Chapter 10

Teshin Co. purchases a piece of land with several land improvements for $180,000. The land appraises at $120,000 and the land improvements appraise at $80,000. The land should be recorded at what cost?

$108,000 The land will be recorded based on the relative market value of the lump-sum purchase at $108,000. [120,000/(120,000+80,000)] x 180,000 = 108,000

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.

$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.

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.

$5,000

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

Depreciation

Which of the following items related to depreciating equipment would be found on a company's income statement?

Depreciation Expense - Equipment

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

Plant

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

balance sheet

Depreciation Expense is reported on which of the following financial statements?

income statement

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

income statement

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

lump-sum

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

salvage

The method of depreciation that charges a varying amount to depreciation expense for each period depending on its usage is called the ______ method.

units-of-production

The ______ life of a plant asset is the length of time it is productively used in a company's operations

useful

Cen Co. purchases land and a building for $130,000. The land is appraised at $100,000 and the building at $150,000. Allocating the cost based on market values, the land should be recorded at what amount?

$52,000

Straight-line depreciation can be calculated by taking:

(cost minus salvage value)/useful life

Which of the following factors determine depreciation?

-Cost -salvage life -useful life

The cost of a plant asset includes the following:

-Purchase price -Cost to prepare it for use

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?

-testing -assembling -shipping charges

__ 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

___ value, also called residual value or scrap value, is an estimate of the asset's value at the end of its useful life.

Salvage

The cost of a plant asset consists of all necessary and reasonable expenditures to acquire it and prepare it for its intended use. True or false?

True The cost of a plant asset consists of all necessary and reasonable expenditures to acquire it and prepare it for its intended use.

Book value can be calculated by taking an asset's acquisition costs less its

accumulated depreciation

The asset's acquisition costs less its accumulated depreciation is called:

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

The factors necessary to compute depreciation include (cost/selling price/market value), ___ salvage value and useful life.

cost

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:

damage done when unpacking the plant asset

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

depreciation