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Exam 8: Long-Term Assets

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Question 61

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

A) True
B) False

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Question 62

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Mason Company sold a piece of equipment for $25,000 cash on December 31 after recording the annual depreciation on the asset. The equipment had an original cost of $92,500 and accumulated depreciation of $60,000. Prepare the general journal entry to record the sale of this asset.

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Question 63

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

How is the cost principle applied to plant assets, acquisitions, including lump-sum purchases?

______________________ are costs that increase the usefulness of land, but have limited useful lives and are thus depreciated.

A company purchased a plant asset for $45,000. The asset has an estimated salvage value of $6,000 and an estimated useful life of 10 years. The annual depreciation expense using the straight-line method is equal to $3,900 per year.

Accumulated depreciation represents funds set aside to buy new assets when the assets currently owned are replaced.

A change in an accounting estimate is:

A company paid $314,000 for a machine that was expected to last five years and have a salvage value of $40,000. During the third year of the machine's life, $37,000 cash was paid for replacement parts that were expected to increase the machine's productivity by 10% each year. Prepare the journal entry to record the $37,000 cost incurred in the third year.

Endor Fishing Company exchanged an old boat for a new one. The old boat had a cost of $260,000 and accumulated depreciation of $200,000. The new boat had an invoice price of $400,000. Endor received a trade in allowance of $100,000 on the old boat, which meant they paid $300,000 in addition to the old boat to acquire the new boat. What amount of gain or loss should be recorded on this exchange?

The Weiss Company purchased a truck for $95,000 on January 2, 2008. 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. During 2010, 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. $\begin{array} { | l | l | } \hline \text { Year } & \text { Depreciation expense } \\\hline 2008 & \\\hline 2009 & \\\hline 2010 & \\\hline 2011 & \\\hline 2012 & \\\hline 2013 & \\\hline\end{array}$

A company purchased mining property that containing 15,000,000 tons of ore for $4,875,000. In 2009, the company mined and sold 789,000 tons of ore and in 2010, it mined and sold 1,235,000. Calculate the depletion expense for 2009 and 2010.

A company purchased equipment valued at $825,000 on January 1. The equipment has an estimated useful life of seven years or six million units. The equipment is estimated to have a salvage value of $35,000. Assuming the double declining balance method of depreciation, what is the annual depreciation for the second year if .5 million units were produced?

During the current year, a company exchanged an old truck costing $58,000 with accumulated depreciation of $52,000 for a new truck. The new truck had a cash price of $80,000 and the company received a $16,000 trade-in allowance on the old truck with the balance of $64,000 paid in cash. Prepare the journal entry to record the exchange. $\begin{array} { | l | r | r | } \hline \text { Market value of new truck } & & \$ 80,000 \\\hline \text { Book value of old truck } ( \$ 58,000 - \$ 52,000 ) & \$ 6,000 & \\\hline \text { Cash paid in the exchange } & 64,000 & 70,000 \\\hline \text { Gain (not recorded) } & & \underline { \$ 10,000 } \\\hline & & \\\hline \text { Book value of old truck } & \$ 6,000 & \\\hline \text { Cash paid in the exchange } & \underline { 64,000 } & \\\hline \text { Cost recorded for new truck } & \$ 70,000 & \\\hline\end{array}$

A company purchased a machine for $970,000. The machine has a useful life of 12 years and a residual value of $4,500. It is estimated that the machine could produce 1,000,000 units over its useful life. In the first year, 200,000 units were produced. In the second year, production increased to 300,000 units. Using the units-of-production method, what is the book value of this asset at the end of the second year of operations?

Most companies use accelerated depreciation for tax purposes as it reduces taxable income due to higher depreciation expense in the early years of an asset's life.

On April 1, 2010 a company discarded a machine that had cost $10,000 and had accumulated depreciation of $8,000 as of December 31, 2009. 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.

Dell had net sales of $35,404 million. Its average total assets for the period were $14,502 million. Dell's total asset turnover is equal to:

Depletion:

On January 2 of the current year, a company purchased a patent for $35,000 with a useful life of 10 years. Prepare the journal entry to amortize the patent at the end of the first year.