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Exam 10: Plant Assets Natural Resoures and Intangibles

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Question 1

True/False

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When plant assets are purchased as a group in a single transaction for a lump-sum price, the cost of the purchase is allocated among the different types of assets acquired based on their relative market values.

A) True
B) False

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Question 2

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A company used straight-line depreciation for an item of equipment that cost $12,000, had a salvage value of $2,000 and a five-year useful life. After depreciating the asset for three complete years, the salvage value was reduced to $1,200 but its total useful life remained the same. Determine the amount of depreciation to be charged against the equipment during each of the remaining years of its useful life:

A) $2,400
B) $2,000
C) $5,400
D) $1,800
E) $1,000

F) C) and D)
G) B) and C)

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Question 3

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Once an asset's book value equals its salvage value, depreciation stops.

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:

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:

Natural resources are:

Match each of the following terms with the appropriate definitions. a. Depletion b. Betterment c. Ordinary repairs d. Units-of production method e. Intangible assets f. Accelerated depreciation g. Amortization h. Goodwill i. Total asset turnover j. Revenue expenditure _____ 1. The amount by which the company's value exceeds the value of its individual assets and liabilities. _____ 2. A cost reported as an expense on the current income statement because it does not provide a material benefit in future periods. _____ 3. An expenditure that makes a plant asset more efficient or productive. _____ 4. A method of depreciation that yields larger expense during the early years of an asset's life and smaller expense in the later years. _____ 5. Expenditures to keep a plant asset in normal, good operating condition. _____ 6. The process of allocating the cost of a natural resource to the period when it are consumed. _____ 7. A measure of a company's effectiveness in using its assets to generate sales. _____ 8. The process of systematically allocating the cost of an intangible asset to expense over its estimated useful life. _____ 9. A depreciation method that charges a varying amount to expense for each period of an asset's useful life depending on its usage. _____ 10. Certain nonphysical assets used in operations that confer long-term rights, privileges, or competitive advantages on their owners.

On April 1 of the current year, a company purchased and placed in service a machine with a cost of $240,000. The company estimated the machine's useful life to be four years or 60,000 units of output with an estimated salvage value of $60,000. During the current year, 12,000 units were produced. Prepare the necessary December 31 adjusting journal entry to record depreciation for the current year assuming the company uses: a. The straight-line method of depreciation b. The units-of-production method of depreciation c. The double-declining balance method of depreciation

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

The depreciation method in which a plant asset's depreciation expense for a period is determined by applying a constant depreciation rate to the asset's beginning-of-period book value is called:

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

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 machines' first year depreciation under the double-declining-balance method.

A plant asset's useful life is the length of time it is productively used in a company's operations.

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 machines' first year depreciation under the straight-line method.

The Oberon Company purchased a delivery truck for $95,000 on January 2. The truck was estimated to have a $3,000 salvage value and a 4 year life. The truck was depreciated using the straight-line method. At the beginning of the third year, it was obvious that the truck's total useful life would be 6 years rather than 4, and the salvage at the end of the 6th year would be $1,500. Determine the depreciation expense for the truck for the 6 years of its life. $\begin{array} { | l | l | } \hline \text { Year } & \text { Depreciation expense } \\\hline 1 & \\\hline 2 & \\\hline 3 & \\\hline 4 & \\\hline 5 & \\\hline 6 & \\\hline\end{array}$

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?

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. If 150,000 tons of ore are mined during the first year, the journal entry to record the depletion is:

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?

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

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, what will be the amount of accumulated depreciation on this asset on December 31, Year 3?