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

Grimwood Trucking purchased a tractor trailer for $171,500. Interline uses the units-of-activity method for depreciating its trucks and expects to drive the truck 1,000,000 miles over its 12-year useful life. Salvage value is estimated to be $24,500. If the truck is driven 90,000 miles in its first year, how much depreciation expense should Grimwood record?

Depreciation is a process of

The cost of a patent should be amortized over its legal life or useful life, whichever is shorter.

The cost of paving, fencing, and lighting a new company parking lot is charged to a ______________ account.

The entry to record patent amortization usually includes a credit to

A change in the estimated salvage value of a plant asset requires a restatement of prior years' depreciation.

Zimmer Company sold the following two machines in 2018: Instructions Journalize all entries required to update depreciation and record the sales of the two assets in 2018. The company has recorded depreciation on the machines through December 31, 2017.

With the exception of land, plant assets experience a ______________ in service potential over their useful lives.

Gorman Mining invested $960,000 in a mine estimated to have 1,200,000 tons of ore with no salvage value. During the first year, 200,000 tons of ore were mined and sold. Instructions Prepare the journal entry to record depletion expense.

Which of the following methods of computing depreciation is production based?

A company purchased land for $90,000 cash. Real estate brokers' commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the historical cost principle, the cost of land would be recorded at

The depreciation method that applies a constant percentage to depreciable cost in calculating depreciation is

During the current year, Marin Company incurred several expenditures. Briefly explain whether the expenditures listed below should be recorded as an operating expense or as an intangible asset. If you view the expenditure as an intangible asset, indicate the number of years over which the asset should be amortized. Explain your answer. (a) Spent $30,000 in legal costs in a patent defense suit. The patent was unsuccessfully defended. (b) Purchased a trademark from another company. The trademark can be renewed indefinitely. Marin Company expects the trademark to contribute to revenue indefinitely. (c) Marin Company acquires a patent for $2,000,000. The company selling the patent has spent $1,000,000 on the research and development of it. The patent has a remaining life of 15 years. (d) Marin Company is spending considerable time and money in developing a different patent for another product. So far $3,000,000 has been spent this year on research and development. Marin Company is very confident they will obtain this patent in the next few years.

The book value of an asset will equal its fair market value at the date of sale if

If a mining company extracts 1,500,000 tons in a period but only sells 1,200,000 tons,

Farr Company purchased a new van for floral deliveries on January 1, 2018. The van cost $56,000 with an estimated life of 5 years and $14,000 salvage value at the end of its useful life. The double-declining-balance method of depreciation will be used. What is the depreciation expense for 2018?

When plant assets are exchanged, the cost of the new asset is the book value of the old asset plus any cash paid.

Dolan Company exchanges equipment with Eaton Company and Pawnee Company exchanges equipment with Fiero Company. The following information pertains to the exchanges: Instructions Prepare the journal entries to record the exchanges on the books of Dolan Company and Pawnee Company. The transaction has commercial substance.

Each of the following is used in computing revised annual depreciation for a change in estimate except

Management should select the depreciation method that