Exam 9: Plant Assets, Natural Resources, and Intangible Assets

As a recent graduate of State University you're aware that IFRS requires component depreciation for plant assets. A friend has asked you to succinctly explain what component depreciation means. Which of the following correctly describes component depreciation?

The declining-balance method of computing depreciation expense involves multiplying a _______________ book value by a _______________ percentage.

A change in the estimated useful life of equipment requires

Additions and improvements are costs incurred to increase the operating efficiency, productive capacity, or expected useful life and are referred to as __________________.

A plant asset cost $90,000 when it was purchased on January 1, 2011. It was depreciated by the straight-line method based on a 9-year life with no salvage value. On June 30, 2018, the asset was discarded with no cash proceeds. What gain or loss should be recognized on the retirement?

In the case of an exchange of plant assets resulting in a loss on disposal, the cost of the new asset acquired is equal to the ______________ of the asset given up plus any cash paid by the purchaser.

Karley Company sold equipment on July 1, 2018 for $75,000. The equipment had cost $210,000 and had $120,000 of accumulated depreciation as of January 1, 2018. Depreciation for the first 6 months of 2015 was $12,000. Instructions Prepare the journal entry to record the sale of the equipment.

The method most commonly used to compute depletion is the

Gagner Clinic purchases land for $175,000 cash. The clinic assumes $1,500 in property taxes due on the land. The title and attorney fees totaled $1,000. The clinic has the land graded for $2,200. What amount does Gagner Clinic record as the cost for the land?

Foley Word Processing Service uses the straight-line method of depreciation. The company's fiscal year end is December 31. The following transactions and events occurred during the first three years. Instructions Prepare the necessary entries. (Show computations.)

Natural resources are

A gain or loss on disposal of a plant asset is determined by comparing the

Identify the following expenditures as capital expenditures or revenue expenditures. (a) Replacement of worn out gears on factory machinery. (b) Construction of a new wing on an office building. (c) Painting the exterior of a building. (d) Oil change on a company truck. (e) Painting and lettering of a used truck upon acquisition of the truck. (f) Overhaul of a truck motor. One year extension in useful life is expected. (g) Purchased a wastebasket at a cost of $10.

Fleming Company purchased a machine on January 1, 2018. In addition to the purchase price paid, the following additional costs were incurred: (a) sales tax paid on the purchase price, (b) transportation and insurance costs while the machinery was in transit from the seller, (c) personnel training costs for initial operation of the machinery, (d) annual city operating license, (e) major overhaul to extend the life of the machinery, (f) lubrication of the machinery gearing before the machinery was placed into service, (g) lubrication of the machinery gearing after the machinery was placed into service, and (h) installation costs necessary to secure the machinery to the building flooring. Instructions Indicate whether the items (a) through (h) are capital or revenue expenditures in the spaces provided: C = Capital, R = Revenue.

The declining-balance method is an accelerated method of depreciation. Briefly explain what is meant by an accelerated method of depreciation and justify the choosing of an accelerated method.

The IRS does not require the taxpayer to use the same depreciation method on the tax return that is used in preparing financial statements.

Identify the item below where the terms are not related.

Which of the following assets does not decline in service potential over the course of its useful life?

Interest may be included in the acquisition cost of a plant asset

Presto Company purchased equipment and these costs were incurred: Presto will record the acquisition cost of the equipment as