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Exam 10: Plant Assets, Natural Resources, and Intangibles

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Question 111

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Betterments are a type of capital expenditure.

A) True
B) False

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Question 112

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Salta Company installs a manufacturing machine in its factory at the beginning of the year at a cost of $87,000. The machine's useful life is estimated to be 5 years, or 400,000 units of product, with a $7,000 salvage value. During its second year, the machine produces 84,500 units of product. Determine the machines' second year depreciation under the units-of-production method.

A) $16,900.
B) $16,000.
C) $17,400.
D) $18,379.
E) $20,880.

F) B) and D)
G) A) and B)

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Question 113

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

The relevant factor(s) in computing depreciation include:

A leasehold refers to the rights the lessor grants to the lessee under the terms of the lease.

_____________ are the federal income tax rules for depreciating assets.

Depreciation expense is calculated using estimates of an asset's salvage value and useful life.

_______________________ are expenditures that extend an asset's useful life beyond its original estimate.

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

Goodwill:

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

Monte Ray leases office space for $7,000 per month. On January 3, Monte Ray incurs $75,000 to improve his leased office space. These improvements are expected to yield benefits for 8 years. Ray has 6 years remaining on his lease. What journal entry would be needed to record the expense for the first year related to the improvements?

The going concern assumption supports the reporting of plant assets at book value rather than market value.

Carmel Company acquires a mineral deposit at a cost of $5,900,000. It incurs additional costs of $600,000 to access the deposit, which is estimated to contain 2,000,000 tons and is expected to take 5 years to extract. Compute the depletion expense for the first year assuming 418,000 tons were mined.

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

Intangible assets include:

Accounting for the exchange of assets depends on whether the transaction has commercial substance; commercial substance implies that it alters the company's future cash flows.

A company purchased a machine on January 1 of the current year for $750,000. Calculate the annual depreciation expense for each year of the machine's life (estimated at 5 years or 20,000 hours, with a salvage value of $75,000). During the machine's 5-year life its hourly usage was: 3,000; 4,000; 5,000; 5,000; and 3,000 hours.

A machine was purchased for $37,000 and depreciated for five years on a straight-line basis under the assumption it would have a ten-year life and a $1,000 salvage value. At the beginning of the machine's sixth year it was recognized the machine had three years of remaining life instead of five and that at the end of the remaining three years its salvage value would be $1,600. What amount of depreciation should be recorded in each of the machine's remaining three years?

Extraordinary repairs: