Question 1

During the current year, a company acquired a new computer with a cash price of $12,800 by exchanging an old one on which the company received a $1,500 trade-in allowance (with the balance of $11,300 paid in cash). The old computer cost $9,000 and its accumulated depreciation was $5,500 as of the exchange date. Assuming the exchange transaction had commercial substance, prepare the journal entry to record the exchange.

Accepted Answer

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Question 2

Big River Rafting pays $310,000 plus $15,000 in closing costs to buy out a competitor. The real estate consists of land appraised at $105,000, a building appraised at $210,000, and equipment appraised at $35,000. Compute the cost that should be allocated to the building.

Accepted Answer

A)  $93,000. 
B)  $186,000. 
C)  $32,500. 
D)  $195,000. 
E)  $97,500.

Question 3

A company purchased an equipment system for $325,000 on January 2. The company expects the equipment to last for eight years or 60,000 hours of operation, with an estimated salvage value of $25,000. During the first year, the equipment was in operation for 8,000 hours, while in the second year, the equipment was in operation for 8,700 hours. Compute the depreciation expense relating to the equipment for Year 1 and Year 2 using the following depreciation methods:
a. Straight-line.
b. Double-declining-balance.
c. Units-of-production.

Accepted Answer

The answer of A company purchased an equipment system for...

Question 4

Depreciation measures the actual decline in market value of an asset.

Accepted Answer

A) True 
 B)False

Question 5

How is the cost principle applied to plant assets, acquisitions, including lump-sum purchases?

Accepted Answer

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Question 6

A company paid $770,000 plus $5,000 in closing costs for property that included land appraised at $384,000; land improvements appraised at $128,000; and a building appraised at $288,000. The plan is to use the building as a manufacturing plant. Determine the amounts that should be recorded as:

Accepted Answer

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Question 7

On April 1 of the current year, a company traded an old machine that originally cost $32,000 and that had accumulated depreciation of $24,000 for a similar new machine that had a cash price of $40,000.
1. Prepare the entry to record the exchange under the assumption that a $5,000 trade-in allowance was received and the balance of $35,000 was paid in cash. Assume the exchange transaction had commercial substance.
2. Prepare the entry to record the exchange under the assumption that instead of a $5,000 trade-in allowance, a $12,500 trade-in allowance was received and the balance of $27,500 was paid in cash. Assume the exchange transaction lacked commercial substance.

Accepted Answer

The answer of On April 1 of the current year,...

Question 8

A company had net sales of $230,000 for 2010 and $288,000 for 2011. The company's average total assets for 2010 were $150,000 and $180,000 for 2011. Calculate the total asset turnover for each year and comment on the company's efficiency in the use of its assets.

Accepted Answer

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Question 9

A company purchased property for a building site. The costs associated with the property were:  What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building?

Accepted Answer

A)  $175,800 to Land; $18,800 to Building. 
B)  $190,000 to Land; $3,800 to Building. 
C)  $190,800 to Land; $1,000 to Building. 
D)  $192,800 to Land; $0 to Building. 
E)  $193,800 to Land; $0 to Building.

Question 10

Record the following events and transactions for Axle Company for the current year.
1. On January 2, Axle purchased a patent for $35,000 with a useful life of 10 years. Prepare the journal entry to amortize the patent at the end of the first year.
2. On January 3, Axle purchased a leasehold for $8,400,000. The leasehold expires in 15 years. Prepare the journal entry to amortize the leasehold at the end of the first year.
3. On January 4, Axle purchased a music distributor's collection of lyrics and songs for $1,425,000. The copyrights are expected to last another 30 years. Prepare the journal entry to amortize the copyright at the end of the first year.

Accepted Answer

The answer of Record the following events and transactions for...

Question 11

A company exchanged an old truck for a newer model. The old truck account had a cost of $76,000 and accumulated depreciation of $65,000 as of the exchange date. The new truck had a cash price of $84,000, but the company was given a $15,000 trade-in allowance and the balance of $69,000 was paid in cash. Prepare the journal entry to record the exchange, if the transaction lacks commercial substance.

Accepted Answer

The answer of A company exchanged an old truck for...

Question 12

The formula for computing annual straight-line depreciation is:

Accepted Answer

A)  Depreciable cost divided by useful life in units. 
B)  Cost plus salvage value divided by the useful life in years. 
C)  Cost less salvage value divided by the useful life in years. 
D)  Cost multiplied by useful life in years. 
E)  Cost divided by useful life in units.

Question 13

Explain the impact, if any, on depreciation when estimates that determine depreciation change.

Accepted Answer

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Question 14

On January 2, 2007, a company purchased a delivery truck for $45,000 cash. The truck had an estimated useful life of seven years and an estimated salvage value of $3,000. The straight-line method of depreciation was used. Prepare the journal entries to record depreciation expense and the disposition of the truck on September 1, 2011, under each of the following assumptions:
a. The truck and $45,000 cash were given in exchange for a new delivery truck that had a cash price of $60,000. This transaction has commercial substance.
b. The truck and $40,000 cash were exchanged for a new delivery truck that had a cash price of $60,000. This transaction lacks commercial substance.

Accepted Answer

The answer of On January 2, 2007, a company purchased...

Question 15

Cambria owns equipment that cost $93,500 with accumulated depreciation of $64,000. Cambria asks $35,000 for the equipment but sells the equipment for $33,000. Compute the amount of gain or loss on the sale.

Accepted Answer

A)  $3,500 loss. 
B)  $5,500 gain. 
C)  $5,500 loss. 
D)  $3,000 gain. 
E)  $3,500 gain.

Question 16

Total asset turnover is calculated by dividing:

Accepted Answer

A)  Gross profit by average total assets. 
B)  Average total assets by gross profit. 
C)  Net sales by average total assets. 
D)  Average total assets by net sales. 
E)  Net assets by total assets.

Question 17

A company purchased a rope braiding machine for $190,000. The machine has a useful life of 8 years and a residual value of $10,000. It is estimated that the machine could produce 750,000 units of climbing rope over its useful life. In the first year, 105,000 units were produced. In the second year, production increased to 109,000 units. Using the units-of-production method, what is the amount of depreciation that should be recorded for the second year?

Accepted Answer

A)  $25,200. 
B)  $26,160. 
C)  $26,660. 
D)  $27,613. 
E)  $53,160.

Question 18

What are some of the variables that make a plant asset's useful life difficult to predict?

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Question 19

A company purchased mining property for $1,560,000. The property was estimated to contain 13,000,000 tons of ore. In the current year, the company removed and sold 247,000 tons of ore. Calculate the depletion expense for the current year.

Accepted Answer

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Question 20

Explain (in detail) how to compute each of the following depreciation methods: straight-line, units-of-production, and double-declining-balance.

Accepted Answer

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Exam 10: Plant Assets, Natural Resources, and Intangibles