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Exam 9: Plant Assets, Natural Resources, and Intangible Assets

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Question 91

Multiple Choice

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On July 4, 2018, Wyoming Mining Company purchased the mineral rights to a granite deposit for $1,600,000. It is estimated that the recoverable granite will be 400,000 tons. During 2018, 100,000 tons of granite was extracted and 60,000 tons were sold. The amount of the Depletion Expense recognized for 2018 would be

A) $200,000.
B) $120,000.
C) $240,000.
D) $400,000.

E) C) and D)
F) None of the above

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Question 92

Multiple Choice

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The cost of a purchased building includes all of the following except

A) closing costs.
B) real estate broker's commission.
C) remodeling costs.
D) All of these answers are correct.

E) B) and C)
F) A) and B)

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Question 93

Multiple Choice

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Costs incurred to increase the operating efficiency or useful life of a plant asset are referred to as

Kingston Company purchased a piece of equipment on January 1, 2018. The equipment cost $200,000 and had an estimated life of 8 years and a salvage value of $25,000. What was the depreciation expense for the asset for 2019 under the double-declining-balance method?

An exchange of plant assets has commercial substance if the future cash flows change as a result of the exchange.

The Hartley Clinic purchased a new surgical laser for $90,000. The estimated salvage value is $5,000. The laser has a useful life of five years and the clinic expects to use it 10,000 hours. It was used 1,600 hours in year 1; 2,200 hours in year 2; 2,400 hours in year 3; 1,800 hours in year 4; 2,000 hours in year 5. Instructions (a) Compute the annual depreciation for each of the five years under each of the following methods: (1) straight-line. (2) units-of-activity. (b) If you were the administrator of the clinic, which method would you deem as most appropriate? Justify your answer. (c) Which method would result in the lowest reported income in the first year? Which method would result in the lowest total reported income over the five-year period?

Comment on the validity of the following statements: "As an asset loses its ability to provide services, cash needs to be set aside to replace it. Depreciation accomplishes this goal."

A company exchanges its old office equipment and $80,000 for new office equipment. The old office equipment has a book value of $56,000 and a fair value of $40,000 on the date of the exchange. The cost of the new office equipment would be recorded at

Identify the factors that are considered in classifying an expenditure as a capital or a revenue expenditure. Are there instances where it may be difficult to classify an expenditure as one or the other ? What basis would be used in a decision?

Which of the following is not true of ordinary repairs?

Mattox Company is building a new plant that will take three years to construct. The construction will be financed in part by funds borrowed during the construction period. There are significant architect fees, excavation fees, and building permit fees. Which of the following statements is true?

On July 1, 2018, Jenks Company purchased the copyright to Jackson Computer tutorials for $324,000. It is estimated that the copyright will have a useful life of 5 years with an estimated salvage value of $24,000. The amount of Amortization Expense recognized for the year 2018 would be

Recording depreciation each period is an application of the expense recognition principle.

Iverson Company purchased a delivery truck for $45,000 on January 1, 2018. The truck was assigned an estimated useful life of 100,000 miles and has a residual value of $10,000. The truck was driven 18,000 miles in 2018 and 22,000 miles in 2019. Compute depreciation expense using the units-of-activity method for the years 2018 and 2019.

On October 1, 2018, Holt Company places a new asset into service. The cost of the asset is $120,000 with an estimated 5-year life and $30,000 salvage value at the end of its useful life. What is the book value of the plant asset on the December 31, 2018, balance sheet assuming that Holt Company uses the double-declining-balance method of depreciation?

When purchasing delivery equipment, sales taxes and motor vehicle licenses should be charged to Delivery Equipment.

Hull Company acquires land for $86,000 cash. Additional costs are as follows: Hull will record the acquisition cost of the land as

If a plant asset is sold at a gain, the gain on disposal should reduce the cost of goods sold section of the income statement.

Recognition of depreciation permits the accumulation of cash for the replacement of the asset.

During 2015 Lopez Corporation reported net sales of $3,200,000 and net income of $1,200,000. Its balance sheet reported average total assets of $1,600,000. Instructions Calculate the asset turnover.