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Exam 8: Accounting for Long-Term Assets

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Question 111

True/False

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Natural resources may be reported under either plant assets or their own separate category on the balance sheet.

A) True
B) False

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Question 112

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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:

A) $0.75.
B) $0.24.
C) $0.20.
D) $0.16.
E) $0.04.

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

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Question 113

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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?

A company purchased a delivery van on October 1 of the current year at a cost of $40,000.The van is expected to last six years and has a salvage value of $2,200.The company's annual accounting period ends on December 31. 1.What is the depreciation expense for the current year,assuming the straight-line method is used? 2.What is the book value of the van at the end of the first year?

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

On April 1,2015,due to obsolescence resulting from a new technology,a company discarded a computer that cost $5,000,had a useful life of 4 years,and a salvage value of $400.Based on straight-line depreciation,the accumulated depreciation as of December 31,2014 was $3,450. a.Prepare the journal entry to record depreciation up to the date of disposal of the computer. b.Prepare the journal entry to record the disposal of the computer.

How is the cost computed for individual assets purchased as a lump-sum?

A benefit of using an accelerated depreciation method is that:

Marks Consulting purchased equipment costing $45,000 on January 1,Year 1.The equipment is estimated to have a salvage value of $5,000 and an estimated useful life of 8 years.Straight-line depreciation is used.If the equipment is sold on July 1,Year 5 for $20,000,the journal entry to record the sale will include a:

The calculation of total asset turnover is:

On July 1 of the current year,Glover Mining Co.pays $5,400,000 for land estimated to contain 7,200,000 tons of recoverable ore.It installs machinery on July 3 costing $864,000 that has an 8 year life and no salvage value and is capable of mining the ore deposit in six years.The company removes and sells 745,000 tons of ore during its first six months of operations ending on December 31.Depreciation of the machinery is in proportion to the mine's depletion as the machinery will be abandoned after the ore is mined.Prepare the entries Glover must record for (a)the purchase of the ore deposit,(b)the costs and installation of the machinery,(c)the depletion assuming the land has a zero salvage value,and (d)the depreciation on the machinery.

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:

The term inadequacy,as it relates to the useful life of an asset,refers to:

On January 1,a company purchased machinery for $75,000 that had a 6-year useful life and a salvage value of $6,000.After three years of straight-line depreciation,the company paid $8,500 cash at the beginning of the year to improve the efficiency of the machinery.The productivity of the machinery was improved without increasing its remaining useful life or changing its salvage value.Straight-line depreciation is used throughout the machinery's life. 1.Prepare the journal entry to record the $8,500 expenditure. 2.Prepare the journal entry to record depreciation expense for the fourth year.

An asset's book value is $18,000 on December 31,Year 5.The asset has been depreciated at an annual rate of $3,000 on the straight-line method.Assuming the asset is sold on December 31,Year 5 for $15,000,the company should record:

Beckman Enterprises purchased a depreciable asset on October 1,Year 1 at a cost of $100,000.The asset is expected to have a salvage value of $20,000 at the end of its five-year useful life.If the asset is depreciated on the double-declining-balance method,the asset's book value on December 31,Year 2 will be:

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:

Prepare journal entries to record the following transactions of a company during the current year:

Revenue expenditures,also called income statement expenditures,are additional costs of plant assets that do not materially increase the assets' life or productive capabilities.

When an asset is purchased (or disposed of)at a time other than the beginning or the end of an accounting period,depreciation is recorded for part of a year so that the year of purchase or the year of disposal is charged with its share of the asset's depreciation.