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Exam 8: Accounting for Long-Term Assets

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Question 81

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A ________ results from revising estimates of the useful life or salvage value of a plant asset.

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Question 82

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Depletion is:

A) The process of allocating the cost of natural resources to the period when it is consumed.
B) Calculated using the double-declining balance method.
C) Also called amortization.
D) An increase in the value of a natural resource when incurred.
E) The process of allocating the cost of intangibles to periods when they are used.

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

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Question 83

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Decision makers and other users of financial statements are especially interested in evaluating a company's ability to use its assets in generating sales.

It is necessary to report both the cost and the accumulated depreciation of plant assets in the financial statements.

A company purchased a machine on January 1 of the current year for $750,000.Calculate the annual depreciation expense for each year of the machine's life (estimated at 5 years or 20,000 hours,with a salvage value of $75,000)using each of the below-mentioned methods.During the machine's 5-year life its hourly usage was: 3,000; 4,000; 5,000; 5,000; and 3,000 hours. $\begin{array} { | l | l | l | l | } \hline & \text { Straight-line } & \text { Units-of-production } & \text { Double-declining balance } \\\hline \text { Year 1 } & & & \\\hline \text { Year 2 } & & & \\\hline \text { Year 3 } & & & \\\hline \text { Year 4 } & & & \\\hline \text { Year 5 } & & & \\\hline \text { Totals } & & & \\\hline\end{array}$

Riverboat Adventures pays $310,000 plus $15,000 in closing costs to buy out a competitor.The real estate consists of land appraised at $35,000,a building appraised at $105,000,and paddleboats appraised at $210,000. -Compute the cost that should be allocated to the land.

A patent is an exclusive right granted to its owner to manufacture and sell a patented device or to use a process for 20 years.

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 straight-line method.

Match each of the following terms with the appropriate definitions. -A method of depreciation that yields larger expense during the early years of an asset's life and smaller expense in the later years.

The purchase of a property that included land,building,and related improvements is called a lump-sum or basket purchase.

Intangible assets do not include:

On April 1,Year 5 a company discarded a machine that had cost $10,000 and had accumulated depreciation of $8,000 as of December 31,Year 4.The asset had a 5-year life and no salvage value.Prepare the journal entries to record the updating of the depreciation expense and discarding of this asset in Year 5.

Wallace Company had a building that was destroyed by fire.The building originally cost $650,000,and its accumulated depreciation as of the date of the fire was $300,000.The company received $320,000 cash from an insurance policy that covered the building and will use that money to help rebuild.Prepare the single journal entry to record the disposal of the building and the receipt of cash from the insurance company.

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:

A company paid $150,000,plus a 7% commission and $5,000 in closing costs for a property.The property included land appraised at $87,500,land improvements appraised at $35,000,and a building appraised at $52,500.What should be the allocation of this property's costs in the company's accounting records?

Suarez Company uses the straight-line method of depreciation.The company purchased a computer system on January 1,Year 1,for $1,600,000 with an expected life of six years and a salvage value of $130,000.Assuming the computer is sold on July 1,Year 3 for $1,000,000 cash,prepare the journal entries to record depreciation for the first 6 months of Year 3 and the sale of the computer.

Flask Company reports net sales of $4,315 million; cost of goods sold of $2,808 million; net income of $283 million; and average total assets of $2,136.Compute its total asset turnover.

Total asset turnover is calculated by dividing net sales by average total assets.

Companies that have a relatively large amount invested in assets to generate a given level of sales are considered capital-intensive.

A company discarded a computer system originally purchased for $18,000.The accumulated depreciation was $17,200.The company should recognize a(an) :