61
122)
A machine costing $75,000 is purchased on September 1, Year 1. The machine is estimated to have
a salvage value of $10,000 and an estimated useful life of 4 years. Double-declining-balance
depreciation is used. If the machine is sold on December 31, Year 3 for $13,000, the journal entry
to record the sale will include:
A)
A debit to loss on sale for $3,042.
B)
A credit to gain on sale for $4,979.
C)
A credit to gain on sale for $8,000.
D)
A credit to accumulated depreciation for $59,375.
E)
A debit to loss on sale for $2,625.
123)
An asset can be disposed of by all of the following except:
A)
Donating it to charity.
B)
Selling it.
C)
Continuing to use it after it is fully depreciated.
D)
Exchanging it for another asset.
E)
Discarding it.
65
124)
A company sold equipment that originally cost $100,000 for $60,000 cash. The accumulated
depreciation on the equipment was $40,000. The company should recognize a:
A) $20,000 loss.
B) $60,000 gain.
C) $20,000 gain.
D) $40,000 loss.
E) $0 gain or loss.
125)
A company discarded a computer system originally purchased for $18,000. The accumulated
depreciation was $17,200. The company should recognize a(an):
A) $7,200 loss.
B) $8,000 loss.
C)
$800 loss.
D)
$800 gain.
E)
$0 gain or loss.
126)
A company had a tractor destroyed by fire. The tractor originally cost $85,000 with accumulated
depreciation of $60,000. The proceeds from the insurance company were $20,000. The company
should recognize:
A)
A gain of $20,000.
B)
A loss of $5,000.
C)
A gain of $65,000.
D)
A gain of $5,000.
E)
A loss of $20,000.
127)
Natural resources are:
A)
Not subject to allocation to expense over their useful lives.
B)
Consumable assets such standing timber, mineral deposits, and oil and gas fields.
C)
Depleted using a straight-line method.
D)
Tangible assets used in the operations of the business.
E)
Current assets because they are depleted.
128)
Which of the following would be classified as a natural resource?
A)
Land held as an investment.
B)
Diamond mine.
C)
Patent on an oil extraction process.
D)
Goodwill.
E)
Timber purchased by a lumber yard.
129)
Depletion is:
A)
Also called amortization.
B)
An increase in the value of a natural resource when incurred.
C)
Calculated using the double-declining balance method.
D)
The process of allocating the cost of natural resources to the period when it is consumed.
E)
The process of allocating the cost of intangibles to periods when they are used.
130)
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) $0.625. B) $6.00. C) $0.875. D) $8.00. E) $0.75.
131)
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. If 150,000 tons of ore are mined during the first year, the journal entry to record the
depletion is:
A)
Debit Depletion Expense $112,500; credit Accumulated Depletion $112,500.
B)
Debit Depletion Expense $93,750; credit Accumulated Depletion $93,750.
C)
Debit Depletion Expense $93,750; credit Natural Resources $93,750.
D)
Debit Cash $93,750; credit Accumulated Depletion $93,750.
E)
Debit Cash $112,500; credit Natural Resources $112,500.
132)
A company purchased a tract of land for its natural resources at a cost of $1,000,000. It expects to
harvest 5,000,000 board feet of timber from this land. The salvage value of the land is expected to
be $200,000. The depletion expense per board foot of timber is:
A) $0.75. B) $0.20. C) $0.24. D) $0.04. E) $0.16.
133)
A company purchased a mineral deposit for $800,000. It expects this property to produce 120,000
tons of minerals and to have a salvage value of $50,000. In the current year, the company mined
and sold 9,000 tons of minerals. Its depletion expense for the current period equals:
A) $60,000. B) $139,500. C) $150,000. D) $56,250. E) $15,000.
134)
Intangible assets do not include:
A)
Trademarks.
B)
Copyrights.
C)
Patents.
D)
Land held as an investment.
E)
Goodwill.
135)
Amortization is:
A)
The systematic allocation of the cost of an intangible asset to expense over its estimated
useful life.
B)
The process of allocating to expense the cost of a plant asset to the accounting periods
benefiting from its use.
C)
Also called depletion.
D)
An accelerated form of expensing an asset’s cost.
E)
The process of allocating the cost of natural resources to periods when they are consumed.
136)
Owning a patent:
A)
Gives the owner exclusive rights to manufacture and sell a patented item or to use a process
for 20 years.
B)
Gives the owner the exclusive right to publish and sell a musical or literary work during the
life of the creator plus 70 years.
C)
Gives its owner the exclusive right to publish and sell a musical or literary work during the
life of the creator plus 17 years.
D)
Gives its owner an exclusive right to manufacture and sell a device or to use a process for 50
years.
E)
Indicates that the value of a company exceeds the fair market value of a company’s net assets
if purchased separately.
137)
Holding a copyright:
A)
Gives its owner an exclusive right to manufacture and sell a device or to use a process for 50
years.
B)
Gives its owner the exclusive right to publish and sell a musical or literary work during the
life of the creator plus 20 years.
C)
Gives its owner the exclusive right to publish and sell a musical or literary work during the
life of the creator plus 70 years.
D)
Indicates that the value of a company exceeds the fair market value of a company’s net assets
if purchased separately.
E)
Gives its owner an exclusive right to manufacture and sell a patented item or to use a process
for 20 years.
138)
A leasehold is:
A)
The same as a patent.
B)
The rights granted to the lessee by the lessor of a lease.
C)
Recorded as revenue expenditure when paid.
D)
A short-term rental agreement.
E)
An asset held as an investment.
139)
The specific meaning of goodwill in accounting is:
A)
The cost of developing, maintaining, or enhancing the value of a trademark.
B)
The amount by which a company’s value exceeds the value of its individual assets and
liabilities.
C)
The support of the board of directors for the operating decisions of management.
D)
Long term assets held as investment.
E)
Rights granted an entity to deliver a product or service under specified conditions.
140)
A company’s old machine that cost $40,000 and had accumulated depreciation of $22,000 was
traded in on a new machine having an estimated 20-year life with an invoice price of $45,000. The
company also paid $33,000 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) $51,000. B) $18,000. C) $40,000. D) $33,000. E) $45,000.
141)
Hunter Sailing Company exchanged an old sailboat for a new one. The old sailboat had a cost of
$160,000 and accumulated depreciation of $100,000. The new sailboat had an invoice price of
$270,000. Hunter received a trade in allowance of $70,000 on the old sailboat, which meant the
company paid $200,000 in addition to the old sailboat to acquire the new sailboat. If this
transaction has commercial substance, what amount of gain or loss should be recorded on this
exchange?
A) $10,000 gain.
B)
$0 gain or loss.
C) $60,000 loss.
D) $10,000 loss.
E) $70,000 loss.
142)
Cliff Company traded in an old 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) $75,000 B) $15,000 C) $128,000 D) $113,000 E) $125,000
143)
A company bought new heating system for $42,000 and was given a trade-in of $2,000 on an old
heating system, so the company paid $40,000 cash with the trade-in. The old system 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 heating system at:
A) $43,000. B) $40,000. C) $2,000. D) $42,000. E) $3,000.