108. A company had a bulldozer destroyed by fire. The bulldozer originally cost $125,000
with accumulated depreciation of $60,000. The proceeds from the insurance company were
$90,000. The company should recognize:
A. A loss of $25,000.
B. A gain of $25,000.
C. A loss of $65,000.
D. A gain of $65,000.
E. A gain of $90,000.
109. Natural resources:
A. Include standing timber, mineral deposits, and oil and gas fields.
B. Are also called wasting assets.
C. Are long-term assets.
D. Are depleted.
E. All of the choices are correct.
110. Depletion:
A. Is the process of allocating the cost of natural resources to periods in which they are
consumed.
B. Is also called depreciation.
C. Is also called amortization.
D. Is an unrealized expense reported in equity.
E. Is the process of allocating the cost of intangibles to periods in which they are used.
111. A company purchased a tract of land for its natural resources at a cost of $1,500,000. It
expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is
expected to be $250,000. The depletion expense per ton of ore is:
A. $0.75.
B. $0.625.
C. $0.875.
D. $6.00.
E. $8.00.
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112. A company purchased a mineral deposit for $800,000. It expects this property to produce
1,200,000 tons of ore and to have a salvage value of $50,000. In the current year, the
company mined and sold 90,000 tons of ore. Its depletion expense for the current period
equals:
A. $ 15,000.
B. $ 60,000.
C. $150,000.
D. $ 56,250.
E. $139,500.
113. Intangible assets include:
A. Patents.
B. Copyrights.
C. Trademarks.
D. Goodwill.
E. All of the choices are examples of intangible assets.
114. Amortization:
A. Is the systematic allocation of the cost of an intangible asset to expense over its estimated
useful life.
B. Is the process of allocating to expense the cost of a plant asset to the accounting periods
benefiting from its use.
C. Is the process of allocating the cost of natural resources to periods when they are
consumed.
D. Is an accelerated form of expensing an asset’s cost.
E. Is also called depletion.
115. A patent:
A. Gives its owner the exclusive right to publish and sell a musical or literary work during the
life of the creator plus 70 years.
B. Gives its owner an exclusive right to manufacture and sell a patented item or to use a
process for 20 years.
C. Gives its owner an exclusive right to manufacture and sell a device or to use a process for
50 years.
D. Is the amount by which the value of a company exceeds the fair market value of a
company’s net assets if purchased separately.
E. Gives its owner the exclusive right to publish and sell a musical or literary work during the
life of the creator plus 17 years.
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116. A copyright:
A. Gives its owner the exclusive right to publish and sell a musical or literary work during the
life of the creator plus 70 years.
B. Gives its owner an exclusive right to manufacture and sell a patented item or to use a
process for 20 years.
C. Gives its owner an exclusive right to manufacture and sell a device or to use a process for
50 years.
D. Is the amount by which the value of a company exceeds the fair market value of a
company’s net assets if purchased separately.
E. Gives its owner the exclusive right to publish and sell a musical or literary work during the
life of the creator plus 20 years.
117. A leasehold:
A. Is a short-term rental agreement.
B. Is the same as a patent.
C. Are the rights granted to the lessee by the lessor of a lease.
D. Is recorded as revenue expenditure when paid.
E. Is an investment asset.
118. Goodwill:
A. Is not amortized, but is tested annually for impairment.
B. Is amortized using the straight-line method.
C. Is amortized using the units-of-production method.
D. May be amortized using either the straight-line or units-of-production method.
E. Is never amortized or tested for impairment.
119. A company’s old machine that cost $40,000 and had accumulated depreciation of
$30,000 was traded in on a new machine having an estimated 20-year life with an invoice
price of $50,000. The company also paid $43,000 cash, along with its old machine to acquire
the new machine. If this transaction has commercial substance, the new machine should be
recorded at:
A. $40,000.
B. $47,000.
C. $50,000.
D. $53,000.
E. $10,000.
120. Endor Fishing Company exchanged an old boat for a new one. The old boat had a cost of
$260,000 and accumulated depreciation of $200,000. The new boat had an invoice price of
$400,000. Endor received a trade in allowance of $100,000 on the old boat, which meant the
company paid $300,000 in addition to the old boat to acquire the new boat. If this transaction
lacks commercial substance, what amount of gain or loss should be recorded on this
exchange?
A. $0 gain or loss.
B. $40,000 gain.
C. $40,000 loss.
D. $60,000 loss
E. $100,000 loss.
121. Huffington Company traded in an old delivery truck for a new one. The old truck had a
cost of $75,000 and accumulated depreciation of $60,000. The new truck had an invoice price
of $125,000. Huffington was given a $12,000 trade-in allowance on the old truck, which
meant they paid $113,000 in addition to the old truck to acquire the new truck. If this
transaction has commercial substance, what is the recorded value of the new truck?
A. $15,000
B. $75,000
C. $113,000
D. $125,000
E. $128,000
122. A company bought a new display case for $42,000 and was given a trade-in of $2,000 on
an old display case, so the company paid $40,000 cash with the trade-in. The old case had an
original cost of $37,000 and accumulated depreciation of $34,000. If the transaction has
commercial substance, the company should record the new display case at:
A. $ 2,000.
B. $ 3,000.
C. $40,000.
D. $42,000.
E. $43,000.
123. A company purchased a machine valued at $66,000. It traded in an old machine for a
$9,000 trade-in allowance and the company paid $57,000 cash with the trade-in. The old
machine cost $44,000 and had accumulated depreciation of $36,000. This transaction has
commercial substance. What is the recorded value of the new machine?
A. $ 8,000.
B. $ 9,000.
C. $57,000.
D. $65,000.
E. $66,000.
124. All of the following statements regarding increases in the value of plant assets under
U.S. GAAP and IFRS are true except:
A. U.S. GAAP prohibits companies to record increases in the value of plant assets.
B. IFRS permits upward asset revaluations.
C. Under IFRS, a company can reverse an impairment and record that increase in income.
D. Under U.S. GAAP, a company can reverse an impairment and can include it in
comprehensive income.
E. Under IFRS, an impairment increase beyond as asset’s original cost can be recorded in
comprehensive income.
125. Marble Company purchased a machine costing $120,000, terms 1/10, n/30. The machine
was shipped FOB shipping point and freight charges were $2,000. The machine requires
special mounting and wiring connections costing $10,000. When installing the machine,
$1,300 in damages occurred. Materials costing $1,500 are used in testing and adjusting the
machine to produce a satisfactory product. Compute the cost recorded for this machine
assuming Marble paid within the discount period.
A. $131,100.
B. $134,800.
C. $132,300.
D. $133,600.
E. $130,300.
126. 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 straight–
line method.
A. $16,900.
B. $16,000.
C. $17,400.
D. $18,379.
E. $20,880.
127. 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 double–
declining-balance method.
A. $16,900.
B. $16,000.
C. $17,400.
D. $18,379.
E. $20,880.
128. 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.
129. 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. What journal entry would be needed to record the machines’ second
year depreciation under the units-of-production method?
A. Debit Depletion Expense $16,900; credit Accumulated Depletion $16,900.
B. Debit Depletion Expense $16,000; credit Accumulated Depletion $16,000.
C. Debit Depreciation Expense $16,900; credit Accumulated Depreciation $16,900.
D. Debit Depreciation Expense $16,000; credit Accumulated Depreciation $16,000.
E. Debit Amortization Expense $16,900; credit Accumulated Amortization $16,900.
130. 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.
131. 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. What journal entry would be needed to record the expense
for the first year assuming 418,000 tons were mined?
A. Debit Depletion Expense $1,233,100; credit Accumulated Depletion $1,233,100.
B. Debit Amortization Expense $1,358,500; credit Accumulated Amortization $1,358,500.
C. Debit Depreciation Expense $1,358,500; credit Accumulated Depreciation $1,358,500.
D. Debit Depletion Expense $1,358,500; credit Accumulated Depletion $1,358,500.
E. Debit Depreciation Expense $1,233,100; credit Accumulated Depreciation $1,233,100.
132. 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. Compute the amount of expense
that should be recorded the first year related to the improvements.
A. $19,500.
B. $7,000.
C. $12,500.
D. $9,375.
E. $16,375.
133. 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.
A. Debit Amortization Expense $12,500; credit Accumulated Amortization $12,500.
B. Debit Depletion Expense $12,500; credit Accumulated Depletion $12,500.
C. Debit Depreciation Expense $12,500; credit Accumulated Depreciation $12,500.
D. Debit Depletion Expense $9,375; credit Accumulated Depletion $9,375.
E. Debit Amortization Expense $9,375; credit Accumulated Amortization $9,375.
134. Cambria owns equipment that cost $93,500 with accumulated depreciation of $64,000.
Cambria asks $35,000 for the equipment but sells the equipment for $33,000. Compute the
amount of gain or loss on the sale.
A. $3,500 loss.
B. $5,500 gain.
C. $5,500 loss.
D. $3,000 gain.
E. $3,500 gain.
135. Cambria owns equipment that cost $93,500 with accumulated depreciation of $64,000.
Cambria asks $35,000 for the equipment but sells the equipment for $33,000. The journal
entry to record the disposal of the asset would involve all of the following except:
A. Debit Accumulated Depreciation $64,000.
B. Credit Equipment $93,500.
C. Debit Loss on Disposal of Equipment $3,500.
D. Credit Gain on Disposal of Equipment $3,500.
E. Debit Cash $33,000.
136. Cambria Company reports net sales of $4,315 million; cost of goods sold of $2,808
million; net income of $283 million; and average total assets of $2,136. Compute its total
asset turnover.
A. 1.31.
B. 2.02.
C. .13.
D. .76.
E. .50.
137. Big River Rafting pays $310,000 plus $15,000 in closing costs to buy out a competitor.
The real estate consists of land appraised at $105,000, a building appraised at $210,000, and
equipment appraised at $35,000. Compute the cost that should be allocated to the building.
A. $93,000.
B. $186,000.
C. $32,500.
D. $195,000.
E. $97,500.
138. Big River Rafting pays $310,000 plus $15,000 in closing costs to buy out a competitor.
The real estate consists of land appraised at $105,000, a building appraised at $210,000, and
equipment appraised at $35,000. Compute the cost that should be allocated to the land.
A. $93,000.
B. $186,000.
C. $32,500.
D. $195,000.
E. $97,500.
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140. Match each of the following terms with the appropriate definitions.
a. Extraordinary repairs
b. Obsolescence
c. Amortization
d. Depletion
e. Salvage value
f. Book value
g. Land improvements
h. Copyright
i. Inadequacy
j. Patent
____ 1. An estimate of an asset’s value at the end its benefit period.
____ 2. Major repairs that extend the useful life of a plant asset beyond its original estimate.
____ 3. The process of allocating the cost of an intangible asset to expense over its estimated
useful life.
____ 4. A right granted that gives its owner the exclusive privilege to publish and sell
musical, literary, or artistic work during the life of the creator plus 70 years.
____ 5. A condition which, because of new inventions and improvements, a plant asset is no
longer useful in producing goods or services with a competitive advantage.
____ 6. The total cost of a plant asset less its accumulated depreciation.
____ 7. The process of allocating the cost of natural resources to the periods when they are
consumed.
____ 8. An exclusive right granted to its owner to manufacture and sell an item, or to use a
process, for 20 years.
____ 9. The insufficient capacity of plant assets to meet the company’s productive demands.
____ 10. Assets that increase the benefits of land, have a limited useful life, and are subject to
depreciation.
141. Define plant assets and identify the four primary issues in accounting for them.
142. What is depreciation of plant assets? What are the factors to consider in computing
depreciation?
143. What are some of the variables that make a plant asset’s useful life difficult to predict?
144. Explain the purpose of and method of depreciation for partial years.
145. Explain the impact, if any, on depreciation when estimates that determine depreciation
change.
146. Compare the different depreciation methods (straight-line, units-of-production, and
double-declining-balance) with respect to the computation of depreciation per period and the
total depreciation over the life of the asset.