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Exam 10: Plant Assets, Natural Resoures, and Intangibles

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Question 71

True/False

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Salvage value is an estimate of an asset's value at the end of its benefit period.

A) True
B) False

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Question 72

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Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine is depreciated using the straight-line method. The machine's useful life is estimated to be 5 years with a $4,000 salvage value. The book value of the machine at the end of year 2 is:

A) $12,000.
B) $16,000.
C) $20,000.
D) $4,000.
E) $8,000.

F) A) and B)
G) A) and C)

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Question 73

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A benefit of using an accelerated depreciation method is that:

The cost of an intangible asset is systematically allocated to depreciation expense over its estimated useful life.

The relevant factors in computing depreciation do not include:

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

The depreciation method in which a plant asset's depreciation expense for a period is determined by applying a constant depreciation rate to the asset's beginning-of-period book value is called:

Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine is depreciated using the double-declining-balance method. The machine's useful life is estimated to be 5 years with a $4,000 salvage value. The machine's book value at the end of year 2 is:

Revising an estimate of the useful life or salvage value of a plant asset is referred to as a change in accounting estimate and is reflected in the current, and future financial statements.

Plant assets are used in operations and have useful lives that extend over more than one accounting period.

A machine originally had an estimated useful life of 6 years, but after 4 complete years, it was decided that the original estimate of useful life should have been 10 years. At that point the remaining cost to be depreciated should be allocated over the remaining:

Minor Company installs a machine in its factory at the beginning of the year at a cost of $135,000. The machine's useful life is estimated to be 5 years, or 300,000 units of product, with a $15,000 salvage value. During its first year, the machine produces 64,500 units of product. Determine the machines' first year depreciation under the units-of-production method.

A company purchased property for $100,000. The property included a building, a parking lot, and land. The building was appraised at $62,000; the land at $35,000, and the parking lot at $18,000. Land should be recorded in the accounting records with an allocated cost of:

The straight-line depreciation method yields a steady pattern of depreciation expense.

Compare the different depreciation methods (straight-line, units-of-production, and double-declining-balance)with respect to the amounts of depreciation expense per period and the total depreciation over the life of the asset.

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

An asset can be disposed of by all of the following except:

Intangible assets are nonphysical assets used in operations that confer on their owners' long-term rights, privileges, or competitive advantages.

A company purchased a weaving 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 75,000 bolts of woven fabric over its useful life. In the first year, 15,000 bolts were produced. In the second year, production increased to 19,000 units. Using the units-of-production method, what is the amount of depreciation expense that should be recorded for the second year?

When an asset is purchased (or disposed of)at a time other than the beginning or the end of an accounting period, depreciation is recorded for part of a year so that the year of purchase or the year of disposal is charged with its share of the asset's depreciation.