Accy 101 - Exam 3

Cardinal Industries purchased a generator that cost $11,000. It has an estimated life of five years and a residual value of $1,000. It is estimated that it will be good for 5,000 hours. Compute the depreciation expense for the first year using the units-of-activity method of depreciation assuming the generator was used for 1,040 hours. a. $2,080 b. $2,000 c. $2,288 d. $208

a. $2,080 Be sure to use the units-of-activity method rather than the straight-line method. ($11,000 − $1,000)/5,000 hours = $2.00 per hour; $2.00 × 1,040 hours = $2,080

The calculation of depletion expense is a. Depletion Rate × Quantity Extracted. b. Quantity Extracted × Estimated Useful Life. c. Depletion Rate × Estimated Useful Life. d. None of these choices are correct

a. Depletion Rate × Quantity Extracted. Estimated useful life is not used to calculate depletion expense.

An asset with a net book value of $1,225 was discarded, having no market value. How much will be recorded as a loss or gain on disposal? a. Loss of $1,225 b. Gain of $1,225 c. No loss or gain d. Cannot be determined with the information given.

a. Loss of $1,225 If an asset is not fully depreciated when discarded, the net book value will be recorded as a loss.

How are tangible and intangible assets normally presented on the balance sheet? a. They are listed separately as property, plant, and equipment and intangible assets. b. They are listed separately as tangible assets and intangible assets. c. Neither are presented on the balance sheet. d. Both are presented as property, plant, and equipment.

a. They are listed separately as property, plant, and equipment and intangible assets. Tangible assets referred to as property, plant, and equipment and intangible assets are normally presented on the balance sheet.

The journal entry to record depletion includes a a. debit to Depletion Expense. b. credit to Depletion Expense. c. credit to Accumulated Depreciation. d. debit to Accumulated Depletion.

a. debit to Depletion Expense. The journal entry to record depletion includes a debit to Depletion Expense.

The best definition of a patent is a. the exclusive right to produce and sell goods with one or more unique features. b. an asset created from favorable factors such as location, product quality, reputation, and managerial skills. c. a name, term, or symbol used to identify a business or its product. d. the exclusive right to publish and sell literary, artistic, or musical compositions.

a. the exclusive right to produce and sell goods with one or more unique features. A patent is the exclusive right to produce or sell goods with one or more unique features

A fixed asset should be removed from the accounts except a. when it is fully depreciated. b. when it is given away. c. when it is sold. d. when it is discarded.

a. when it is fully depreciated. A fixed asset should be removed from the accounts when it is given away.

The depletion rate is calculated as a. Estimated Useful Life of Resource/Cost of Resource. b. Cost of Resource/Estimated Total Units of Resource. c. Cost of Resource/Estimated Useful Life of Resource. d. Estimated Total Units of Resource/Cost of Resource

b. Cost of Resource/Estimated Total Units of Resource The estimated useful life of a resource is not part of the depletion rate calculation.

Which of the following statements is true regarding goodwill? a. Goodwill is amortized based on the lesser of the useful life or the legal life. b. In a purchase of a business at a price in excess of the fair value of its net assets, goodwill is recorded as the excess. c. Goodwill is the exclusive use of a name, term, or symbol used to identify a business or its product. d. Goodwill is amortized based on a 10-year period.

b. In a purchase of a business at a price in excess of the fair value of its net assets, goodwill is recorded as the excess

Which of the following is not one of the most common depreciation methods? a. Straight-line method b. Sum-of-the-years-digits method c. Units-of-activity method d. Double-declining-balance method

b. Sum-of-the-years-digits method The sum-of-the-years-digits method is not often used today.

If the asset is long-lived but not used in the normal operations of the business, it will be classified as a(n) a. expense. b. investment. c. intangible asset. d. fixed asset.

b. investment. Intangibles are long-term assets that are used in the operations of a business, are not held for resale, and are without physical qualities. Intangible assets are usually reported in the balance sheet in a separate section following fixed assets.

Shale Miner Co. acquired mineral rights for $60,000,000. It is estimated that there are 80,000 total tons of the resource; during the current year, 10,750 tons were mined and sold. What is the rate of depletion? a. $500 per ton b. $600 per ton c. $750 per ton d. $1,000 per ton

c. $750 per ton $60,000,000/80,000 tons = $750 per ton

In regard to discarding fixed assets, which of the following is not true? a. If a fixed asset is no longer used and has no residual value, it is discarded. b. If a fixed asset is no longer used and has no residual value, it should be written off. c. Full depreciation should be recorded and no loss recognized with an asset that is discarded rather than sold. d. Recorded depreciation should be brought up to date before removing the asset from the accounting records.

c. Full depreciation should be recorded and no loss recognized with an asset that is discarded rather than sold. If a fixed asset is no longer used and has no residual value, it is written off.

Which of the following is not classified as an intangible asset? a. Patent b. Trademark c. Investment d. Goodwill

c. Investment Investments are long-lived assets, such as undeveloped land, that are not used in the normal operations and are held for future resale.

Which of the following fixed assets is not depreciated? a. Building b. Equipment c. Land d. None of these choices are correct.

c. Land Because land has an unlimited life, it is not depreciated.

The estimated value of an asset at the end of its useful life is called all of the following except a. salvage value. b. residual value. c. book value. d. scrap value.

c. book value. The estimated value of an asset at the end of its useful life is called the residual value, scrap value, salvage value, or trade-in value. Book value is the cost of the fixed asset minus the accumulated depreciation on the asset.

The expensing of a natural resource is called a. replenishing. b. amortization. c. depletion. d. depreciation.

c. depletion The process of transferring the cost of natural resources to an expense account is called depletion.

Amortization and depreciation will be found on the income statement as a. contra asset accounts. b. one amount. c. separate expenses. d. None of these choices are correct.

c. separate expenses. Amortization and depreciation are expenses and, as such, reported on the income statement. Contra asset accounts appear on the balance sheet.

All of the following will be found under the caption of "property, plant, and equipment" in the balance sheet except a. land improvements. b. parking lot costs. c. trademark. d. computer equipment.

c. trademark. A trademark is a name, term, or symbol used to identify a business and its products, such as McDonald's golden arches. Under the caption of intangible assets in the balance sheet, copyrights, patents, goodwill, and trademarks will be included.

Equipment was purchased at a cost of $78,000. The equipment had an estimated useful life of five years and a residual value of $3,000. Assuming the equipment was sold at the end of Year 4 for $8,000, determine the gain or loss on the sale of equipment. (Assume the straight-line depreciation method.) a. A gain of $8,000 b. A gain of $10,000 c. A loss of $8,000 d. A loss of $10,000

d. A loss of $10,000 The book value of this asset at the end of the fourth year is $18,000; therefore, there is no gain on the sale

All of the following are factors used in determining depreciation expense with the straight-line method except a. the asset's expected useful life. b. the asset's initial cost. c. the asset's estimated residual value. d. None of these choices are correct.

d. None of these choices are correct The three factors used to determine depreciation expense are the asset's initial cost, the asset's expected useful life, and the asset's estimated residual value.

All of the following are considered fixed assets except a. land improvements. b. land. c. building. d. copyrights

d. copyrights.

If an asset is long-lived and is used in a productive manner in a business, it will be classified as a(n) a. expense. b. intangible asset. c. investment. d. fixed asset

d. fixed asset. Investments are long-term investments in stocks not intended as a source of cash in the normal operations of a business.