Exam 10: Plant Assets, Natural Resources, and Intangibles

A company purchased a truck on October 1 of the current year at a cost of $40,000. The truck is expected to last six years and has a salvage value of $2,200. The company's annual accounting period ends on December 31. 1. What is the depreciation expense for the current year, assuming the straight-line method is used? 2. What is the depreciation expense for the current year, assuming the double-declining-balance method is used?

Capital expenditures are also called balance sheet expenditures.

A company had net sales of $541,500 in 2010 and $475,300 in 2011. Its average assets were $410,000 for 2010 and $400,000 for 2011. (1) Calculate the total asset turnover for each year. (2) Interpret and comment on the company's efficiency in the use of its assets.

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

A leasehold:

On January 1, a company purchased a machine for $75,000 that had a 6-year useful life and a salvage value of $6,000. After three years of straight-line depreciation, the company paid $7,500 cash at the beginning of the year to improve the efficiency of the machine. The effect of the expenditure was to increase the productivity of the machine without increasing its remaining useful life or changing its salvage value. Straight-line depreciation is used throughout the machine's life. 1. Prepare the journal entry to record the $7,500 expenditure. 2. Prepare the journal entry to record depreciation expense for the fourth year.

On September 30 of the current year, a company acquired and placed in service a machine at a cost of $700,000. It has been estimated that the machine has a service life of five years and a salvage value of $40,000. Using the double-declining-balance method of depreciation, prepare a schedule showing depreciation amounts for the current year and the next 4 years (round answers to the nearest dollar). The company closes its books on December 31 of each year.

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

Revising estimates of the useful life or salvage value of a plant asset is referred to as a ___________________________________________.

The modified accelerated cost recovery system (MACRS):

The original cost of a machine was $60,000. After $45,000 of depreciation was recorded, the machine was traded in on a new machine priced at $75,000. A $10,500 trade-in allowance was received on the old machine and the balance of $64,500 was paid in cash. This transaction has commercial substance. Prepare the general journal entry to record this trade-in.

The founders of Games2U understand that managing plant assets is important to their company's success. What are some of the plant asset issues that the founders identify as important to them?

An asset can be disposed of by:

Wilson Engineering purchased a depreciable asset costing $45,000 on January 1, Year 1. The asset is estimated to have a salvage value of $5,000 and an estimated useful life of 8 years. Straight-line depreciation is used. If the asset is sold on July 1, Year 5 for $20,000, the journal entry to record the sale will include:

A depreciation method in which a plant asset's depreciation expense for a period is determined by applying a constant depreciation rate to the asset's beginning-of-period book value is called:

Betterments:

A company purchased and installed a machine on January 1 at a total cost of $72,000. Straight-line depreciation was calculated based on the assumption of a five-year life and no salvage value. The machine was disposed of on July 1 of the fourth year. The company uses the calendar year. 1. Prepare the general journal entry to update depreciation to July 1 in the fourth year. 2. Prepare the general journal entry to record the disposal of the machine under each of these three independent situations: a. The machine was sold for $22,000 cash. b. The machine was sold for $15,000 cash. c. The machine was totally destroyed in a fire and the insurance company settled the claim for $18,000 cash.

A patent is an exclusive right granted to its owner to manufacture and sell a patented device or to use a process for 20 years.

_____________________ refers to the insufficient capacity of a company's plant asset to meet the company's productive demands.

A company's property records revealed the following information about its plant assets: Calculate the depreciation expense for each machine for the year ended December 31 for Year 1, and for the year ended December 31 for Year 2.