ch 10 smartbook acct 201

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.

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.

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 (36,000-6,000)/300,000 x 14,000=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 (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.

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

Straight-line depreciation can be calculated by taking:

(cost minus salvage value)/useful life

Accumulated amortization 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

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

_____ are assets that are physically consumed when used, such as mineral deposits and oil and gas fie

Natural resources

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

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

book value. The factors that determine depreciation are cost, salvage value, and useful life.

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

improvements

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

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 $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:

$235,000

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

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

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 (35,000-5,000)/50,000 x 12,000

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

Blank 1: Revenue

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

Blank 1: Revenue

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

Blank 1: salvage

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

Building being used for operations Equipment being used in operations

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

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

Copyright Patent Only intangible assets are amortized.

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

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 Costs should not include repairs to damages or errors incurred after installation.

Amortization expense is recorded on which financial statement?

Income statement

_______ 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

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

__________ 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

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 Installation Purchase Price

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

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 (22,000-2,000)/100,000 x 18,000=3600

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.

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 $_________.

$4000 20000/5

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 $______________.

$495,000

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?

Debit: Loss on Disposal of Equipment for $1,500 Credit: Equipment for $6,000

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

amortization

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

natural resource

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

patent

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

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 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

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

discarded