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Exam 8: Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles

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Question 51

Multiple Choice

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Which of the following best describes the objective of depreciation?

A) To allocate the cost of a tangible asset to the periods in which its use contributes to earning revenue.
B) To estimate the remaining useful life of the asset.
C) To report the asset on the balance sheet at the estimated amount for which the asset could be sold on the balance sheet date.
D) To estimate the current replacement cost of the asset.

E) C) and D)
F) A) and B)

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Question 52

Multiple Choice

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On January 1,2010,Wasson Company purchased a delivery vehicle costing $40,000.The vehicle has an estimated 6-year life and a $4,000 residual value.What is the vehicle's book value as of December 31,2011 assuming Wasson uses the straight-line depreciation method?

A) $12,000
B) $24,000
C) $30,000
D) $28,000

E) A) and C)
F) B) and C)

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Question 53

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Use of the double-declining-balance method of depreciation results in higher depreciation expense during the first year of an asset's life relative to use of the straight-line depreciation method.

A company has some bottling equipment which cost $8.5 million,has a net book value of $4.1 million,estimated future cash flows of $3.7 million,and a fair value of $3.1 million.Which of the following correctly describes the recording of the asset impairment loss?

If a company has an asset with a book value of $5.0 million and estimates the future cash flows to be received over the asset's remaining life to be $5.5 million,no impairment has occurred and no loss would be recognized.

The equipment cost initially reported on the balance sheet includes the equipment related installation costs.

A company has some bottling equipment which cost $8.5 million,has a net book value of $4.1 million,estimated future cash flows of $3.7 million,and a fair value of $3.1 million.How much is the asset impairment loss?

On January 1,2010,Pyle Company purchased an asset that cost $50,000 (no estimated residual value,estimated useful life 8 years,straight-line depreciation is used) .An error was made because the total cost amount was debited to an expense account for 2010 and no depreciation on it was recorded.Pretax income for 2010 was $42,000.How much is the correct 2010 pretax income?

On January 1,2010,Woodstock,Inc.purchased a machine costing $40,000.Woodstock also paid $1,000 for transportation and installation.The expected useful life of the machine is 6 years and the residual value is $5,000.Which of the following statements is incorrect?

Failure to record amortization expense on a patent during the current year will result in which of the following?

Which of the following statements about the Modified Accelerated Cost Recovery System (MACRS) is correct?

Which of the following describes the effect of recording depreciation expense at year-end?

On December 31,2010,Hamilton Inc.sold a used industrial crane for $600,000 cash.The original cost of the crane was $5.0 million and its accumulated depreciation equaled $4.2 million on December 31,2010.What is the gain or loss from the December 31,2010 equipment sale?

On March 1,Wright Company purchased new equipment for $50,000 by paying cash.Other costs associated with the equipment were: Transportation costs,$1,000; sales tax paid $3,000; and installation cost,$2,500.At what amount will the equipment be recorded at on a balance sheet?

Benson Mining Company purchased a site containing a mineral deposit during 2010.The purchase price was $820,000,and the site is estimated to contain 400,000 tons of extractable ore.Benson constructed a building at the site,at a cost of $500,000,to be used while the ore is being extracted.When the ore reserves are gone,the building will have no further value. Requirements: A.Explain the objective of recording depletion on natural resources. B.Determine Benson's depletion rate per ton of ore. C.Prepare the journal entry to record depletion for the year 2010, when Benson mined and sold 150,000 tons of ore. D.Prepare the journal entry to record depreciation on the building for 2010.Benson calculates depreciation on the building using the units-of-production method based on the amount of ore extracted (150,000 tons in 2010).

The first step in recording the disposal of a long-lived asset is to update its book value by recognizing depreciation expense for the period of time since the last depreciation adjustment was made.

On January 1,2010,Wasson Company purchased a delivery vehicle costing $40,000.The vehicle has an estimated 6-year life and a $4,000 residual value.Wasson estimates that the vehicle will be driven 100,000 miles.What is the vehicle's book value as of December 31,2011 assuming Wasson uses the units-of-production depreciation method and the vehicle was driven 10,000 miles during 2010 and 18,000 miles during 2011?

Which of the following equipment related costs is not capitalized on a balance sheet?

Which of the following properly describes the accounting for a patent?

The following information was available for Landmark Restaurants for the past three years.Using this information compute the fixed asset turnover ratio for 2010 and 2009. $\begin{array} { l r r r } \text { In thousands } &{ 2010 } & { 2009 } & { 2008 } \\\text { Net fixed assets } & \$ 965,575 & \$ 830,930 & \$ 587,829 \\\text { Net sales } & 1,105,755 & 894,795 & 746,642 \\\text { Net income } & 45,901 & 41,522 & 26,920\end{array}$