Intermediate Accounting Chapter 11

Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues? a. Systematic and rational allocation b. Immediate recognition c. Partial recognition d. Associating cause and effect

a. Systematic and rational allocation

In January 2014, Fritz Mining Corporation purchased a mineral mine for $6,300,000 with removable ore estimated by geological surveys at 2,500,000 tons. The property has an estimated value of $600,000 after the ore has been extracted. Fritz incurred $1,725,000 of development costs preparing the property for the extraction of ore. During 2014, 390,000 tons were removed and 350,000 tons were sold. For the year ended December 31, 2014, Fritz should include what amount of depletion in its cost of goods sold? a. $882,000 b. $640,500 c. $1,125,000 d. $1,039,500

d. $1,039,500

Depreciation is normally computed on the basis of the nearest Entry field with correct answer day and to the nearest cent. day and to the nearest dollar. full month and to the nearest cent. full month and to the nearest dollar.

d. full month and to the nearest dollar.

The major difference between the service life of an asset and its physical life is that a. service life refers to the time an asset will be used by a company and physical life refers to how long the asset will last. b. physical life is always longer than service life. c. physical life is the life of an asset without consideration of salvage value and service life requires the use of salvage value. d. service life refers to the length of time an asset is of use to its original owner, while physical life refers to how long the asset will be used by all owners.

a. service life refers to the time an asset will be used by a company and physical life refers to how long the asset will last.

On January 2, 2012, Wang Company acquired equipment to be used in its manufacturing operations. The equipment has an estimated useful life of 10 years and an estimated salvage value of $30,000. The depreciation applicable to this equipment was $140,000 for 2015, computed under the sum-of-the-years'-digits method. What was the acquisition cost of the equipment? a. $1,070,000 b. $1,130,000 c. $1,100,000 d. $1,083,333

b. $1,130,000

Storm Corporation purchased a new machine on October 31, 2014. A $2,400 down payment was made and three monthly installments of $7,200 each are to be made beginning on November 30, 2014. The cash price would have been $23,200. Storm paid no installation charges under the monthly payment plan but a $400 installation charge would have been incurred with a cash purchase. The amount to be capitalized as the cost of the machine on October 31, 2014 would be a. $24,400. b. $23,600. c. $24,000. d. $23,200.

b. $23,600.

Usually, companies compute depletion for accounting purposes using a a. units-of-production method. b. straight-line method. c. decreasing charge method. d. percentage depletion method.

b. straight-line method

Glow Co. purchased machinery on January 2, 2009, for $660,000. The straight-line method is used and useful life is estimated to be 10 years, with a $60,000 salvage value. At the beginning of 2015 Glow spent $144,000 to overhaul the machinery. After the overhaul, Glow estimated that the useful life would be extended 4 years (14 years total), and the salvage value would be $30,000. The depreciation expense for 2015 should be a. $60,000. b. $42,375. c. $51,750. d. $55,500.

c. $51,750.

For income statement purposes, depreciation is a variable expense if the depreciation method used is a. declining-balance. b. sum-of-the-years'-digits. c. units-of-production. d. straight-line.

c. units-of-production.