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Exam 8: Accounting for Long-Term Assets

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Question 1

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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) Debit Depletion Expense $112,100; credit Accumulated Depletion $112,100.
B) Debit Amortization Expense $112,100; credit Natural Resources $112,100.
C) Debit Depreciation Expense $93,158; credit Accumulated Depreciation $93,158.
D) Debit Depletion Expense $93,158; credit Accumulated Depletion $93,158.
E) Debit Depreciation Expense $98,333; credit Accumulated Depreciation $98,333.

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

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Question 2

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In year one,McClintock Co.acquired a truck that cost $75,500 with an estimated $14,000 salvage value and 4 year estimated useful life.Depreciation in the first year was $15,375.McClintock had the following transactions involving plant assets during Year 2.Unless otherwise indicated,all transactions were for cash. Prepare the general journal entries to record these transactions.

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Question 3

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Asset turnover is computed by dividing net sales by average total assets.

A company purchased a delivery van for $28,000 with a salvage value of $3,000 on September 1,Year 1.It has an estimated useful life of 5 years.Using the straight-line method,how much depreciation expense should the company recognize on December 31,Year 1?

Which of the following is an example of an extraordinary repair?

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

A company exchanged its used machine for a new machine in a transaction that had commercial substance.The old machine cost $68,000,and the new one had a cash price of $95,000.The company had taken $59,000 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?

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

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 ________.

Greene Company purchased a machine for $75,000 that was expected to last 6 years and to have a salvage value of $6,000.At the beginning of the machine's fourth year the company decided that the estimated useful life should be revised to a total of 10 years instead of 6 years.Also,the salvage value was re-estimated to be $5,500.Straight-line depreciation was used throughout the machine's life.Calculate the depreciation expense for the fourth year of the machine's useful life.

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. $\begin{array} { | l | l | } \hline \text { Year } & \text { Depreciation expense } \\\hline 1 & \\\hline 2 & \\\hline 3 & \\\hline 4 & \\\hline 5 & \\\hline 6 & \\\hline\end{array}$

Depreciation is higher in earlier years and income is lower in the later years when using straight-line versus accelerated methods.

The specific meaning of goodwill in accounting 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 leasehold is:

A company purchased property for $100,000.The property included a building,a parking lot,and land.The building was appraised at $62,000; the land at $35,000,and the parking lot at $18,000.Land should be recorded in the accounting records with an allocated cost of:

Extraordinary repairs:

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

The cost of an intangible asset is systematically allocated to depreciation expense over its estimated useful life.

If land is purchased as a building site,the cost of removing existing structures is not charged to the Land account.