ACCT 211 Chapter 8 Questions

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

Depletion.

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

Depreciation.

A plant asset trade-in with commercial substance implies that it alters the company's:

Future Cash Flows.

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. 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 (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.

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.

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.)

-Testing. -Shipping Charges. -Assembling.

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.

The factors necessary to compute depreciation include all of the following, except:

Book value.

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 (cost/selling price/market value) __, salvage value and useful life.

Cost.

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 ________ the asset by recording an entry to remove it from the balance sheet.

Discard.

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.

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

Natural Resource.

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

Natural Resources.

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

Patent.

(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.

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

Replacing an engine.

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.

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

Amortization.

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

Average total assets.

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

Balance Sheet.

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

Depreciation.

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.

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

Intangible 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.

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

Sales.

Martinez Co. sells a machine that cost $10,000 with accumulated depreciation of $8,000 for $2,000 cash. The entry to record this transaction will recognize a gain or loss of how much?

There is no gain or loss.

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 (14,000-2000)/5 x 7/12=1,400 for a partial year depreciation.

Straight-line depreciation can be calculated by taking:

(cost minus salvage value) / useful life.

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

-Equipment being used in operations. -Building being used for operations.

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

-Mineral Deposit. -Copy Machine.

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

-Purchase price. -Installation. -Taxes. -Shipping Fees.

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

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

Betterments.

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

Revenue.

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

-Car wash. -Dent repair. -Oil change.

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

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

Depletion.

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

Improvements.

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

Income Statement.

_______ 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.

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

Plant or fixed.

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

Betterment.

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.

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

Discarded.

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

Lump-Sum.

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.

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

-Copyright. -Patent.

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.

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.

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

Salvage.