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Exam 18: Property, Plant, and Equipment

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Question 1

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The book value of an asset is:

A) the market value of the asset.
B) the acquisition cost shown in the asset account less the estimated salvage value.
C) the portion of the asset's cost that has not yet been charged to expense.
D) the replacement cost of the asset.

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Question 2

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The Modified Accelerated Cost Recovery System (MACRS)utilizes a half-year convention in calculating depreciation expense regardless of the asset purchase date.

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Question 3

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Under MACRS, the highest percent-resulting in the highest depreciation expense-occurs during which year?

The periodic transfer of the acquisition cost to expense when minerals or other natural resources are physically removed during production is------------ .

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

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

Real property includes land, land improvements, buildings and other structures attached to the land.

An asset with a cost of $28,000 was sold for $13,000 cash. Accumulated depreciation on the asset totaled $17,000. The amount of the gain or loss recognized for the sale is:

If a depreciable asset is sold for an amount that is less than the asset's book value, a(n)------------is recognized.

Book Value is the asset's cost less the accumulated depreciation to date.

When an asset is acquired by trading in an asset already owned in exchange for the new one, the amount received on the trade-in is called the---------- .

At the beginning of the current year, a firm purchases an asset for $60,000 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:

Depreciation is the allocation of the cost of the asset less salvage value over the asset's estimated useful life.

When computing depreciation, the salvage value should be ignored (except that a company should not depreciate below it) if a company uses:

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.

The entry to record the disposal of a worn out machine with cost of $8,000 and accumulated depreciation of $7,200 includes a debit of $800 to the Loss on Disposal account.

All costs incurred to purchase an asset and get it in proper working condition, such as net purchase price, transportation costs, installation costs, and costs of adjustments or modifications are referred to as------------- .

The sale of a depreciable asset for an amount less than its cost always requires the recognition of a loss in the financial records of the company.

C C Coal Company purchased the coal rights in an area for $5,200,000. They estimated that the area contained 10,000,000 tons of coal. The first year of operations in the area yielded 126,000 tons of coal. What is the depletion cost per ton of coal? What is the depletion expense for this first year?

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