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Exam 8: Long-Term Assets

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Question 31

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A company purchased equipment for $325,000 on January 2, 2010. The company expects the equipment to last for eight years or 60,000 hours of operation, with an estimated salvage value of $25,000. During 2010, the equipment was in operations for 8,000 hours, while in 2011 the equipment was in operations for 8,700 hours. Compute the depreciation expense relating to the equipment for 2010 and 2011 using the following depreciation methods: a. Straight-line b. Double-declining-balance c. Units-of-production.

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a. ($325,000 - $25,000)/8 = $37,500 for ...

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Question 32

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The useful life of a plant asset is:

A) The length of time it is used productively in a company's operations
B) Never related to its physical life
C) Its productive life, but not to exceed one year
D) Determined by the FASB
E) Determined by law

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

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Question 33

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Gain or loss on the disposal of an asset is determined by comparing "value given" (book value) to "value received".

Depreciation:

A company purchased a tract of land for its natural resources at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected to be $250,000. The depletion expense per ton of ore is:

_______________________ depreciation recognizes equal amounts of annual depreciation over the life of an asset.

____________________ refers to a plant asset that is no longer useful in producing goods or services with a competitive advantage because of new inventions and improvements.

_____________________ is an estimate of an asset's value at the end of its useful life.

A company purchased property for a building site. The costs associated with the property were: $\begin{array} { | l | r | } \hline \text { Purchase price } & \$ 175,000 \\\hline \text { Real estate commissions } & 15,000 \\\hline \text { Legal fees } & 800 \\\hline \text { Expenses of clearing the land } & 2,000 \\\hline \text { Expenses to remove old building } & 1,000 \\\hline\end{array}$ 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?

Cobb Corn Company purchases a large lot on which a building is located. The negotiated purchase price is $2,500,000 for the lot and the building. The company pays $71,500 in commissions and taxes. The appraisal values of each items is as follows: Land $650,000, Building $1,750,000, Land Improvements $120,000. What is the appropriate amount to be entered into the general journal for the building?

A company recently paid $1,500,000 to buy a building with an estimated useful life of 20 years and a salvage value of $25,000. Calculate the depreciation expense for the third year after acquisition using the double-declining-balance depreciation.

A company had net sales of $789,765 and average assets of $658,137. Calculate the company's total asset turnover.

Since goodwill is intangible, it is amortized each year using the straight-line method, the same as other intangibles are amortized.

A company had a building 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 $400,000 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 destruction of the building and the receipt of cash from the insurance company.

A company's old machine that cost $40,000 and had accumulated depreciation of $30,000 was traded in on a new machine of like purpose 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. The value of new machine should be recorded at:

Revising an estimate of the useful life or salvage value of a plant asset is referred to as a change in accounting estimate and is reflected in the past, current and future financial statements.

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

A company sold a machine that originally cost $100,000 for $60,000 cash. The accumulated depreciation on the machine was $40,000. The company should recognize a:

When an asset is purchased (or disposed of) at any time other than the beginning or the end of an accounting period, depreciation is recorded for part of a year so that the year of purchase or the year of disposal is charged with its share of the asset's depreciation.

Explain the purpose of and method of depreciation for partial years.