Sem título

Página 1

Chapter 10

Plant assets are defined as: Tangible assets used in a company’s operations that have a useful life of more than one accounting period.Top of Form

One characteristic of plant assets is that they are: Used in operations.

Which of the following is not a relevant factor in computing depreciation? Market value.

Which of the following is a relevant factor in computing depreciation? Cost, salvage value, useful life, and depreciation method.

Salvage value is: An estimate of an asset’s value at the end of its useful life.

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

The useful life of a plant asset is: The length of time it is used in a company’s operations.

The term, obsolescence, as it relates to the useful life of an asset, refers to: The process of becoming outdated and no longer used.

Once the estimated depreciation expense for an asset is calculated: It may be revised to reflect changes in the asset’s estimated salvage value or useful life.

A change in an accounting estimate is: Reflected in current and future years' financial statements, not in prior statements.

Peavey Enterprises purchased a depreciable asset for $22,000 on April 1, Year 1. The asset will be depreciated using the straight-line method over its four-year useful life. Assuming the asset's salvage value is $2,000, Peavey Enterprises should recognize depreciation expense in Year 2 in the amount of: $5,000. Depreciation Expense = (Cost − Salvage Value)/Estimated Useful Life = ($22,000 − $2,000)/4 = $5,000

The modified accelerated cost recovery system (MACRS): Is not acceptable for financial reporting.

The straight-line depreciation method and the double-declining-balance depreciation method: Produce the same total depreciation over an asset's useful life.

Total asset turnover is used to evaluate: A company’s ability to use assets efficiently and effectively to generate sales.

A total asset turnover ratio of 3.5 indicates that: For every $1 in assets, the firm produced $3.50 in net sales during the period.

The calculation of total asset turnover is: Net sales divided by average total assets.

Spears Company had net sales of $36,015 million. Its average total assets for the period were $14,700 million. Spears’ total asset turnover equals: 2.45. Total Asset Turnover = Net Sales/Average Total Assets = $36,015/$14,700 = 2.45

Land improvements are: Additions to land that have limited useful lives.

Which of the following is not classified as a plant asset? Patent.

Which of the following is classified as a plant asset? Land. Land improvements. Buildings. Machinery and equipment.

The cost of land would not include: Cost of parking lot lighting.

The cost of land would include: Purchase price. Costs of removing existing structures. Title insurance fees. Government assessments.

The formula to compute annual straight-line depreciation is: (Cost minus salvage value) divided by the useful life in periods.

The total cost of an asset minus accumulated depreciation is called: Book value.

The depreciation method that charges the same amount of expense to each period of the asset's useful life is called: Straight-line depreciation.

The depreciation method that allocates an equal portion of the total depreciable cost for a plant asset to each unit produced is called: Units-of-production depreciation.

The depreciation method which uses a depreciation rate that is a multiple of the straight-line rate is called: Declining-balance depreciation.

The depreciation method that produces more depreciation expense during the early years of an asset’s life and less expense in the later years is a(n): Accelerated depreciation method.

A company purchased a delivery van for $28,000 with a salvage value of $3,000 on October 1, Year 1. It has an estimated useful life of 5 years. Using the straight-line method, how much depreciation expense should the company recognize on December 31, Year 1? $1,250. Depreciation Expense = (Cost − Salvage Value)/Estimated Useful Life × Length of Ownership = ($28,000 − $3,000)/5 × 3/12; Depreciation Expense = $1,250

Marlow Company purchased a point of sale system on January 1 for $3,400. This system has a useful life of 10 years and a salvage value of $400. What would be the depreciation expense for the first year of its useful life using the double-declining-balance method? $680. Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate = $3,400 × (2 × 10%) = $680 (Year 1, depreciation)

Marlow Company purchased a point of sale system on January 1 for $3,400. This system has a useful life of 10 years and a salvage value of $400. What would be the book value of the asset at the end of the first year of its useful life using the double-declining-balance method? $2,720. Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate = $3,400 × (2 × 10%) = $680 (Year 1, depreciation). Book value = Cost − Accumulated depreciation. $3,400 − $680 = $2,720

A company purchased a weaving machine for $190,000. The machine has a useful life of 8 years and a salvage value of $10,000. It is estimated that the machine could produce 75,000 bolts of woven fabric over its useful life. In the first year, 15,000 bolts were produced. In the second year, production increased to 19,000 units. Using the units-of-production method, what is the amount of depreciation expense that should be recorded for the second year? $45,600. Depreciation Expense = [(Cost − Salvage Value)/Estimated Useful Life (in units)] × Units Produced = ($190,000 − $10,000)/75,000 units = $2.40 per unit × 19,000 = $45,600

Revenue expenditures: Are costs that do not materially increase a plant asset’s life or capabilities.

Another name for a capital expenditure is: Balance sheet expenditure.

To capitalize an expenditure is to: Increase an asset account.

Extraordinary repairs: Are expenditures that extend an asset’s useful life beyond its original estimate.

Which of the following is an example of an extraordinary repair? Replacing the roof on a manufacturing warehouse.

Which of the following pertaining to ordinary repairs is false? They extend the useful life of an asset beyond its original estimate by several years.

Which of the following pertaining to ordinary repairs is true? They are expenditures to keep an asset in good operating condition. Their costs are reported as expenses on the current-period income statement. They include activities such as cleaning, lubricating, and changing oil. They are treated as expenses.

Betterments: Are expenditures that make a plant asset more efficient or productive.

An asset’s book value is $18,000 on December 31, Year 5. Assuming the asset is sold on December 31, Year 5 for $15,000, the company should record: A loss on sale of $3,000. Selling price $15,000 − $18,000 Book value = $3,000 Loss.

Martinez owns an asset that cost $87,000 with accumulated depreciation of $40,000. The company sells the equipment for cash of $42,000. At the time of sale, the company should record: A loss on sale of $5,000. Selling price $42,000 − Book value ($87,000 − $40,000) = $5,000 loss.

Martinez owns machinery that cost $87,000 with accumulated depreciation of $40,000. The company sells the machinery for cash of $42,000. The journal entry to record the sale would include: A debit to Cash of $42,000.

An asset is said to be fully depreciated when: Accumulated depreciation equals the asset’s cost.

A company sold equipment that originally cost $100,000 for $60,000 cash. The accumulated depreciation on the equipment was $40,000. The company should recognize a: $0 gain or loss. Cost of equipment – accumulated depreciation = book value – cash received.

A company discarded a computer system originally purchased for $18,000. The accumulated depreciation was $17,200. The company should recognize a(an): $800 loss. Cost of computer system – accumulated depreciation = book value – cash received.

A company sold a tractor that originally cost $85,000 for $20,000 cash. The accumulated depreciation on the tractor was $60,000. The company should recognize: A loss of $5,000. Cost of tractor – accumulated depreciation = book value – cash received.

Natural resources are: Assets that are physically consumed when used such as standing timber, mineral deposits, and oil and gas fields.

Which of the following would be classified as a natural resource? Diamond mine.

Depletion is: The process of allocating the cost of a natural resource to the period when it is consumed.

A company purchased a tract of land for its natural resources at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected to be $250,000. The depletion expense per ton of ore is: $0.625. Depletion Expense per ton = (Cost − Salvage Value)/Estimated Useful Life (in tons) = ($1,500,000 − $250,000)/2,000,000 = $0.625/ton

A company purchased a mine at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this mine. The salvage value of the mine is expected to be $250,000. If 150,000 tons of ore are mined and sold during the first year, the journal entry to record the depletion is: Debit Depletion Expense $93,750; credit Accumulated Depletion $93,750. Depletion Expense per ton = (Cost − Salvage Value)/Estimated Useful Life (in tons) = ($1,500,000 − $250,000)/2,000,000 = $0.625/ton. Year 1 Depletion Expense = 150,000 × $0.625 = $93,750

A company purchased a tract of land for its natural resources at a cost of $1,000,000. It expects to harvest 5,000,000 board feet of timber from this land. The salvage value of the land is expected to be $200,000. The depletion expense per board foot of timber is: $0.16. Depletion Expense per board foot = (Cost − Salvage Value)/Estimated Useful Life in feet = ($1,000,000 − $200,000)/5,000,000 = $0.16/board foot

A company purchased a mineral deposit for $800,000. It expects this property to produce 120,000 tons of minerals and to have a salvage value of $50,000. In the current year, the company mined and sold 9,000 tons of minerals. Its depletion expense for the current period equals: $56,250. Depletion Expense = [(Cost − Salvage Value)/Estimated Useful Life (in tons)] × Tons Mined and Sold = [($800,000 − $50,000)/120,000] × 9,000 = $56,250

Intangible assets do not include: Land held as an investment.

Intangible assets include: Patents. Copyrights. Trademarks. Goodwill.

Amortization is: The allocation of the cost of an intangible asset to expense over its estimated useful life.

Owning a patent: Gives the owner exclusive rights to manufacture and sell a patented item or to use a process for 20 years.

Holding a copyright: Gives its owner the exclusive right to publish and sell a musical, literary, or artistic work during the life of the creator plus 70 years.

A leasehold is: The rights the lessor grants to the lessee under the terms of a lease.

The meaning of goodwill in accounting is: The amount by which a company's value exceeds the value of its individual assets and liabilities.

Minor Company installs a machine in its factory at the beginning of the year at a cost of $135,000. The machine’s useful life is estimated to be 5 years, or 300,000 units of product, with a $15,000 salvage value. During its first year, the machine produces 64,500 units of product. Determine the machine’s first year depreciation under the straight-line method. $24,000. Depreciation Expense = (Cost − Salvage Value)/Estimated Useful Life = ($135,000 − $15,000)/5 = $24,000

Minor Company installs a machine in its factory at the beginning of the year at a cost of $135,000. The machine's useful life is estimated to be 5 years, or 300,000 units of product, with a $15,000 salvage value. During its first year, the machine produces 64,500 units of product. Determine the machine's first year depreciation under the double-declining-balance method. $54,000. Depreciation Expense = Book Value × Double Straight-line Rate = $135,000 × (2 × 20%) = $54,000 (Depreciation Expense, year 1)

Fortune Drilling Company acquires a mineral deposit at a cost of $5,900,000. It incurs additional costs of $600,000 to access the deposit, which is estimated to contain 2,000,000 tons and is expected to take 5 years to extract. Compute the depletion expense for the first year assuming 418,000 tons were mined and sold. $1,358,500. Depletion Expense = [(Cost − Salvage Value)/Estimated Useful Life (in tons)] × Tons Mined = [($5,900,000 + $600,000 − $0)/2,000,000] × 418,000 = $1,358,500

Fortune Drilling Company acquires a mineral deposit at a cost of $5,900,000. It incurs additional costs of $600,000 to access the deposit, which is estimated to contain 2,000,000 tons and is expected to take 5 years to extract. What journal entry would be needed to record the expense for the first year assuming 418,000 tons were mined and sold? Debit Depletion Expense $1,358,500; credit Accumulated Depletion $1,358,500. Depletion Expense = [(Cost − Salvage Value)/Estimated Useful Life (in tons)] × Tons Mined = [($5,900,000 + $600,000 − $0)/2,000,000] × 418,000 = $1,358,500

Bering Rock acquires a granite quarry at a cost of $590,000, which is estimated to contain 200,000 tons of granite and is expected to take 6 years to remove. Compute the depletion expense for the first year assuming 38,000 tons were removed and sold. $112,100. Depletion Expense = (Cost − Salvage Value)/Estimated Useful Life in tons × Tons removed = [($590,000 − $0)/200,000] × 38,000 = $112,100

Bering Rock acquires a granite quarry at a cost of $590,000, which is estimated to contain 200,000 tons of granite and is expected to take 6 years to remove. What journal entry would be needed to record the expense for the first year assuming 38,000 tons were removed and sold? Debit Depletion Expense $112,100; credit Accumulated Depletion $112,100. Depletion Expense = (Cost − Salvage Value)/Estimated Useful Life in tons × Tons removed = [($590,000 − $0)/200,000] × 38,000 = $112,100

Nike owns equipment that cost $93,500 with accumulated depreciation of $64,000. Nike asks $35,000 for the equipment but sells the equipment for $33,000. Compute the amount of gain or loss on the sale. $3,500 gain. Gain/Loss on Sale = Cash Received − Book Value = $33,000 − ($93,500 − $64,000); Gain of $3,500

Victory Company purchases equipment at the beginning of the year at a cost of $15,000. The equipment is depreciated using the straight-line method and has a useful life estimated to be 7 years with a $1,000 salvage value. The journal entry to record the first year’s depreciation is: Debit Depreciation Expense $2,000, credit Accumulated Depreciation $2,000. Depreciation Expense = (Cost − Salvage Value)/Estimated Useful Life = ($15,000 − $1,000)/7 = $2,000

Victory Company purchases equipment at the beginning of the year at a cost of $15,000. The equipment is depreciated using the straight-line method and has a useful life estimated to be 7 years with a $1,000 salvage value. The book value at the end of 7 years is: $1,000. Depreciation Expense = (Cost − Salvage Value)/Estimated Useful Life = ($15,000 − $1,000)/7 = $2,000. $15,000 − ($2,000 × 7) = $1,000

Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine is depreciated using the straight-line method. The machine’s useful life is estimated to be 5 years with a $4,000 salvage value. Depreciation expense in year 2 is: $4,000. Depreciation Expense = (Cost − Salvage Value)/Estimated Useful Life = ($24,000 − $4,000)/5 = $4,000

Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine is depreciated using the straight-line method. The machine’s useful life is estimated to be 5 years with a $4,000 salvage value. The book value of the machine at the end of year 2 is: $16,000. Depreciation Expense = (Cost − Salvage Value)/Estimated Useful Life = ($24,000 − $4,000)/5 = $4,000 per year. Book value at end of year 2 = Cost − Accumulated Depreciation = $24,000 − ($4,000 × 2) = $16,000

Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine is depreciated using the double-declining-balance method. The machine’s useful life is estimated to be 5 years with a $4,000 salvage value. Depreciation expense in year 2 is: $5,760. Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate = $24,000 × (2 × 20%) = $9,600 (Depreciation Expense, year 1). Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate = ($24,000 − $9,600) × (2 × 20%) = $5,760 (Depreciation Expense, year 2)

Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine is depreciated using the double-declining-balance method. The machine’s useful life is estimated to be 5 years with a $4,000 salvage value. The machine’s book value at the end of year 2 is: $8,640. Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate = $24,000 × (2 × 20%) = $9,600 (Depreciation Expense, year 1). Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate = ($24,000 − $9,600) × (2 × 20%) = $5,760 (Depreciation Expense, year 2). Book value at end of year 2 = Cost − Accumulated Depreciation = $24,000 − ($9,600 + $5,760) = $8,640

Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine is depreciated using the units-of-production method. The company estimates it will use the machine for 5 years, during which time it anticipates producing 40,000 units. The machine is estimated to have a $4,000 salvage value. The company produces 9,000 units in year 1 and 6,000 units in year 2. Depreciation expense in year 2 is: $3,000. Depreciation Expense = (Cost − Salvage Value)/Estimated Useful Life (units) = ($24,000 − $4,000)/40,000 = $0.50 per unit × 6,000 units = $3,000

Martin Company purchases a machine at the beginning of the year at a cost of $60,000. The machine is depreciated using the straight-line method. The machine’s useful life is estimated to be 4 years with a $5,000 salvage value. Depreciation expense in year 4 is: $13,750. Depreciation Expense = (Cost − Salvage Value)/Estimated Useful Life = ($60,000 − $5,000)/4 = $13,750

Martin Company purchases a machine at the beginning of the year at a cost of $60,000. The machine is depreciated using the straight-line method. The machine’s useful life is estimated to be 4 years with a $5,000 salvage value. The book value of the machine at the end of year 4 is: $5,000. Depreciation Expense = (Cost − Salvage Value)/Estimated Useful Life = ($60,000 − $5,000)/4 = $13,750 per year. Book value at end of year 4 = Cost − Accumulated Depreciation = $60,000 − ($13,750 × 4) = $5,000

Martin Company purchases a machine at the beginning of the year at a cost of $60,000. The machine is depreciated using the double-declining-balance method. The machine’s useful life is estimated to be 4 years with a $5,000 salvage value. The machine’s book value at the end of year 3 is: $7,500. Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate = $60,000 × (2 × 25%) = $30,000 (Depreciation Expense, year 1). Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate = ($60,000 − $30,000) × (2 × 25%) = $15,000 (Depreciation Expense, year 2). Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate = ($60,000 − $45,000) × (2 × 25%) = $7,500 (Depreciation Expense, year 3). Book Value at end of year 3 = Cost minus Accumulated Depreciation = $60,000 − ($30,000 + $15,000 + $7,500) = $7,500.