Chapter 8 Smartbook Exercises

Ion Co. purchased land for $190,000. Ion also paid $5,000 in real estate commissions, $1,000 in legal fees, and $500 in title insurance fees. Ion should record the cost of this land at:

$196,500 $190,000+$5,000+$1,000+$500

On January 3, ATA Company purchases 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 11,500-1,500/5

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 $200,000+$20,000+$15,000

Geo Co. purchased a building for $400,000. In addition, Geo paid $35,000 for taxes 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 $400,000+45,000+60,000

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 $10,000*(.25*2) =5,000

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 $25,500-$5,500 divided by 4 yrs.

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) divided by 1,000,000*200,000 = 50,000

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 $26,000 - 2,000 = $24,000/4 = $6000 per year. $6000 x 2/12 = $1,000.

partial year depreciation

1. Mid period Asset purchase 2. Mid period Asset Sale

units of production depreciation method

1. compute depreciation per unit: assets total cost minus salvage value divided by the total units expected to be produced during it's useful life. 2. compute depreciation expense for the period by multiplying the depreciation per unit by the units produced in the period.

declining-balance method of depreciation

1.) compute the assets straight line depreciation rate 2.) double the straight line rate 3.) compute depreciation by multiplying this rate by the asset's beginning period book value.

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.

1400 (14,000-2000)/5 x 7/12=1,400 for a partial year depreciation.

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.

1850 (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.

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?

20,000 300,000-0/(600,000*40,000) =20,000

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.

2812.50 (100%/8=.125) x 2=25%. 15,000 x 25%=3,750 for first year. Second year=(15,000-3750) x 25% =2812.50.

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

Ella Co. owns a mineral deposit and recognizes $15,000 of depletion expense during the period. This entry will be recorded with a credit to:

accumulated depletion - Mineral Deposit

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

betterment it doesn't say that it increases the assets useful life.

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

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 _____ when it is not longer useful to the company and has no market value

discarded

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

equipment used in operations building used for operations

Brice Co. purchases land in order to drill oil. This oil field would be classified as a(n) Blank______ 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

total asset turnover

net sales / average total assets

PT Co. purchased land and an existing building for $200,000. In addition, PT paid real estate commissions of $15,000. PT removed the unwanted building and graded the land for a total cost of $35,000. PT should record the cost of the land at:

$250,000 $200,000+$15,000+$35,000

Alin Co. purchases a building for $300,000 and pays an additional $30,000 for title fees and lawyer fees. Alin also pays $20,000 in renovations, including painting, carpet, lighting, etc. Alin should record the cost of the building at:

350,000 $300,000+$30,000+$20,000

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 _____ dollars

4,000

Nimo Co. purchased a machine for $12,000 and estimates it will use the machine for five-years with a $2,000 salvage value. Using the double declining-balance depreciation method, compute the machine's first year depreciation expense.

4800 1.) 12,000/5=20% 2.) 20%*2=40% 40%*12,000=4800

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

amortization

patent

an exclusive right granted to it's owner to manufacture and sell an item or use a process for 20 years

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

straight line depreciation is calculated by taking cost minus _____ value divided by useful life

salvage

depreciation

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

lump-sum purchase

the purchase of a group of plant assets for one price.

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 method

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

Which of the following factors determine depreciation?

useful life salvage value cost of asset

Juno Co. purchased a machine for $10,000 and estimates it will use the machine for three years with a $2,000 salvage value. It expects to produce a total of 8,000 units as follows: 3,000 during year one; 2,500 during year two; and 2,500 during year three. Using the units-of-production depreciation method, compute the machine's first year depreciation expense.

$3,000 1.) $10,000-$2,000 =8,000 8,000/8,000 =1 2.) 1*3,000 =3,000

Mid period Asset purchase

(beginning item balance-salvage value/useful life in years) TIMES (the # of months in service/12 months)

Determine which of the following expenses are considered revenue expenditures related to a company vehicle.

- dent repair - car wash - oil change

depletion per unit

Cost-Salvage Value/ Total Units Capacity

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 Disposl of Equipment for 1500

Which of the following assets are amortized?

Patent/Copyright

land improvements

assets that increase the benefits of land, and have a limited useful life, such as parking lots and highting systems.

plant assets

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

When considering the sale of a plant asset, match the following outcomes to the appropriate situations.

book value is greater than the selling price: loss on sale of asset book value is less than the selling price: gain on sale of asset book value is equal to the selling price: no gain or loss is recgnized

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

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 asset's beginning-period book value is known as the

declining balance

Revenue expenditures

expenditures that are additional costs of plant assets and do not materially increase the asset's life or capabilities

revenue expenditures

expenditures that are additional costs of plant assets that do not materially increase the asset's life or capabilities

ordinary repairs

expenditures that keep an asset in good operating condition and are necessary if an asset is to perform to expectations over it's useful life.

betterment

expenditures that make a plant asset more efficient or peoductive, but do not always increase an assets useful life.

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

future cash flows

______ are nonphysical assets used in operations that give companies long-term rights, or competitive advantages.

intangible

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

machinery

_____ 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

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

purchase price shipping fees taxes installation