7.3-5 Gains and losses on the sale of PPE are reported on the income statement as regular income or expense
items.
7.3-6 Gains on the sale of equipment increase net income while losses on the sale of equipment decrease net
income.
7.3-7 If Valtrex Inc. sells a major PPE:
A) depreciation expense should be recorded through the date of sale.
B) the book value of the asset should be credited to the asset account.
C) no gain should be recognized if depreciation expense was taken on the asset before the asset was sold.
D) a loss should be recognized, but not a gain, if depreciation expense was taken on the asset before the
asset was sold.
7.3-8 A loss is recorded on the sale of a PPE when the:
A) cash received exceeds the asset’s book value.
B) asset’s book value is less than its historical cost.
C) asset’s book value is greater than the amount of cash received from the sale.
D) cash received exceeds the cash paid for the replacement asset.
7.3-9 If a machine has been fully depreciated and has no residual value:
A) there will always be a loss on the disposal.
B) there will always be a gain on the disposal.
C) there will be no gain or loss on the disposal.
D) total assets will be increased.
7.3-10 If an asset is scrapped before being fully depreciated:
A) the company will incur a loss on the disposal.
B) the equipment account will be credited.
C) the accumulated depreciation account will be debited.
D) all of the above will occur.
7.3-11 When PPE are exchanged:
A) the old asset does not need to be removed from the books.
B) the new asset will be debited for the list price of the asset.
C) there is no gain or loss on the exchange.
D) total assets increase.
7.3-12 Patch Company sold some office furniture for $4,800 cash. The furniture cost $31,500 and had
accumulated depreciation through the date of sale totaling $29,300. The journal entry to record the sale of
the furniture will include a:
A) debit to Loss on Sale of Furniture for $26,700.
B) debit to Gain on Sale of Furniture for $2,600.
C) credit to Gain on Sale of Furniture for $2,600.
D) credit to Loss on Sale of Furniture for $26,700.
7.3-13 Hawthorne Company sold an old computer for $3,000 cash. The computer cost $45,000 and had
accumulated depreciation through the date of sale totaling $42,000. The company will recognize:
A) a gain of $3,000.
B) a loss of $3,000.
C) neither a gain nor a loss.
D) a loss of $37,500.
7.3-14 Smucker’s Company sold equipment costing $65,000 with $60,000 of accumulated depreciation for
$10,000 cash. The company’s journal entry to record this sale will NOT include a:
A) credit to Equipment for $65,000.
B) credit to Gain on Sale of Equipment for $5,000.
C) debit to Accumulated Depreciation for $60,000.
D) debit to Gain on Sale of Equipment for $5,000.
7.3-15 Equipment costing $47,500 with a book value of $22,500 is sold for $26,000. The journal entry will
involve a ___________ to Accumulated Depreciation.
A) credit of $25,000
B) debit of $22,500
C) debit of $25,000
D) credit of $22,500
7.3-16 Equipment purchased for $85,000 on January 1, 20X6, was sold on July 1, 20X9. The company uses the
straight-line method of computing depreciation and recognizes $17,000 of depreciation expense annually.
When recording the sale, the company should record a debit to Accumulated Depreciation for:
A) $51,000.
B) $59,500.
C) $68,000.
D) nothing; Accumulated Depreciation is not debited.
7.3-17 Equipment acquired on January 1, 20X6, is sold on June 30, 20X9, for $11,200. The equipment cost
$26,800, had an estimated residual value of $6,800, and an estimated useful life of 5 years. The company
prepared financial statements on December 31, and the equipment has been depreciated using the straight–
line method. Prior to determining the gain or loss on the sale of this equipment, the company should
record depreciation of:
A) $2,000.
B) $5,000.
C) $31,700.
D) nothing; no entry is required.
7.3-18 Great Farms Company sold some fully depreciated equipment for $4,100 cash. The equipment had been
purchased for $49,600, and the company had estimated the useful life at 8 years and a residual value at
$5,600. How will this sale affect Retained Earnings?
A) It will decrease Retained Earnings by $44,000.
B) it will decrease Retained Earnings by $1,500.
C) It will increase Retained Earnings by $4,100.
D) It will have no effect on Retained Earnings.
7.3-19 Tomas Company trades in a printing press for a newer model. The cost of the old printing press was
$61,500, and accumulated depreciation up to the date of the trade-in amounts to $38,000. The company
also pays $41,200 cash for the newer printing press. The journal entry to acquire the new printing press
will require a debit to Equipment for:
A) $41,200.
B) $61,500.
C) $64,700.
D) $102,700.
7.3-20 Mindy’s Turtle Rescue Store has a beginning balance in the equipment account of $70,000. During the
year, they purchased $30,000 worth of equipment. At the end of the year, the balance in the equipment
account was $80,000. The cost of the equipment that Mindy’s Turtle Rescue Store sold was:
A) $100,000.
B) $80,000.
C) $20,000.
D) $180,000.
7.4-1 Accumulated depletion reduces equity, as this account is a contra-revenue account.
7.4-2 Natural resources are reported in the Intangible Assets section of the income statement.
7.4-3
Minerals mined from the earth are classified as natural resources.
7.4-4 All of the following are classified as natural resources and are depleted EXCEPT for:
A) land.
B) timber.
C) minerals.
D) oil.
7.4-5 All of the following are classified as natural resources EXCEPT for:
A) oil.
B) timber.
C) trademark.
D) minerals.
7.4-6 The portion of the cost of natural resources that is consumed in a particular period is called:
A) depreciation expense.
B) amortization expense.
C) depletion expense.
D) resource expense.
7.4-7 Accumulated Depletion is a(n):
A) contra-asset account.
B) contra-revenue account.
C) contra-liability account.
D) expense account.
7.4-8 The computation of depletion expense is most closely related to which method for computing
depreciation?
A) Straight-line
B) Units-of-production
C) Double-declining balance
D) The method selected depends upon the specific natural resource.
7.4-9 The correct journal entry to record depletion for an oil well would include:
A) a debit to Depletion Expense, Oil Well.
B) a debit to Accumulated Depletion, Oil Well.
C) a credit to Depletion Expense, Oil Well.
D) none of the above.
7.4-10 The journal entry to record depletion would include:
A) a debit to Depletion Expense and credit to Accumulated Depreciation.
B) a debit to Accumulated Depletion and a credit to Depletion Expense.
C) a debit to Depletion Expense and a credit to Accumulated Depletion.
D) none of the above.
7.4-11 On January 2, 20X7, Bantam Oil Company purchased an oil well for $625,000. The well contains an
estimated 150,000 barrels of oil, with an estimated residual value of $25,000. During 20X7, 15,000
barrels of oil were removed from the well. To record depletion for 20X7, Bantam Oil Company will debit
Depletion Expense for:
A) $62,500.
B) $60,000.
C) $64,500.
D) $69,444.
7.4-12 Skyline Mine, Inc., acquired a mineral deposit for $12,000,000 in 20X6. Geologists estimate the deposit
contains 2,000,000 tons of ore. During 20X6 and 20X7, Skyline Mine, Inc. removed 610,000 tons and
480,000 tons of ore, respectively. The balance in the Accumulated Depletion account for the mineral
deposit on December 31, 20X7, will be:
A) $2,880,000.
B) $5,490,000.
C) $6,540,000.
D) unknown; the balance cannot be determined without knowing the residual value of the resource.
7.5-1 Contra-asset accounts are NOT established to record the accumulated amortization for intangible assets.
7.5-2 Intangibles with finite lives that can be measured are amortized.