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Exam 8: Accounting for Long-Term Assets

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Question 111

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A company's property records revealed the following information about one of its plant assets: $\begin{array} { | c | c | c | c | c | } \hline \text { Cost } & \begin{array} { c } \text { Salvage } \\\text { Value }\end{array} & \begin{array} { c } \text { Purchase } \\\text { Date }\end{array} & \begin{array} { c } \text { Estimated } \\\text { Life }\end{array} & \text { Depreciation Method } \\\hline 154,000 & 15,000 & 01 / 01 & 10 \text { years } & \text { Double-declining balance } \\\hline\end{array}$ Calculate the depreciation expense in Year 1 and Year 2 for the year ended December 31. Year 1 $\underline{\quad\quad\quad\quad}$ $\quad$ $\quad$ Year 2 $\underline{\quad\quad\quad\quad}$

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Year 1: $154,000 x 20% = $30,8...

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Question 112

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Minor Company installs a machine in its factory at the beginning of the year at a cost of $135,000.The machine's useful life is estimated to be 5 years,or 300,000 units of product,with a $15,000 salvage value.During its first year,the machine produces 64,500 units of product. -What journal entry would be needed to record the machines' first year depreciation under the units-of-production method?

A) Debit Depletion Expense $25,800; credit Accumulated Depletion $25,800.
B) Debit Depletion Expense $29,025; credit Accumulated Depletion $29,025.
C) Debit Depreciation Expense $29,025; credit Accumulated Depreciation $29,025.
D) Debit Depreciation Expense $25,800; credit Accumulated Depreciation $25,800.
E) Debit Amortization Expense $24,000; credit Accumulated Amortization $24,000.

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

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Question 113

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Depreciation expense is calculated using its cost,estimates of an asset's salvage value,and an estimated useful life.

A company had average total assets of $887,000.Its gross sales were $1,090,000 and its net sales were $1,000,000.The company's total asset turnover equals:

Land improvements are:

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

A company purchased land on which to construct a new building for a cost of $350,000.Additional costs incurred were: $\begin{array} { l l } \text { Real estate broker's commissions } & \$ 24,500 \\\text { Legal fees incurred in purchase of the real estate } & 1,500 \\\text { Landscaping } & 8,000 \\\text { Cost to remove old house located on land } & 3,000 \\\text { Proceeds from selling materials salvaged from old house } & 1,000\end{array}$ What total dollar amount should be charged to Land and what amount should be charged to Building or other accounts?

Merchant Company purchased property for a building site.The costs associated with the property were: $\begin{array} { l c } \text { Purchase price } & \$ 185,000 \\\text { Real estate commissions } & 15,000 \\\text { Legal fees } & 700 \\\text { Expenses of clearing the land } & 2,000 \\\text { Expenses to remove old building } & 4,000\end{array}$ What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building?

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.

On April 1 of the current year,a company purchased and placed in service a machine with a cost of $240,000.The company estimated the machine's useful life to be four years or 60,000 units of output with an estimated salvage value of $60,000.During the current year,12,000 units were produced. Prepare the necessary December 31 adjusting journal entry to record depreciation for the current year assuming the company uses: a.The straight-line method of depreciation b.The units-of-production method of depreciation c.The double-declining balance method of depreciation

A company purchased a weaving machine for $190,000.The machine has a useful life of 8 years and a residual value of $10,000.It is estimated that the machine could produce 75,000 bolts of woven fabric over its useful life.In the first year,15,000 bolts were produced.In the second year,production increased to 19,000 units. -Using the units-of-production method,what is the book value of the machine at the end of the second year?

Match each of the following terms with the appropriate definitions. -An estimate of an asset's value at the end its benefit period.

The insufficient capacity of a company's plant asset to meet the company's productive demands is called ________.

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 book value at the end of 7 years is:

Marks Consulting purchased equipment costing $45,000 on January 1,Year 1.The equipment is estimated to have a salvage value of $5,000 and an estimated useful life of 8 years.Straight-line depreciation is used.If the equipment is sold on July 1,Year 5 for $20,000,the journal entry to record the sale will include a:

Betterments are a type of capital expenditure.

Owning a patent:

The depreciation method that charges a varying amount to expense for each period of an asset's useful life depending on its usage is ________.

Explain the impact,if any,on depreciation when estimates that determine depreciation change.

The depreciation method in which a plant asset's depreciation expense for a period is determined by applying a constant depreciation rate to the asset's beginning-of-period book value is called: