Exam 10: Plant Assets, Natural Resources, and Intangibles

When the usefulness of plant assets used to extract natural resources is directly related to the depletion of a natural resource, their costs are depreciated using the units-of-production method of depreciation, as long as the assets will not be moved to and used at another site when extraction of the natural resources is complete.

The Weiss Company purchased a truck for $95,000 on January 2. The truck was estimated to have a $3,000 salvage value and a 4 year life. The truck was depreciated using the straight-line method. During the third year, it was obvious that the truck's total useful life would be 6 years rather than 4, and the salvage at the end of the 6th year would be $1,500. Determine the depreciation expense for the truck for the 6 years of its life.

A company paid $314,000 for a machine that was expected to last five years and to have a salvage value of $40,000. During the third year of the machine's life, $37,000 cash was paid for replacement parts that were expected to increase the machine's productivity by 10% each year. Prepare the journal entry to record the $37,000 cost incurred in the third year.

Depreciation is higher and income is lower in the short run when using accelerated versus straight-line methods.

A company purchased a tract of land for its natural resources at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected to be $250,000. The depletion expense per ton of ore is:

Describe the accounting for intangible assets, including their acquisition, cost allocation, and accounts involved.

Natural resources are assets that include standing timber, mineral deposits, and oil and gas fields.

The useful life of a plant asset is:

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

_____________________ are additional costs of plant assets that provide benefits extending beyond the current period; they increase or improve the type or amount of service an asset provides.

___________________ are additional costs of plant assets that do not materially increase the asset's life or productive capabilities.

_______________________ depreciation recognizes equal amounts of annual depreciation over the life of an asset.

Abers reported average total assets of $10,965 million and net sales of $11,430 million. Its total asset turnover equals .96. $11,430/$10,965 = 1.04

On January 1, a machine costing $260,000 with a 4-year life and an estimated $5,000 salvage value was purchased. It was also estimated that the machine would produce 500,000 units during its life. The actual units produced during its first year of operation were 110,000. Determine the amount of depreciation expense for the first year under each of the following assumptions: 1. The company uses the straight-line method of depreciation. 2. The company uses the units-of-production method of depreciation. 3. The company uses the double-declining-balance method of depreciation.

A new machine is expected to produce 600,000 units of product during its 8-year useful life. The machine cost $1,800,000 cash and it is estimated to have a $60,000 salvage value. 1. Calculate the depreciation if the machine produces 70,000 units of product during its first year, using the units-of-production method. 2. Calculate the depreciation on the machine using the double-declining-balance method. 3. Calculate the depreciation on the machine using the straight-line method.

Cambria Company reports net sales of $4,315 million; cost of goods sold of $2,808 million; net income of $283 million; and average total assets of $2,136. Compute its total asset turnover.

Salta Company installs a manufacturing machine in its factory 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 straight-line method.

On April 1, Year 5 a company discarded a machine that had cost $10,000 and had accumulated depreciation of $8,000 as of December 31, Year 4. The asset had a 5-year life and $0 salvage value. Prepare the journal entries to record the updating of the depreciation expense and discarding of this asset in Year 5.

Plant assets can be disposed of by discarding, selling, or exchanging them.

A company used straight-line depreciation for an item of equipment that cost $12,000, had a salvage value of $2,000, and had a five-year useful life. After depreciating the asset for three complete years, the salvage value was reduced to $1,200 and its total useful life was increased from 5 years to 6 years. Determine the amount of depreciation to be charged against the machine during each of the remaining years of its useful life: