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Exam 10: Long-Term Assets

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Question 21

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Amortization is the process of allocating the cost of natural resources to periods when they are consumed.

A) True
B) False

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Question 22

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

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B) False

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Question 23

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Inadequacy refers to the insufficient capacity of a company's property, plant and equipment to meet the company's growing productive demands.

An asset's carrying amount is $36,000 on January 1, Year 6. The asset is being depreciated $500 per month using the straight-line method. Assuming the asset is sold on July 1, Year 7 for $25,000, the company should record:

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 residual 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.

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 residual 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.

Heidel Co. paid $750,000 cash to buy the property, plant and equipment of Rogers Co. that went out of business. An independent appraiser assigned the following values to the assets acquired: Prepare Heidel's journal entry to record the acquisition of these assets.

A method that charges the same amount of expense to each period of the asset's useful life is called:

Land improvements are:

Total asset cost plus depreciation expense equals carrying amount.

The relevant factor(s) in computing depreciation include:

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.

The formula for computing annual straight-line depreciation is:

_____________________ are revenue expenditures to keep an asset in normal, good operating condition; they are necessary if an asset is to perform to expectations over its useful life.

Another name for a capital expenditure is:

Once the estimated depreciation expense for an asset is calculated:

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.

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

Property, plant and equipment are used in operations and have useful lives that extend over more than one accounting period.

An expenditure that improves the type or amount of service an asset provides is a type of capital expenditure.