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Exam 10: Plant Assets, Natural Resources, and Intangibles

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Question 91

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On July 1 of the current year, Suffox Company signed a contract to sublease space in a building for 7 years. Suffox Company paid Alec Company $56,000 for the right to sublease this space. After taking possession of the leased space, Suffox pays $140,000 for improving the office portion of the lease space. The improvements are paid on July 6 of the current year, and are estimated to have a useful life equal to the 14 years remaining in the life of the building. Prepare entries for Suffox to record (a) its payment to Alec for the right to sublease the building space, (b) its payment for the office improvements, (c) the December 31 year-end entry to amortize the cost of the sublease, (d) the December 31 year-end entry to amortize the office improvements.

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(a) July 1
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Question 92

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On January 1, Year 1, Acadia purchased a computer system that cost $1,480,000. The estimated useful life of the computer is 3 years and salvage value is $40,000. Straight-line depreciation is to be used. On January 1, Year 2, the company determined that the estimated useful life of the computer would be 4 years instead of 3 years. The estimated salvage value will only be $10,000. Prepare the journal entry to record depreciation expense for Year 1. Prepare the journal entry to record depreciation expense for Year 2.

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Question 93

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

When originally purchased, a vehicle had an estimated useful life of 8 years. The vehicle cost $23,000 and its estimated salvage value is $1,500. After 4 years of straight-line depreciation, the asset's total estimated useful life was revised from 8 years to 6 years and there was no change in the estimated salvage value. The depreciation expense in year 5 equals:

A company sold a machine that originally cost $100,000 for $60,000 cash. The accumulated depreciation on the machine was $40,000. The company should recognize a:

Total asset turnover is used to evaluate:

Explain the difference between revenue expenditures and capital expenditures and how they are recorded in the accounting system.

Revenue expenditures are additional costs of plant assets that materially increase the assets' life or productive capabilities.

Revising an estimate of the useful life or salvage value of a plant asset is referred to as a change in accounting estimate, and is reflected in the past, current, and future financial statements.

A machine costing $450,000 with a four-year life and an estimated $30,000 salvage value is installed by Lux Company on January 1. The factory estimates the machine will produce 1,050,000 units of product during its life. It actually produces the following units for the first 2 years: Year 1, 260,000; Year 2, 275,000. Enter the depreciation amounts for years 1 and 2 in the table below for each depreciation method. Show calculation of amounts below the table.

A company exchanged its used machine for a new machine in a transaction that had commercial substance. The old machine cost $70,000, and the new one had a cash price of $95,000. The company had taken $60,000 depreciation on the old machine and was allowed a $2,500 trade-in allowance and the balance of $92,500 was paid in cash. What gain or loss should be recorded on the exchange?

Another name for a capital expenditure is:

_____________________ depreciation uses a depreciation rate that is a multiple of the straight-line rate and applies it to an asset's beginning-of-period book value.

The double-declining balance method is applied by (1) computing the asset's straight-line depreciation rate, (2) doubling it, (3) subtracting salvage value from cost, and (4) multiplying the rate times the net value.

Lomax Enterprises purchased a depreciable asset for $22,000 on March 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, Lomax Enterprises should recognize depreciation expense in Year 2 in the amount of:

An accelerated depreciation method yields smaller depreciation expense in the early years of an asset's life and larger depreciation expense in later years.

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

An asset's book value is $36,000 on January 1, Year 6. The asset is being depreciated $500 per month using the straight-line method. Assuming the asset is sold on July 1, Year 7 for $25,000, the company should record:

The three usual means for disposal of an asset are: ________________________________________________________.

Cowers reported net sales of $2,463 million and average total assets of $1,546 million. Its total asset turnover equals 1.59. $2,463/$1,546 = 1.59