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Exam 10: Long-Term Assets

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Question 81

Multiple Choice

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Total asset turnover is used to evaluate:

A) The efficiency of management's use of assets to generate sales.
B) The necessity for asset replacement.
C) The number of times operating assets were sold during the year.
D) The cash flows used to acquire assets.
E) The relation between asset cost and carrying amount.

F) None of the above
G) B) and C)

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Question 82

Multiple Choice

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A method that allocates an equal portion of the total depreciable cost for an item of property, plant and equipment to each unit produced is called:

A) Accelerated depreciation.
B) Declining-balance depreciation.
C) Straight-line depreciation.
D) Units-of-production depreciation.
E) Equivalent depreciation.

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

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Question 83

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Explain (in detail) how to compute each of the following depreciation methods: straight-line, units-of-production, and double-declining-balance.

_____________________ depreciation uses a depreciation rate that is a multiple of the straight-line rate and applies it to an asset's beginning-of-period carrying amount.

A company made the following expenditures in connection with the construction of its new building: Prepare a schedule showing the amounts to be recorded as Land, Buildings, and Machinery.

_______________________ expenditures are expenditures that extend an asset's useful life beyond its original estimate.

The straight-line depreciation method and the double-declining-balance depreciation method:

If an asset is sold above its carrying amount, the selling company records a loss.

Describe the accounting for natural resources, including their acquisition, cost allocation, and account titles.

Intangible assets include:

The units-of-production method of depreciation charges a varying amount of expense for each period of an asset's useful life depending on its usage.

Property, plant and equipment refer to intangible assets that are used in the operations of a business.

_____________________ are additional costs of property, plant and equipment that provide benefits extending beyond the current period; they increase or improve the type or amount of service an asset provides.

On January 1, Year 1, Acadia purchased a computer system that cost $1,480,000. The estimated useful life of the computer is 3 years and residual value is $40,000. Straight-line depreciation is to be used. On January 1, Year 2, the company determined that the estimated useful life of the computer would be 4 years instead of 3 years. The estimated residual value will only be $10,000. Prepare the journal entry to record depreciation expense for Year 1. Prepare the journal entry to record depreciation expense for Year 2.

A company purchased a special purpose machine on August 1 of the past year, and it was installed and ready to run on January 1 of this year. The following costs were incurred in the purchase and installation of the machine. Determine the total cost of the machine.

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

Carmel Company acquires a mineral deposit at a cost of $5,900,000. It incurs additional costs of $600,000 to access the deposit, which is estimated to contain 2,000,000 tons and is expected to take 5 years to extract. Compute the depletion expense for the first year assuming 418,000 tons were mined.

A company traded an old forklift for a new forklift, receiving a $10,500 trade-in allowance and paying the remaining $37,200 in cash. The old forklift had cost $39,000, and straight-line accumulated depreciation of $27,200 had been recorded as of the exchange date under the assumption it would last five years and have a $5,000 residual value. 1. What was the carrying amount of the old forklift on the date of the exchange? 2. What amount of gain or loss (indicate which) should be recognized in recording the exchange, assuming the transaction has commercial substance? 3. What amount should be recorded as the cost of the new forklift?

Match each of the following terms with the appropriate definitions.

A company purchased a machine for $75,000 that was expected to last 6 years and to have a residual value of $6,000. At the beginning of the machine's fourth year the company decided that the estimated useful life should be revised to a total of 10 years instead of 6 years. Also, the residual value was re-estimated to be $5,500. Straight-line depreciation was used throughout the machine's life. Calculate the depreciation expense for the fourth year of the machine's useful life.