Depreciation, Impairments, and Depletion
11 – 21
81. Orton Corporation, which has a calendar year accounting period, purchased a new
machine for $80,000 on April 1, 2016. At that time Orton expected to use the machine for
nine years and then sell it for $8,000. The machine was sold for $44,000 on Sept. 30,
2021. Assuming straight-line depreciation, no depreciation in the year of acquisition, and a
full year of depreciation in the year of retirement, the gain to be recognized at the time of
sale would be
a. $8,000.
b. $6,000.
c. $4,000.
d. $0.
82. On January 1, 2020, the Accumulated Depreciation—Machinery account of a particular
company showed a balance of $1,480,000. At the end of 2020, after the adjusting entries
were posted, it showed a balance of $1,580,000. During 2020, one of the machines which
cost $500,000 was sold for $242,000 cash. This resulted in a loss of $16,000. Assuming
that no other assets were disposed of during the year, how much was depreciation
expense for 2020?
a. $342,000
b. $374,000
c. $100,000
d. $242,000
83. During 2020, Node Co. sold equipment that had cost $392,000 for $235,200. This resulted
in a gain of $17,200. The balance in Accumulated Depreciation—Equipment was
$1,300,000 on January 1, 2020, and $1,240,000 on December 31. No other equipment
was disposed of during 2020. Depreciation expense for 2020 was
a. $60,000.
b. $77,200.
c. $114,000.
d. $234,000.
A schedule of machinery owned by Micco Co. is presented below:
Estimated Estimated
Total Cost Salvage Value Life in Years
Machine X $600,000 $40,000 14
Machine Y 800,000 80,000 10
Machine Z 300,000 60,000 6
Micco computes depreciation by the composite method.
84. The composite rate of depreciation (in percent) for these assets is
a. 8.94.
b. 10.59.
c. 8.57.
d. 15.56.
Test Bank for Intermediate Accounting, Seventeenth Edition
11 – 22
A schedule of machinery owned by Micco Co. is presented below:
Estimated Estimated
Total Cost Salvage Value Life in Years
Machine X $600,000 $40,000 14
Machine Y 800,000 80,000 10
Machine Z 300,000 60,000 6
Micco computes depreciation by the composite method.
85. The composite life (in years) for these assets is
a. 15.6.
b. 8.6.
c. 8.9.
d. 10.0.
86. Song Company purchased a depreciable asset for $700,000 on April 1, 2018. The
estimated salvage value is $70,000, and the estimated useful life is 5 years. The straight–
line method is used for depreciation. What is the balance in accumulated depreciation on
May 1, 2021 when the asset is sold?
a. $252,000
b. $294,000
c. $346,500
d. $388,500
87. Morgan Corporation purchased a depreciable asset for $600,000 on January 1, 2018. The
estimated salvage value is $60,000, and the estimated useful life is 9 years. The straight–
line method is used for depreciation. In 2021, Morgan changed its estimates to a total
useful life of 5 years with a salvage value of $90,000. What is 2021 depreciation expense?
a. $60,000
b. $90,000
c. $165,000
d. $180,000
88. Rock Company purchased a depreciable asset for $600,000 on April 1, 2018. The
estimated salvage value is $60,000, and the estimated total useful life is 5 years. The
straight-line method is used for depreciation. What is the balance in accumulated
depreciation on May 1, 2021 when the asset is sold?
a. $234,000
b. $252,000
c. $297,000
d. $333,000
89. Falcon Corporation purchased a depreciable asset for $840,000 on January 1, 2018. The
estimated salvage value is $84,000, and the estimated total useful life is 9 years. The
straight-line method is used for depreciation. In 2021, Falcon changed its estimates to a
Depreciation, Impairments, and Depletion
11 – 23
total useful life of 5 years with a salvage value of $140,000. What is 2021 depreciation
expense?
a. $84,000
b. $140,000
c. $224,000
d. $252,000
90. If Labor, Inc. uses the composite method and its composite rate is 7.5% per year, what
entry should it make when plant assets that originally cost $120,000 and have been used
for 10 years are sold for $36,000?
a. Cash 36,000
Accumulated Depreciation – Plant Assets 84,000
Plant Assets 120,000
b. Cash 36,000
Loss on Sale of Plant Assets 84,000
Plant Assets 120,000
c. Cash 36,000
Accumulated Depreciation – Plant Assets 90,000
Plant Assets 120,000
Gain on Sale of Plant Assets 6,000
d. Cash 36,000
Plant Assets 36,000
91. Angst Company purchased equipment in January of 2011 for $400,000. The equipment
was being depreciated on the straight-line method over an estimated useful life of 20
years, with no salvage value. At the beginning of 2021, when the equipment had been in
use for 10 years, the company paid $50,000 to overhaul the equipment. As a result of this
improvement, the company estimated that the useful life of the equipment would be
extended an additional 5 years. What will be the depreciation expense recorded for this
equipment in 2021?
a. $10,000
b. $16,667
c. $20,000
d. $13,333
92 Exiter Inc. owns the following assets:
Asset
Cost
Salvage
Estimated Useful Life
A
$420,000
$42,000
10 years
B
225,000
22,500
5 years
C
492,000
24,000
12 years
Test Bank for Intermediate Accounting, Seventeenth Edition
11 – 24
What is the composite depreciation rate of Exiter’s assets?
a. 14.0%
b. 10.3%
c. 12.9%
d. 11.1%
93 Exiter Inc. owns the following assets:
Asset
Cost
Salvage
Estimated Useful Life
A
$420,000
$42,000
10 years
B
225,000
22,500
5 years
C
492,000
24,000
12 years
What is the composite life of Exiter’s assets?
a. 14.0 years
b. 9.7 years
c. 8.9 years
d. 10.3 years
94. Torque Co. has equipment with a carrying amount of $2,400,000. The expected future net
cash flows from the equipment are $2,445,000, and its fair value is $2,040,000. The
equipment is expected to be used in operations in the future. What amount (if any) should
Torque report as an impairment to its equipment?
a. No impairment should be reported.
b. $360,000
c. $45,000
d. $405,000
95. Regis Inc. bought a machine on January 1, 2011 for $800,000. The machine had an
expected life of 20 years and was expected to have a salvage value of $80,000. On July
1, 2021, the company reviewed the potential of the machine and determined that its future
net cash flows totaled $400,000 and its fair value was $280,000. If the company does not
plan to dispose of it, what should Regis record as an impairment loss on July 1, 2021?
a. $ 0
b. $22,000
c. $40,000
d. $142,000
96. Hart Corporation owns machinery with a book value of $570,000. It is estimated that the
machinery will generate future cash flows of $600,000. The machinery has a fair value of
$420,000. Hart should recognize a loss on impairment of
a. $ -0-.
b. $30,000.
c. $150,000.
d. $180,000.
Depreciation, Impairments, and Depletion
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97. King Corporation owns machinery with a book value of $760,000. It is estimated that the
machinery will generate future cash flows of $700,000. The machinery has a fair value of
$560,000. King should recognize a loss on impairment of
a. $ -0-.
b. $ 60,000.
c. $200,000.
d. $ 140,000.
98. Marsh Corporation purchased a machine on July 1, 2018, for $1,500,000. The machine
was estimated to have a useful life of 10 years with an estimated salvage value of
$84,000. During 2021, it became apparent that the machine would become uneconomical
after December 31, 2025, and that the machine would have no scrap value. Accumulated
depreciation on this machine as of December 31, 2020, was $354,000. What should be
the charge for depreciation in 2021 under generally accepted accounting principles?
a. $212,400
b. $229,200
c. $246,000
d. $286,500
99. Rogers Company purchased a tooling machine on January 3, 2014 for $840,000. The
machine was being depreciated on the straight-line method over an estimated useful life
of 10 years, with no salvage value. At the beginning of 2021, the company paid $210,000
to overhaul the machine. As a result of this improvement, the company estimated that the
useful life of the machine would be extended an additional 5 years (15 years total). What
should be the depreciation expense recorded for the machine in 2021?
a. $57,750
b. $70,000
c. $84,000
d. $92,400
100. Glow Co. purchased machinery on January 2, 2015, for $880,000. The straight-line
method is used and useful life is estimated to be 10 years, with a $80,000 salvage value.
At the beginning of 2021 Glow spent $192,000 to overhaul the machinery. After the
overhaul, Glow estimated that the useful life would be extended 4 years (14 years total),
and the salvage value would be $40,000. The depreciation expense for 2021 should be
a. $56,500.
b. $69,000.
c. $80,000.
d. $74,000.
101. Norton, Inc. purchased equipment in 2019 at a cost of $900,000. Two years later it
became apparent to Norton, Inc. that this equipment had suffered an impairment of value.
In early 2021, the book value of the asset is $585,000 and it is estimated that the fair
value is now only $360,000. The entry to record the impairment is
Test Bank for Intermediate Accounting, Seventeenth Edition
11 – 26
a. No entry is necessary as a write-off violates the historical cost principle.
b. Retained Earnings …………………………………………………. 225,000
Accumulated Depreciation—Equipment …………. 225,000
c. Loss on Impairment of Equipment ……………………………. 225,000
Accumulated Depreciation—Equipment …………. 225,000
d. Retained Earnings …………………………………………………. 225,000
Reserve for Loss on Impairment of Equipment … 225,000
102. Porter Resources Company acquired a tract of land containing an extractable natural
resource. Porter is required by its purchase contract to restore the land to a condition
suitable for recreational use after it has extracted the natural resource. Geological surveys
estimate that the recoverable reserves will be 2,500,000 tons, and that the land will have a
value of $1,000,000 after restoration. Relevant cost information follows:
Land $7,500,000
Estimated restoration costs 1,500,000
If Porter maintains no inventories of extracted material, what should be the charge to
depletion expense per ton of extracted material?
a. $2.60
b. $3.00
c. $3.20
d. $3.60
103. In January, 2020, Yager Corporation purchased a mineral mine for $5,100,000 with
removable ore estimated by geological surveys at 2,000,000 tons. The property has an
estimated value of $300,000 after the ore has been extracted. The company incurred
$1,500,000 of development costs preparing the mine for production. During 2020, 600,000
tons were removed and 480,000 tons were sold. What is the amount of depletion that
Yager should expense for 2020?
a. $1,152,000
b. $1,440,000
c. $1,512,000
d. $2,016,000
104. During 2020, Logan Corporation acquired a mineral mine for $4,000,000 of which
$400,000 was ascribed to land value after the mineral has been removed. Geological
surveys have indicated that 10 million units of the mineral could be extracted. During
2020, 1, 500,000 units were extracted and 1,250,000 units were sold. What is the amount
of depletion expensed for 2020?
a. $400,000.
b. $450,000.
c. $300,000.
d. $540,000.
Depreciation, Impairments, and Depletion
11 – 27
105. In March, 2020, Mallory Mines Co. purchased a coal mine for $8,000,000. Removable
coal is estimated at 1,500,000 tons. Mallory is required to restore the land at an estimated
cost of $960,000, and the land should have a value of $840,000. The company incurred
$2,000,000 of development costs preparing the mine for production. During 2020, 360,000
tons were removed and 240,000 tons were sold. The total amount of depletion that
Mallory should record for 2020 is
a. $1,465,600.
b. $1,619,200.
c. $2,198,400.
d. $2,428,800.
106. In 2013, Jarrett Company purchased a tract of land as a possible future plant site. In
January, 2021, valuable sulphur deposits were discovered on adjoining property and
Jarrett Company immediately began explorations on its property. In December, 2021,
after incurring $480,000 in exploration costs, which were accumulated in an expense
account, Jarrett discovered sulphur deposits appraised at $2,700,000 more than the value
of the land. To record the discovery of the deposits, Jarrett should
a. make no entry.
b. debit $480,000 to an asset account.
c. debit $2,700,000 to an asset account.
d. debit $3,180,000 to an asset account.
107. Barton Corporation acquires a coal mine at a cost of $1,800,000. Intangible development
costs total $360,000. After extraction has occurred, Barton must restore the property
(estimated fair value of the obligation is $180,000), after which it can be sold for $210,000.
Barton estimates that 6,000 tons of coal can be extracted. What is the amount of depletion
per ton?
a. $355
b. $320
c. $390
d. $300
108. Barton Corporation acquires a coal mine at a cost of $1,500,000. Intangible development
costs total $360,000. After extraction has occurred, Barton must restore the property
(estimated fair value of the obligation is $180,000), after which it can be sold for $510,000.
Barton estimates that 6,000 tons of coal can be extracted. If 900 tons are extracted the
first year, which of the following would be included in the journal entry to record depletion?
a. Debit to Accumulated Depletion for $229,500
b. Debit to Inventory for $229,500
c. Credit to Inventory for $225,000
d. Credit to Accumulated Depletion for $382,500
Test Bank for Intermediate Accounting, Seventeenth Edition
11 – 28
109. In 2020, Bargain Shop reported net income of $5.7 billion, net sales of $175 billion, and
average total assets of $75 billion. What is Bargain shop’s asset turnover?
a. 0.29 times
b. 0.08 times.
c. 2.33 times.
d. 13.2times.
110. In 2020, Bargain Shop reported net income of $5.7 billion, net sales of $175 billion, and
average total assets of $75 billion. What is Bargain shop’s return on assets?
a. 7.6%
b. 28.7%
c. 23.3%
d. 13.2%
111. For 2020, Hammer Company reports beginning of the year total assets of $900,000, end
of the year total assets of $1,100,000, net sales of $1,000,000, and net income of
$200,000.
Hammer’s 2020 asset turnover is
a. 0.18 times.
b. 0.20 times.
c. 0.91 times.
d. 1.00 times.
112. For 2020, Hammer Company reports beginning of the year total assets of $900,000, end
of the year total assets of $1,100,000, net sales of $1,000,000, and net income of
$200,000.
The return on assets for Hammer in 2020 is
a. 16.0%.
b. 18.2%.
c. 20.0%.
d. 22.2%.
113. Sifton Company reported the following data:
2020 2021
Sales $3,000,000 $4,550,000
Net Income 300,000 400,000
Assets at year end 1,800,000 2,500,000
Liabilities at year end 1,100,000 1,500,000
What is Sifton’s asset turnover for 2021?
a. 1.82
b. 1.88
c. 2.12
Depreciation, Impairments, and Depletion
11 – 29
d. 2.53
114. Frank Company reported the following data:
2020 2021
Sales $3,000,000 $4,800,000
Net Income 300,000 400,000
Assets at year end 1,800,000 2,500,000
Liabilities at year end 1,100,000 1,500,000
What is Frank’s asset turnover for 2021?
a. 1.92
b. 1.97
c. 2.23
d. 2.67
On January 1, 2020, Garrett Company purchased a machine costing $350,000. The machine is in
the MACRS 5-year recovery class for tax purposes and has an estimated $70,000 salvage value
at the end of its economic life.
*115. Assuming the company uses the general MACRS approach, the amount of MACRS
deduction for tax purposes for the year 2020 is
a. $70,000.
b. $140,000.
c. $112,000.
d. $56,000.
On January 1, 2020, Garrett Company purchased a machine costing $350,000. The machine is in
the MACRS 5-year recovery class for tax purposes and has an estimated $70,000 salvage value
at the end of its economic life.
*116. Assuming the company uses the optional straight-line method, the amount of MACRS
deduction for tax purposes for the year 2020 is
a. $56,000.
b. $70,000.
c. $28,000.
d. $35,000.
Multiple Choice Answers—Computational
Test Bank for Intermediate Accounting, Seventeenth Edition
11 – 30
MULTIPLE CHOICE—CPA Adapted
117. Piazza Co. purchased a machine on July 1, 2020, for $1,000,000. The machine has an
estimated useful life of five years and a salvage value of $200,000. The machine is being
depreciated from the date of acquisition by the 150% declining-balance method. For the
year ended December 31, 2020, Piazza should record depreciation expense on this
machine of
a. $300,000.
b. $200,000.
c. $150,000.
d. $120,000.
118. A machine with an eight year estimated useful life and an estimated 10% salvage value
was acquired on January 1, 2019. The depreciation expense for 2021 using the double–
declining balance method would be original cost multiplied by
a. 90% × 25% × 25%.
b. 75% × 75% × 25%.
c. 90% × 75% × 25%.
d. 25% × 25%.
119. On April 1, 2019, Verlin Co. purchased new machinery for $450,000. The machinery has
an estimated useful life of five years, and depreciation is computed by the sum–of–the–
years’-digits method. The accumulated depreciation on this machinery at March 31, 2021,
should be
a. $300,000.
b. $270,000.
c. $180,000.
d. $150,000.
120. Harris Co. takes a full year’s depreciation expense in the year of an asset’s acquisition
and no depreciation expense in the year of disposition. Data relating to one of Harris’s
depreciable assets at December 31, 2021 are as follows:
Acquisition year 2019
Cost $280,000
Residual value 40,000
Accumulated depreciation 192,000
Estimated useful life 5 years
Using the same depreciation method as used in 2019, 2020, and 2021, how much
depreciation expense should Harris record in 2022 for this asset?
a. $32,000
Depreciation, Impairments, and Depletion
11 – 31
b. $48,000
c. $56,000
d. $64,000
121. A depreciable asset has an estimated 15% salvage value. At the end of its estimated
useful life, the accumulated depreciation would equal the original cost of the asset under
which of the following depreciation methods?
Straight-line Productive Output
a. Yes No
b. Yes Yes
c. No Yes
d. No No
122. Net income is understated if, in the first year, estimated salvage value is excluded from
the depreciation computation when using the
Straight-line Production or
Method Use Method
a. Yes No
b. Yes Yes
c. No No
d. No Yes
123. A plant asset with a five-year estimated useful life and no residual value is sold at the end
of the second year of its useful life. How would using the sum-of-the-years‘-digits method
of depreciation instead of the double-declining balance method of depreciation affect a
gain or loss on the sale of the plant asset?
Gain Loss
a. Decrease Decrease
b. Decrease Increase
c. Increase Decrease
d. Increase Increase
124. Galt Company acquired a tract of land containing an extractable natural resource. Galt is
required by the purchase contract to restore the land to a condition suitable for
recreational use after it has extracted the natural resource. Geological surveys estimate
that the recoverable reserves will be 5,000,000 tons, and that the land will have a value of
$600,000 after restoration. Relevant cost information follows:
Land $6,400,000
Estimated restoration costs 1,200,000
If Galt maintains no inventories of extracted material, what should be the charge to
depletion expense per ton of extracted material?
a. $1.28
b. $1.40
Test Bank for Intermediate Accounting, Seventeenth Edition
11 – 32
c. $1.60
d. $1.52
125. In January 2020, Fritz Mining Corporation purchased a mineral mine for $6,300,000 with
removable ore estimated by geological surveys at 2,500,000 tons. The property has an
estimated value of $600,000 after the ore has been extracted. Fritz incurred $1,725,000 of
development costs preparing the property for the extraction of ore. During 2020, 585,000
tons were removed and 525,000 tons were sold. For the year ended December 31, 2020,
Fritz should include what amount of depletion in its cost of goods sold?
a. $1,197,000
b. $1,333,800
c. $1,559,250
d. $1,737,000
Multiple Choice Answers—CPA Adapted
DERIVATIONS — Computational
No. Answer Derivation
Depreciation, Impairments, and Depletion
11 – 33
Test Bank for Intermediate Accounting, Seventeenth Edition
11 – 34
DERIVATIONS — Computational (cont.)
No. Answer Derivation
Depreciation, Impairments, and Depletion
11 – 35
DERIVATIONS — Computational (cont.)
No. Answer Derivation