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Exam 10: Long-Term Assets

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Question 71

Multiple Choice

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Many companies use an accelerated depreciation method because:

A) It is required by the tax code.
B) It is required by financial reporting rules.
C) It yields larger depreciation expense in the early years of an asset's life.
D) It yields a higher income in the early years of the asset's useful life.
E) The results are identical to straight-line depreciation.

F) A) and B)
G) A) and E)

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Question 72

True/False

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When an asset is purchased (or disposed of) at a time other than the beginning or the end of an accounting period, depreciation is recorded for part of a year so that the year of purchase or the year of disposal is charged with its share of the asset's depreciation.

A) True
B) False

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Question 73

Multiple Choice

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Carmel Company acquires a mineral deposit at a cost of $5,900,000. It incurs additional costs of $600,000 to access the deposit, which is estimated to contain 2,000,000 tons and is expected to take 5 years to extract. What journal entry would be needed to record the expense for the first year assuming 418,000 tons were mined?

On April 1, 2010, a company disposed of equipment for $14,200 cash that had cost $35,000 on January 1, 2006. The equipment had a residual value of $5,000, and a useful life 10 years. The double-declining-balance depreciation method was used. On December 31, 2009, accumulated depreciation was $20,664. Prepare a journal entry to record depreciation for 2010 up to the date of disposal of the equipment, and prepare a journal entry to record the disposal of the equipment.

Natural resources are often called wasting assets because they are physically consumed when used.

A loss on disposal of an item of property, plant and equipment occurs if the cash proceeds received from the asset sale is less than the asset's carrying amount.

Since goodwill is an intangible, it is amortized each year using the straight-line method, the same as other intangibles are amortized.

When the usefulness of property, plant and equipment used to extract natural resources is directly related to the depletion of a natural resource, their costs are depreciated using the units-of-production method of depreciation, as long as the assets will not be moved to and used at another site when extraction of the natural resources is complete.

Goodwill:

Obsolescence:

_____________________ is an estimate of an asset's value at the end of its benefit period.

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 residual 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

Capital expenditures are also called balance sheet expenditures.

All of the following statements regarding revaluation under IFRS are except:

Lomax Enterprises purchased a depreciable asset for $22,000 on March 1, Year 1. The asset will be depreciated using the straight-line method over its four-year useful life. Assuming the asset's residual value is $2,000, Lomax Enterprises should recognize depreciation expense in Year 2 in the amount of:

On July 1 of the current year, Botox 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 residual 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 entries to record (a) the purchase of the ore deposit, (b) the costs and installation of the machinery, (c) the depletion assuming the land has a zero residual value, and (d) the depreciation on the machinery.

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.

Financial accounting and tax accounting require the same recordkeeping and there should be no difference in results between the two accounting systems.

Asset turnover is computed by dividing average total assets by cost of sales.

On April 1, 2010, a company discarded a computer that cost $15,000 and that had a useful life of 4 years, and a residual value of $1,000. Based on straight-line depreciation, the accumulated depreciation as of December 31, 2009 was $10,700. a. Prepare the journal entry to record depreciation up to the date of disposal of the computer. b. Prepare the journal entry to record the disposal of the computer.