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Exam 18: Property, Plant, and Equipment

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Question 1

Multiple Choice

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An asset that cost $25,000 was sold for $8,000 cash.Accumulated depreciation on the asset was $16,000.The entry to record this transaction includes the recognition of

A) a gain of $8,000.
B) a loss of $1,000.
C) neither a gain nor a loss.
D) a gain $1,000.

E) A) and D)
F) A) and C)

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B

Question 2

True/False

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Depletion is the name given to the periodic allocation of the cost of extracting natural resources over the period in which the resource produces revenues.

A) True
B) False

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Question 3

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ARB Company purchased several pieces of equipment on January 2,2016.Office Furniture cost the company $16,000,has an estimated useful life of ten years,at which time they expect to sell it for a total of $500.Office Equipment was also purchased for a total of $10,750 and has an estimated useful life of five years.They don't expect it to have any residual value at the end of that time. Using the information shown,write the journal entry for the purchase of the Office Furniture assuming it was purchased on credit by signing a note and the journal entry for the Office Equipment purchase assuming that a check was written for it.

A firm purchases an asset for $50,000 and estimates that it will have a useful life of five years and a salvage value of $5,000.Under the straight-line method,the depreciation expense for the first year of the asset's useful life is

Land purchased for a future building site or as an investment would not be shown in the Property,Plant,and Equipment section of the balance sheet.

Which method of depreciation is often used to depreciate the cost of cars,trucks and other motor vehicles?

The method of depreciation that results in the same amount of depreciation expense each year is the

ARB Company purchased several pieces of equipment on January 2,2016.Office Furniture cost the company $16,000,has an estimated useful life of ten years,at which time they expect to sell it for a total of $500.Office Equipment was also purchased for a total of $10,750 and has an estimated useful life of five years.They don't expect it to have any residual value at the end of that time. Using the information shown,calculate the depreciation for 2016,2017,and 2018 using the Sum-of-the-Years'-Digits Method.(Round to the nearest whole dollar. )

Ryadom Industries has several assets with book values that exceed their fair market values.At the end of the year (December 31,2016),management at Ryadom reviewed the circumstances around several of its assets during the current year and determined that they were impaired.Each of the assets reviewed has a book value (carrying value)that exceeds its fair market value.The accountant at Ryadom applied the recoverability test to each. The first item is a Mixer that combines materials for a product that can now be made more efficiently due to new technology.The new mixer can produce seven products for every two that the Mixer Ryadom currently uses.This reduces Ryadom's ability to compete with companies who have invested in the newly developed mixers.In addition,the Mixer now has a market value of zero.The Mixer cost $235,000,had an original residual of $35,000 and an estimated life of ten years.Ryadom uses straight-line depreciation for its equipment.The Accumulated Depreciation for the Mixer is $120,000.The present value of projected future cash flows generated by the Mixer are $50,000 over the next four years. The second impaired asset is one of its facilities at a location that now cannot transport its product due to the closing of a rail line.Because the product cannot be transported given the present dilemma,the estimated future revenues generated by this facility are $30,000-the amount for which it is estimated that the facility can be sold.The facility buildings have a new value of $24,000 and the land has an unchanged estimated value of $7,000.The estimated remaining life of the facility is unchanged.The facility would require a large investment in order to accommodate trucks to pick up and transport the product or to deliver materials.This additional investment is not merited.Therefore,Ryadom plans to close and hopefully sell this facility.The facility has total recorded costs of $2,500,000 and its related accumulated depreciation account totals $1,800,000 (residual value was $100,000,estimated life was 8 years and straight-line depreciation was used).If the facility is not sold within the next two years,it will be demolished.It will be depreciated using the straight-line method assuming a zero residual value at that time. Using the information shown,record the journal entries to record the amount of the impairment for these two situations.

The cost of an intangible asset

The acquisition cost of an intangible asset is amortized over the shorter of its legal life or ____________________ life.

The term used to describe the process of allocating the acquisition cost of an intangible asset to expense during its estimated useful life is ___________________.

The Modified Accelerated Cost Recovery System (MACRS)is required for ______________ income tax purposes.

The declining-balance method and the sum-of-the-years'-digits method are referred to as ____________________ methods of depreciation.

Define intangible assets.List several examples of intangible assets.How are intangible assets handled for financial reporting if their lives can be estimated? How are they handled for financial reporting if their lives cannot be estimated?

Harrod's Landscape Artists acquired a new truck for $42,000 less the trade-in allowance of $4,000 for his old truck.The old truck was purchased for $31,000 and had a book value of $5,000 on the exchange date.The entry to record the acquisition of the new truck will include a debit to the Truck account for

To calculate declining-balance depreciation,it is necessary to multiply the _________ ___________ of an asset by an appropriate rate.

ARB Company purchased several pieces of equipment on January 2,2016.Office Furniture cost the company $16,000,has an estimated useful life of ten years,at which time they expect to sell it for a total of $500.Office Equipment was also purchased for a total of $10,750 and has an estimated useful life of five years.They don't expect it to have any residual value at the end of that time. Using the information shown,calculate the depreciation for 2016,2017,and 2018 if ARB Company uses the straight-line method.Complete the journal entry for the depreciation expense for 2016.

Use of the sum-of-the-years'-digits method of depreciation results in lower depreciation charges in the early years of an asset's life and higher charges in the later years.

The Modified Accelerated Cost Recovery System (MACRS)was designed to encourage taxpayers to invest in business property by providing them with an accelerated depreciation method that lowered or postponed payment of income tax.