SmartBook Assignment 08 SmartBook (5 points) 36-54

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 Reason: 190,000+5,000+1,000+500=196,500

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. Reason: 300,000+30,000+20,000=350,000

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

Balance sheet

___ 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.

Blank 1: Plant

_______ is the process of allocating the cost of a natural resource to the period when it is consumed.

Depletion

_______ are nonphysical assets used in operations that confer on their owners long-term rights, or competitive advantages.

Intangible assets

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 Disposal of Equipment for $1,500

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

Plant or fixed

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

Taxes Shipping fees Installation Purchase price

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

Brice Co. purchases land in order to drill oil. This oil field would be classified as a(n) _______ on the balance sheet.

natural resource

A _______ is an exclusive right granted to its owner to manufacture and sell an item or use a process for 20 years.

patent

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 Reason: (11,500-1,500)/5 =2,000

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.

$4,800 Reason: 12,000 x [(100%/5) x 2] =4,800. Salvage value is not subtracted upfront with this method.

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.

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 Reason: This is a partial year depreciation. $26,000 - 2,000 = $24,000/4 = $6000 per year. $6000 x 2/12 = $1,000.

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.

$1,400 Reason: (14,000-2000)/5 x 7/12=1,400 for a partial year depreciation The partial year depreciation should be recorded for seven months (June 1- December 31).

Digg Co. installs a manufacturing machine in its factory at the beginning of the year at a cost of $36,000. The machine's useful life is estimated at 10 years, or 300,000 units of product, with a $6,000 salvage value. During its first year, the machine produces 14,000 units of product. Determine the machine's first year depreciation expense under the units-of-production method.

$1,400 Reason: (36,000-6,000)/300,000 x 14,000=1,400

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.

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

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

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 Reason: 200,000+15,000+35,000=250,000

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 $__

Blank 1: 495000, 495,000, or $495000

On January 24, Bora Co. purchased a delivery van for $22,000. Bora expects to drive the van for approximately 5 years or 100,000 miles, before disposing of it for an estimated salvage value of $2,000. During the first year, Bora drives the van for 18,000 miles. How much would depreciation expense be if Bora uses the units-of-production depreciation method?

$3,600 Reason: (22,000-2,000)/100,000 x 18,000=3600

Rino Co. pays $35,000 for equipment. The machine's useful life is estimated at 10 years, or 50,000 units of product with a $5,000 salvage value. During the first year, the machine produced 12,000 units of product. How much depreciation expense will Rino record this first year based on the units-of-production depreciation method?

$7,200 Reason: (35,000-5,000)/50,000 x 12,000

Straight-line depreciation can be calculated by taking:

(cost minus salvage value)/useful life

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.)

Assembling Shipping charges Testing

_________ are expenditures that make a plant asset more efficient or productive, but do not always increase an asset's useful life.

Betterments

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 $ __

Blank 1: 4000

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

Blank 1: 5000

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

Blank 1: Revenue

The factors necessary to compute depreciation include ___ salvage value and useful lif

Blank 1: cost

A plant assets is __ when it is no longer useful to the company, and it has no market value.

Blank 1: discarded

Total asset turnover is computed as net __ /average total assets.

Blank 1: sales

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

Building being used for operations Equipment being used in operations

Which of the following asset(s) are not considered intangible assets? (Check all that apply.)

Copy machine Mineral deposit

___ is the process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use.

Depreciation

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

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

Income statement

______ 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 normal, good operating condition. They are necessary if an asset is to perform to expectations over its useful life.

Ordinary repairs

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

Patent Copyright

Which of the following expenses would not be considered an ordinary repair?

Replacing an engine

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.

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

amortization

The total asset turnover ratio is computed by taking net sales divided by:

average total assets

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

betterment.

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

The factors necessary to compute depreciation include all of the following, except:

book value.

Consistent with the ________ principle, plant assets should be recorded at cost, which includes all the normal and reasonable expenditures necessary to get the asset in place and ready for its intended use.

cost

The depreciation method that determines the depreciation charge 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 __________ method.

declining-balance

An oil company recognizes the cost of discovering and operating oil wells by recording ______ expense for each unit of oil used.

depletion

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.

discard

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

lump-sum

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 of an asset's useful life depending on its usage is called the ___ method.

units-of-production

The method of depreciation that charges a varying amount to depreciation expense for each period of an asset's useful life depending on its usage is called the _________ method.

units-of-production

Land ___ are assets that increase the benefits of land, have a limited useful life, and are depreciated—such as walkways and fences.

Blank 1: improvements

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. Debit to Accumulated Depreciation - Machinery for $6,500. Credit to Machinery for $7,000.

Assets that increase the benefits of land, have a limited useful life, and are depreciated—such as parking lots and street lights—are called:

land improvements.

Straight-line depreciation is calculated by taking cost minus ___ value divided by useful life.

Blank 1: salvage

Determine which of the following expenses are considered revenue expenditures related to a company vehicle. (Check all that apply.)

Dent repair Car wash Oil change

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