Chapter 8 Homework BUSA7
Juno Co. purchased a machine for $10,000 and estimates it will use the machine for four years with a $2,000 salvage value. Using the double declining-balance depreciation method, compute the machine's first year depreciation expense.
$5,000 Reason: $10,000 x (.25 x 2) = $5,000.
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
Quick Catering Co. paid for a refrigeration system to be added to their delivery van to keep the food cooled during deliveries. To record this expense, Quick would debit the ________ account.
equipment
(Revenue/Capital) expenditures are additional costs of plant assets that do not materially increase the asset's life or productive capabilities.
revenue
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.
to discard
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
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 Reason: (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.
Ring Co. owns a delivery van that was purchased two years ago for $25,000. Ring has depreciated the van for two years at a straight-line amount of $4,000 per year. The book value of this van at the end of the second year would be $
$17,000
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
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
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:
$200,000+$20,000+$15,000=$235,000
Johnson Co. trades in a machine with a book value of $10,000 for a new machine with a list value of $12,000. In addition to the old machine, Johnson also pays $5,000 cash. The gain or loss on this exchange (which has commercial substance) would be how much?
$3,000 loss
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.
$3,200 Reason: $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.
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 recited with a debit to amortization expense for $______
$4,000
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
Which of the following factors determine depreciation?
(Cost of Asset - Salvage Value) / Useful Life
Arc Co. purchased a piece of equipment for $25,000. At the end of the year, the book value of the equipment is $12,000. The salvage value is 0. How much is accumulated depreciation at the end of the period?
13,000
On January 3, ATA company purchased a copy machine for $11,500. The machine is expected to last five years and have a salvage value of $1,500. Compute depreciation expense for the first year, assuming the company uses the straight-line method.
2,000
On January 1, Enco Co. purchases a milling machine for $15,000. The machine is expressed to last seven years have a salvage value of $1,000. Assuming the company uses the straight-line method, depreciation expense should be $_______ per year.
2000
Which of the following situations will result in recognizing a gain on sale of a plant asset?
A fully depreciated asset is sold for $1,000.
Copyrights, trademarks, and intangible assets are expenses over their useful lives through the process of:
Amortization
_________ are expenditures that make a plant asset more efficient or productive, but do not always increase an asset's useful life.
Betterments
Accumulated depreciation is a _______ asset account (one that is linked with the plant asset account, but has an opposite normal balance) and is reported in the balance sheet.
Blank 1: contra
The factors necessary to compute depreciation include (cost/selling price/market value) _________ salvage value and useful life.
Cost
Straight line deprecation can be calculated by taking:
Cost minus salvage value / useful life
A patent was purchased for $15,000 and expected to be used for the 10-year life with no salvage value. The entry to expense the patent during the second year of life will include which of the following entries?
Credit to Accumulated Amortization $1,500. Debit to Amortization Expense $1,500.
Zion 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 to record this upgrade would include which of the following entries?
Credit to Cash Debit to Machinery
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 Cash for $500. Credit to Machinery for $7,000. Debit to Accumulated Depreciation - Machinery for $6,500.
Which of the following items related to depreciating equipment would be found in a company's income statement?
Deprecation Expense - equipment
ATZ Co. sells equipment that cost $9,000 with current accumulated depreciation of $8,000 for $2,000 cash. To record this transaction, ATZ will credit which accounts?
Equipment Gain on Sale of Equipment
Which of the following items are plant assets?
Equipment being used in operations Building being used for operations
A plant asset trade-in with commercial substance means that it changes the company's:
Future cash flows
When an asset is sold for an amount that is above the asset's current book value, the company should record?
Gain on the sale of equipment.
Deprecation expense is reported on which of the following financial statements?
Income statement
____ are non physical assets used in operations that give companies long-term rights, or competitive advantages.
Intangible assets
On December 31, Briar Co. disposed of a piece of equipment that costs $6,000 with accumulated depreciation of $4,500. The entry to record thus disposal would include a debit to which account and for how much?
Loss ok disposal of equipment for $1500
When considering the sale of a plant asset, match the following outcomes to the appropriate situations.
Loss on sale of asset Gain on sale of asset No gain or loss recognized
Determined which of the following expenses are considered revenue expenditures related to a company vehicle?
Oil change Car wash Dent repair
Which of the following assets are amortized?
Patent/Copyright
____ 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?
Shipping fees Installation Taxes Purchase price
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.
The ______ life of a plant asset is the length of time it is productively used in a company's operations
Useful
The _______ life (also called service life) is the length of time the assets is productively used in a company's operations.
Useful
Book value can be calculated by taking an asset's acquisition costs less its
accumulated depreciation
If an intangible asset has a limited life, its cost is systematically allocated to expense over its useful life through the process of:
amortization
The total asset turnover ratio is computed by taking net sales divided by:
average total assets
Accumulated depreciation is recorded on which of the following financial statements?
balance sheet
Niren Co. made modifications to a manufacturing machine that increased its productivity by 40%. Niren would classify this expense as a(n):
betterment
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 all of the following, except:
book value
The exclusive right to publish or sell a musical, literary, or artistic work during the life of the creator plus 70 years is called a
copyright
The exclusive right to publish or sell a musical, literary, or artistic work during the life of the creator plus 70 years is called a _______
copyright
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
_____ is the process of allocating the cost of a plant asset to expense while it is in use.
depreciation
A plant asset is (depreciated/discarded/obsolete) when it is no longer useful to the company, and it has no market value.
discarded
Land _______ are assets that are additions to land and have limited useful lives, such as walkways and fences.
improvements
Depreciation expense is reported as a decrease in which of the following financial statements?
income statement
Assets that increase the benefits of land, have a limited useful life, such as parking lots and lighting systems, are called:
land improvements
Property rented under a contract is called a .
lease
Advantages of leasing versus buying an asset include all of the following:
little or no up-front payment lease terms often allow exchanges to trade up on leased assets
The purchase of a group of plant assets for one price is called a _______ purchase
lump sum
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
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
_______ are expenditures that keep an asset in good operating condition. They are necessary if an asset is to perform to expectations over its useful life.
ordinary repairs
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
(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
Total asset turnover is computed as net ______ /average total assets.
sales
Straight line depreciation is calculated by taking cost minus (salvage/market) ______ value divided by useful life.
salvage
A symbol, name, phrase or jingle identified with a company, product or service is called a
trademark
Grand Co. owns one copier that was purchased for $10,000 three years ago. The depreciation expense taken on the copier each year has been $2,700; $1,800; and $2,200, based on the number of copies that have been made on the copier. Based on this information, the company uses the ________ depreciation method.
units of production
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
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 machines first year (partial) depreciation expense for June 1st through December 31st.
$1,400
Bina Co. purchased a vehicle on January 1st for $15,000 and estimates it will use the vehicle for eight years with a $3,000 salvage value. Using the double declining-balance depreciation method, compute the vehicle's second year depreciation expense.
$2,812.50
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
Vonetech Co. trades in a plant asset with a book value of $15,000 for a new machine with a market value of $10,000. In addition to the old machine, Johnson also pays $1,000 cash. The gain or loss on this exchange which has commercial substance is?
$6,000 loss
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.
5000
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 patent was purchased for $20,000 and expected to be used for the 20-year life with no salvage value. The entry to expense the patent during the second year of life will include which of the following entries?
Credit to Accumulated Amortization $1,000. Debit to Amortization Expense $1,000.
The amount by which a company's value exceeds the value of its individual asset's and liabilities is called
Goodwill
The amount by which a company's value exceeds the value of its individual assets and liabilities is called _______
Goodwill
_____ is measured as the excess if the cost of an acquired entity over the value of the individual assets and liabilities.
Goodwill
If an intangible asset has an ____ life, it is recited as an intangible asset, but is not amortized.
Indefinite
If an intangible asset has an ___ is not amortized.
Indefinite life
If an intangible asset has an ____ is not amortized.
Indefinite life
Which of the following assets are not considered intangible assets?
Mineral deposit Copy machine
To calculate depletion expense, first determine the depletion per unit. Depletion per unit can be calculated by taking (cost ______)/total units of capacity.
Minus salvage value
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.)
Shipping charges Testing Assembling
The asset's acquisition costs less its accumulated depreciation is called:
book value
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
Privo Co. purchases a machine that cost $15,000. Privo estimates a 5-year life with no salvage value. The first three years of depreciation expense are $6,000; $3,600; and $2,160, respectively. Based on this information, Privo is using the ________ depreciation method.
declining balance
The depreciation method that determines the depreciation for the period by multiplying a depreciation rate (often twice the straight-line rate) by the assets beginning-period book value is known as the ________ method.
declining balance
______ value, also called residual value or scrap value, is an estimate of the assets value at the end of its useful life.
salvage
______ value, also called residual value or scrap value. Is an estimate of the assets value at the end of its useful life.
salvage
Wyatt Co. purchased a popular symbol that doubled its sales in the first year. The cost of this symbol is an asset called a:
trademark
