Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
87. Amanda Company purchased a computer that cost $10,000. It had an estimated useful life
of five years and a residual value of $1,000. The computer was depreciated by the straight-
line method and was sold at the end of the third year of use for $5,000 cash. Which of the
following statements correctly describes the computer sale?
88. On March 1, 2010, Anniston Company purchased an oil well at a cost of $1,000,000. It is
estimated that 150,000 barrels of oil can be produced over the remaining life of the well and
the residual value of the well will be $100,000. During 2010, 15,000 barrels of oil were
produced and sold. Which of the following statements is incorrect with respect to the
accounting for the oil well?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
89. On March 1, 2010, Anniston Company purchased an oil well at a cost of $1,000,000. It is
estimated that 150,000 barrels of oil can be produced over the remaining life of the well and
the residual value of the well will be $100,000. During 2010, 15,000 barrels of oil were
produced and 10,000 barrels were sold. Which of the following statements is correct with
respect to the accounting for the oil well?
90. During 2010, a company purchased a mine at a cost of $3,000,000. The company spent an
additional $600,000 getting the mine ready for its intended use. It is estimated that 300,000
tons of mineral can be removed from the mine and the residual value of the mine will be
$600,000. During 2010, 45,000 tons of mineral were removed from the mine and 35,000 tons
were sold. Which of the following statements is correct with respect to the accounting for the
mine?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
91. During 2010, a company purchased a mine at a cost of $3,000,000. The company spent an
additional $600,000 getting the mine ready for its intended use. It is estimated that 300,000
tons of mineral can be removed from the mine and the residual value of the mine will be
$600,000. During 2010, 45,000 tons of mineral were removed from the mine and 35,000 tons
were sold. Which of the following statements is incorrect with respect to the accounting for
the mine?
92. Which of the following is most likely to be an intangible asset with an indefinite life?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
93. Which one of the following would not be recorded as an intangible asset?
94. Failure to record amortization expense on a patent during the current year will result in
which of the following?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
95. Which of the following properly describes the accounting for goodwill?
96. Which of the following properly describes the accounting for a patent?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
97. Which of the following statements is correct?
98. During 2010, the Bowtie Company reported net income of $1,872 million, depreciation
expense of $1,412 million and $978 million paid for purchases of property, plant and
equipment. What would be the effect on cash flows from operating activities during 2010?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
99. Landmark Restaurants reported net income in 2008 of $45.9 million and depreciation
expense of $48.8 million. They also report additions to property and equipment of $162.9
million. Which of the following disclosures would appear on the 2008 statement of cash
flows?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
100. Williams Company purchased a machine costing $25,000 and is depreciating it over a
10-year estimated useful life with a residual value of $3,000. At the beginning of the eighth
year, a major overhaul on it was completed at a cost of $8,000, and the total estimated useful
life was changed to 12 years with the residual value unchanged. How much is the year 8
depreciation expense assuming use of the straight-line depreciation method?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
101. Augie Corporation purchased a truck at a cost of $60,000. It has an estimated useful life
of five years and estimated residual value of $5,000. At the beginning of year three, Augie’s
managers concluded that the total useful life would be four years, rather than five. There was
no change in the estimated residual value. What is the amount of depreciation that Augie
should record for year 3 under the straight-line depreciation method?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
102. The following information is available for Coca-Cola and PepsiCo:
Compute the fixed asset turnover ratio for both Coca Cola and PepsiCo.
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
103. The following information was available for Landmark Restaurants for the past three
years. Using this information compute the fixed asset turnover ratio for 2010 and 2009.
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
104. On January 1, 2010, Trenton Company purchased a machine costing $50,000. Trenton
also incurred the following costs: transportation, $1,000; installation, $2,000; and sales tax,
$3,000. Prepare the journal entry to record the machine acquisition assuming cash was paid.
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
105. Waterloo Corporation purchased factory equipment for a cost of $1,800,000. It cost
$100,000 for its delivery, $220,000 for its installation and modifications to the production
building, and $60,000 in interest costs on borrowed funds used to acquire the equipment.
What is the acquisition cost of the new equipment?
106. In 2008, Landmark Restaurants reported the cost of property and equipment at $1,189.8
million and the accumulated depreciation at $224.2 million. In that same year, Coca Cola
reported $10,149 million in long-lived, productive assets and accumulated depreciation on
them of $4,058.
A. Estimate the approximate remaining life of the assets for Landmark and Coca Cola
B. Which company appears to have newer assets with longer remaining lives?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
107. Hi-Crest Company purchased a machine on January 1, 2010, for $300,000. The machine
has an estimated useful life of 5 years and a $10,000 residual value. Calculate depreciation
expense and the year-end book value for 2010 and 2011 using the double declining-balance
method of depreciation.
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
108. The financial statements of Franklin Company contained the following errors:
Requirements:
A. Was net income for 2009 understated or overstated?
B. Was total combined net income for the two-year period ended December 31, 2010
overstated or understated?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
109. On January 1, 2009, Boston Company purchased a heavy duty machine having an
invoice price of $13,000; Boston paid transportation and installation costs totaling $3,000.
The machine is estimated to have a 4-year useful life and a $1,000 residual value. Calculate
depreciation expense and book value for 2009 – 2012, assuming 150% declining-balance
method of depreciation. (Round to the nearest dollar.)