54) On September 30, 2018, Bricker Enterprises purchased a machine for $200,000. The
estimated service life is 10 years with a $20,000 residual value. Bricker records partial-year
depreciation based on the number of months in service.
Depreciation (to the nearest dollar) for 2019, using sum-of-the-years’ digits method, would be:
A) $31,909.
B) $29,455.
C) $35,456.
D) $54,000.
55) Jennings Advertising Inc. reported the following in its December 31, 2018, balance sheet:
Equipment
$
500,000
Less: Accumulated depreciation—equipment
$
135,000
In a disclosure note, Jennings indicates that it uses straight-line depreciation over 10 years and
estimates salvage value at 10% of cost. What is the average age of the equipment owned by
Jennings?
A) 2.7 years.
B) 3 years.
C) 7 years.
D) 7.3 years.
56) Gulf Consulting Co. reported the following on its December 31, 2018, balance sheet:
Equipment (at cost) $700,000
In a disclosure note, Gulf indicates that it uses straight-line depreciation over five years and
estimates salvage value as 10% of cost. Gulf’s equipment averages 3.5 years at December 31,
2018. What is the book value of Gulf’s equipment at December 31, 2018?
A) $490,000.
B) $441,000.
C) $259,000.
D) $210,000.
57) Asset C3PO has a depreciable base of $16.5 million and a service life of 10 years. What
would the accumulated depreciation be at the end of year five under the sum-of-the-years’ digits
method?
A) $4.5 million.
B) $8.25 million.
C) $12 million.
D) None of these answer choices are correct.
58) When selling property, plant, and equipment for cash:
A) The seller recognizes a gain or loss for the difference between the cash received and the fair
value of the asset sold.
B) The seller recognizes a gain or loss for the difference between the cash received and the book
value of the asset sold.
C) The seller recognizes losses, but not gains.
D) None of these answer choices are correct.
59) Gains on the cash sales of property, plant, and equipment:
A) Are the excess of the book value over the cash proceeds.
B) Are part of cash flows from operations.
C) Are reported on a net-of-tax basis if material.
D) Are the excess of the cash proceeds over the book value of the assets sold.
60) Losses on the cash sales of property, plant, and equipment:
A) Are the excess of the book value over the cash proceeds.
B) Are part of cash flows from operations.
C) Are reported on a net-of-tax basis if material.
D) Are the excess of the cash proceeds over the book value of the assets sold.
61) An asset was acquired on January 1, 2018, for $15,000 with an estimated 4-year life and
$1,000 residual value. The company uses straight-line depreciation. Calculate the gain or loss if
the asset was sold on December 31, 2020, for $5,000.
A) $500 gain.
B) $3,000 loss.
C) $1,500 gain.
D) $500 loss.
62) Equipment was acquired on January 1, 2018, for $15,000 with an estimated 4-year life and
$1,000 residual value. The company uses straight-line depreciation. Record the gain or loss if the
equipment was sold on December 31, 2020, for $5,000.
A)
Cash
5,000
Accumulated Depreciation
10,500
Equipment
Gain
B)
Cash
5,000
Equipment
Gain
C)
Cash
5,000
Equipment
Gain
D)
Cash
5,000
Accumulated Depreciation
7,000
Loss
3,000
Equipment
63) An asset was acquired on August 1, 2018, for $22,000 with an estimated 5-year life and
$2,000 residual value. The company uses straight-line depreciation. Calculate the gain or loss if
the asset was sold on April 30, 2020, for $13,000. Partial-year depreciation is calculated based
on the number of months the asset is in service.
A) $3,000 gain.
B) $2,000 loss.
C) $6,000 gain.
D) $4,000 loss.
64) An asset was acquired on October 1, 2018, for $78,000 with an estimated 5-year life and
$13,000 residual value. The company uses units-of-production depreciation and expects the asset
to produce 20,000 units. Calculate the gain or loss if the asset was sold on March 31, 2021, for
$58,000. Actual production was: 2018=500 units; 2019=3,000 units; 2020=3,500 units;
2021=1,000 units.
A) $11,200 gain.
B) $19,000 gain.
C) $6,000 gain.
D) $12,500 gain.
65) An asset was acquired on September 30, 2018, for $100,000 with an estimated 5-year life
and $20,000 residual value. The company uses double-declining-depreciation. Calculate the gain
or loss if the asset was sold on December 31, 2019, for $50,000. Partial-year depreciation is to be
calculated.
A) $1,200 gain.
B) $14,000 gain.
C) $16,000 loss.
D) $4,000 loss.
66) The process of allocating the cost of natural resources over their useful life is known as:
A) Depreciation.
B) Depletion.
C) Amortization.
D) Consumption.
67) An activity-based method is most often used to allocate the cost of natural resources over its
useful life because:
A) This method generally results in the highest amount of assets in the earlier years.
B) This is the simplest method, and natural resource activity is hard to estimate.
C) The usefulness of natural resources generally is directly related to the amount of the resources
extracted.
D) This method generally results in the highest amount of assets in the later years.
68) The cost of natural resources is expensed in the period:
A) The resource is harvested and becomes ready for sale.
B) The resource is acquired.
C) The resource is sold.
D) The resource is paid for.
69) Natural resources that have been harvested but not yet sold are accounted for as:
A) Property, plant and equipment.
B) Cost of goods sold.
C) Operating expense.
D) Inventory.
70) Clark Oil and Gas incurred costs of $15.3 million for the rights to extract resources from a
natural gas deposit. The company expects to extract 8 million cubic feet of natural gas during a
six-year period. Natural gas extracted during years 1 and 2 were 800,000 and 1,600,000 cubic
feet, respectively. What was total depletion for year 1 and year 2, assuming the company uses the
units-of-production method?
A) $5.10 million.
B) $3.06 million.
C) $8.00 million.
D) $4.59 million.
71) On March 31, 2018, M. Belotti purchased the right to remove gravel from an old rock
quarry. The gravel is to be sold as roadbed for highway construction. The cost of the quarry
rights was $164,000, with estimated salable rock of 20,000 tons. During 2018, Belotti loaded and
sold 4,000 tons of rock and estimated that 16,000 tons remained at December 31, 2018. At
January 1, 2019, Belotti estimated that 20,000 tons still remained. During 2019, Belotti loaded
and sold 8,000 tons. Belotti uses the units-of-production method.
Belotti would record depletion in 2018 of:
A) $41,000.
B) $32,800.
C) $30,750.
D) $24,600.
72) On March 31, 2018, M. Belotti purchased the right to remove gravel from an old rock
quarry. The gravel is to be sold as roadbed for highway construction. The cost of the quarry
rights was $164,000, with estimated salable rock of 20,000 tons. During 2018, Belotti loaded and
sold 4,000 tons of rock and estimated that 16,000 tons remained at December 31, 2018. At
January 1, 2019, Belotti estimated that 20,000 tons still remained. During 2019, Belotti loaded
and sold 8,000 tons. Belotti uses the units-of-production method.
Belotti would record depletion in 2019 of:
A) $54,667.
B) $65,600.
C) $52,480.
D) $55,760.
73) On February 12, 2018, Forest Incorporated purchased the right to remove timber from a
10,000-acre tract of land over the next three years, and the company estimates no residual value.
The timber is to be sold as lumber for new home construction. The cost of the timber rights was
$240,000, with estimated salable timber feet of 750,000. During 2018 and 2019, Forest harvested
and sold 600,000 feet of timber. What is the book value of the timber rights at the end of 2019,
assuming the company uses the units-of-production method?
A) $48,000.
B) $80,000.
C) $160,000.
D) $192,000.
74) Foreman Mining purchased land containing a copper deposit for $2,300,000 on January 7,
2018. The company expects to mine 600,000 tons of copper over the next 10 years, and the land
is expected to have a residual value of $1,400,000. The company has also purchased mining
equipment for $400,000 that will be used only at this site over the 10 years with an estimated
residual value of $52,000. By the end of the first year, the company has mined and sold 50,000
tons of copper. What is the cost attributed to copper inventory for 2018, assuming the company
uses the units-of-production method?
A) $109,800.
B) $124,800.
C) $104,000.
D) $75,000.
75) On April 23, 2018, Trevors Mining entered into an agreement with the state of California to
obtain the rights to operate a mineral mine in California for $12 million. Additional costs and
purchases included the following:
Preparation of site for excavation
$
4,800,000
Mining equipment
360,000
Construction of various structures on site
240,000
After the minerals are removed from the mine, the equipment will be sold for an estimated
residual value of $60,000. The structures will be torn down. The mine is expected to produce
1,400,000 tons of ore. After the ore is removed, the land will revert back to the state of
California. During 2018, Trevors extracted 210,000 tons of ore from the mine. What total
amount would be charged to depletion of the mine and depreciation of the mining equipment and
structures for 2018, assuming that Trevors uses the units-of-production method for both
depletion and depreciation? (Round your final calculations to the nearest whole thousand
dollars.)
A) $2,601,000.
B) $2,520,000.
C) $2,610,000.
D) $2,565,000.
76) The legal life of a patent is:
A) 40 years.
B) 20 years.
C) Life of the inventor plus 50 years.
D) Indefinite.
77) If an intangible asset has a legal life of eight years but contractually the usefulness is limited
to six years, a company will amortize the cost over:
A) Eight years.
B) Six years.
C) Seven years.
D) Either six or eight years is allowed.
78) Intangible assets that have an indefinite useful life:
A) Are those with no foreseeable limit on the period of time over which the asset is expected to
contribute to the cash flows of the entity.
B) Are those with no legal, contractual, or economic factors that are expected to limit their useful
life to a company.
C) Are those whose acquisition costs is not amortized over their useful life.
D) All of these answer choices are correct.
79) Short Corporation acquired Hathaway, Inc., for $52,000,000. The fair value of all
Hathaway’s identifiable tangible and intangible assets was $48,000,000. Short will amortize any
goodwill over the maximum number of years allowed. What is the annual amortization of
goodwill for this acquisition?
A) $100,000.
B) $400,000.
C) $200,000.
D) $0.
80) Granite Enterprises acquired a patent from Southern Research Corporation on January 1,
2018, for $4 million. The patent will be used for 5 years, even though its legal life is 20 years.
Rocky Corporation has made a commitment to purchase the patent from Granite for $200,000 at
the end of five years. Compute Granite’s patent amortization for 2018, assuming the straight-line
method is used.
A) $380,000.
B) $400,000.
C) $760,000.
D) $800,000.
81) In January 2018, Vega Corporation purchased a patent at a cost of $200,000. Legal and filing
fees of $50,000 were paid to acquire the patent. The company estimated a 10-year useful life for
the patent and uses the straight-line amortization method for all intangible assets. In January,
2021, Vega spent $40,000 in legal fees for an unsuccessful defense of the patent and the patent is
no longer usable. The amount charged to income (expense and loss) in 2021 related to the patent
should be:
A) $40,000.
B) $65,000.
C) $215,000.
D) $25,000.
82) On January 1, 2018, Tabitha Designs purchased a patent giving it exclusive rights to
manufacture a new type of synthetic clothing for $240,000. While the patent had a remaining
legal life of 15 years at the time of purchase, Tabitha expects the useful life to be only eight more
years. In addition, Tabitha purchase equipment related to production of the new clothing for
$140,000. The equipment has a physical life of 10 years but Tabitha plans to use the equipment
only over the patent’s service life and then sell it for an estimated $20,000. Tabitha uses straight-
line for all long-term assets. The amount to expense in 2021 related to the patent and equipment
should be:
A) $40,000.
B) $38,000.
C) $45,000.
D) $31,000.
83) Russell Enterprises acquired a franchise from Michael Incorporated for $300,000. The
franchise agreement is for a period of six years. Russell uses straight-line to amortize all
intangible assets. What would be the reported book value of the franchise two years after the
purchase?
A) $300,000.
B) $250,000.
C) $200,000.
D) $100,000.
84) On January 3, 2018, Tracer Incorporated purchased a patent for $450,000 to manufacture a
new type of chair. The patent has a remaining legal life of 12 years. Tracer plans to manufacture
the chair for eight years and then sell the patent for $50,000. The company amortizes intangible
assets using the straight-line method. On December 29, 2020, Tracer decides to sell the patent for
$325,000. Assuming the company has a December 31 year end, what is the gain or loss recorded
on the sale of the patent?
A) $12,500 gain.
B) $25,000 gain.
C) $58,333 loss.
D) $25,000 loss.
85) On June 2, 2018, Tabitha Co. purchased a franchise for $560,000 by signing a five-year
contract. At the end of the five years, the franchise right reverts back to the seller. On September
1, 2020, Tabitha decides to sell the franchise right for $323,000. The company amortizes
intangible assets using the straight-line method and records partial-year amortization based on
the number of months in service. Assuming the company has a December 31 year end, what is
the gain or loss recorded on the sale of the patent?
A) $15,000 gain.
B) $13,000 loss.
C) $237,000 loss.
D) $99,000 gain.
86) Accounting for a change in the estimated service life of equipment:
A) Is handled prospectively.
B) Requires retroactive restatement of prior year’s financial statements.
C) Requires a prior period adjustment.
D) Is handled currently as a change in accounting principle.
87) A change in the estimated useful life and residual value of machinery in the current year is
handled as:
A) A retrospective change back to the date of acquisition as though the current estimated life and
residual value had been used all along.
B) A prospective change from the current year through the remainder of its useful life, using the
new estimates.
C) A cumulative adjustment to income in the current year for the difference in depreciation
under the new versus old estimates.
D) All of these answer choices are incorrect.
88) Tatsuo Corporation purchased farm equipment on January 1, 2016, for $280,000. In 2016
and 2017, Tatsuo depreciated the asset on a straight-line basis with an estimated useful life of
five years and a $90,000 residual value. In 2018, due to changes in technology, Tatsuo revised
the residual value to $30,000 but still plans to use the equipment for the full five years. What
depreciation would Tatsuo record for the year 2018 on this equipment?
A) $52,000.
B) $58,000.
C) $50,000.
D) $28,000.
89) Herman Apparel has purchased equipment on January 1, 2015, for $560,000. In 2015-2017,
Herman depreciated the asset on a straight-line basis with an estimated useful life of eight years
and a $80,000 residual value. In 2018, Herman has started to change its business strategy and
now believes that the equipment will be used for only another two years (five years total) but
does not believe the residual value has changed. What depreciation would Herman record for the
year 2018 on this equipment?
A) $150,000.
B) $175,000.
C) $124,000.
D) $96,000.
90) Nanki Corporation purchased equipment on January 1, 2016, for $650,000. In 2016 and
2017, Nanki depreciated the asset on a straight-line basis with an estimated useful life of eight
years and a $10,000 residual value. In 2018, due to changes in technology, Nanki revised the
useful life to a total of six years with no residual value. What depreciation would Nanki record
for the year 2018 on this equipment?
A) $108,333.
B) $106,667.
C) $122,500.
D) None of these answer choices are correct.
91) Fellingham Corporation purchased equipment on January 1, 2016, for $200,000. The
company estimated the equipment would have a useful life of 10 years with a $20,000 residual
value. Fellingham uses the straight-line depreciation method. Early in 2018, Fellingham
reassessed the equipment’s condition and determined that its total useful life would be only six
years in total and that it would have no salvage value. How much would Fellingham report as
depreciation on this equipment for 2018?
A) $24,000.
B) $27,333.
C) $36,000.
D) $41,000.
92) A change from the straight-line method to the sum-of-years’-digits method of depreciation is
handled as:
A) A retrospective change back to the date of acquisition as though the current estimated life had
been used all along.
B) A cumulative adjustment to income in the current year for the difference in depreciation
under the new versus old useful life estimate.
C) A prospective change from the current year through the remainder of its useful life.
D) None of these answer choices are correct.
93) Murgatroyd Co. purchased equipment on January 1, 2016, for $500,000, estimating a four-
year useful life and no residual value. In 2016 and 2017, Murgatroyd depreciated the asset using
the sum-of-years’-digits method. In 2018, Murgatroyd changed to straight-line depreciation for
this equipment. What depreciation would Murgatroyd record for the year 2018 on this
equipment?
A) $75,000.
B) $125,000.
C) $150,000.
D) None of these answer choices are correct.