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Exam 10: Plant Assets, Natural Resoures, and Intangibles

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Question 51

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

A) True
B) False

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Question 52

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Victory Company purchases office equipment at the beginning of the year at a cost of $15,000. The machine is depreciated using the straight-line method. The machine's useful life is estimated to be 7 years with a $1,000 salvage value. The journal entry to record the first year's depreciation is:

A) Debit Depreciation Expense $2,000, credit Accumulated Depreciation $2,000.
B) Debit Office Equipment $2,000, credit Accumulated Depreciation $2,000.
C) Debit Depreciation Expense $2,000, credit Office Equipment $2,000.
D) Debit Depreciation Expense $2,143, credit Accumulated Depreciation $2,143.
E) Debit Accumulated Depreciation $2,143; credit Office Equipment $2,143.

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

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Question 53

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

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?

Which of the following is not classified as plant assets?

Hunter Sailing Company exchanged an old sailboat for a new one. The old sailboat had a cost of $160,000 and accumulated depreciation of $100,000. The new sailboat had an invoice price of $270,000. Hunter received a trade in allowance of $70,000 on the old sailboat, which meant the company paid $200,000 in addition to the old sailboat to acquire the new sailboat. If this transaction has commercial substance, what amount of gain or loss should be recorded on this exchange?

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.

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

It is necessary to report both the cost and the accumulated depreciation of plant assets in the financial statements.

Define plant assets and identify the four primary issues in accounting for them.

The specific meaning of goodwill in accounting is:

A company purchased a weaving machine for $190,000. The machine has a useful life of 8 years and a residual 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 book value of the machine at the end of the second year?

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:

Capital expenditures, also called balance sheet expenditures, are additional costs of plant assets that provide benefits extending beyond the current period.

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

Explain the purpose of and method of depreciation for partial years.

A company purchased a weaving machine for $190,000. The machine has a useful life of 8 years and a residual 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 accumulated depreciation at the end of the second year?

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 accumulated depreciation at the end of the second year of its useful life using the double-declining-balance method?

Merchant Company purchased property for a building site. The costs associated with the property were: $\begin{array} { l } \text { Purchase price}&\$185,000 \\ \text {Real estate commissions }& 15,000\\ \text {Legal fees }&700 \\ \text {Expenses of clearing the land }&2,000 \\ \text { Expenses to remove old building}&4,000 \\\end{array}$ What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building?

The first step in accounting for an asset disposal is to calculate the gain or loss on disposal.