Question 1

A loss on the exchange of plant assets occurs when the fair market value of the old asset is less than its book value.

Accepted Answer

A) True 
 B)False

Question 2

In calculating depreciation, both plant asset cost and useful life are based on estimates.

Accepted Answer

A) True 
 B)False

Question 3

The asset turnover ratio is calculated as total sales divided by ending total assets.

Accepted Answer

A) True 
 B)False

Question 4

Intangible assets are the rights and privileges that result from ownership of long-lived assets that

Accepted Answer

A)  must be generated internally. 
B)  are depletable natural resources. 
C)  have been exchanged at a gain. 
D)  do not have physical substance. 
A)  must be generated internally. 
B)  are depletable natural resources. 
C)  have been exchanged at a gain. 
D)  do not have physical substance.

Question 5

Farr Company purchased a new van for floral deliveries on January 1, 2010. The van cost $36,000 with an estimated life of 5 years and $9,000 salvage value at the end of its useful life. The double-declining-balance method of depreciation will be used. What is the depreciation expense for 2010?

Accepted Answer

A)  $7,200 
B)  $5,400 
C)  $10,800 
D)  $14,400 
A)  $7,200 
B)  $5,400 
C)  $10,800 
D)  $14,400

Question 6

Additions and improvements to a plant asset that increase the asset's operating efficiency, productive capacity, or expected useful life are generally expensed in the period incurred.

Accepted Answer

A) True 
 B)False

Question 7

Orr Corporation sold equipment for $12,000. The equipment had an original cost of $36,000 and accumulated depreciation of $18,000. As a result of the sale,

Accepted Answer

A)  net income will increase $12,000. 
B)  net income will increase $6,000. 
C)  net income will decrease $6,000. 
D)  net income will decrease $12,000. 
A)  net income will increase $12,000. 
B)  net income will increase $6,000. 
C)  net income will decrease $6,000. 
D)  net income will decrease $12,000.

Question 8

Companies record a gain or loss on the exchange of plant assets because most exchanges have commercial substance.

Accepted Answer

A) True 
 B)False

Question 9

A plant asset cost $144,000 and is estimated to have an $18,000 salvage value at the end of its 8-year useful life. The annual depreciation expense recorded for the third year using the double-declining-balance method would be

Accepted Answer

A)  $12,060. 
B)  $20,250. 
C)  $17,718. 
D)  $13,785. 
A)  $12,060. 
B)  $20,250. 
C)  $17,718. 
D)  $13,785.

Question 10

A truck costing $110,000 was destroyed when its engine caught fire. At the date of the fire, the accumulated depreciation on the truck was $50,000. An insurance check for $125,000 was received based on the replacement cost of the truck. The entry to record the insurance proceeds and the disposition of the truck will include a

Accepted Answer

A)  Gain on Disposal of $15,000. 
B)  credit to the Truck account of $60,000. 
C)  credit to the Accumulated Depreciation account for $50,000. 
D)  Gain on Disposal of $65,000. 
A)  Gain on Disposal of $15,000. 
B)  credit to the Truck account of $60,000. 
C)  credit to the Accumulated Depreciation account for $50,000. 
D)  Gain on Disposal of $65,000.

Question 11

Mattox Company is building a new plant that will take three years to construct. The construction will be financed in part by funds borrowed during the construction period. There are significant architect fees, excavation fees, and building permit fees. Which of the following statements is true?

Accepted Answer

A)  Excavation fees are capitalized but building permit fees are not. 
B)  Architect fees are capitalized but building permit fees are not. 
C)  Interest is capitalized during the construction as part of the cost of the building. 
D)  The capitalized cost is equal to the contract price to build the plant less any interest on borrowed funds. 
A)  Excavation fees are capitalized but building permit fees are not. 
B)  Architect fees are capitalized but building permit fees are not. 
C)  Interest is capitalized during the construction as part of the cost of the building. 
D)  The capitalized cost is equal to the contract price to build the plant less any interest on borrowed funds.

Question 12

Moreno Company purchased equipment for $450,000 on January 1, 2009, and will use the double-declining-balance method of depreciation. It is estimated that the equipment will have a 3-year life and a $20,000 salvage value at the end of its useful life. The amount of depreciation expense recognized in the year 2011 will be

Accepted Answer

A)  $50,000. 
B)  $30,000. 
C)  $54,440. 
D)  $34,440. 
A)  $50,000. 
B)  $30,000. 
C)  $54,440. 
D)  $34,440.

Question 13

Expenditures that maintain the operating efficiency and expected productive life of a plant asset are generally

Accepted Answer

A)  expensed when incurred. 
B)  capitalized as a part of the cost of the asset. 
C)  debited to the Accumulated Depreciation account. 
D)  not recorded until they become material in amount. 
A)  expensed when incurred. 
B)  capitalized as a part of the cost of the asset. 
C)  debited to the Accumulated Depreciation account. 
D)  not recorded until they become material in amount.

Question 14

A company exchanged an old machine, which originally cost $22,000 and has accumulated depreciation to date of $12,000, for a new machine. The old machine had a fair market value of $14,000. The cost of the new machine should be recorded at $_____________.

Accepted Answer

The answer of A company exchanged an old machine, which...

Question 15

The amortization period for a patent cannot exceed

Accepted Answer

A)  50 years. 
B)  40 years. 
C)  20 years. 
D)  10 years. 
A)  50 years. 
B)  40 years. 
C)  20 years. 
D)  10 years.

Question 16

Gains on an exchange of plant assets that has commercial substance are

Accepted Answer

A)  deducted from the cost of the new asset acquired. 
B)  deferred. 
C)  not possible. 
D)  recognized immediately. 
A)  deducted from the cost of the new asset acquired. 
B)  deferred. 
C)  not possible. 
D)  recognized immediately.

Question 17

Dayton Mining Company purchased land containing an estimated 15 million tons of ore at a cost of $4,500,000. The land without the ore is estimated to be worth $600,000. The company expects to operate the mine for 10 years. Buildings costing $600,000 are erected on the site and are expected to last for 25 years. Equipment costing $300,000 with an estimated life of 12 years is installed. The buildings and the equipment possess no salvage value after the mine is closed. During the first year of operations, the mining company mined and sold 2 million tons of ore.
Instructions
(a) Compute the depletion charge per ton.
(b) Compute the depletion expense for the first year.
(c) Compute the appropriate first year's depreciation expense for the buildings.
(d) Compute the appropriate first year's depreciation expense for the equipment.
(e) Prepare journal entries to record depletion and depreciation expenses for the year.

Accepted Answer

(a) Depletion charge per ton:
($4,500,00

Question 18

On July 1, 2010, Jenner Inc. invested $640,000 in a mine estimated to have 800,000 tons of ore of uniform grade. During the last 6 months of 2010, 100,000 tons of or were mined and sold.
Instructions
(a) Prepare the journal entry to record depletion expense.
(b) Assume that the 100,000 tons of ore were mined, but only 85,000 units were sold. How are the costs applicable to the 15,000 unsold units reported?

Accepted Answer

(a)
 @#IMG-DLM& (b) The costs pertaining

Question 19

Natural resources are

Accepted Answer

A)  depreciated using the units-of-activity method. 
B)  physically extracted in operations and are replaceable only by an act of nature. 
C)  reported at their market value. 
D)  amortized over a period no longer than 40 years. 
A)  depreciated using the units-of-activity method. 
B)  physically extracted in operations and are replaceable only by an act of nature. 
C)  reported at their market value. 
D)  amortized over a period no longer than 40 years.

Question 20

If a fully depreciated plant asset is still used by a company, the

Accepted Answer

A)  estimated remaining useful life must be revised to calculate the correct revised depreciation. 
B)  asset is removed from the books. 
C)  accumulated depreciation account is removed from the books but the asset account remains. 
D)  asset and the accumulated depreciation continue to be reported on the balance sheet without adjustment until the asset is retired. 
A)  estimated remaining useful life must be revised to calculate the correct revised depreciation. 
B)  asset is removed from the books. 
C)  accumulated depreciation account is removed from the books but the asset account remains. 
D)  asset and the accumulated depreciation continue to be reported on the balance sheet without adjustment until the asset is retired.

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

A loss on the exchange of plant assets occurs when the fair market value of the old asset is less than its book value.

In calculating depreciation, both plant asset cost and useful life are based on estimates.

The asset turnover ratio is calculated as total sales divided by ending total assets.

Intangible assets are the rights and privileges that result from ownership of long-lived assets that

Farr Company purchased a new van for floral deliveries on January 1, 2010. The van cost $36,000 with an estimated life of 5 years and $9,000 salvage value at the end of its useful life. The double-declining-balance method of depreciation will be used. What is the depreciation expense for 2010?

Additions and improvements to a plant asset that increase the asset's operating efficiency, productive capacity, or expected useful life are generally expensed in the period incurred.

Orr Corporation sold equipment for $12,000. The equipment had an original cost of $36,000 and accumulated depreciation of $18,000. As a result of the sale,

Companies record a gain or loss on the exchange of plant assets because most exchanges have commercial substance.

A plant asset cost $144,000 and is estimated to have an $18,000 salvage value at the end of its 8-year useful life. The annual depreciation expense recorded for the third year using the double-declining-balance method would be

Mattox Company is building a new plant that will take three years to construct. The construction will be financed in part by funds borrowed during the construction period. There are significant architect fees, excavation fees, and building permit fees. Which of the following statements is true?

Expenditures that maintain the operating efficiency and expected productive life of a plant asset are generally

A company exchanged an old machine, which originally cost $22,000 and has accumulated depreciation to date of $12,000, for a new machine. The old machine had a fair market value of $14,000. The cost of the new machine should be recorded at $_____________.

The amortization period for a patent cannot exceed

Gains on an exchange of plant assets that has commercial substance are

Natural resources are

If a fully depreciated plant asset is still used by a company, the

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