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Exam 8: Accounting for Long-Term Assets

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Question 61

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

A) True
B) False

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Question 62

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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) C) and E)
G) A) and B)

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Question 63

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

A company purchased an equipment system for $325,000 on January 2.The company expects the equipment to last for eight years or 81,250 hours of operation,with no estimated salvage value.During the first year,the equipment was in operation for 8,000 hours,while in the second year,the equipment was in operation for 8,700 hours.Compute the depreciation expense relating to the equipment for Year 1 and Year 2 using the following depreciation methods: a.Straight-line. b.Double-declining-balance. c.Units-of-production.

Match each of the following terms with the appropriate definitions. -Expenditures to keep a plant asset in normal,good operating condition.

________ 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.

The cost of fees for insuring the title and any accrued property taxes are included in the cost of land.

Match each of the following terms with the appropriate definitions. -The amount by which the company's value exceeds the value of its individual assets and liabilities.

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:

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 second year of its useful life using the double-declining-balance method?

A company bought new heating system for $42,000 and was given a trade-in of $2,000 on an old heating system,so the company paid $40,000 cash with the trade-in.The old system had an original cost of $37,000 and accumulated depreciation of $34,000.If the transaction has commercial substance,the company should record the new heating system at:

On January 1,2016,a company disposed of equipment for $16,200 cash that had cost $35,000,a salvage value of $5,000,and a useful life 10 years.The double-declining-balance depreciation method was used.On December 31,2015,accumulated depreciation was $20,664.Prepare a journal entry to record the disposal of the equipment.

Additions to land that increase the usefulness of the land such as parking lots,fences,and lighting are not depreciated.

A company sold a machine that originally cost $90,000 for $28,000 cash.The accumulated depreciation on this machine was $47,000 at the time of the sale.What was the company's gain or loss on this sale?

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:

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.

A company paid $320,000 for equipment that was expected to last five years and to have a salvage value of $40,000.During the third year of the equipment's life,$39,000 cash was paid for replacement parts that were expected to increase productivity by 10% each year.Prepare the journal entry to record the $39,000 cost incurred in the third year.

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

A machine originally had an estimated useful life of 6 years,but after 4 complete years,it was decided that the original estimate of useful life should have been 10 years.At that point the remaining cost to be depreciated should be allocated over the remaining:

Anderson Company sold a piece of equipment for $28,000 cash on December 31 after recording the annual depreciation on the asset.The equipment had an original cost of $97,500 and accumulated depreciation of $63,000.Prepare the general journal entry to record the sale of this asset.