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Exam 10: Long-Term Assets

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Question 51

True/False

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A company purchased an item of property, plant and equipment for $45,000. The asset has an estimated residual value of $6,000, and an estimated useful life of 10 years.

A) True
B) False

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Question 52

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Amortization:

A) Is the systematic allocation of the cost of an intangible asset to expense over its estimated useful life.
B) Is the process of allocating to expense the cost of an item of property, plant and equipment to the accounting periods benefiting from its use.
C) Is the process of allocating the cost of natural resources to periods when they are consumed.
D) Is an accelerated form of expensing an asset's cost.
E) Is also called depletion.

F) A) and D)
G) None of the above

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Question 53

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Total asset turnover is calculated by dividing:

A company purchased land on which to construct a new building for a cost of $250,000. Additional costs incurred were: What total dollar amount should be charged to Land and what amount should be charged to the new Building?

If land is purchased as a building site, the cost of removing existing structures is not charged to the Land account.

What is depreciation of property, plant and equipment? What are the factors to consider in computing depreciation?

Cowers reported net sales of $2,463 million and average total assets of $1,546 million. Its total asset turnover equals 1.59.

Big River Rafting pays $310,000 plus $15,000 in closing costs to buy out a competitor. The real estate consists of land appraised at $105,000, a building appraised at $210,000, and equipment appraised at $35,000. Compute the cost that should be allocated to the building.

A machine originally had an estimated useful life of 5 years, but after 3 complete years, it was decided that the original estimate of useful life should have been 10 years. At that point the remaining cost to be depreciated should be allocated over the remaining:

Expenditures extending the asset's useful life beyond its original estimate are capital expenditures because they benefit future periods.

Huffington Company traded in an old delivery truck for a new one. The old truck had a cost of $75,000 and accumulated depreciation of $60,000. The new truck had an invoice price of $125,000. Huffington was given a $12,000 trade-in allowance on the old truck, which meant they paid $113,000 in addition to the old truck to acquire the new truck. If this transaction has commercial substance, what is the recorded value of the new truck?

Abers reported average total assets of $10,965 million and net sales of $11,430 million. Its total asset turnover equals .96.

On April 1 of the current year, a company disposed of an automobile that had cost $20,000. The auto had a residual value of $2,000, and a useful life of 5 years. The accounting records showed accumulated depreciation for this automobile of $8,100 as of April 1 of the current year. The asset was discarded after an accident, and $10,500 cash was received from an insurance claim. Prepare the journal entry to record the disposal of the automobile.

Monte Ray leases office space for $7,000 per month. On January 3, Monte Ray incurs $75,000 to improve his leased office space. These improvements are expected to yield benefits for 8 years. Ray has 6 years remaining on his lease. What journal entry would be needed to record the expense for the first year related to the improvements?

The purchase of a property that included land, building, and improvements is called a lump-sum purchase.

A company discarded a display case originally purchased for $8,000. The accumulated depreciation was $7,200. The company should recognize a(an) :

The useful life of an item of property, plant and equipment is:

Total depreciation expense over an asset's useful life will be identical under all methods of depreciation.

Depreciation is the process of allocating the cost of an item of property, plant and equipment to expense in the accounting periods benefiting from its use.

Big River Rafting pays $310,000 plus $15,000 in closing costs to buy out a competitor. The real estate consists of land appraised at $105,000, a building appraised at $210,000, and equipment appraised at $35,000. Compute the cost that should be allocated to the land.