Exam 10: Plant Assets, Natural Resources, and Intangible Assets

The cost of land includes all of the following except

When purchasing land, the costs for clearing, draining, filling, and grading should be charged to a Land Improvements account.

Lewallen Company was organized on January 1. During the first year of operations, the following expenditures and receipts were recorded in random order in the account, Land. Instructions Analyze the foregoing transactions using the following tabular arrangement. Insert the number of each transaction in the Item space and insert the amounts in the appropriate columns.

Don's Copy Shop bought equipment for $90,000 on January 1, 2009. Don estimated the useful life to be 3 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2010, Don decides that the business will use the equipment for 5 years. What is the revised depreciation expense for 2010?

Ordinary repairs should be recognized when incurred as revenue expenditures.

Recording depreciation on plant assets affects the balance sheet and the income statement.

Which one of the following items is not considered a part of the cost of a truck purchased for business use?

Equipment was purchased for $17,000 on January 1, 2010. Freight charges amounted to $700 and there was a cost of $2,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $3,000 salvage value at the end of its 5-year useful life. What is the amount of accumulated depreciation at December 31, 2011, if the straight-line method of depreciation is used?

The balances of the major classes of plant assets and accumulated depreciation by major classes should be disclosed in the balance sheet or notes.

Using the following data for Notson, Inc., compute its asset turnover ratio.

The cost of land does not include

Which one of the following items is not a consideration when recording periodic depreciation expense on plant assets?

Capital expenditures are expenditures that increase the company's investment in productive facilities.

When plant assets are exchanged, the cost of the new asset is the book value of the old asset plus any cash paid.

Goodwill is not recognized in accounting unless it is acquired from another business enterprise.

A patent should

Payton Company purchased a machine on January 1, 2010, at a cost of $80,000. It is expected to have an estimated salvage value of $5,000 at the end of its 5-year life. The company capitalized the machine and depreciated it in 2010 using the double-declining-balance method of depreciation. The company has a policy of using the straight-line method to depreciate equipment but the company accountant neglected to follow company policy when he used the double-declining-balance method. Net income for the year ended December 31, 2010 was $55,000 as the result of depreciating the machine incorrectly. Instructions Using the method of depreciation which the company normally follows, prepare the correcting entry and determine the corrected net income. (Show computations.)

Hadicke Company purchased a delivery truck for $35,000 on January 1, 2010. The truck was assigned an estimated useful life of 100,000 miles and has a residual value of $10,000. The truck was driven 18,000 miles in 2010 and 22,000 miles in 2011. Compute depreciation expense using the units-of-activity method for the years 2010 and 2011.

Which of the following methods of computing depreciation is production based?

For each of the following unrelated transactions, (a) determine the amount of the amortization or depletion expense for the current year, and (b) present the adjusting entries required to record each expense at year end. (1) Timber rights were purchased on a tract of land for $360,000. The timber is estimated at 1,200,000 board feet. During the current year, 75,000 board feet of timber were cut and sold. (2) Costs of $8,000 were incurred on January 1 to obtain a patent. Shortly thereafter, $22,000 was spent in legal costs to successfully defend the patent against competitors. The patent has an estimated legal life of 12 years.