Ch 8: Learn Smart
The cost at which a company records purchases of machinery and equipment include
1. taxes 2. installation 3. shipping fees 4. purchase price
Co. bought machine for 14000 with useful life of 5 years and 2000 salvage. Using the straight line depreciation method, compute the depreciation expense for June 1st through December 31 14000-2000/5=2400 There are seven months in between June and December So take 2400 x 7/12 = 1400
1400
Co. owns a delivery van that was purchased two years ago for 25000. Co. has depreciated the van for two years at a straight-line amount of 4000 per year. The book value of this van at the end of the second year would be_____________ 25000-4000-4000=17000
17000
Co. purchases equipment for 12000 and has been using straight-line depreciation, estimating a 5 year life and 500 salvage value. At the beginning of the third year, they decide to use the equipment for a total of 6 years with no salvage. Revised depreciation for the third year: 12000-500/5 =2300 This is the method used for two years so 2300 x 2 = 4600 On third year, decide to go from 5 to 6. Have already done 2, so 6-2=4 1200-4600/4=1850
1850
Vehicle is purchased at 15000 for 8 years with a 3000 salvage value. Use double declining balance depreciation to compute second year depreciation expense 200%/8 yrs = 0.25 rate Year 1: Beginning Book Value = 15000 Rate = 0.25 Depreciation = 15000 x .25 = 3750 Year 2: Take 15000-3750 = 11250 Depreciation = 11250 x 0.25 = 2812.5
2812.5
Co. bought delivery van for 22000. Expects to drive van for 100000 miles. Salvage value of 2000. During the first year, Bora drives the van for 18000 miles. How much would depreciation expense be if Co. uses the units-of-production method? 22000-2000/100000 = 0.20 .20 x 18000 = 3600
3600
Determine which of the following expenses related to a building would be classified as a capital expenditure 1. new air conditioning system 2. air conditioning maintenance 3. minor drywall repair 4. room addition 5. carpet cleaning
1 and 4
The cost of a plant asset includes
1. Cost to prepare it for use 2. Purchase price
A company sells a machine that cost 7000 for 500 cash. the machine had 6500 accumulated depreciation. The entry to record this transaction:
Debit Accumulated Depreciation 6500 Debit Cash 500 Credit Machinery 7000
Company sells machine that cost 7000 for 500 cash. The machine has 6500 accumulated depreciation. The entry to record this transaction will include:
Debit Cash 500 Debit Accumulated Depreciation 6500 Credit Machinery 700
Co. received an invoice for replacement of the engine on its main delivery van. The replacement will extend the life of the van an additional three years. The entry to record the receipt of the invoice:
Debit Equipment Credit Accounts Payable
Co. paid cash for an upgrade to an existing machine that would reduce the amount of waste produced by the machine (and therefore, increasing efficiency). The journal entry recorded:
Debit Machinery Credit Cash
The factors necessary to compute depreciation
cost, salvage value, and useful life
___________ is the process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use
depreciation
Assets that increase the benefits of land, have a limited useful life, and are depreciated--such as sidewalks and street lights--are called
land improvements
Book value is greater than the selling price
loss on sale of asset
Book value is equal to the selling price
no gain or loss recognized
____________ expenditures are additional cost that do not materially increase the asset's life or productive capabilities
revenue
_______ value, also called residual value or scrap value, is an estimate of the asset's value at the end of its benefit period
salvage
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 includes
1. shipping charges 2. insurance while in transit 3. taxes
Co. sells equipment for 1000 cash. The equipment cost the Co. 6500 and it fully depreciated at the time of sale with no salvage. Credit which account and how much
Credit Gain on Sale of Equipment 1000
______________ is the amount by which a company's value exceeds the value of its individual assets and liabilities. Recorded as an intangible asset, but is not amortized
Goodwill
____________ are expenditures that make a plant asset more efficient or productive, but do not always increase an asset's useful life
betterments
_____________ are expenditures that extend the asset's useful life beyond its original estimate.
extraordinary repairs
Book value is less than the selling price
gain on sale of asset
____________ 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
To calculate the depletion expense in a period, a company should multiply the depletion per unit by
units extracted and sold in the period
The method of depreciation that charges a vary amount to depreciation expense for each period of an asset's useful life depending on its usage is called the __________ method.
units-of-production
Machine is bought at 25500, expected to last four years and have a salvage value of 5500. Using the straight line method, depreciation expense should be __________ per year. 25500-5500/4 = 5000
5000
Which depreciation method will compute the most depreciation expense over the life of the asset?
All methods will produce equal depreciation expense over the life of the asset
Co. sells a copier for 2000. The copier cost the co. 6000 and at the time of sale, accumulated depreciation was 2500. Co. will record this sale with: Add selling price and the amount of acc. depreciation 2000+2500=4500 Take original price minus 4500 The company lost 1500 dollars
Debit Loss on Disposal of Machinery for 1500
If Co.'s current year machinery and equipment repair costs are 8200, which accounts would be impacted to complete the journal entry?
Debit Repairs expense Credit Cash
The process of allocating the cost of a natural resource to a period when it is consumed requires a debit entry to the ____________ account
Depletion Expense
_________________________ will be found on a company's income statement relating to depreciating equipment
Depreciation Expense - Equipment
Ordinary repairs, such as repairs and maintenance to a vehicle, would be recorded with a debit to which account
Repairs expense
Copyrights, trademarks, and other intangible assets are expensed over their useful lives through the process of __________
amortization
_______ expenditures provide benefits extending beyond the current period
capital
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
Depreciation expense is reported as a decrease in which of the following financial statements?
income statement
____________ are nonphysical assets used in operations that confer on their owners long-term rights, privileges, or competitive advantages.
intangible assets
Co. sold a computer for 500 cash. The computer cost 3000 and had accumulated depreciation of 2200 at the time of sale. They will record the sale with an entry to the ____ on Disposal of Equipment account in the amout of _____. 2200+500=2700 Losing 300 from the deal
loss, 300
_________ are assets that are physically consumed when used, such as mineral deposits and oil and gas fields
natural resources
Bilos Co. purchased a patent on a newly developed technology. They will recognize the cost of this patent
over the asset's life using amortization expense
___________ assets are assets used in a company's operations that have a useful life of more than one accounting period.
plant
The ____________ life (also called service life) is the length of time the asset is productively used in a company's operations.
useful