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Exam 8: Reporting and Analyzing Long-Term Assets

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Question 91

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Amortization is:

A) The systematic allocation of the cost of an intangible asset to expense over its estimated useful life.
B) The process of allocating to expense the cost of a plant asset to the accounting periods benefiting from its use.
C) The process of allocating the cost of natural resources to periods when they are consumed.
D) An accelerated form of expensing an asset's cost.
E) Also called depletion.

F) All of the above
G) A) and E)

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Question 92

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Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $87,000.The machine's useful life is estimated to be 5 years,or 400,000 units of product,with a $7,000 salvage value.During its second year,the machine produces 84,500 units of product.What journal entry would be needed to record the machines' second year depreciation under the units-of-production method?

A) Debit Depletion Expense $16,900; credit Accumulated Depletion $16,900.
B) Debit Depletion Expense $16,000; credit Accumulated Depletion $16,000.
C) Debit Depreciation Expense $16,900; credit Accumulated Depreciation $16,900.
D) Debit Depreciation Expense $16,000; credit Accumulated Depreciation $16,000.
E) Debit Amortization Expense $16,900; credit Accumulated Amortization $16,900.

F) A) and E)
G) B) and E)

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Question 93

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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:

Plant assets refer to nonphysical assets that are used in the operations of a business.

Compare the different depreciation methods (straight-line,units-of-production,and double-declining-balance)with respect to the amounts of depreciation expense per period and the total depreciation over the life of the asset.

Fields Company purchased equipment on January 1 for $180,000.This system has a useful life of 8 years and a salvage value of $20,000.The company estimates that the equipment will produce 40,000 units over its 8-year useful life.Actual units produced are: Year 1 - 4,000 units; Year 2 - 6,000 units; Year 3 - 8,000 units; Year 4 - 5,000 units; Year 5 - 4,000 units; Year 6 - 5,000 units; Year 7 - 7,000 units; Year 8 - 3,000 units.What would be the depreciation expense for the second year of its useful life using the units-of-production method?

Amortization is the process of allocating the cost of natural resources to periods when they are consumed.

A leasehold refers to the rights the lessor grants to the lessee under the terms of the lease.

Suarez Company uses the straight-line method of depreciation.The company purchased a computer system on January 1,Year 1,for $1,600,000 with an expected life of six years and a salvage value of $130,000.Assuming the computer is sold on July 1,Year 3 for $1,000,000 cash,prepare the journal entries to record depreciation for the first 6 months of Year 3 and the sale of the computer.

________ are capital expenditures that make a plant asset more productive but do not always increase an asset's life; they often involve adding a component to an asset or replacing one of its old components with a better one.

Cliff Company traded in an old truck for a new one.The old truck had a cost of $75,000 and accumulated depreciation of $60,000.The new truck had an invoice price of $125,000.Huffington was given a $12,000 trade-in allowance on the old truck,which meant they paid $113,000 in addition to the old truck to acquire the new truck.If this transaction has commercial substance,what is the recorded value of the new truck?

A company's property records revealed the following information about one of its plant assets: Calculate the depreciation expense in Year 1 and Year 2 for the year ended December 31. Year 1 ________ Year 2 ________

A company purchased and installed machinery on January 1 at a total cost of $93,000.Straight-line depreciation was calculated based on the assumption of a five-year life and no salvage value.The machinery was disposed of on July 1 of year four.The company uses the calendar year. 1.Prepare the general journal entry to update depreciation to July 1 in year four. 2.Prepare the general journal entry to record the sale of the machine for $27,000 cash.

A company purchased land with a building for a lump-sum cost of $2,570,000 ($500,000 paid in cash and the balance on a long-term note).It was estimated that the land and building had market values of $600,000 and $2,400,000,respectively. Determine the cost to be apportioned to the land and to the building and prepare the journal entry to record the acquisition.

The specific meaning of goodwill in accounting is:

A company had average total assets of $887,000.Its gross sales were $1,090,000 and its net sales were $1,000,000.The company's total asset turnover equals:

Accounting for the exchange of assets depends on whether the transaction has commercial substance; commercial substance implies that it alters the company's future cash flows.

Total asset turnover is calculated by dividing average total assets by net sales.

An asset's cost includes all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use.

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?