $5,000 salvage value. The machine's book value at the end of year 2 is: $18,600. $10,200. $14,400. $12,960. $21,600.

$12,960.

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. $2,400 $1,400 $1,200 $1,000 $2,800

$1400 Reason: (14,000-2000)/5 x 7/12=1,400 for a partial year depreciation The partial year depreciation should be recorded for seven months (June 1- December 31).

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: $195,500 $196,500 $190,000 $196,000 $195,000

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

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 $2,300 $2,600

$2,000 Reason: (11,500-1,500)/5 =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. $2,250.00 $2,812.50 $3,750.00 $3,000.00

$2,812.50 Reason: Salvage value is not subtracted up front with the double-declining balance method. (100%/8=.125) x 2=25%. 15,000 x 25%=3,750 for first year. Second year=(15,000-3750) x 25% =2812.50. The question asked for the second year depreciation expense.

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 $20,000 $40,000 $0.50

$20,000 Reason: $300,000/600,000 x 40,000=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: $215,000 $200,000 $220,000 $235,000

$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 $215,000 $235,000 $200,000

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

Bina Co. purchased a machine on January 1st for $15,000 and estimates it will use the machine for three years with a $3,000 salvage value. Bina estimates that they will produce 1,500 units during year one, 1,000 units during year two, and 1,250 units during year three. Using the units-of-production method, compute the machine's second year depreciation expense. $3,200 $4,800 $3,750 $4,000

$3,200 Reason: $15,000 - $3,000 = $12,000. Total units = 1,500 + 1,000 + 1,250 = 3,750. $12,000 / 3,750 = $3.20 per unit. Year two 1,000 x $3.20 = $3,200.

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. $320,000. $300,000. $330,000.

$350,000. Reason: 300,000+30,000+20,000=350,000

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 $ ________

$4,000 Reason: Amortization expense= Cost of the intangible asset​​/ Useful Life of Asset

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: $4,800. $4,000. $9,600. $20,000. $0.

$4,000. Reason: Depreciation expense​= (Cost-Residual Value)/ Useful Life

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. $4,000 $4,800 $2,000 $2,400

$4,800 Reason: 12,000 x [(100%/5) x 2] =4,800. Salvage value is not subtracted upfront with this method.

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 $ ________

$495,000

Juno Co. purchased a machine for $10,000 and estimates it will use the machine for four years with a $2,000 salvage value. Using the double declining-balance depreciation method, compute the machine's first year depreciation expense. $2,000 $4,000 $5,000 $2,500

$5,000 Reason: $10,000 x (.25 x 2) = $5,000.

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? $60,000 $50,000 $30,000

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

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: $30,000. $45,000. $52,500. $7,500. $6,875.

$7,500.

Straight-line depreciation can be calculated by taking: (cost minus salvage value)/useful life (cost plus salvage value)/useful life (cost minus salvage value)/productive life (cost plus salvage value)/productive life

(cost minus salvage value)/useful life

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

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

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 Depreciation - Mineral Deposit Depletion Expense - Mineral Deposit Mineral Deposit Accumulated Depletion - Mineral Deposit

Accumulated Depletion - Mineral Deposit

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: \ Depletion Expense - Mineral Deposit Mineral Deposit Accumulated Depreciation - Mineral Deposit Accumulated Depletion - Mineral Deposit

Accumulated Depletion - Mineral Deposit

Salvage value is: Not a factor relevant to determining depletion. A factor relevant to amortizing an intangible asset with an indefinite life. An estimate of an asset's value at the end of its useful life. A factor relevant to determining depreciation under MACRS. A factor relevant to determining an asset's useful life.

An estimate of an asset's value at the end of its useful life.

Accumulated depreciation is recorded on which of the following financial statements? Balance sheet Income statement Statement of owner's equity Statement of cash flows

Balance sheet

______ are expenditures that make a plant asset more efficient or productive, but do not always increase an asset's useful life. Betterments Extraordinary repairs Ordinary repairs Revenue expenditures

Betterments

Which of the following asset(s) are not considered intangible assets? Copy machine Goodwill Copyright Mineral deposit Trademark

Copy machine Mineral deposit

A patent was purchased for $20,000 and expected to be used for the 20-year life with no salvage value. The entry to expense the patent during the second year of life will include which of the following entries? Debit to Accumulated Amortization $1,000. Credit to Amortization Expense $1,000. Credit to Accumulated Amortization $1,000. Debit to Amortization Expense $1,000.

Credit to Accumulated Amortization $1,000. Debit to Amortization Expense $1,000.

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. Debit Amortization Expense $112,100; credit Natural Resources $112,100. Debit Depreciation Expense $93,158; credit Accumulated Depreciation $93,158. Debit Depletion Expense $93,158; credit Accumulated Depletion $93,158. Debit Depreciation Expense $98,333; credit Accumulated Depreciation $98,333.

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

A patent was purchased for $15,000 and expected to be used for the 10-year life with no salvage value. The entry to expense the patent during the second year of life will include which of the following entries? Debit to Amortization Expense $1,500. Credit to Amortization Expense $1,500. Debit to Accumulated Amortization $1,500. Credit to Accumulated Amortization $1,500.

Debit to Amortization Expense $1,500. Credit to Accumulated Amortization $1,500.

The depreciation method which uses a depreciation rate that is a multiple of the straight-line rate is called: Book value depreciation. Declining-balance depreciation. Amortization. Units-of-production depreciation. Modified accelerated cost recovery system (MACRS) depreciation.

Declining-balance depreciation.

__ is the process of allocating the cost of a plant asset to expense while it is in use. Allocation Amortization Depreciation Depletion

Depreciation

Which of the following items related to depreciating equipment would be found on a company's income statement? Equipment Depreciation Expense - Equipment Accumulated Depreciation - Equipment Net Book Value

Depreciation Expense - Equipment

Which of the following items are plant assets? (Check all that apply.) Equipment used in operations Land held for expansion Building used for operations Equipment with a useful life of less than one accounting period.

Equipment used in operations Building used for operations

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

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 T/F

False

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

False

Book value is less than the selling price

Gain on sale of asset

Depreciation Expense is reported on which of the following financial statements? Balance sheet Income statement Statement of owner's equity Statement of cash flows

Income statement Reason: Depreciation expense is an expense which is reported on the Income Statement.

______ are nonphysical assets used in operations that give companies long-term rights, or competitive advantages. Plant assets Current assets Intangible assets Natural resource

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 Depreciation Expense - Equipment for $1,500 Equipment for $6,000 Accumulated Depreciation for $6,000

Loss on Disposal of Equipment for $1,500 Reason: The equipment was disposed of, so no cash was received. The equipment account is credited for $6,000. Loss on disposal of equipment is debited for the difference between cost and accumulated depreciation.

Book value is greater than the selling price

Loss on sale of asset

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 Blank______ account. Loss on Disposal of Machinery Accumulated Depreciation - Machinery Depreciation Expense - Machinery Machinery

Machinery

To calculate depletion expense, first determine the depletion per unit. Depletion per unit can be calculated by taking (cost Blank______)/total units of capacity. Plus salvage value Plus operating expenses Minus salvage value Minus operating expenses

Minus salvage value

______ are assets that are physically consumed when used, such as mineral deposits and oil and gas fields. Plant assets Intangible assets Current assets Natural resources

Natural resources

Book value is equal to the selling price

No gain or loss recognized

Determine which of the following expenses are considered revenue expenditures related to a company vehicle. Installation of special equipment Oil change Dent repair Engine overhaul Car wash

Oil change Dent repair Car wash

______ are expenditures that keep an asset in good operating condition. They are necessary if an asset is to perform to expectations over its useful life. Extraordinary repairs Betterments Ordinary repairs Capital repairs

Ordinary repairs

Which of the following assets are amortized? Patent Land Copyright Coal mine Building

Patent Copyright

(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 expenses would not be considered an ordinary repair? Replacing an engine Replacing small parts Cleaning Lubricating

Replacing an engine

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

Revenue

Which of the following factors determine depreciation? Salvage value Useful life Current market value of asset Book value Cost of asset Appraisal of asset

Salvage value Useful life Cost of asset

The cost at which a company records purchases of machinery and equipment should include which of the following? (Check all that apply.) Taxes Operating costs Installation Shipping fees Purchase price

Taxes Installation Shipping fees Purchase price

The meaning of goodwill in accounting is: The amount by which a company's value exceeds the value of its individual assets and liabilities. Long term assets held as investment. The support of the board of directors for the operating decisions of management. The cost of developing, maintaining, or enhancing the value of a trademark. Rights granted to an entity to deliver a product or service under specified conditions.

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

Depletion is the process of allocating the cost of a natural resource to the period when it is consumed. T/F

True

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

amortization

The total asset turnover ratio is computed by taking net sales divided by: average current assets average total assets total current assets total assets

average total assets

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

betterment.

If an asset exchange has commercial substance, a gain or loss is recorded based on the difference between the _________ value of the asset given up and the market value of the asset received.

book

The factors necessary to compute depreciation include all of the following, except: book value cost salvage value useful life

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. market value original cost accumulated depreciation book value

book value

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

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: cost to purchase the new plant asset damage done when unpacking the plant asset costs to customize the new plant asset costs to modify the new plant asset

damage done when unpacking the plant asset

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 Blank______ depreciation method. straight-line units-of-production declining-balance

declining-balance

The depreciation method that determines the depreciation 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 Blank______ method. straight-line units-of-production declining-balance

declining-balance

The process of allocating the cost of a plant asset to expense while it is in use is called (depreciation/salvage) _______

depreciation

A company owns an asset that is fully depreciated. The asset is no longer being used in operations and has no market value. The company has decided to Blank______ the asset by recording an entry to remove it from the balance sheet. discard take a loss on depreciate

discard

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

discarded

A plant asset trade-in with commercial substance means that it changes the company's: past cash flows future cash flows income statement current cash flows

future cash flows

and (improvements/additions) _____________ 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 land additions land structures land

land improvements

The purchase of a group of plant assets for one price is called a Blank______ purchase. betterment extraordinary lump-sum fixed-rate

lump-sum

Brice Co. purchases land in order to drill oil. This oil field would be classified as a(n) Blank______ on the balance sheet. intangible asset natural resource plant asset current asset

natural resource

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

patent

Total asset turnover is computed as net __________/average total assets.

sales

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

salvage

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 Blank______ depreciation method. units-of-production MACRS declining-balance straight-line

units-of-production

The method of depreciation that charges a varying amount to depreciation expense for each period depending on its usage is called the Blank______ method. straight-line MACRS units-of-production declining-balance

units-of-production