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Exam 10: Plant Assets, natural Resources, and Intangibles

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Question 71

Multiple Choice

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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 the company paid $300,000 in addition to the old boat to acquire the new boat.If this transaction lacks commercial substance,what amount of gain or loss should be recorded on this exchange?

A) $0 gain or loss.
B) $40,000 gain.
C) $40,000 loss.
D) $60,000 loss
E) $100,000 loss.

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

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Question 72

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The book value of an asset when using double-declining-balance depreciation is always greater than the book value from using straight-line depreciation,except at the beginning and the end of the asset's useful life,when it is the same.

A) True
B) False

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Question 73

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On April 1 of the current year,a company disposed of an automobile that had cost $20,000.The auto had a salvage value of $2,000,and a useful life of 5 years.The accounting records showed accumulated depreciation for this automobile of $8,100 as of April 1 of the current year.The asset was discarded after an accident,and $10,500 cash was received from an insurance claim.Prepare the journal entry to record the disposal of the automobile.

Heidel Co.paid $750,000 cash to buy the plant assets of Rogers Co.that went out of business.An independent appraiser assigned the following values to the assets acquired: Land……………………………………..$522,000 Building…………………………………. 243,000 Equipment………………………………. 135,000 Total…………………………………….. $900,000 Prepare Heidel's journal entry to record the acquisition of these assets.

Betterments are a type of capital expenditure.

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

Cambria owns equipment that cost $93,500 with accumulated depreciation of $64,000.Cambria asks $35,000 for the equipment but sells the equipment for $33,000.Compute the amount of gain or loss on the sale.

A company purchased a machine on January 1 of the current year for $750,000.Calculate the annual depreciation expense for each year of the machine's life (estimated at 5 years or 20,000 hours,with a salvage value of $75,000)using each of the below-mentioned methods .During the machine's 5-year life its hourly usage was: 3,000; 4,000; 5,000; 5,000; and 3,000 hours. Double- Units-of- Declining- Year Straight-line Production Balance Year 1 $__________ $___________ $___________ Year 2 __________ ___________ ___________ Year 3 __________ ___________ ___________ Year 4 __________ ___________ ___________ Year 5 __________ ___________ ___________ Total __________ ___________ ___________

When the usefulness of plant assets used to extract natural resources is directly related to the depletion of a natural resource,their costs are depreciated using the units-of-production method of depreciation,as long as the assets will not be moved to and used at another site when extraction of the natural resources is complete.

A company bought a new display case for $42,000 and was given a trade-in of $2,000 on an old display case,so the company paid $40,000 cash with the trade-in.The old case had an original cost of $37,000 and accumulated depreciation of $34,000.If the transaction has commercial substance,the company should record the new display case at:

The double-declining balance method is applied by (1)computing the asset's straight-line depreciation rate,(2)doubling it,(3)subtracting salvage value from cost,and (4)multiplying the rate times the net value.

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

Capital intensive companies have a relatively large amount invested in assets to generate a given level of sales.

Explain how to calculate total asset turnover.Describe what it reveals about a company's financial condition,whether a higher or lower ratio is desirable,and how it is best applied for comparative purposes.

The purchase of a property that included land,building,and related improvements is called a lump-sum purchase.

A company had net sales of $230,000 for 2013 and $288,000 for 2014.The company's average total assets for 2013 were $150,000 and $180,000 for 2014.Calculate the total asset turnover for each year and comment on the company's efficiency in the use of its assets.

Natural resources:

Decision makers and other users of financial statements are especially interested in evaluating a company's ability to use its assets in generating sales.

___________________ are additional costs of plant assets that do not materially increase the asset's life or productive capabilities.

Depreciation is the process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use.