Exam 11: Depreciation, Impairments, and Depletion

Harrison Company purchased a depreciable asset for $100,000.The estimated salvage value is $10,000, and the estimated useful life is 10 years.The straight-line method will be used for depreciation.What is the depreciation base of this asset?

Changes in estimates are handled prospectively by dividing the asset's book value less any salvage value by the remaining estimated life.

Use the following information for questions For 2007, Colaw Company reports beginning of the year total assets of $900,000, end of the year total assets of $1,100,000, net sales of $1,250,000, and net income of $250,000. -Colaw's 2007 asset turnover ratio is

On April 13, 2006, Foley Co.purchased machinery for $120,000.Salvage value was estimated to be $5,000.The machinery will be depreciated over ten years using the double-declining balance method.If depreciation is computed on the basis of the nearest full month, Foley should record depreciation expense for 2007 on this machinery of

In March, 2007, Tylor Mines Co.purchased a coal mine for $6,000,000.Removable coal is estimated at 1,500,000 tons.Tylor is required to restore the land at an estimated cost of $720,000, and the land should have a value of $630,000.The company incurred $1,500,000 of development costs preparing the mine for production.During 2007, 450,000 tons were removed and 300,000 tons were sold.The total amount of depletion that Tylor should record for 2007 is

The activity method of depreciation

The cost of an asset less its salvage value is its depreciation base.

Klein Co.purchased machinery on January 2, 2001, for $440,000.The straight-line method is used and useful life is estimated to be 10 years, with a $40,000 salvage value.At the beginning of 2007 Klein spent $96,000 to overhaul the machinery.After the overhaul, Klein estimated that the useful life would be extended 4 years (14 years total), and the salvage value would be $20,000.The depreciation expense for 2007 should be

Mack Co.takes a full year's depreciation expense in the year of an asset's acquisition and no depreciation expense in the year of disposition.Data relating to one of Mack's depreciable assets at December 31, 2007 are as follows: Acquisition year 2005 Cost \ 140,000 Residual value 20,000 Accumulated depreciation 96,000 Estimated useful life 5 years Using the same depreciation method as used in 2005, 2006, and 2007, how much depreciation expense should Mack record in 2008 for this asset?

Starr Company purchased a depreciable asset for $150,000.The estimated salvage value is $10,000, and the estimated useful life is 8 years.The double-declining balance method will be used for depreciation.What is the depreciation expense for the second year on this asset?

Sears Corporation, which has a calendar year accounting period, purchased a new machine for $40,000 on April 1, 2002.At that time Sears expected to use the machine for nine years and then sell it for $4,000.The machine was sold for $22,000 on Sept.30, 2007.Assuming straight-line depreciation, no depreciation in the year of acquisition, and a full year of depreciation in the year of retirement, the gain to be recognized at the time of sale would be

A change in estimate should

A general description of the depreciation methods applicable to major classes of depreciable assets

Net income is understated if, in the first year, estimated salvage value is excluded from the depreciation computation when using the Straight-line Production or Method Use Method a. Yes No b. Yes Yes c. No No d. No Yes

Which of the following most accurately reflects the concept of depreciation as used in accounting?

Economic factors that shorten the service life of an asset include

Depletion expense

The units-of-production approach to depreciation is appropriate when depreciation is a function of time instead of activity.

Of the following costs related to the develop?ment of natural resources, which one is not a part of depletion cost?