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Exam 10: Plant Assets Natural Resoures and Intangibles

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Question 31

Multiple Choice

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The following information is available on a depreciable asset owned by Mutual Savings Bank: $\begin{array} { | l | l | } \hline \text { Purchase date } & \text { July l, Year l } \\\hline \text { Purchase price } & \$ 85,000 \\\hline \text { Salvage value } & \$ 10,000 \\\hline \text { Useful life } & 10 \text { years } \\\hline \text { Depreciation method } & \text { straight-line } \\\hline\end{array}$ The asset's book value is $70,000 on July 1, Year 3. On that date, management determines that the asset's salvage value should be $5,000 rather than the original estimate of $10,000. Based on this information, the amount of depreciation expense the company should recognize during the last six months of Year 3 would be:

A) $3,750.00
B) $4,062.50
C) $7,375.00
D) $7,812.50
E) $8,125.00

F) A) and E)
G) None of the above

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Question 32

Multiple Choice

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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. - Compute the depletion expense for the first year assuming 418,000 tons were mined.

A) $1,180,000.
B) $1,280,000.
C) $1,300,000.
D) $1,358,500.
E) $1,233,100.

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

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Question 33

Short Answer

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Additional costs of plant assets that provide benefits extending beyond the current period; they increase or improve the type or amount of service an asset provides are treated as ________.

Plant assets are used in operations and have useful lives that extend over more than one accounting period.

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 loss on disposal of a plant asset occurs if the cash proceeds received from the asset sale is less than the asset's book value.

No gain or loss is recorded for exchanges of plant assets without commercial substance.

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. -Depreciation expense in year 4 is:

Plant assets refer to nonphysical assets that are used in the operations of a business.

A company purchased a plant asset for $60,000. The asset has an estimated salvage value of $4,000, and an estimated useful life of 7 years. The annual depreciation expense using the straight-line method is $4,000 per year.

A company's old machine that cost $40,000 and had accumulated depreciation of $22,000 was traded in on a new machine having an estimated 20-year life with an invoice price of $45,000. The company also paid $33,000 cash, along with its old machine to acquire the new machine. If this transaction has commercial substance, the new machine should be recorded at:

Capital expenditures that extend an asset's useful life beyond its original estimate are called________.

Depreciation:

Gain or loss on the disposal of assets is determined by comparing the disposed asset's book value to the market value of any assets received.

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

The depreciation method that charges the same amount of expense to each period of the asset's useful life is called:

Match the following definitions with the appropriate term

The federal income tax rules for depreciating assets are known as ________.

Prepare journal entries to record the following transactions of a company during the current year: Mar 1 Purchased a truck for $40,000 with a 5-year useful life and a $5,000 salvage value. Also paid 6% sales tax, $350 for the annual truck license, $300 to paint the truck with the company's colors and name, and $1,500 for maintenance supplies for the future. All payments were in cash. Mar 10 Purchased a garage from a neighboring business with a 7%, 4-year, $67,000 note. The seller's book value for the garage was $42,750. The estimated remaining useful life of the garage is 10 years. July 5 Paid $800 cash to replace (uninsured) garage windows broken during a storm. Aug 25 Purchased used shop equipment for $10,700 cash. Sales tax was $825, freight costs $250, $3,200 for a special base to house the equipment, and reconditioning costs $900, all of which were paid in cash. The estimated useful life of the equipment is 3 years and salvage value is $500. Oct 5 Purchased office equipment for $11,500 cash. Paid $1,290 in sales tax, $550 for repairs incurred from damage during installation, and $2,200 for supplies to be used for periodic preventive maintenance. The estimated useful life of the equipment is 8 years and salvage value is $1,200.

Explain in detail how to compute each of the following depreciation methods: straight-line, units-of-production, and double-declining-balance.