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165)
Riverboat Adventures pays $310,000 plus $15,000 in closing costs to buy out a competitor. The
real estate consists of land appraised at $35,000, a building appraised at $105,000, and paddleboats
appraised at $210,000. Compute the cost that should be allocated to the land.
A) $32,500. B) $93,000. C) $140,000. D) $97,500. E) $31,000.
166)
Victory Company purchases office equipment at the beginning of the year at a cost of $15,000. The
machine is depreciated using the straight-line method. The machine's useful life is estimated to be
7 years with a $1,000 salvage value. The journal entry to record the first year's depreciation is:
A)
Debit Depreciation Expense $2,000, credit Accumulated Depreciation $2,000.
B)
Debit Office Equipment $2,000, credit Accumulated Depreciation $2,000.
C)
Debit Depreciation Expense $2,000, credit Office Equipment $2,000.
D)
Debit Depreciation Expense $2,143, credit Accumulated Depreciation $2,143.
E)
Debit Accumulated Depreciation $2,143; credit Office Equipment $2,143.
167)
Victory Company purchases office equipment at the beginning of the year at a cost of $15,000. The
machine is depreciated using the straight-line method. The machine's useful life is estimated to be
7 years with a $1,000 salvage value. The book value at the end of 7 years is:
A) $2,143. B) $1,000. C) $2,000. D) $0. E) $14,000.
168)
Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine
is depreciated using the straight-line method. The machine's useful life is estimated to be 5 years
with a $4,000 salvage value. Depreciation expense in year 2 is:
A) $4,800. B) $20,000. C) $9,600. D) $0. E) $4,000.
169)
Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine
is depreciated using the straight-line method. The machine's useful life is estimated to be 5 years
with a $4,000 salvage value. The book value of the machine at the end of year 2 is:
A) $12,000. B) $16,000. C) $20,000. D) $4,000. E) $8,000.
170)
Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine
is depreciated using the double-declining-balance method. The machine's useful life is estimated to
be 5 years with a $4,000 salvage value. Depreciation expense in year 2 is:
A) $9,600. B) $8,000. C) $14,400. D) $4,800. E) $5,760.
171)
Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine
is depreciated using the double-declining-balance method. The machine's useful life is estimated to
be 5 years with a $4,000 salvage value. The machine's book value at the end of year 2 is:
A) $8,640. B) $14,400. C) $7,200. D) $12,000. E) $9,600.
172)
Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine
is depreciated using the units-of-production method. The company estimates it will use the
machine for 5 years, during which time it anticipates producing 40,000 units. The machine is
estimated to have a $4,000 salvage value. The company produces 9,000 units in year 1 and 6,000
units in year 2. Depreciation expense in year 2 is:
A) $3,000. B) $4,000. C) $9,600. D) $4,500. E) $14,400.
173)
Martin Company purchases a machine at the beginning of the year at a cost of $60,000. The
machine is depreciated using the straight-line method. The machine's useful life is estimated to be
4 years with a $5,000 salvage value. Depreciation expense in year 4 is:
A) $15,000. B) $55,000. C) $0. D) $60,000. E) $13,750.
174)
Martin Company purchases a machine at the beginning of the year at a cost of $60,000. The
machine is depreciated using the straight-line method. The machine's useful life is estimated to be
4 years with a $5,000 salvage value. The book value of the machine at the end of year 4 is:
A) $13,750. B) $0. C) $55,000. D) $30,000. E) $5,000.
175)
Martin Company purchases a machine at the beginning of the year at a cost of $60,000. The
machine is depreciated using the double-declining-balance method. The machine's useful life is
estimated to be 4 years with a $5,000 salvage value. Depreciation expense in year 4 is:
A) $3,750. B) $30,000. C) $5,000. D) $2,500. E) $13,750.
176)
Martin Company purchases a machine at the beginning of the year at a cost of $60,000. The
machine is depreciated using the double-declining-balance method. The machine's useful life is
estimated to be 4 years with a $5,000 salvage value. The machine's book value at the end of year 3
is:
A) $45,000. B) $30,000. C) $7,500. D) $6,875. E) $52,500.
117
SHORT ANSWER QUESTIONS
177)
Match each of the following terms with the appropriate definitions.
a. Depletion
b. Betterment
c. Ordinary repairs
d. Units-of production method
e. Intangible assets
f. Accelerated depreciation
g. Amortization
h. Goodwill
i. Total asset turnover
j. Revenue expenditure
_____ 1. The amount by which the company's value exceeds the value of its individual assets and
liabilities.
_____ 2. A cost reported as an expense on the current income statement because it does not provide
a material benefit in future periods.
_____ 3. An expenditure that makes a plant asset more efficient or productive.
_____ 4. A method of depreciation that yields larger expense during the early years of an asset's life
and smaller expense in the later years.
_____ 5. Expenditures to keep a plant asset in normal, good operating condition.
118
_____ 6. The process of allocating the cost of a natural resource to the period when it are consumed.
_____ 7. A measure of a company's effectiveness in using its assets to generate sales.
_____ 8. The process of systematically allocating the cost of an intangible asset to expense over its
estimated useful life.
_____ 9. A depreciation method that charges a varying amount to expense for each period of an
asset's useful life depending on its usage.
_____ 10. Certain nonphysical assets used in operations that confer long-term rights, privileges, or
competitive advantages on their owners.
178)
Match each of the following terms with the appropriate definitions.
a. Extraordinary repairs
b. Obsolescence
c. Leasehold improvements
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. Alternations or improvements to leased property made by the lessee.
_____ 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 where 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.
ESSAY QUESTIONS
179)
Define plant assets and identify the four primary issues in accounting for them.
180)
What is depreciation of plant assets? What are the factors necessary in computing depreciation?
181)
What are some of the variables that make a plant asset's useful life difficult to predict?
182)
Explain the purpose of and method of depreciation for partial years.
183)
Explain the impact, if any, on depreciation when estimates that determine depreciation change.
