Chapter 9

A coal company invests $15 million in a mine estimated to have 20 million tons of coal and no salvage value. It is expected that the mine will be in operation for 5years. In the first year, 1,000,000 tons of coal are extracted and sold. What is the depletion expense for the first year? A) $750,000 B) $300,000 C) $75,000 D) Cannot be determined from the information provided

A

A computer company has $2,800,000 in research and development costs. Before accounting for these costs, the net income of the company is $2,000,000. What is the amount of net income or loss after these R & D costs are accounted for? A) $800,000 loss B) $2,000,000 net income C) $0 D) Cannot be determined from the information provided.

A

A machine with a cost of $480,000 has an estimated salvage value of $30,000 and an estimated useful life of 5 years or 15,000 hours. It is to be depreciated using the units-of-activity method of depreciation. What is the amount of depreciation for the second full year, during which the machine was used 5,000 hours? A) $150,000 B) $90,000 C) $130,000 D) $160,000

A

Costs incurred to increase the operating efficiency or useful life of a plant asset are referred to as A) capital expenditures. B) expense expenditures. C) ordinary repairs. D) revenue expenditure

A

Expenditures that maintain the operating efficiency and expected productive life of a plant asset are generally A) expensed when incurred. B) capitalized as a part of the cost of the asset. C) debited to the Accumulated Depreciation account. D) not recorded until they become material in amount

A

On May 1, 2018, Pinkley Company sells office furniture for $300,000 cash. The office furniture originally cost $750,000 when purchased on January 1, 2011.Depreciation is recorded by the straight-line method over 10 years with a salvage value of $75,000. What depreciation expense should be recorded on this asset in2018? A) $22,500. B) $25,000. C) $33,750. D) $67,500

A

On October 1, 2018, Holt Company places a new asset into service. The cost of the asset is $120,000 with an estimated 5-year life and $30,000 salvage value at the end of its useful life. What is the depreciation expense for 2018 if Holt Company uses the straight-line method of depreciation? A) $4,500 B) $24,000 C) $6,000 D) $12,000

A

On a balance sheet, natural resources may be described more specifically as all of the following except A) land improvements. B) mineral deposits. C) oil reserves. D) timberlands

A

A company has the following assets: Buildings and Equipment, less (accumulated depreciation of $2,000,000) $9,600,000 Copyrights 960,000 Patents 4,000,000 Timberlands, (less accumulated depletion of $2,800,000) 4,800,000 The total amount reported under Property, Plant, and Equipment would be A) $19,360,000. B) $14,400,000. C) $18,400,000. D) $15,360,000

B

An asset that cannot be sold individually in the market place is A) a patent. B) goodwill. C) a copyright. D) a trade name.

B

An asset was purchased for $250,000. It had an estimated salvage value of $50,000 and an estimated useful life of 10 years. After 5 years of use, the estimated salvagevalue is revised to $40,000 but the estimated useful life is unchanged. Assuming straight-line depreciation, depreciation expense in year 6 would be A) $30,000. B) $22,000. C) $15,000. D) $21,000.

B

During 2018, Rathke Corporation reported net sales of $3,000,000, net income of$1,200,000, and depreciation expense of $100,000. Rathke also reported beginning total assets of $1,000,000, ending total assets of $1,500,000, plant assets of$800,000, and accumulated depreciation of $500,000. Rathke's asset turnover is A) 3 times. B) 2.4 times. C) 2.0 times. D) .96 times.

B

Each of the following is used in computing revised annual depreciation for a change in estimate except A) book value. B) cost. C) depreciable cost. D) remaining useful life.

B

Equipment was purchased for $300,000. Freight charges amounted to $14,000 and there was a cost of $40,000 for building a foundation and installing the equipment.It is estimated that the equipment will have a $60,000 salvage value at the end of its5-year useful life. Depreciation expense each year using the straight-line method will be A) $70,800. B) $58,800. C) $49,200. D) $48,000

B

Henson Company incurred $600,000 of research and development costs in its laboratory to develop a new product. It spent $90,000 in legal fees for a patent granted on January 2, 2018. On July 31, 2018, Henson paid $60,000 for legal fees in a successful defense of the patent. What is the total amount that should be debited to Patents through July 31, 2018? A) $600,000 B) $150,000 C) $750,000 D) Some other amount

B

Identify the item below where the terms are not related. A) Equipment—depreciation B) Franchise—depreciation C) Copyright—amortization D) Oil well—depletion

B

If a plant asset is retired before it is fully depreciated and no salvage value is received, A) a gain on disposal occurs. B) a loss on disposal occurs. C) either a gain or a loss can occur. D) neither a gain nor a loss occurs

B

If a plant asset is retired before it is fully depreciated, and the salvage value received is less than the asset's book value, A) a gain on disposal occurs. B) a loss on disposal occurs. C) there is no gain or loss on disposal. D) additional depreciation expense must be recorded

B

On May 1, 2018, Pinkley Company sells office furniture for $300,000 cash. The office furniture originally cost $750,000 when purchased on January 1, 2011.Depreciation is recorded by the straight-line method over 10 years with a salvage value of $75,000. What gain should be recognized on the sale? A) $22,500. B) $45,000. C) $47,500. D) $90,000.

B

The cost of land does not include A) real estate brokers' commission. B) annual property taxes. C) accrued property taxes assumed by the purchaser. D) title fees.

B

Yocum Company purchased equipment on January 1 at a list price of $120,000, with credit terms 2/10, n/30. Payment was made within the discount period and Yocum was given a $2,400 cash discount. Yocum paid $6,000 sales tax on the equipment ,and paid installation charges of $1,760. Prior to installation, Yocum paid $4,000 top our a concrete slab on which to place the equipment. What is the total cost of the new equipment? A) $125,360 B) $129,360 C) $131,760 D) $123,600

B

A change in the estimated useful life of equipment requires A) a retroactive change in the amount of periodic depreciation recognized in previous years. B) that no change be made in the periodic depreciation so that depreciation amounts are comparable over the life of the asset. C) that the amount of periodic depreciation be changed in the current year and in future years. D) that income for the current year be increased

C

A company purchased factory equipment on April 1, 2018 for $160,000. It is estimated that the equipment will have a $20,000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2018 is A) $16,000. B) $14,000. C) $10,500. D) $12,000

C

A company sells a plant asset which originally cost $360,000 for $120,000 on December 31, 2018. The Accumulated Depreciation account had a balance of $144,000 after the current year's depreciation of $36,000 had been recorded. The company should recognize a A) $240,000 loss on disposal. B) $96,000 gain on disposal. C) $96,000 loss on disposal. D) $60,000 loss on disposal

C

Accumulated Depletion A) is used by all companies with natural resources. B) has a normal debit balance. C) is a contra-asset account. D) is never shown on the balance sheet

C

Additions and improvements A) occur frequently during the ownership of a plant asset. B) normally involve immaterial expenditures. C) increase the book value of plant assets when incurred. D) typically only benefit the current accounting period.

C

Depletion is A) a decrease in market value of natural resources. B) the amount of spoilage that occurs when natural resources are extracted. C) the allocation of the cost of natural resources to expense. D) the method used to record unsuccessful patents.

C

Don's Copy Shop bought equipment for $450,000 on January 1, 2017. Don estimated the useful life to be 3 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2018, Don decides that the business will use the equipment for a total of 5 years. What is the revised depreciation expense for 2018? A) $150,000 B) $ 60,000 C) $ 75,000 D) $112,500

C

Given the following account balances at year end, compute the total intangible assets on the balance sheet of Kepler Enterprises.Cash $1,500,000 Accounts Receivable 4,000,000 Trademarks 1,000,000 Goodwill 3,000,000 Research & Development Costs 2,000,000 A) $10,000,000 B) $6,000,000 C) $4,000,000 D) $8,000,000

C

Goodwill A) is only recorded when generated internally. B) can be subdivided and sold in parts. C) can only be identified with the business as a whole. D) can be defined as normal earnings less accumulated amortization.

C

If a company incurs legal costs in successfully defending its patent, these costs are recorded by debiting A) Legal Expense. B) an Intangible Loss account. C) the Patent account. D) a revenue expenditure account

C

If a mining company extracts 1,500,000 tons in a period but only sells 1,200,000 tons, A) total depletion on the mine is based on the 1,200,000 tons. B) depletion expense is recognized on the 1,500,000 tons extracted. C) depletion expense is recognized on the 1,200,000 tons extracted and sold. D) a separate accumulated depletion account is set up to record depletion on the 300,000tons extracted but not sold.

C

If disposal of a plant asset occurs during the year, depreciation is A) not recorded for the year. B) recorded for the whole year. C) recorded for the fraction of the year to the date of the disposal. D) not recorded if the asset is scrapped.

C

On October 1, 2018, Holt Company places a new asset into service. The cost of the asset is $120,000 with an estimated 5-year life and $30,000 salvage value at the end of its useful life. What is the book value of the plant asset on the December 31,2018, balance sheet assuming that Holt Company uses the double-declining-balance method of depreciation? A) $78,000 B) $90,000 C) $108,000 D) $114,000

C

Sargent Corporation bought equipment on January 1, 2018. The equipment cost$360,000 and had an expected salvage value of $60,000. The life of the equipment was estimated to be 6 years. Assuming straight-line deprecation, the book value of the equipment at the beginning of the third year would be A) $360,000. B) $150,000. C) $260,000. D) $100,000.

C

Sargent Corporation bought equipment on January 1, 2018. The equipment cost$360,000 and had an expected salvage value of $60,000. The life of the equipment was estimated to be 6 years. The depreciation expense using the straight-line method of depreciation is A) $70,000. B) $72,000. C) $50,000. D) None of these answer choices are correct.

C

The method most commonly used to compute depletion is the A) straight-line method. B) double-declining-balance method. C) units-of-activity method. D) effective interest method.

C

Units-of-activity is an appropriate depreciation method to use when A) it is impossible to determine the productivity of the asset. B) the asset's use will be constant over its useful life. C) the productivity of the asset varies significantly from one period to another. D) the company is a manufacturing company

C

Which one of the following items is not a consideration when recording periodic depreciation expense on plant assets? A) Salvage value B) Estimated useful life C) Cash needed to replace the plant asset D) Cost

C

A factory machine was purchased for $375,000 on January 1, 2018. It was estimated that it would have a $75,000 salvage value at the end of its 5-year useful life. It was also estimated that the machine would be run 40,000 hours in the 5 years. The company ran the machine for 4,000 actual hours in 2018. If the company uses the units-of-activity method of depreciation, the amount of depreciation expense for2018 would be A) $37,500. B) $60,000. C) $75,000. D) $30,000.

D

A patent should A) be amortized over a period of 20 years. B) not be amortized if it has an indefinite life. C) be amortized over its useful life or 20 years, whichever is longer. D) be amortized over its useful life or 20 years, whichever is shorter.

D

All of the following intangible assets are amortized except A) copyrights. B) limited-life franchises. C) patents. D) trademarks.

D

Angie's Blooms purchased a delivery van for $40,000. The company was given a$4,000 cash discount by the dealer, and paid $2,000 sales tax. Annual insurance on the van is $1,000. As a result of the purchase, by how much will Angie's Blooms increase its van account? A) $40,000 B) $36,000 C) $39,000 D) $38,000

D

Drago Company purchased equipment on January 1, 2018, at a total invoice cost of$1,200,000. The equipment has an estimated salvage value of $30,000 and an estimated useful life of 5 years. What is the amount of accumulated depreciation at December 31, 2019, if the straight-line method of depreciation is used? A) $240,000 B) $480,000 C) $234,000 D) $468,000

D

Hull Company acquires land for $86,000 cash. Additional costs are as follows: Removal of shed $300 Filling and grading 1,500 Salvage value of lumber of shed 120 Broker commission 1,130 Paving of parking lot 10,000 Closing costs 560 Hull will record the acquisition cost of the land as A) $96,000. B) $87,690. C) $89,610. D) $89,370.

D

If a fully depreciated plant asset is still used by a company, the A) estimated remaining useful life must be revised to calculate the correct revised depreciation. B) asset is removed from the books. C) accumulated depreciation account is removed from the books but the asset account remains. D) asset and the accumulated depreciation continue to be reported on the balance sheet without adjustment until the asset is retired.

D

Ordinary repairs are expenditures to maintain the operating efficiency of a plant asset and are referred to as A) capital expenditures. B) expense expenditures. C) improvements. D) revenue expenditures.

D

Presto Company purchased equipment and these costs were incurred: Cash price $65,000 Sales taxes 3,600 Insurance during transit 640 Installation and testing 860 Total costs $70,100 Presto will record the acquisition cost of the equipment as A) $65,000. B) $68,600. C) $69,240. D) $70,100.

D

The cost of a purchased building includes all of the following except A) closing costs B) real estate broker's commission C) remodeling costs D) all of these answers are correct

D

Which of the following is not true of ordinary repairs? A) They primarily benefit the current accounting period. B) They can be referred to as revenue expenditures. C) They maintain the expected productive life of the asset. D) They increase the productive capacity of the asset

D

Which of the following statements is not true when a fully depreciated plant asset is retired? A) The plant asset's book value is equal to its estimated salvage value. B) The accumulated depreciation account is debited. C) The asset account is credited. D) The plant asset's original cost equals its book value.

D