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Exam 9: Long Term Assets

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Question 41

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A natural resource is subject to a process called depletion.

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Question 42

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Kotter Mining Company purchases a gravel pit for $2,500,000.It estimates that 5,000,000 tons of gravel can be extracted over the pit's useful life.If 1,000,000 tons are extracted during the first year but only 750,000 tons are sold,what amount should be recorded for Gravel Inventory and Accumulated Depletion,respectively?

A) $125,000 and 375,000
B) $375,000 and $125,000
C) $375,000 and 375,000
D) $125,000 and $500,000

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Question 43

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A tractor held by a farm equipment company for sale to farmers is classified as a long-term asset.

Under the successful efforts method,the costs of both successful and unsuccessful exploration for oil and gas are recorded as assets.

Indicate whether each of the following items normally would be considered a capital expenditure (C)or a revenue expenditure (R). _____ 1.Replacement of shake roof with tile roof _____ 2.Cost to replace light bulbs _____ 3.Window-cleaning costs _____ 4.Cost to rebuild company vehicle engine _____ 5.Cost to construct parking lot _____ 6.Cost of a wastebasket

Natural resources are classified as intangible assets on the balance sheet.

Indicate whether each of the following expenditures should be classified as land (L),land improvements (LI),buildings (B),equipment (E),or none of these (X). _____ 1.Clearing costs _____ 2.Driveway cost _____ 3.Computer installation cost _____ 4.Architect's fee for building plans _____ 5.Surveying costs _____ 6.Cost of assembly line trial run _____ 7.Property taxes paid after purchase _____ 8.Grading costs _____ 9.Insurance and freight on computer purchased _____ 10.Cost of lighting for parking lot _____ 11.Landscaping cost _____ 12.Material and labor costs incurred to construct factory _____ 13.Cost of tearing down a warehouse on land just purchased _____ 14.Utilities cost during first year _____ 15.Cost of building wing _____ 16.Sales tax on file cabinets purchased _____ 17.Real estate commissions on land purchased _____ 18.Contractor's fee for building construction _____ 19.Cost to put up chain-link fence _____ 20.Accrued taxes on land purchased

Accelerated methods of depreciation result in lower net income in the last years of an asset's life compared to the straight-line method.

What is goodwill and when may it be recorded?

Small expenditures for what ordinarily are considered revenue expenditures frequently are treated as capital expenditures.

On October 1,2008,Racie's Auto Repair purchased diagnostic equipment for $13,600.The equipment had an estimated residual value of $4,000 and an eight-year life and was sold on April 1,2010.Assuming that the company depreciates the asset on a straight-line basis and reports on a calendar-year basis,journalize the following independent transactions in the journal provided.(Omit explanations.) a. The entry to update depreciation to April 1, 2010 b. The entry to record the sale for $12,000 c. The entry to record the sale instead for $8,600 d. The entry to record the sale instead for $11,800

Goodwill equals the excess paid for a business over the book value of the net assets purchased.

On January 1,2005,Town Spa Pizza purchased for $16,000 a delivery truck that will be driven an estimated 100,000 miles.The truck has an estimated useful life of ten years and an estimated residual value of $5,000.Calculate the following amounts: (a)depreciation expense for 2010,under the production method (assume that 17,000 miles were driven that year); (b)the accumulated depreciation after the truck has been used for five and one-half years,under the straight-line method; and (c)depreciation expense for 2007,under the double-declining-balance method.(Show your work.)

If net cash flows from operating activities total $104,000,purchases of plant assets total $30,000,dividends total $12,000,and sales of plant assets total $17,000,the free cash flow equals

The replacement of tires on a truck is considered an ordinary repair.

A company purchases for $24,000 an asset that has a useful life of six years and no salvage value.After two years,the company spends $4,000 for a major overhaul that will extend the machine's useful life four years beyond the original six.Assuming straight-line depreciation,how much depreciation should be taken in year 3?

One argument in favor of accelerated depreciation is that the assets benefit is greater in the earlier years.

The cost of a long-term asset is expensed

Which of the following depreciation methods is the most logical for a machine that produces discrete (i.e.,separate) units?

When disposing of equipment,the Equipment account is credited for the existing carrying value.