Chapter 010 Plant Assets, Natural Resources and Intangibles
13. Accuulated depreciation represents )unds set aside to buy ne assets hen the assetscurrently oned are replaced.FLS'
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1!. 4hen an asset is purchased 5or disposed o)6 at a tie other than the beginning or the endo) an accounting period, depreciation is recorded )or part o) a year so that the year o) purchaseor the year o) disposal is charged ith its share o) the assets depreciation.T*+'
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1". Re*ising an estiate o) the use)ul li)e or sal*age *alue o) a plant asset is re)erred to as achange in accounting estiate, and is re)lected in the past, current, and )uture )inancialstateents.
FLS'
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Difficulty: Medium
Learning !"ecti#e: C'
1$. 7he going concern assuption supports the reporting o) plant assets at boo *alue ratherthan aret *alue.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1%. 7otal depreciation e+pense o*er an assets use)ul li)e ill be identical under all ethods o) depreciation.T*+'
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1&. 8inancial accounting and ta+ accounting reuire the sae recordeeping and there should be no di))erence in results beteen the to accounting systes.FLS'
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1'. ost copanies use accelerated depreciation )or ta+ purposes because it reduces ta+ableincoe due to higher depreciation e+pense in the early years o) an assets li)e.T*+'
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20. 7he boo *alue o) an asset hen using double(declining(balance depreciation is alaysgreater than the boo *alue )ro using straight(line depreciation, e+cept at the beginning andthe end o) the assets use)ul li)e, hen it is the sae.FLS'
Chapter 010 Plant Assets, Natural Resources and Intangibles
21. 7he odi)ied accelerated cost reco*ery syste 5ACR/6 is a depreciation ethod used)or ta+ reporting.T*+'
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22. ecision aers and other users o) )inancial stateents are especially interested ine*aluating a copanys ability to use its assets in generating sales.T*+'
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23. Asset turno*er is coputed by di*iding a*erage total assets by cost o) sales.FLS'
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2!. Capital intensi*e copanies ha*e a relati*ely large aount in*ested in assets to generate agi*en le*el o) sales.T*+'
Chapter 010 Plant Assets, Natural Resources and Intangibles
2&. I) a achine is daaged during unpacing, the repairs are added to its cost.FLS'
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2'. An e+penditure ust be noral, reasonable, and necessary in preparing an asset )or itsintended use to be charged to and reported as part o) the cost o) a plant asset.T*+'
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30. 7he purchase o) a property that included land, building, and ipro*eents is called alup(su purchase.T*+'
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31. 4hen a copany constructs a building, the cost o) the building includes aterials andlabor, design )ees, building perits, and insurance during construction.T*+'
Chapter 010 Plant Assets, Natural Resources and Intangibles
32. -and is not sub=ect to depreciation because it has an unliited li)e. 7his eans that iteshich increase the use)ulness o) the land such as paring lots are not depreciated.FLS'
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33. 7he cost o) )ees )or insuring the title and any accrued property ta+es are included in thecost o) land.T*+'
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3!. 7he ost )reuently used ethod o) depreciation is the straight(line ethod.T*+'
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Difficulty: Easy Learning !"ecti#e: P&
3". 7otal asset cost plus depreciation e+pense euals boo *alue.FLS'
Chapter 010 Plant Assets, Natural Resources and Intangibles
3$. 7he units(o)(production ethod o) depreciation charges a *arying aount o) e+pense )oreach period o) an assets use)ul li)e depending on its usage.T*+'
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3%. An accelerated depreciation ethod yields saller depreciation e+pense in the early yearso) an assets li)e and larger depreciation e+pense in later years.FLS'
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3&. 7he double(declining balance ethod is applied by 516 coputing the assets straight(linedepreciation rate, 526 doubling it, 536 subtracting sal*age *alue )ro cost, and 5!6 ultiplyingthe rate ties the net *alue.FLS'
Chapter 010 Plant Assets, Natural Resources and Intangibles
3'. A copany purchased a plant asset )or 9!",000. 7he asset has an estiated sal*age *alueo) 9$,000, and an estiated use)ul li)e o) 10 years. 7he annual depreciation e+pense using thestraight(line ethod is 93,'00 per year.
T*+'
59!",000 ( 9$,0006:10 ; 93,'00
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!0. Re*enue e+penditures are additional costs o) plant assets that aterially increase theassets li)e or producti*e capabilities.FLS'
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!1. >rdinary repairs are e+penditures that eep assets in noral, good operating condition.
T*+'
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!2. E+traordinary repairs are e+penditures e+tending the assets use)ul li)e beyond its originalestiate, and are capital e+penditures because they bene)it )uture periods.
Chapter 010 Plant Assets, Natural Resources and Intangibles
!%. 7he )irst step in accounting )or an asset disposal is to calculate the gain or loss ondisposal.FLS'
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!&. Accounting )or the e+change o) assets depends on hether the transaction has coercialsubstance? coercial substance iplies that it alters the copanys )uture cash )los.T*+'
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!'. I) an asset is sold abo*e its boo *alue, the selling copany records a loss.FLS'
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Difficulty: Easy Learning !"ecti#e: P,
"0. @ain or loss on the disposal o) assets is deterined by coparing the disposed assets boo *alue to the aret *alue o) any assets recei*ed.T*+'
Chapter 010 Plant Assets, Natural Resources and Intangibles
"&. 7he cost o) an intangible asset ust be systeatically allocated to depreciation e+penseo*er its estiated use)ul li)e.FLS'
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"'. Intangible assets are certain nonphysical assets used in operations that con)er on theironers long(ter rights, pri*ileges, or copetiti*e ad*antage.T*+'
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$0. @oodill is the aount by hich a copanys *alue e+ceeds the *alue o) its indi*idualassets and liabilities.T*+'
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$1. 7he cost o) an intangible is systeatically allocated to e+pense o*er its estiated use)ulli)e through the process o) depletion.FLS'
Chapter 010 Plant Assets, Natural Resources and Intangibles
$2. /ince goodill is an intangible, it is aortied each year using the straight(line ethod,the sae as other intangibles are aortied.FLS'
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$3. A patent is an e+clusi*e right granted to its oner to anu)acture and sell a patentedde*ice or to use a process )or 20 years.T*+'
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$!. A copyright gi*es its oner the e+clusi*e right to publish and sell a usical, literary, orartistic or during the li)e o) the creator plus 1% years.FLS'
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$". 7he cost o) de*eloping, aintaining, or enhancing the *alue o) a tradear is alaysadded to the *alue o) the asset hen incurred.FLS'
Chapter 010 Plant Assets, Natural Resources and Intangibles
"ulti#le $%oice Questions
$$. Plant assets areB
! 7angible assets used in the operation o) a business that ha*e a use)ul li)e o) ore than oneaccounting period.<. Current assets.C. #eld )or sale.. Intangible assets used in the operations o) a business that ha*e a use)ul li)e o) ore thanone accounting period.E. 7angible assets used in the operation o) business that ha*e a use)ul li)e o) less than oneaccounting period.
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$%. A ain accounting issue )or plant assets isBA. Coputing the cost o) the plant assets.<. atching the costs o) plant assets against re*enues )or the periods they bene)it.C. Accounting )or repairs and ipro*eents to plant assets.. 7he disposal o) plant assets.'! All o) these.
Chapter 010 Plant Assets, Natural Resources and Intangibles
$&. Plant assets areBA. Current assets.,! sed in operations.
C. Natural resources.. -ong(ter in*estents.E. Intangible.
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$'. 7he rele*ant )actor5s6 in coputing depreciation includeBA. Cost.<. /al*age *alue.C. se)ul li)e.. epreciation ethod.'! All o) these.
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%0. /al*age *alue isBA. Also called residual *alue.<. Also called scrap *alue.C. An estiate o) the assets *alue at the end o) its bene)it period.. A )actor rele*ant to deterining depreciation.'! All o) these.
Chapter 010 Plant Assets, Natural Resources and Intangibles
%1. epreciationBA. easures the decline in aret *alue o) an asset.<. easures physical deterioration o) an asset.
$! Is the process o) allocating to e+pense the cost o) a plant asset.. Is an out)lo o) cash )ro the use o) a plant asset.E. Is applied to land.
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%2. 7he use)ul li)e o) a plant asset isB! 7he length o) tie it is producti*ely used in a copanys operations.<. Ne*er related to its physical li)e.C. Its producti*e li)e, but not to e+ceed one year.. eterined by the 8A/<.E. eterined by la.
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Learning !"ecti#e: C&
%3. Inadeuacy re)ers toB! 7he insu))icient capacity o) a copanys plant assets to eet the copanys groing production deands.<. An asset that is orn out.C. An asset that is no longer use)ul in producing goods and ser*ices.. 7he condition here the sal*age *alue is too sall to replace the asset.E. 7he condition here the assets sal*age *alue is less than its cost.
Chapter 010 Plant Assets, Natural Resources and Intangibles
%!. >bsolescenceBA. >ccurs hen an asset is at the end o) its use)ul li)e.,! Re)ers to a plant asset that is no longer use)ul in producing goods and ser*ices.
C. Re)ers to the insu))icient capacity o) a copanys plant assets to eet the copanys producti*e deands.. >ccurs hen an assets sal*age *alue is less than its replaceent cost.E. oes not a))ect plant assets.
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%". >nce the estiated depreciation e+pense )or an asset is calculatedBA. It cannot be changed due to the historical cost principle.,! It ay be re*ised based on ne in)oration.C. Any changes are accuulated and recognied hen the asset is sold.. 7he estiate itsel) cannot be changed? hoe*er, ne in)oration should be disclosed in)inancial stateent )ootnotes.E. It cannot be changed due to the consistency principle.
Chapter 010 Plant Assets, Natural Resources and Intangibles
%$. A achine originally had an estiated use)ul li)e o) " years, but a)ter 3 coplete years, itas decided that the original estiate o) use)ul li)e should ha*e been 10 years. At that pointthe reaining cost to be depreciated should be allocated o*er the reainingB
A. 2 years.<. " years.$! % years.. & years.E. 10 years.
10 year re*ised li)e ( 3 years depreciated ; % reaining
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%%. A change in an accounting estiate isBA. Re)lected in past )inancial stateents.<. Re)lected in )uture )inancial stateents and also reuires odi)ication o) past stateents.$! A change in a calculated aount that is included in current and )uture years )inancialstateents as a result o) ne in)oration or subseuent de*elopents and )ro better insightor ipro*ed =udgent.. Not alloed under current accounting rules.E. Considered an error in the )inancial stateents.
Chapter 010 Plant Assets, Natural Resources and Intangibles
%&. 4hen originally purchased, a *ehicle had an estiated use)ul li)e o) & years. 7he *ehiclecost 923,000 and its estiated sal*age *alue is 91,"00. A)ter ! years o) straight(linedepreciation, the assets total estiated use)ul li)e as re*ised )ro & years to $ years and
there as no change in the estiated sal*age *alue. 7he depreciation e+pense in year "eualsB! 9 ",3%".00.<. 9 2,$&%."0.C. 9 ","!3.%".. 910,%"0.00.E. 9 2,&"$.2".
Accuulated depreciation, end o) year !B D5923,000 ( 91,"006:& years + ! years ; 910,%"0epreciation, year "B 5923,000 ( 910,%"0 ( 91,"006:2 years ; 9",3%"
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%'. A copany used straight(line depreciation )or an ite o) euipent that cost 912,000, hada sal*age *alue o) 92,000, and had a )i*e(year use)ul li)e. A)ter depreciating the asset )or threecoplete years, the sal*age *alue as reduced to 91,200 and its total use)ul li)e as increased)ro " years to $ years. eterine the aount o) depreciation to be charged against theachine during each o) the reaining years o) its use)ul li)eBA. 91,000.<. 91,&00.C. 91,!$%.D! 91,$00.E. 92,1$0.
Accuulated depreciation, end o) year 3B D5912,000 ( 92,0006:" years + 3 years ; 9$,000epreciation, years ! through $B 5912,000 ( 9$,000 ( 91,2006:3 years ; 91,$00
Chapter 010 Plant Assets, Natural Resources and Intangibles
&0. Nelson Copany purchased euipent on Fuly 1 )or 92%,"00 and decided to depreciatethe euipent on the straight(line ethod o*er its use)ul li)e o) )i*e years. Assuing theeuipents sal*age *alue is 93,"00, the aount o) onthly depreciation e+pense Nelson
Chapter 010 Plant Assets, Natural Resources and Intangibles
&1. 7hoas Enterprises purchased a depreciable asset on >ctober 1, 200& at a cost o)9100,000.7he asset is e+pected to ha*e a sal*age *alue o) 91",000 at the end o) its )i*e(year use)ul li)e.
I) the asset is depreciated on the double(declining(balance ethod, the assets boo *alue oneceber 31, 2010 ill beBA. 92%,"!0<. 921,$00$! 932,!00. 91&,3$0E. 9'0,000
Accordingly, the assets boo *alue at the end o) 2010 ould be 932,!00.<>G <H ; <eginning o) Gear <oo Halue< Rate ; eclining <alance Rate o) epreciation 5100:" + 26E>G <H ; End o) Gear <oo Halue
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Chapter 010 Plant Assets, Natural Resources and Intangibles
&2. <ased on the in)oration pro*ided in uestion J&1, 7hoas Enterprises should recogniehat aount o) depreciation e+pense in 2012K! 9!,!!0
<. 9$,$10C. 91,"2!. 9","20E. 92,000
/ee the solution to uestion J&1. <ased on that in)oration, depreciation e+pense )or 2012ould be 9!,!!0.
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Difficulty: %ard Learning !"ecti#e: C'
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&3. -oa+ Enterprises purchased a depreciable asset )or 922,000 on arch 1, 200&. 7he assetill be depreciated using the straight(line ethod o*er its )our(year use)ul li)e. Assuing theassets sal*age *alue is 92,000, hat ill be the aount o) accuulated depreciation on thisasset on eceber 31, 2011KA. 9",000.00<. 9!,1$$.$%C. 91$,$$$.$&
. 920,000.00'! 91',1$$.$%
D522,000 ( 2,0006 : ! + 10:12 ; 9!,1$$.$% o) accuulated depreciation at the end o) 200&./ince annual depreciation e+pense is 9",000 D522,000 ( 2,0006 : !, accuulated depreciationon eceber 31, 2011 ould be 91',1$$.$% 59",000 per year )or three years L 9!,1$$.$% inthe partial year o) 200&6.
Chapter 010 Plant Assets, Natural Resources and Intangibles
&". 7he )olloing in)oration is a*ailable on a depreciable asset oned by 8irst <an M7rustB
7he assets boo *alue is 9%0,000 on >ctober 1, 2010. >n that date, anageent deterinesthat the assets sal*age *alue should be 9",000 rather than the original estiate o) 910,000.<ased on this in)oration, the aount o) depreciation e+pense the copany should recognieduring the last three onths o) 2010 ould beBA. 92,1&%."0
<. 91,%1&.%"$! 92,031.2". 92,321.!3E. 91,'$!.2'
7he assets boo *alue is 9%0,000 a)ter ha*ing been depreciated )or to )ull years. 7ocalculate the ne rate o) depreciation, subtract the re*ised sal*age *alue o) 9",000 )ro thecurrent boo *alue o) 9%0,000, yielding 9$",000 o) re*ised reaining depreciable cost. /incethat aount is to be recognied o*er the reaining eight years o) use)ul li)e, depreciatione+pense )or the last uarter o) 2010 ould be 92,031.2" D5$",000:&6 + 3:12 ; 92,031.2".
Chapter 010 Plant Assets, Natural Resources and Intangibles
&$. any copanies use an accelerated depreciation ethod becauseBA. It is reuired by the ta+ code.<. It is reuired by )inancial reporting rules.
$! It yields larger depreciation e+pense in the early years o) an assets li)e.. It yields a higher incoe in the early years o) the assets use)ul li)e.E. 7he results are identical to straight(line depreciation.
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&%. 7he odi)ied accelerated cost reco*ery syste 5ACR/6B! Is included in the ./. )ederal incoe ta+ rules )or depreciating assets.<. Is an out(dated syste that is no longer used by copanies.C. Is reuired )or )inancial reporting.. Is identical to units o) production depreciation.E. All o) these.
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Learning !"ecti#e: A$
&&. 7he straight(line depreciation ethod and the double(declining(balance depreciationethodB! Produce the sae total depreciation o*er an assets use)ul li)e.<. Produce the sae depreciation e+pense each year.C. Produce the sae boo *alue each year.. Are acceptable )or ta+ purposes only.E. Are the only acceptable ethods o) depreciation )or )inancial reporting.
Chapter 010 Plant Assets, Natural Resources and Intangibles
&'. 7otal asset turno*er is used to e*aluateB! 7he e))iciency o) anageents use o) assets to generate sales.<. 7he necessity )or asset replaceent.
C. 7he nuber o) ties operating assets ere sold during the year.. 7he cash )los used to acuire assets.E. 7he relation beteen asset cost and boo *alue.
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'0. A total asset turno*er ratio o) 3." indicates thatBA. 8or e*ery 91 in sales, the )ir acuired 93."0 in assets during the period.,! 8or e*ery 91 in assets, the )ir produced 93."0 in net sales during the period.C. 8or e*ery 91 in assets, the )ir earned gross pro)it o) 93."0 during the period.. 8or e*ery 91 in assets, the )ir earned 93."0 in net incoe.E. 8or e*ery 91 in assets, the )ir paid 93."0 in e+penses during the period.
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'1. 7otal asset turno*er is calculated by di*idingBA. @ross pro)it by a*erage total assets.<. A*erage total assets by gross pro)it.$! Net sales by a*erage total assets.. A*erage total assets by net sales.E. Net assets by total assets.
Chapter 010 Plant Assets, Natural Resources and Intangibles
'2. A copany had a*erage total assets o) 9&'%,000. Its gross sales ere 91,0'0,000 and itsnet sales ere 91,000,000. 7he copanys total asset turno*er eualsBA. 0.&2.
<. 0.'0.C. 1.0'.D! 1.11.E. 1.2$.
91,000,000:9&'%,000 ; 1.11
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Difficulty: %ard
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'3. ell had net sales o) 93",!0! illion. Its a*erage total assets )or the period ere 91!,"02illion. ells total asset turno*er eualsBA. 0.!0.<. 0.3".C. 1.!".D! 2.!!.E. 3."0.
Chapter 010 Plant Assets, Natural Resources and Intangibles
'!. -and ipro*eents areBA. Assets that increase the use)ulness o) land, and lie land, are not depreciated.,! Assets that increase the use)ulness o) land, but that ha*e a liited use)ul li)e and are
sub=ect to depreciation.C. Included in the cost o) the land account.. E+pensed in the period incurred.E. Also called baset purchases.
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'". Plant assets includeBA. -and.<. -and ipro*eents.C. <uildings.. achinery and euipent.'! All o) these.
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AICPA FN: Measurement
Difficulty: Easy Learning !"ecti#e: P$
'$. 7he cost o) land can includeBA. Purchase price.<. Assessents by local go*ernents.C. Costs o) reo*ing e+isting structures.. 8ees )or insuring the title.'! All o) these.
Chapter 010 Plant Assets, Natural Resources and Intangibles
'%. A copany paid 91"0,000, plus a $ coission and 9!,000 in closing costs )or a property. 7he property included land appraised at 9&%,"00, land ipro*eents appraised at93",000, and a building appraised at 9"2,"00. 4hat should be the allocation o) this propertys
Chapter 010 Plant Assets, Natural Resources and Intangibles
'&. A copany purchased property )or a building site. 7he costs associated ith the propertyereB
4hat portion o) these costs should be allocated to the cost o) the land and hat portion should be allocated to the cost o) the ne buildingKA. 91%",&00 to -and? 91&,&00 to <uilding.<. 91'0,000 to -and? 93,&00 to <uilding.C. 91'0,&00 to -and? 91,000 to <uilding.
. 91'2,&00 to -and? 90 to <uilding.'! 91'3,&00 to -and? 90 to <uilding.
7otal cost ; 91%",000 L 91",000 L 9&00 L 92,000 L 91,000 ; 91'3,&007he entire aount o) the cost should be allocated to the land, since the ne building is not yetconstructed.
Chapter 010 Plant Assets, Natural Resources and Intangibles
''. A copany purchased property )or 9100,000. 7he property included a building, a paringlot, and land. 7he building as appraised at 9$2,000? the land at 9!",000, and the paring lotat 91&,000. -and should be recorded in the accounting records ith an allocated cost o)B
A. 9 0.,! 9 3$,000.C. 9 !2,000.. 9 !",000.E. 9100,000.
9100,000 + 9!",000:59$2,000 L 9!",000 L 91&,0006 ; 93$,000
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100. 7he )orula )or coputing annual straight(line depreciation isBA. epreciable cost di*ided by use)ul li)e in units.<. Cost plus sal*age *alue di*ided by the use)ul li)e in years.$! Cost less sal*age *alue di*ided by the use)ul li)e in years.. Cost ultiplied by use)ul li)e in years.E. Cost di*ided by use)ul li)e in units.
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101. 7he total cost o) an asset less its accuulated depreciation is calledBA. #istorical cost.,! <oo *alue.C. Present *alue.. Current 5aret6 *alue.
103. A ethod that allocates an eual portion o) the total depreciable cost )or a plant asset toeach unit produced is calledBA. Accelerated depreciation.<. eclining(balance depreciation.C. /traight(line depreciation.D! nits(o)(production depreciation.E. odi)ied accelerated cost reco*ery syste 5ACR/6 depreciation.
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10!. A depreciation ethod in hich a plant assets depreciation e+pense )or a period isdeterined by applying a constant depreciation rate to the assets beginning(o)(period boo*alue is calledBA. <oo *alue depreciation.,! eclining(balance depreciation.C. /traight(line depreciation.. nits(o)(production depreciation.
E. odi)ied accelerated cost reco*ery syste 5ACR/6 depreciation.
Chapter 010 Plant Assets, Natural Resources and Intangibles
10". A depreciation ethod that produces larger depreciation e+pense during the early yearso) an assets li)e and saller e+pense in the later years is a 5an6B! Accelerated depreciation ethod.
10$. A copany purchased a deli*ery *an )or 923,000 ith a sal*age *alue o) 93,000 on/epteber 1, 200&. It has an estiated use)ul li)e o) " years. sing the straight(line ethod,ho uch depreciation e+pense should the copany recognie on eceber 31, 200&KA. 91,000.,! 91,333.C. 91,"33.. 9!,000.E. 9!,$00.
Chapter 010 Plant Assets, Natural Resources and Intangibles
10%. A copany purchased a cash register on Fanuary 1 )or 9",!00. 7his register has a use)ulli)e o) 10 years and a sal*age *alue o) 9!00. 4hat ould be the depreciation e+pense )or the second0year o) its use)ul li)e using the double(declining(balance ethodK
10&. A copany purchased a rope braiding achine )or 91'0,000. 7he achine has a use)ulli)e o) & years and a residual *alue o) 910,000. It is estiated that the achine could produce%"0,000 units o) clibing rope o*er its use)ul li)e. In the )irst year, 10",000 units ere produced. In the second year, production increased to 10',000 units. sing the units(o)( production ethod, hat is the aount o) depreciation that should be recorded )or the secondyearKA. 92",200.,! 92$,1$0.C. 92$,$$0.. 92%,$13.E. 9"3,1$0.
10',000 units + D591'0,000 ( 910,0006:%"0,000 units ; 92$,1$0
Chapter 010 Plant Assets, Natural Resources and Intangibles
10'. Re*enue e+pendituresB! Are additional costs o) plant assets that do not aterially increase the assets li)e or its producti*e capabilities.
<. Are non as balance sheet e+penditures.C. E+tend the assets use)ul li)e.. /ubstantially bene)it )uture periods.E. Are debited to asset accounts.
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110. Another nae )or a capital e+penditure isBA. Re*enue e+penditure.<. Asset e+penditure.C. -ong(ter e+penditure.. Contributed capital e+penditure.'! <alance sheet e+penditure.
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111. E+traordinary repairsBA. Are re*enue e+penditures.,! E+tend an assets use)ul li)e beyond its original estiate.C. Are credited to accuulated depreciation.. Are additional costs o) plants assets that do not aterially increase the assets li)e.E. Are e+pensed as incurred.
Chapter 010 Plant Assets, Natural Resources and Intangibles
112. >rdinary repairsBA. Are e+penditures to eep an asset in noral operating condition.<. Are necessary i) an asset is to per)or to e+pectations o*er its use)ul li)e.
C. Are treated as e+penses.. Include cleaning, lubricating, and noral ad=usting.'! All o) these.
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113. <etterentsBA. Are e+penditures aing a plant asset ore e))icient or producti*e.<. Are also called ipro*eents.C. o not alays increase an assets li)e.. Are capital e+penditures.'! All o) these.
Chapter 010 Plant Assets, Natural Resources and Intangibles
11!. An assets boo *alue is 91&,000 on Fune 30, 200&. 7he asset is being depreciated at anannual rate o) 93,000 on the straight(line ethod. Assuing the asset is sold on eceber 31,200' )or 91",000, the copany should recordB
A. A loss on sale o) 91,"00.,! A gain on sale o) 91,"00.C. Neither a gain nor a loss is recognied on this type o) transaction.. A gain on sale o) 93,000.E. A loss on sale o) 93,000.
I) the assets boo *alue is 91&,000 on Fune 30, 200& and is being depreciated at a rate o)93,000 per year, an additional 9!,"00 o) depreciation e+pense ould be recognied byeceber 31, 200'. 7hus, the assets boo *alue on that date ould be 913,"00. I) the asset issold )or 91",000, a gain on sale o) 91,"00 should be recognied.
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11". An assets boo *alue is 93$,000 on Fanuary 1, 200&. 7he asset is being depreciated 9"00 per onth using the straight(line ethod. Assuing the asset is sold on Fuly 1, 200' )or92",000, the copany should recordBA. Neither a gain or loss is recognied on this type o) transaction.<. A gain on sale o) 92,000.C. A loss on sale o) 91,000.. A gain on sale o) 91,000.'! A loss on sale o) 92,000.
I) the assets boo *alue is 93$,000 on Fanuary 1, 200& and is being depreciated 9"00 peronth, 9',000 51& + 9"006 o) additional depreciation e+pense ould be recognied by Fuly 1,200'. 7hus, the assets boo *alue on that date ould be 92%,000. I) the asset is sold )or92",000, a loss on sale o) 92,000 should be recognied.
Chapter 010 Plant Assets, Natural Resources and Intangibles
11$. In)oration on a depreciable asset oned by 4ilson Engineering is as )ollosB
I) the asset is sold on Fuly 1, 2012 )or 920,000, the =ournal entry to record the sale illincludeBA. A credit to cash )or 920,000.,! A debit to accuulated depreciation )or 922,"00.C. A debit to loss on sale )or 910,000.. A credit to loss on sale )or 910,000.
E. A debit to gain on sale )or 92,"00.
Annual depreciation is 9",000 D5!",000 ( ",0006 : & years. >n Fuly 1, 2012, the asset illha*e been depreciated )or !." years )or a total o) 922,"00. 7he resulting boo *alue on thatdate ill be 922,"00. 7he =ournal entry to record the sale o) the asset ould be as )ollosB
Chapter 010 Plant Assets, Natural Resources and Intangibles
11%. In)oration on a depreciable asset is as )ollosB
I) the asset is sold on Fanuary 1, 2011 )or 913,000, the =ournal entry to record the sale illincludeBA. A credit to gain on sale )or 9&,000.,! A debit to loss on sale )or 92,$2".C. A credit to accuulated depreciation )or 9"',3%".. A debit to loss on sale )or 93,0!2.E. A credit to gain on sale )or 9!,'%'.
7here)ore, the =ournal entry to record the sale o) the asset ould be as )ollosB
<>G <H ; <eginning o) the year boo *alue< Rate ; eclining(balance rate o) depreciation 5100:!6 + 2E>G <H ; End o) the year boo *alue
Chapter 010 Plant Assets, Natural Resources and Intangibles
11&. An asset can be disposed o) byBA. iscarding it.<. /elling it.
C. E+changing it )or another asset.. onating it to charity.'! All o) these.
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11'. A copany sold a achine that originally cost 9100,000 )or 9$0,000 cash. 7heaccuulated depreciation on the achine as 9!0,000. 7he copany should recognie aB! 90 gain or loss.<. 920,000 gain.C. 920,000 loss.. 9!0,000 loss.E. 9$0,000 gain.
Chapter 010 Plant Assets, Natural Resources and Intangibles
120. A copany discarded a display case originally purchased )or 9&,000. 7he accuulateddepreciation as 9%,200. 7he copany should recognie a 5an6BA. 90 gain or loss.
121. A copany had a bulldoer destroyed by )ire. 7he bulldoer originally cost 912",000ith accuulated depreciation o) 9$0,000. 7he proceeds )ro the insurance copany ere9'0,000. 7he copany should recognieBA. A loss o) 92",000.
,! A gain o) 92",000.C. A loss o) 9$",000.. A gain o) 9$",000.E. A gain o) 9'0,000.
Chapter 010 Plant Assets, Natural Resources and Intangibles
122. Natural resourcesBA. Include standing tiber, ineral deposits, and oil and gas )ields.<. Are also called asting assets.
C. Are long(ter assets.. Are depleted.'! All o) these.
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123. epletionB! Is the process o) allocating the cost o) natural resources to periods in hich they areconsued.<. Is also called depreciation.C. Is also called aortiation.. Is an unrealied e+pense reported in euity.E. Is the process o) allocating the cost o) intangibles to periods in hich they are used.
Chapter 010 Plant Assets, Natural Resources and Intangibles
12!. A copany purchased a tract o) land )or its natural resources at a cost o) 91,"00,000. Ite+pects to ine 2,000,000 tons o) ore )ro this land. 7he sal*age *alue o) the land ise+pected to be 92"0,000. 7he depletion e+pense per ton o) ore isB
A. 90.%".,! 90.$2".C. 90.&%".. 9$.00.E. 9&.00.
591,"00,000 ( 92"0,0006:2,000,000 tons ; 90.$2" per ton
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12". A copany purchased a ineral deposit )or 9&00,000. It e+pects this property to produce1,200,000 tons o) ore and to ha*e a sal*age *alue o) 9"0,000. In the current year, the copanyined and sold '0,000 tons o) ore. Its depletion e+pense )or the current period eualsBA. 9 1",000.<. 9 $0,000.C. 91"0,000.D! 9 "$,2"0.E. 913',"00.
12%. AortiationB! Is the systeatic allocation o) the cost o) an intangible asset to e+pense o*er its estiateduse)ul li)e.<. Is the process o) allocating to e+pense the cost o) a plant asset to the accounting periods bene)iting )ro its use.C. Is the process o) allocating the cost o) natural resources to periods hen they areconsued.. Is an accelerated )or o) e+pensing an assets cost.E. Is also called depletion.
Chapter 010 Plant Assets, Natural Resources and Intangibles
12&. A patentBA. @i*es its oner the e+clusi*e right to publish and sell a usical or literary or during theli)e o) the creator plus %0 years.
,! @i*es its oner an e+clusi*e right to anu)acture and sell a patented ite or to use a process )or 20 years.C. @i*es its oner an e+clusi*e right to anu)acture and sell a de*ice or to use a process )or"0 years.. Is the aount by hich the *alue o) a copany e+ceeds the )air aret *alue o) acopanys net assets i) purchased separately.E. @i*es its oner the e+clusi*e right to publish and sell a usical or literary or during theli)e o) the creator plus 1% years.
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12'. A copyrightB! @i*es its oner the e+clusi*e right to publish and sell a usical or literary or during theli)e o) the creator plus %0 years.<. @i*es its oner an e+clusi*e right to anu)acture and sell a patented ite or to use a process )or 20 years.C. @i*es its oner an e+clusi*e right to anu)acture and sell a de*ice or to use a process )or"0 years.
. Is the aount by hich the *alue o) a copany e+ceeds the )air aret *alue o) acopanys net assets i) purchased separately.E. @i*es its oner the e+clusi*e right to publish and sell a usical or literary or during theli)e o) the creator plus 20 years.
Chapter 010 Plant Assets, Natural Resources and Intangibles
130. A leaseholdBA. Is a short(ter rental agreeent.<. Is the sae as a patent.
$! Are the rights granted to the lessee by the lessor o) a lease.. Is recorded as re*enue e+penditure hen paid.E. Is an in*estent asset.
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131. @oodillB! Is not aortied, but is tested annually )or ipairent.<. Is aortied using the straight(line ethod.C. Is aortied using the units(o)(production ethod.. ay be aortied using either the straight(line or units(o)(production ethod.E. Is ne*er aortied or tested )or ipairent.
Chapter 010 Plant Assets, Natural Resources and Intangibles
132. A copanys old achine that cost 9!0,000 and had accuulated depreciation o)930,000 as traded in on a ne achine ha*ing an estiated 20(year li)e ith an in*oice price o) 9"0,000. 7he copany also paid 9!3,000 cash, along ith its old achine to acuire
the ne achine. I) this transaction has coercial substance, the ne achine should berecorded atBA. 9!0,000.<. 9!%,000.$! 9"0,000.. 9"3,000.E. 910,000.
7here)ore the loss on the e+change is recognied and the ne achine should be recorded atits price o) 9"0,000.
Chapter 010 Plant Assets, Natural Resources and Intangibles
133. Endor 8ishing Copany e+changed an old boat )or a ne one. 7he old boat had a cost o) 92$0,000 and accuulated depreciation o) 9200,000. 7he ne boat had an in*oice price o)9!00,000. Endor recei*ed a trade in alloance o) 9100,000 on the old boat, hich eant the
copany paid 9300,000 in addition to the old boat to acuire the ne boat. I) this transactionlacs coercial substance, hat aount o) gain or loss should be recorded on thise+changeK! 90 gain or loss.<. 9!0,000 gain.C. 9!0,000 loss.. 9$0,000 lossE. 9100,000 loss.
As this transaction lacs coercial substance, the 9!0,000 gain should not be recognied.
Chapter 010 Plant Assets, Natural Resources and Intangibles
13!. #u))ington Copany traded in an old deli*ery truc )or a ne one. 7he old truc had acost o) 9%",000 and accuulated depreciation o) 9$0,000. 7he ne truc had an in*oice priceo) 912",000. #u))ington as gi*en a 912,000 trade(in alloance on the old truc, hich
eant they paid 9113,000 in addition to the old truc to acuire the ne truc. I) thistransaction has coercial substance, hat is the recorded *alue o) the ne trucKA. 91",000<. 9%",000C. 9113,000D! 912",000E. 912&,000
As the transaction has coercial substance and there is a loss on the e+change, the neasset is recorded at its aret *alue.
Chapter 010 Plant Assets, Natural Resources and Intangibles
13". A copany bought a ne display case )or 9!2,000 and as gi*en a trade(in o) 92,000 onan old display case, so the copany paid 9!0,000 cash ith the trade(in. 7he old case had anoriginal cost o) 93%,000 and accuulated depreciation o) 93!,000. I) the transaction has
coercial substance, the copany should record the ne display case atBA. 9 2,000.<. 9 3,000.C. 9!0,000.D! 9!2,000.E. 9!3,000.
/ince the transaction has coercial substance, the loss on e+change is recognied and thene display case should be recorded at its 9!2,000 price.
Chapter 010 Plant Assets, Natural Resources and Intangibles
13$. A copany purchased a achine *alued at 9$$,000. It traded in an old achine )or a9',000 trade(in alloance and the copany paid 9"%,000 cash ith the trade(in. 7he oldachine cost 9!!,000 and had accuulated depreciation o) 93$,000. 7his transaction has
coercial substance. 4hat is the recorded *alue o) the ne achineKA. 9 &,000.<. 9 ',000.C. 9"%,000.. 9$",000.'! 9$$,000.
/ince the transaction has coercial substance, the 91,000 gain is recognied and the neachine is recorded at its aret *alue o) 9$$,000.
Chapter 010 Plant Assets, Natural Resources and Intangibles
S%ort ns5er Questions
13'. e)ine plant assets and identi)y the )our priary issues in accounting )or the.
Plant assets are tangible assets used in the operations o) a copany that ha*e a use)ul li)e o)ore than one accounting period. 7he )our ain accounting issues include 516 coputingtheir costs, 526 allocating their costs against re*enues during the periods they bene)it, 536accounting )or e+penditures such as repairs and ipro*eents, 5!6 and recording theirdisposal.
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1!0. 4hat is depreciation o) plant assetsK 4hat are the )actors to consider in coputingdepreciationK
epreciation is the process o) allocating to e+pense the cost o) a plant asset to e+pense in theaccounting periods bene)iting )ro its use. 7hree )actors deterine depreciationB cost o) theasset, sal*age *alue, and use)ul li)e. In addition, the copany ust deterine the depreciationethod to use.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1!1. 4hat are soe o) the *ariables that ae a plant assets use)ul li)e di))icult to predictK
7here are se*eral )actors that ae it di))icult to predict an assets use)ul li)e. A a=or *ariable
is the ear and tear )or the assets use in operations. Inadeuacy, the insu))icient capacity o) acopanys plant assets to eet the copanys groing producti*e deands, is second )actor.>bsolescence, the issue o) a plant asset that is no longer use)ul in producing goods andser*ices, is a third )actor. <oth inadeuacy and obsolescence are di))icult to predict becausethe tiing o) deand changes, ne in*entions, and ipro*eents is unnon.
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1!2. E+plain the purpose o) and ethod o) depreciation )or partial years.
Partial years depreciation is o)ten reuired because assets are bought and sold throughout theyear. epreciation )or assets oned )or less than one year is coonly calculated as theannual depreciation prorated )or the nuber o) onths the assets are oned during the year.7his is done so that the year o) purchase or the year o) disposal is charged ith its share o) theassets depreciation.
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1!3. E+plain the ipact, i) any, on depreciation hen estiates that deterine depreciationchange.
epreciation is re*ised hen changes in estiates such as sal*age *alue and use)ul li)e occur.I) the assets use)ul li)e and:or sal*age *alue changes, the reaining depreciable cost isallocated o*er the reaining re*ised use)ul li)e o) the asset. 7he ne estiate is used tocopute depreciation )or current and )uture periods.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1!!. Copare the di))erent depreciation ethods 5straight(line, units(o)(production, anddouble(declining(balance6 ith respect to the coputation o) depreciation per period and thetotal depreciation o*er the li)e o) the asset.
7he aount o) depreciation e+pense per period is usually di))erent )or di))erent ethods. Gettotal depreciation e+pense o*er the li)e o) the asset is the sae )or all ethods. /peci)ically,the straight(line ethod yields the sae aount o) depreciation )or each accounting period.7he units(o)(production ethod results in depreciation e+pense that increases or decreasesith the aount o) asset usage. 7he double(declining(balance ethod is an acceleratedethod and yields ore depreciation e+pense in the earlier years o) onership than straight(line depreciation.
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1!". E+plain ho to calculate total asset turno*er. escribe hat it re*eals about a copanys)inancial condition, hether a higher or loer ratio is desirable, and ho it is best applied )orcoparati*e purposes.
7otal asset turno*er is calculated by di*iding net sales by a*erage total assets. 7he result isinterpreted as the aount o) net sales generated by each dollar o) assets. 7hus, the ratio
re)lects a copanys ability to use its assets to generate sales. A high nuber is desirable?hoe*er, it ust be interpreted in coparison ith prior years as ell as ith copetitors andindustry standards.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1!$. #o is the cost principle applied to plant assets, acuisitions, including lup(su purchasesK
Plant assets should be recorded at cost hen acuired. Cost includes all noral andreasonable e+penditures necessary to get the asset in place and ready )or its intended use. 7hecost o) a lup(su purchase is allocated aong its indi*idual assets based on their relati*earet 5or estiated6 *alues.
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1!%. E+plain 5in detail6 ho to copute each o) the )olloing depreciation ethodsB straight(line, units(o)(production, and double(declining(balance.
/traight(line depreciation is calculated by subtracting sal*age *alue )ro the cost o) the plantasset and then di*iding the result by the use)ul li)e. 4hen use)ul li)e is easured in years, theresulting aount is the annual depreciation e+pense )or the asset.nits(o)(production depreciation is calculated by subtracting sal*age *alue )ro the cost o)the plant asset and then di*iding the result by the use)ul li)e in units. 7he resulting aount isthe depreciation e+pense per unit. 7hat aount is ultiplied by the nuber o) units producedduring each accounting period to deterine the total aount o) depreciation e+pense )or that
period.7he double(declining(balance ethod uses tice the straight(line rate 5100:use)ul li)e inyears6 ultiplied by the beginning(o)(period boo *alue o) the asset. 7he resulting aount isthe depreciation e+pense )or that period.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1!&. E+plain the di))erence beteen re*enue e+penditures and capital e+penditures and hothey are recorded in the accounting syste.
Re*enue e+penditures do not aterially increase an assets li)e or producti*e capabilities. Ane+aple is ordinary repairs here bene)its e+pire in the current accounting period. Re*enuee+penditures are debited to e+pense and are thus atched ith current re*enues.Capital e+penditures ae a plant asset ore producti*e or e+tend its use)ul li)e. E+aplesare e+traordinary repairs and betterents that bene)it )uture periods. Capital e+penditures aredebited to asset accounts and are atched ith )uture periods through depreciation e+pense.Iaterial 5lo cost6 long(ter e+penditures are treated as current period e+penses.
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1!'. 4hat are the general accounting procedures )or recording asset disposalsK
7he )irst step in the accounting process )or asset disposals is to bring the aount o)depreciation up to date. 7he second step is to then reo*e the cost o) the asset and its relatedaccuulated depreciation )ro the accounting records. 7he third step is to recognie theaount o) cash and:or other assets in*ol*ed in the transaction. 8ourth, record any gain or loss)ro the asset disposal by coparing the asset boo *alue to the aret *alue o) any assetrecei*ed. E+ceptions to the )ourth step are e+changes ithout coercial substancee+change. No gain or loss is recorded )or e+changes ithout coercial substance.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1"0. escribe the accounting )or natural resources, including their acuisition, cost allocation,and account titles.
7he costs o) natural resources are recorded as assets. epletion is the process o) allocating thecost o) a natural resource to the period hen it is consued. epletion is calculated bysubtracting sal*age *alue )ro cost and then di*iding the result by the e+pected total unit production o) the resource. 7he resulting aount is depletion e+pense per unit. 7he depletion per unit is ultiplied by total units )or the period to calculate the depletion e+pense )or that period. 7otal depletion is carried in an accuulated depletion account. Natural resources arereported on the balance sheet at their cost inus accuulated depletion.
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1"1. escribe the accounting )or intangible assets, including their acuisition, cost allocation,and accounts in*ol*ed.
Intangible assets are recorded at acuisition cost and are debited to asset accounts. Allocationo) the cost o) an intangible asset to e+pense is done by using the straight(line ethod and iscalled aortiation. Aortiation is recorded ith a credit to accuulated aortiation.Intangible assets are reported on the balance sheet at their cost inus accuulated
Chapter 010 Plant Assets, Natural Resources and Intangibles
1"2. 7he )ounders o) /abaon understand that anaging plant assets is iportant to theircopanys success. 4hat are soe o) the plant asset issues that the )ounders identi)y asiportant to theK
>ne challenge is aintaining the right ind and aount o) plant assets to eet deand and be pro)itable. A ey to their success is onitoring and controlling plant assets, hich range )ro bottling and pacaging euipent to deli*ery *ehicles, plant )acilities and land. /abaonust )inance, account )or, anage, and reco*er all costs o) long(ter assets.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1"!. A copany purchased a truc on >ctober 1 o) the current year at a cost o) 9!0,000. 7hetruc is e+pected to last si+ years and has a sal*age *alue o) 92,200. 7he copanys annualaccounting period ends on eceber 31.
1. 4hat is the depreciation e+pense )or the current year, assuing the straight(line ethod isusedK 2. 4hat is the depreciation e+pense )or the current year, assuing the double(declining( balance ethod is usedK
1"". A achine as purchased )or 93%,000 and depreciated )or )i*e years on a straight(line basis under the assuption it ould ha*e a ten(year li)e and a 91,000 sal*age *alue. At the beginning o) the achines si+th year it as recognied the achine had three years o)reaining li)e instead o) )i*e and that at the end o) the reaining three years its sal*age *alueould be 91,$00. 4hat aount o) depreciation should be recorded in each o) the achinesreaining three yearsK
Chapter 010 Plant Assets, Natural Resources and Intangibles
1"$. A copany purchased a achine )or 9%",000 that as e+pected to last $ years and toha*e a sal*age *alue o) 9$,000. At the beginning o) the achines )ourth year the copanydecided that the achines estiated use)ul li)e should be re*ised to a total o) 10 years instead
o) $ years. Also, the sal*age *alue as re(estiated to be 9","00. /traight(line depreciationas used throughout the achines li)e. Calculate the depreciation e+pense )or the )ourth yearo) the achines use)ul li)e.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1"%. >n Fuly 1 o) the current year, a copany purchased and placed in ser*ice a achine itha cost o) 92!0,000. 7he copany estiated the achines use)ul li)e to be )our years or$0,000 units o) output ith an estiated sal*age *alue o) 9$0,000. uring the current year,
1",000 units ere produced.
Prepare the necessary eceber 31 ad=usting =ournal entry to record depreciation )or thecurrent year assuing the copany usesB
a. 7he straight(line ethod o) depreciation. b. 7he units(o)(production ethod o) depreciation.c. 7he double(declining balance ethod o) depreciation.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1"&. >n /epteber 30 o) the current year, a copany acuired and placed in ser*ice aachine at a cost o) 9%00,000. It has been estiated that the achine has a ser*ice li)e o) )i*eyears and a sal*age *alue o) 9!0,000. sing the double(declining(balance ethod o)
depreciation, prepare a schedule shoing depreciation aounts )or the current year and thene+t ! years 5round ansers to the nearest dollar6. 7he copany closes its boos oneceber 31 o) each year.
)or 3 onths.)or ' onths? ad=usted don to the sal*age *alue.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1$0. A copany entered into the )olloing transactions concerning its coputer systeB
>n Fanuary 1, 200& purchased a coputer syste that cost 91,!&0,000. 7he estiated use)ul
li)e o) the coputer is 3 years and sal*age *alue is 9!0,000. /traight(line depreciation is to beused. >n Fanuary 1, 200' the copany deterined that the estiated use)ul li)e o) thecoputer ould be ! years instead o) 3 years. 7he estiated sal*age *alue ill only be910,000.
Prepare the =ournal entry to record depreciation e+pense )or 200&.Prepare the =ournal entry to record depreciation e+pense )or 200'.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1$1. 7he 4eiss Copany purchased a truc )or 9'",000 on Fanuary 2, 200&. 7he truc asestiated to ha*e a 93,000 sal*age *alue and a ! year li)e. 7he truc as depreciated usingthe straight(line ethod. uring 2010, it as ob*ious that the trucs total use)ul li)e ould be
$ years rather than !, and the sal*age at the end o) the $th year ould be 91,"00. eterinethe depreciation e+pense )or the truc )or the $ years o) its li)e.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1$3. A copany purchased a heating syste on Fanuary 2, 1''", )or 922",000. 7he systehad an estiated use)ul li)e o) 1" years. >n Fanuary 3, 200&, the copany copleted areno*ation o) the syste at a cost o) 933,000 and no e+pects the syste to be ore e))icient
and last & years beyond the original estiate. 7he copany uses the straight(line ethod o)depreciation.
5a6 Prepare the =ournal entry at Fanuary 3, 200&, to record the reno*ation o) the heatingsyste.5b6 Prepare the =ournal entry at eceber 31, 200&, to record the depreciation )or 200&.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1$!. A copany purchased and installed a achine on Fanuary 1, 200" at a total cost o)9%2,000. /traight(line depreciation as calculated based on the assuption o) a )i*e(year li)eand no sal*age *alue. 7he achine as disposed o) on Fuly 1, 200&.
1. Prepare the general =ournal entry to update depreciation to Fuly 1, 200&. 2. Prepare the general =ournal entry to record the disposal o) the achine under each o) thesethree independent situationsB a. 7he achine as sold )or 922,000 cash. b. 7he achine as sold )or 91",000 cash. c. 7he achine as totally destroyed in a )ire and the insurance copany settled the clai)or 91&,000 cash.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1$". >n April 1, 200& a copany discarded a achine that had cost 910,000 and hadaccuulated depreciation o) 9&,000 as o) eceber 31, 200%. 7he asset had a "(year li)e and90 sal*age *alue. Prepare the =ournal entries to record the updating o) the depreciation
e+pense and discarding o) this asset.
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1$$. >n April 1, 200&, a copany disposed o) euipent )or 91!,200 cash that had cost93",000 on Fanuary 1, 200!. 7he euipent had a sal*age *alue o) 9",000, and a use)ul li)e10 years. 7he double(declining(balance depreciation ethod as used. >n eceber 31,200%, accuulated depreciation as 920,$$!. Prepare a =ournal entry to record depreciation)or 200& up to the date o) disposal o) the euipent, and prepare a =ournal entry to record the
Chapter 010 Plant Assets, Natural Resources and Intangibles
1$%. >n Fanuary 2, 200", a copany purchased a deli*ery truc )or 9!",000 cash. 7he truchad an estiated use)ul li)e o) se*en years and an estiated sal*age *alue o) 93,000. 7hestraight(line ethod o) depreciation as used. Prepare the =ournal entries to recorddepreciation e+pense and the disposition o) the truc on /epteber 1, 200', under each o) the)olloing assuptionsB
a. 7he truc and 9!",000 cash ere gi*en in e+change )or a ne deli*ery truc that had a cash price o) 9$0,000. 7his transaction has coercial substance. b. 7he truc and 9!0,000 cash ere e+changed )or a ne deli*ery truc that had a cash priceo) 9$0,000. 7his transaction lacs coercial substance.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1$&. A copany had net sales o) 9%&',%$" and a*erage assets o) 9$"&,13%. Calculate thecopanys total asset turno*er.
9%&',%$":9$"&,13% ; 1.2
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1$'. A copany had net sales o) 9230,000 )or 200& and 92&&,000 )or 200'. 7he copanysa*erage total assets )or 200& ere 91"0,000 and 91&0,000 )or 200'. Calculate the total assetturno*er )or each year and coent on the copanys e))iciency in the use o) its assets.
In 200& )or e*ery dollar o) assets, the copany earned 91."3 in net sales.7his increased to 91.$0 in net sales )or e*ery dollar o) assets in 200'.Its e))iciency in the use o) its assets ipro*ed )ro 200& to 200'.
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AICPA BB: Critical )*inking AICPA FN: (isk Analysis Difficulty: Medium
Chapter 010 Plant Assets, Natural Resources and Intangibles
1%0. A copany had net sales o) 9"!1,"00 in 200& and 9!%",300 in 200'. Its a*erage assetsere 9!10,000 )or 200& and 9!00,000 )or 200'. 516 Calculate the total asset turno*er )or eachyear. 526 Interpret and coent on the copanys e))iciency in the use o) its assets.
InterpretationB 8or e*ery dollar in assets in 200&, the copany generated 91.32 in net sales. In200' it generated 91.1' in net sales )or e*ery dollar o) assets. >*er the to(year period thecopany reduced its e))iciency in the use o) its assets to generate net sales.
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1%1. #eidel Co. paid 9%"0,000 cash to buy the plant assets o) Rogers Co. that ent out o) business. An independent appraiser assigned the )olloing *alues to the assets acuiredB
Prepare #eidels =ournal entry to record the acuisition o) these assets.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1%2. A copany purchased a special purpose achine on August 1 o) the past year, and it asinstalled and ready to run on Fanuary 1 o) this year. 7he )olloing costs ere incurred in the purchase and installation o) the achine.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1%3. A copany paid 9%%0,000 plus 9",000 in closing costs )or property that included landappraised at 93&!,000? land ipro*eents appraised at 912&,000? and a building appraised at92&&,000. 7he plan is to use the building as a anu)acturing plant. eterine the aounts
Chapter 010 Plant Assets, Natural Resources and Intangibles
1%". A copany purchased euipent on Fuly 3 o) the current year and placed it in ser*ice onAugust 1. 7he )olloing costs ere incurred in acuiring the euipentB
eterine the aount to be recorded as cost )or the euipent.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1%$. A copany purchased land ith a building )or a total cost o) 92,"%0,000 59"00,000 paidin cash and the balance on a long(ter note6. It as estiated that the land and building hadaret *alues o) 9'00,000 and 92,100,000, respecti*ely.
eterine the cost to be apportioned to the land and to the building and prepare the =ournalentry to record the acuisition.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1%%. A copany needed a ne building. It )ound a suitable location ith an e+isting old building on the land. 7he copany reached an agreeent to buy the land and the building )or9'$0,000 cash. 7he old building as deolished to ae ay )or the needed ne building.
8olloing is in)oration regarding the deolition o) the old building and construction o) thene oneB
Prepare a single =ournal entry to record the abo*e costs assuing all transactions are paid incash.
Chapter 010 Plant Assets, Natural Resources and Intangibles
Assigned to operating e+penses.
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A ne achine is e+pected to produce $00,000 units o) product during its &(year use)ul li)e.
7he achine cost 91,&00,000 cash and it is estiated to ha*e a 9$0,000 sal*age *alue.
1&0. I) the achine produces %0,000 units o) product during its )irst year, hat is thedepreciation )or the )irst year as calculated by the units(o)(production ethodK
591,&00,000 ( 9$0,0006:$00,000 units ; 92.'0:unit%0,000 units + 92.'0:unit ; 9203,000
Chapter 010 Plant Assets, Natural Resources and Intangibles
1&1. I) depreciation on the achine is calculated by the double(declining(balance ethod,hat is the depreciation )or the )irst yearK
91,&00,000 + 2" ; 9!"0,000
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1&2. 4hat is the )irst years depreciation on the achine as calculated by the straight(lineethodK
591,&00,000 ( 9$0,0006:&years ; 921%,"00
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1&3. A copany recently paid 91,"00,000 on Fanuary 1 to buy a building ith an estiateduse)ul li)e o) 20 years and a sal*age *alue o) 92",000. Calculate the depreciation e+pense )orthe third year a)ter acuisition using declining(balance depreciation.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1&!. A copany purchased a achine on Fanuary 1 o) the current year )or 9%"0,000.Calculate the annual depreciation e+pense )or each year o) the achines li)e 5estiated at "years or 20,000 hours, ith a sal*age *alue o) 9%",0006. uring the achines "(year li)e its
hourly usage asB 3,000? !,000? ",000? ",000? and 3,000 hours.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1&". A copany purchased an euipent syste )or 932",000 on Fanuary 2, 200&. 7hecopany e+pects the euipent to last )or eight years or $0,000 hours o) operation, ith anestiated sal*age *alue o) 92",000. uring 200& the euipent as in operation )or &,000
hours, hile in 200' the euipent as in operation )or &,%00 hours. Copute thedepreciation e+pense relating to the euipent )or 200& and 200' using the )olloingdepreciation ethodsB
a. /traight(line. b. ouble(declining(balance.c. nits(o)(production.
a. 5932",000 ( 92",0006:& ; 93%,"00 )or both 200& and 200'
Chapter 010 Plant Assets, Natural Resources and Intangibles
1&$. >n Fanuary 1, a achine costing 92$0,000 ith a !(year li)e and an estiated 9",000sal*age *alue as purchased. It as also estiated that the achine ould produce "00,000units during its li)e. 7he actual units produced during its )irst year o) operation ere 110,000.
eterine the aount o) depreciation e+pense )or the )irst year under each o) the )olloingassuptionsB 1. 7he copany uses the straight(line ethod o) depreciation. 2. 7he copany uses the units(o)(production ethod o) depreciation. 3. 7he copany uses the double(declining(balance ethod o) depreciation.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1&%. A copany purchased a coputer syste on Fanuary 1, 200&, )or 91,$00,000. Preparethe =ournal entries to record depreciation )or the )irst $ onths o) 2010 and the sale o) thecoputer assuing it is sold on Fuly 1, 2010, )or 91,000,000 cash. 7he straight(line ethod o)
depreciation as used based on an e+pected li)e o) si+ years and a sal*age *alue o) 9130,000.
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1&&. A copany paid 931!,000 )or a achine that as e+pected to last )i*e years and to ha*ea sal*age *alue o) 9!0,000. uring the third year o) the achines li)e, 93%,000 cash as paid)or replaceent parts that ere e+pected to increase the achines producti*ity by 10 eachyear. Prepare the =ournal entry to record the 93%,000 cost incurred in the third year.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1&'. >n Fanuary 1, a copany purchased a achine )or 9%",000 that had a $(year use)ul li)eand a sal*age *alue o) 9$,000. A)ter three years o) straight(line depreciation, the copany paid 9%,"00 cash at the beginning o) the year to ipro*e the e))iciency o) the achine. 7he
e))ect o) the e+penditure as to increase the producti*ity o) the achine ithout increasingits reaining use)ul li)e or changing its sal*age *alue. /traight(line depreciation is usedthroughout the achines li)e. 1. Prepare the =ournal entry to record the 9%,"00 e+penditure. 2. Prepare the =ournal entry to record depreciation e+pense )or the )ourth year.
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1'0. A copany sold )or 9!0,000 cash a achine that originally cost 9'0,000. 7heaccuulated depreciation on this achine as 9!%,000 at the tie o) the sale. 4hat as thecopanys gain or loss on this saleK
Chapter 010 Plant Assets, Natural Resources and Intangibles
1'1. A copany had a building destroyed by )ire. 7he building originally cost 9$"0,000, andits accuulated depreciation as o) the date o) the )ire as 9300,000. 7he copany recei*ed9!00,000 cash )ro an insurance policy that co*ered the building and ill use that oney to
help rebuild. Prepare the single =ournal entry to record the destruction o) the building and thereceipt o) cash )ro the insurance copany.
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1'2. >n April 1, 200&, a copany discarded a coputer that cost 91",000 and that had ause)ul li)e o) ! years, and a sal*age *alue o) 91,000. <ased on straight(line depreciation, theaccuulated depreciation as o) eceber 31, 200% as 910,%00.
a. Prepare the =ournal entry to record depreciation up to the date o) disposal o) the coputer. b. Prepare the =ournal entry to record the disposal o) the coputer.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1'3. >n April 1 o) the current year, a copany disposed o) an autoobile that had cost920,000. 7he auto had a sal*age *alue o) 92,000, and a use)ul li)e o) " years. 7he accountingrecords shoed accuulated depreciation )or this autoobile o) 9&,100 as o) April 1 o) the
current year. 7he asset as discarded a)ter an accident, and 910,"00 cash as recei*ed )roan insurance clai.Prepare the =ournal entry to record the disposal o) the autoobile.
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1'!. ason Copany sold a piece o) euipent )or 92",000 cash on eceber 31 a)terrecording the annual depreciation on the asset. 7he euipent had an original cost o) 9'2,"00and accuulated depreciation o) 9$0,000. Prepare the general =ournal entry to record the saleo) this asset.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1'". A copany purchased ining property )or 91,"$0,000. 7he property as estiated tocontain 13,000,000 tons o) ore. In the current year, the copany reo*ed and sold 2!%,000tons o) ore. Calculate the depletion e+pense )or the current year.
1'$. A copany purchased ining property containing 1",000,000 tons o) ore )or 9!,&%",000.In year1, it ined %&',000 tons o) ore and in year 2, it ined 1,23",000 tons. Calculate thedepletion e+pense )or year 1 and year 2.
9!,&%",000:1",000,000 tons ; 90.32" per tonGear 1B %&',000 tons + 90.32" per ton ; 92"$,!2"Gear 2B 1,23",000 tons + 90.32" per ton ; 9!01,3%"
Chapter 010 Plant Assets, Natural Resources and Intangibles
1'%. A copany purchased ining property containing %,3"0,000 tons o) ore )or 91,&3%,"00.In year 1, it ined and sold &"%,000 tons o) ore and in year 2, it ined and sold '!3,000 tonso) ore. Calculate the depletion e+pense )or year 1 and year 2. 4hat as the boo *alue o) the
property at the end o) year 2K
a. 91,&3%,"00:%,3"0,000 tons ; 90.2" per tonGear 1B &"%,000 tons + 90.2" per ton ; 921!,2"0Gear 2B '!3,000 tons + 90.2" per ton ; 923",%"0 b.
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1'&. >n Fanuary 2 o) the current year, a copany purchased a patent )or 93",000 ith a use)ulli)e o) 10 years. Prepare the =ournal entry to aortie the patent at the end o) the )irst year.
Chapter 010 Plant Assets, Natural Resources and Intangibles
1''. A copany purchased a leasehold property )or 9&,!00,000. 7he leasehold e+pires in 1"years. Prepare the =ournal entry to record the )irst years aortiation e+pense.
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200. A copany purchased a usic distributors collection o) lyrics and songs )or 91,!2",000.7he copyrights are e+pected to last another 30 years. Prepare the =ournal entry to record theaortiation e+pense )or the )irst year.
Chapter 010 Plant Assets, Natural Resources and Intangibles
201. A copany traded an old )orli)t )or a ne )orli)t, recei*ing a 910,"00 trade(inalloance and paying the reaining 93%,200 in cash. 7he old )orli)t had cost 93',000, andstraight(line accuulated depreciation o) 92%,200 had been recorded as o) the e+change date
under the assuption it ould last )i*e years and ha*e a 9",000 sal*age *alue. 1. 4hat as the boo *alue o) the old )orli)t on the date o) the e+changeK 2. 4hat aount o) gain or loss 5indicate hich6 should be recognied in recording thee+change, assuing the transaction has coercial substanceK 3. 4hat aount should be recorded as the cost o) the ne )orli)tK
3. In this case, the ne )orli)t should be recorded at its aret *alue o) 9!%,%00.
Chapter 010 Plant Assets, Natural Resources and Intangibles
202. 7he original cost o) a achine as 9$0,000. A)ter 9!",000 o) depreciation as recorded,the achine as traded in on a ne achine priced at 9%",000. A 910,"00 trade(in alloanceas recei*ed on the old achine and the balance o) 9$!,"00 as paid in cash. 7his
transaction has coercial substance. Prepare the general =ournal entry to record this trade(in.
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203. A copany e+changed its used achine )or a ne achine in a transaction that hadcoercial substance. 7he old achine cost 9%0,000, and the ne one had a cash price o)9'",000. 7he copany had taen 9$0,000 depreciation on the old achine and as alloed a92,"00 trade(in alloance and the balance o) 9'2,"00 as paid in cash. 4hat gain or lossshould be recorded on the e+changeK
Chapter 010 Plant Assets, Natural Resources and Intangibles
20!. A copany e+changed an old truc )or a neer odel. 7he old truc account had a costo) 9%$,000 and accuulated depreciation o) 9$",000 as o) the e+change date. 7he ne truchad a cash price o) 9&!,000, but the copany as gi*en a 91",000 trade(in alloance and the
balance o) 9$',000 as paid in cash. Prepare the =ournal entry to record the e+change, i) thetransaction lacs coercial substance.
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20". uring the current year, a copany e+changed an old truc costing 9"&,000 ithaccuulated depreciation o) 9"2,000 )or a ne truc. 7he ne truc had a cash price o)9&0,000 and the copany recei*ed a 91$,000 trade(in alloance on the old truc ith the balance o) 9$!,000 paid in cash. Prepare the =ournal entry to record the e+change, assuingthe transaction laced coercial substance.
Chapter 010 Plant Assets, Natural Resources and Intangibles
20$. uring the current year, a copany acuired a ne coputer ith a cash price o)912,&00 by e+changing an old one on hich the copany recei*ed a 91,"00 trade(inalloance 5ith the balance o) 911,300 paid in cash6. 7he old coputer cost 9',000 and its
accuulated depreciation as 9","00 as o) the e+change date. Assuing the e+changetransaction had coercial substance, prepare the =ournal entry to record the e+change.
Chapter 010 Plant Assets, Natural Resources and Intangibles
20&. >n April 1 o) the current year, a copany traded an old achine that originally cost932,000 and that had accuulated depreciation o) 92!,000 )or a siilar ne achine that hada cash price o) 9!0,000.
1. Prepare the entry to record the e+change under the assuption that a 9",000 trade(inalloance as recei*ed and the balance o) 93",000 as paid in cash. Assue the e+changetransaction had coercial substance. 2. Prepare the entry to record the e+change under the assuption that instead o) a 9",000trade(in alloance, a 912,"00 trade(in alloance as recei*ed and the balance o) 92%,"00as paid in cash. Assue the e+change transaction laced coercial substance.
OOOOOOOOOOOOOOOOOOOOOOOOOOOOO, 536 OOOOOOOOOOOOOOOOOOOOOOOOO, 5!6 OOOOOOOOOOOOOOOOOOOOOOOOOOOOO.! $om#uting of t%e costs of #lant assets!7 .! llocating t%e costs of #lant assets against
revenues for t%e #eriods t%ey benefit!7 4! ccounting for re#airs and e8#enditures!7 -!
*ecording t%e dis#osal of #lant assets!
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210. 7he three ain )actors in coputing depreciation areB 516 OOOOOOOOOOOOOOOOOOOO, 526 OOOOOOOOOOOOOOOOOOOO, 536 OOOOOOOOOOOOOOOOOOO.! $ost!7 .! Salvage value!7 4! +seful life!
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211. OOOOOOOOOOOOOOOOOOOOO is an estiate o) an assets *alue at the end o) its bene)it period.Salvage value (or residual value or scra# value)
Chapter 010 Plant Assets, Natural Resources and Intangibles
212. OOOOOOOOOOOOOOOOOOOOO re)ers to the insu))icient capacity o) a copanys plant asset toeet the copanys producti*e deands.Inade9uacy
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213. OOOOOOOOOOOOOOOOOOOO re)ers to a plant asset that is no longer use)ul in producinggoods or ser*ices ith a copetiti*e ad*antage because o) ne in*entions andipro*eents.Obsolescence
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Difficulty: Easy
Learning !"ecti#e: C&
21!. 7he OOOOOOOOOOOOOOOOOOOOO principle reuires that copanies report the aount o)accuulated depreciation on plant assets as ell as the depreciation ethods used todeterine the annual depreciation e+pense.
Full disclosure
AACSB: Communications
AICPA BB: Industry
AICPA FN: (e1orting
Difficulty: Medium
Learning !"ecti#e: C'
21". Re*ising estiates o) the use)ul li)e or sal*age *alue o) a plant asset is re)erred to as a OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO.
Chapter 010 Plant Assets, Natural Resources and Intangibles
220. OOOOOOOOOOOOOOOOOOOOOO depreciation charges a *arying aount to e+pense )or each period o) an assets use)ul li)e depending on its usage.+nits;of;#roduction
AACSB: Communications AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning !"ecti#e: P&
221. OOOOOOOOOOOOOOOOOOOOO depreciation uses a depreciation rate that is a ultiple o) thestraight(line rate and applies it to an assets beginning(o)(period boo *alue.Declining;balance
AACSB: Communications
AICPA BB: Industry AICPA FN: Measurement
Difficulty: Easy
Learning !"ecti#e: P&
222. OOOOOOOOOOOOOOOOOOOOOOO are e+penditures that e+tend an assets use)ul li)e beyond itsoriginal estiate.'8traordinary re#airs
AACSB: Communications
AICPA BB: Industry
AICPA FN: Measurement Difficulty: Medium
Learning !"ecti#e: P'
223. OOOOOOOOOOOOOOOOOOO are additional costs o) plant assets that do not aterially increasethe assets li)e or producti*e capabilities.*evenue e8#enditures
Chapter 010 Plant Assets, Natural Resources and Intangibles
22!. OOOOOOOOOOOOOOOOOOOOO are additional costs o) plant assets that pro*ide bene)itse+tending beyond the current period? they increase or ipro*e the type or aount o) ser*icean asset pro*ides.
$a#ital e8#enditures
AACSB: Communications
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium Learning !"ecti#e: P'
22". OOOOOOOOOOOOOOOOOOOOO are re*enue e+penditures to eep an asset in noral, goodoperating condition? they are necessary i) an asset is to per)or to e+pectations o*er its use)ulli)e.Ordinary re#airs
AACSB: Communications
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium Learning !"ecti#e: P'
22$. OOOOOOOOOOOOOOOOOOOOOOOOO are capital e+penditures that ae a plant asset ore producti*e? they o)ten in*ol*e adding a coponent to an asset or replacing one o) its old
coponents ith a better one, and do not alays increase an assets li)e.,etterments
Chapter 010 Plant Assets, Natural Resources and Intangibles
231. A achine costing 9!"0,000 ith a )our(year li)e and an estiated 930,000 sal*age*alue is installed by -u+ Copany on Fanuary 1. 7he )actory estiates the achine ill produce 1,0"0,000 units o) product during its li)e. It actually produces the )olloing units )or
the )irst 2 yearsB year 1, 2$0,000? year 2, 2%",000. Enter the depreciation aounts )or years 1and 2 in the table belo )or each depreciation ethod. /ho calculation o) aounts belothe table.
Chapter 010 Plant Assets, Natural Resources and Intangibles
232. >n Fuly 1 o) the current year, <oto+ ining Co. pays 9",!00,000 )or land estiated tocontain %,200,000 tons o) reco*erable ore. It installs achinery on Fuly 3 costing 9&$!,000that has an & year li)e and no sal*age *alue and is capable o) ining the ore deposit in si+
years. 7he copany reo*es and sells %!",000 tons o) ore during its )irst si+ onths o)operations ending on eceber 31. epreciation o) the achinery is in proportion to theines depletion as the achinery ill be abandoned a)ter the ore is ined.Prepare entries to record 5a6 the purchase o) the ore deposit, 5b6 the costs and installation o)the achinery, 5c6 the depletion assuing the land has a ero sal*age *alue, and 5d6 thedepreciation on the achinery.
Chapter 010 Plant Assets, Natural Resources and Intangibles
233. >n Fuly 1 o) the current year, /u))o+ Copany signed a contract to sublease space in a building )or % years. /u))o+ Copany paid Alec Copany 9"$,000 )or the right to subleasethis space. A)ter taing possession o) the leased space, /u))o+ pays 91!0,000 )or ipro*ing
the o))ice portion o) the lease space. 7he ipro*eents are paid on Fuly $ o) the current year,and are estiated to ha*e a use)ul li)e eual to the 1! years reaining in the li)e o) the building.Prepare entries )or /u))o+ to record 5a6 its payent to Alec )or the right to sublease the building space, 5b6 its payent )or the o))ice ipro*eents, 5c6 the eceber 31 year(endentry to aortie the cost o) the sublease, 5d6 the eceber 31 year(end entry to aortie theo))ice ipro*eents.
Chapter 010 Plant Assets, Natural Resources and Intangibles
23!. Rocport Copany reports the )olloing in illionsB net sales o) 92",3"" )or 200' and922,3!0 )or 200&? end(o)(year total assets o) 91",&%" )or 200' and 913,&$0 )or 200&.Copute its total asset turno*er )or 200' and assess its le*el i) copetitors a*erage a total
asset turno*er o) 2.0 ties.
92",3"":551",&%" L 13,&$06:26 ; 1.% tiesRocport is not doing as ell as its copetitors. Rocport needs to ipro*e relati*e to itscopetitors on total asset turno*er.
