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Exam 10: Plant Assets, natural Resources, and Intangibles

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Question 91

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The first step in accounting for an asset disposal is to calculate the gain or loss on disposal.

A) True
B) False

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Question 92

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Betterments:

A) Are expenditures making a plant asset more efficient or productive.
B) Are also called improvements.
C) Do not always increase an asset's life.
D) Are capital expenditures.
E) All of the choices are betterments.

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

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Question 93

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

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

Revenue expenditures:

A company purchased mining property containing 7,350,000 tons of ore for $1,837,500.In Year 1,it mined and sold 857,000 tons of ore and in Year 2,it mined and sold 943,000 tons of ore.Calculate the depletion expense for Year 1 and Year 2.What was the book value of the property at the end of Year 2?

On April 1 of the current year,a company traded an old machine that originally cost $32,000 and that had accumulated depreciation of $24,000 for a similar new machine that had a cash price of $40,000. 1.Prepare the entry to record the exchange under the assumption that a $5,000 trade-in allowance was received and the balance of $35,000 was paid in cash.Assume the exchange transaction had commercial substance. 2.Prepare the entry to record the exchange under the assumption that instead of a $5,000 trade-in allowance,a $12,500 trade-in allowance was received and the balance of $27,500 was paid in cash.Assume the exchange transaction lacked commercial substance.

Monte Ray leases office space for $7,000 per month.On January 3,Monte Ray incurs $75,000 to improve his leased office space.These improvements are expected to yield benefits for 8 years.Ray has 6 years remaining on his lease.Compute the amount of expense that should be recorded the first year related to the improvements.

Define plant assets and identify the four primary issues in accounting for them.

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,assuming the transaction lacked commercial substance.

Match each of the following terms with the appropriate definitions. -The insufficient capacity of plant assets to meet the company's productive demands.

On April 1,Year 1,SAS Corp.purchased and placed in service a plant asset.The following information is available regarding the plant asset: Make the necessary adjusting journal entries at December 31,Year 1,and December 31,Year 2 to record depreciation for each year under the following depreciation methods: a.Straight-line. b.Double-declining-balance.

A company purchased a heating system on January 2 for $225,000.The system had an estimated useful life of 15 years.On January 3 of the thirteenth year,the company completed a renovation of the system at a cost of $33,000 and now expects the system to be more efficient and last 8 years beyond the original estimate.The company uses the straight-line method of depreciation. (a)Prepare the journal entry at January 3,to record the renovation of the heating system. (b)Prepare the journal entry at December 31,to record the revised depreciation for the thirteenth year.

Total depreciation expense over an asset's useful life will be identical under all methods of depreciation.

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

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

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

A company's old machine that cost $40,000 and had accumulated depreciation of $30,000 was traded in on a new machine having an estimated 20-year life with an invoice price of $50,000.The company also paid $43,000 cash,along with its old machine to acquire the new machine.If this transaction has commercial substance,the new machine should be recorded at:

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 $3,900 per year.

Financial accounting and tax accounting require the same recordkeeping and there should be no difference in results between the two accounting systems.