Question 1

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 book value.

Accepted Answer

A) True 
 B)False

Question 2

A machine costing $75,000 is purchased on September 1, Year 1. The machine is estimated to have a salvage value of $10,000 and an estimated useful life of 4 years. Double-declining-balance depreciation is used. If the machine is sold on December 31, Year 3 for $13,000, the journal entry to record the sale will include:

Accepted Answer

A) A credit to gain on sale for $8,000. 
B) A debit to loss on sale for $2,625. 
C) A credit to accumulated depreciation for $59,375. 
D) A debit to loss on sale for $3,042. 
E) A credit to gain on sale for $4,979.

Question 3

A total asset turnover ratio of 3.5 indicates that:

Accepted Answer

A) For every $1 in sales, the firm acquired $3.50 in assets during the period. 
B) For every $1 in assets, the firm produced $3.50 in net sales during the period. 
C) For every $1 in assets, the firm earned gross profit of $3.50 during the period. 
D) For every $1 in assets, the firm earned $3.50 in net income. 
E) For every $1 in assets, the firm paid $3.50 in expenses during the period.

Question 4

Ordinary repairs meet all of the following criteria except:

Accepted Answer

A) Are expenditures to keep an asset in normal operating condition. 
B) Are necessary if an asset is to perform to expectations over its useful life. 
C) Extend the useful life of an asset beyond its original estimate. 
D) Include cleaning, lubricating, and normal adjusting. 
E) Are treated as expenses.

Question 5

An accelerated depreciation method yields larger depreciation expense in the early years of an asset's life and less depreciation expense in later years.

Accepted Answer

A) True 
 B)False

Question 6

Prepare journal entries to record the following transactions of a company during the current year:

Accepted Answer

The answer of Prepare journal entries to record the following...

Question 7

What are the general accounting procedures for recording asset disposals?

Accepted Answer

The answer of What are the general accounting procedures for...

Question 8

On July 1 of the current year, Glover Mining Co. pays $5,400,000 for land estimated to contain 7,200,000 tons of recoverable ore. It installs machinery on July 3 costing $864,000 that has an 8 year life and no salvage value and is capable of mining the ore deposit in six years. The company removes and sells 745,000 tons of ore during its first six months of operations ending on December 31. Depreciation of the machinery is in proportion to the mine's depletion as the machinery will be abandoned after the ore is mined. Prepare the entries Glover must record for (a) the purchase of the ore deposit, (b) the costs and installation of the machinery, (c) the depletion assuming the land has a zero salvage value, and (d) the depreciation on the machinery.

Accepted Answer

The answer of On July 1 of the current year,...

Question 9

Hunter Sailing Company exchanged an old sailboat for a new one. The old sailboat had a cost of $160,000 and accumulated depreciation of $100,000. The new sailboat had an invoice price of $270,000. Hunter received a trade in allowance of $70,000 on the old sailboat, which meant the company paid $200,000 in addition to the old sailboat to acquire the new sailboat. If this transaction lacks commercial substance, what amount of gain or loss should be recorded on this exchange?

Accepted Answer

A) $0 gain or loss. 
B) $10,000 gain. 
C) $10,000 loss. 
D) $60,000 loss. 
E) $70,000 loss.

Question 10

Peavey Enterprises purchased a depreciable asset for $22,000 on April 1, Year 1. The asset will be depreciated using the straight-line method over its four-year useful life. Assuming the asset's salvage value is $2,000, what will be the amount of accumulated depreciation on this asset on December 31, Year 3?

Accepted Answer

A) $5,000 
B) $15,000 
C) $15,125 
D) $20,000 
E) $13,750

Question 11

A company purchased a tract of land for its natural resources at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected to be $250,000. The depletion expense per ton of ore is:

Accepted Answer

A) $0.75. 
B) $0.625. 
C) $0.875. 
D) $6.00. 
E) $8.00.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

A company purchased equipment valued at $66,000. It traded in old equipment for a $9,000 trade-in allowance and the company paid $57,000 cash with the trade-in. The old equipment cost $44,000 and had accumulated depreciation of $36,000. This transaction has commercial substance. What is the recorded value of the new equipment?

Accepted Answer

A) $8,000. 
B) $9,000. 
C) $57,000. 
D) $65,000. 
E) $66,000.

Question 14

The term, obsolescence, as it relates to the useful life of an asset, refers to:

Accepted Answer

A) The end of an asset's useful life. 
B) A plant asset that is no longer useful in producing goods and services with a competitive advantage. 
C) The insufficient capacity of a company's plant assets to meet the company's productive demands. 
D) An asset's salvage value becoming less than its replacement cost. 
E) Intangible assets that have been fully amortized.

Question 15

Flask Company reports net sales of $4,315 million; cost of goods sold of $2,808 million; net income of $283 million; and average total assets of $2,136. Compute its total asset turnover.

Accepted Answer

A) 1.31. 
B) 2.02. 
C) .13. 
D) .76. 
E) .50.

Question 16

An asset's cost includes all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use.

Accepted Answer

A) True 
 B)False

Question 17

The cost of fees for insuring the title and any accrued property taxes are included in the cost of land.

Accepted Answer

A) True 
 B)False

Question 18

Accounting for the exchange of assets depends on whether the transaction has commercial substance; commercial substance implies that it alters the company's future cash flows.

Accepted Answer

A) True 
 B)False

Question 19

Greene Company purchased a machine for $75,000 that was expected to last 6 years and to have a salvage 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 salvage 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.

Accepted Answer

The answer of Greene Company purchased a machine for $75,000...

Question 20

Revenue expenditures to keep an asset in normal, good operating condition; they are necessary if an asset is to perform to expectations over its useful life are called _____________________.

Accepted Answer

The answer of Revenue expenditures to keep an asset in...

Exam 8: Reporting and Analyzing Long-Term Assets

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 book value.

A total asset turnover ratio of 3.5 indicates that:

Ordinary repairs meet all of the following criteria except:

An accelerated depreciation method yields larger depreciation expense in the early years of an asset's life and less depreciation expense in later years.

Prepare journal entries to record the following transactions of a company during the current year:

What are the general accounting procedures for recording asset disposals?

A company purchased a tract of land for its natural resources at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected to be $250,000. The depletion expense per ton of ore is:

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

The term, obsolescence, as it relates to the useful life of an asset, refers to:

Flask Company reports net sales of $4,315 million; cost of goods sold of $2,808 million; net income of $283 million; and average total assets of $2,136. Compute its total asset turnover.

An asset's cost includes all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use.

The cost of fees for insuring the title and any accrued property taxes are included in the cost of land.

Accounting for the exchange of assets depends on whether the transaction has commercial substance; commercial substance implies that it alters the company's future cash flows.

Revenue expenditures to keep an asset in normal, good operating condition; they are necessary if an asset is to perform to expectations over its useful life are called _____________________.