Exam 10: Plant Assets Natural Resoures and Intangibles

The straight-line depreciation method yields a steady pattern of depreciation expense.

A new machine costing $1,800,000 cash and estimated to have a $60,000 salvage value was purchased on January 1. The machine is expected to produce 600,000 units of product during its 8-year useful life. Calculate the depreciation expense in the first year under the following independent situations: 1. The company uses the units-of-production method and the machine produces 70,000 units of product during its first year. 2. The company uses the double-declining-balance method. 3. The company uses the straight-line method.

Capital expenditures, also called balance sheet expenditures, are additional costs of plant assets that provide benefits extending beyond the current period.

Obsolescence refers to the insufficient capacity of a company's plant assets to meet the company's growing productive demands.

Gaston owns equipment that cost $90,500 with accumulated depreciation of $61,000. Gaston asks $30,000 for the equipment but sells the equipment for $26,000. Which of the following would not be part of the journal entry to record the disposal of the equipment?

Another name for a capital expenditure is:

One characteristic of plant assets is that they are:

The units-of-production method of depreciation charges a varying amount of expense for each period of an asset's useful life depending on its usage.

A machine costing $450,000 with a 4-year life and an estimated salvage value of $30,000 is installed by Peters Company on January 1. The company estimates the machine will produce 1,050,000 units of product during its life. It actually produces the following units for the first 2 years: Year 1, 260,000; Year 2, 275,000. Enter the depreciation amounts for years 1 and 2 in the table below for each depreciation method. Show calculation of amounts below the table.

Depreciation does not measure the decline in market value of an asset each period.

The purchase of a property that included land, building, and related improvements is called a lump-sum or basket purchase.

Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine is depreciated using the double-declining-balance method. The machine's useful life is estimated to be 5 years with a $4,000 salvage value. -The machine's book value at the end of year 2 is:

Edmond reported average total assets of $9,965 million and net sales of $10,430 million. Its total asset turnover equals .96.

Suarez Company uses the straight-line method of depreciation. The company purchased a computer system on January 1, Year 1, for $1,600,000 with an expected life of six years and a salvage value of $130,000. Assuming the computer is sold on July 1, Year 3 for $1,000,000 cash, prepare the journal entries to record depreciation for the first 6 months of Year 3 and the sale of the computer.

The phrase capital-intensive refers to companies with large amounts invested in plant assets.

Match each of the following terms with the appropriate definitions. a. Extraordinary repairs b. Obsolescence c. Leasehold improvements d. Depletion e. Salvage value f. Book value g. Land improvements h. Copyright i. Inadequacy j. Patent _____ 1. An estimate of an asset's value at the end its benefit period. _____ 2. Major repairs that extend the useful life of a plant asset beyond its original estimate. _____ 3. Alternations or improvements to leased property made by the lessee. _____ 4. A right granted that gives its owner the exclusive privilege to publish and sell musical, literary, or artistic work during the life of the creator plus 70 years. _____ 5. A condition where a plant asset is no longer useful in producing goods or services with a competitive advantage. _____ 6. The total cost of a plant asset less its accumulated depreciation. _____ 7. The process of allocating the cost of natural resources to the periods when they are consumed. _____ 8. An exclusive right granted to its owner to manufacture and sell an item, or to use a process, for 20 years. _____ 9. The insufficient capacity of plant assets to meet the company's productive demands. _____ 10. Assets that increase the benefits of land, have a limited useful life, and are subject to depreciation.

Accounting for the exchange of assets depends on whether the transaction has commercial substance; commercial substance implies that it alters the company's future cash flows.

Marlow Company purchased a point of sale system on January 1 for $3,400. This system has a useful life of 10 years and a salvage value of $400. -What would be the accumulated depreciation at the end of the second year of its useful life using the double-declining-balance method?

Revenue expenditures:

Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $87,000. The machine's useful life is estimated to be 5 years, or 400,000 units of product, with a $7,000 salvage value. During its second year, the machine produces 84,500 units of product. -Determine the machines' second year depreciation under the double-declining-balance method.