Question 1

Accumulated Depletion is the estimated cost of natural resources removed from their natural setting to date.

Accepted Answer

Accumulated Depletion represents the total amount of natural resources that have been extracted and sold from a site, reflecting the reduction in the asset's value over time due to the extraction of the resources.

Question 2

On January 1, 2019, Upward Company purchased a copy machine. The machine costs $320,000, its estimated useful life is 8 years, and its expected salvage value is $20,000.
What is the depreciation expense for 2020 using double-declining-balance method?
A) $80,000
B) $60,000
C) $52,500
D) $35,000

Accepted Answer

Double-declining-balance rate = 1/8 × 2 = 25%.
Depreciation expense of year 2019 is $320,000 × 25% = $80,000
Depreciation expense of year 2020 is $240,000 × 25% = $60,000

Question 3

On January 1, 2019, Seek Company purchased a copy machine. The machine costs $960,000, its estimated useful life is 8 years, and its expected salvage value is $60,000.
What is the depreciation expense for 2020 using double-declining-balance method?
A) $240,000
B) $180,000
C) $157,500
D) $105,000

Accepted Answer

Double-declining-balance rate = 1/8 × 2 = 25%.
Depreciation expense of year 2019 is $960,000 × 25% = $240,000
Depreciation expense of year 2020 is $720,000 × 25% = $180,000

Question 4

Saul Company purchased a tractor at a cost of $180,000. The tractor has an estimated salvage value of $20,000 and an estimated life of 8 years, or 12,000 hours of operation. The tractor was purchased on January 1, 2019 and was used 2,400 hours in 2019 and 2,200 hours in 2020.
What method of depreciation will produce the maximum depreciation expense in 2019?
A) Straight-line
B) Units-of-production
C) Double-declining-balance
D) All methods produce the same expense in 2019

Accepted Answer

Straight-line: ($180,000 - $20,000) / 8 = $20,000 per year
Double-declining balance: $180,000 × (1/8 × 2) = $45,000 for 2019
Units of production: ($180,000 - $20,000) × (2,400 hours / 12,000 hours) = $32,000 for 2019

Question 5

Saul Company purchased a tractor at a cost of $120,000. The tractor has an estimated salvage value of $20,000 and an estimated life of 8 years, or 12,000 hours of operation. The tractor was purchased on January 1, 2019 and was used 2,400 hours in 2019 and 2,100 hours in 2020.
What method of depreciation will produce the maximum depreciation expense in 2020?
A) Straight-line
B) Units-of-production
C) Double-declining-balance
D) All methods produce the same expense in 2020

Accepted Answer

Straight-Line: ($120,000 - $20,000) / 8 = $12,500 per year
Double-declining balance: $120,000 × (1/8 × 2) = $30,000 for 2019
($120,000 - $30,000) × 1/4 = $22,500 for 2020
Units of production: ($120,000 - 20,000) × (2,100 hours / 12,000 hours) = $17,500 for 2020

Question 6

Saul Company purchased a tractor at a cost of $180,000. The tractor has an estimated salvage value of $20,000 and an estimated life of 8 years, or 12,000 hours of operation. The tractor was purchased on January 1, 2019 and was used 2,400 hours in 2019 and 2,200 hours in 2020.
What amount will Saul Company report as depreciation expense over the 8-year life of the equipment using straight-line depreciation?
A) $ 25,000
B) $ 40,000
C) $180,000
D) $160,000

Accepted Answer

$180,000 - $20,000 = $160,000

Question 7

Spencer Company purchased a tractor at a cost of $540,000. The tractor has an estimated salvage value of $60,000 and an estimated life of 8 years, or 12,000 hours of operation. The tractor was purchased on January 1, 2019 and was used 2,400 hours in 2019 and 2,200 hours in 2020.
What amount will Spencer Company report as depreciation expense over the 8-year life of the equipment using straight-line depreciation?
A) $ 75,000
B) $120,000
C) $540,000
D) $480,000

Accepted Answer

$540,000 - $60,000 = $480,000

Question 8

Saul Company purchased a tractor at a cost of $120,000 on January 1, 2019. The tractor has an estimated salvage value of $20,000 and an estimated life of 8 years.
If Saul uses the straight-line method, what is the book value at January 1, 2023?
A) $70,000
B) $50,000
C) $82,500
D) None of the above

Accepted Answer

Accumulated depreciation = [($120,000 - $20,000) / 8] × 4 = $50,000
Book value = $120,000 - $50,000 = $70,000

Question 9

Spencer Company purchased a tractor at a cost of $360,000 on January 1, 2019. The tractor has an estimated salvage value of $60,000 and an estimated life of 8 years.
If Spencer uses the straight-line method, what is the book value at January 1, 2023?
A) $210,000
B) $150,000
C) $247,500
D) None of the above

Accepted Answer

Accumulated depreciation = [($360,000 - $60,000) / 8] × 4 = $150,000
Book value = $360,000 - $150,000 = $210,000

Question 10

Steve Company purchased a tractor at a cost of $180,000. The tractor has an estimated salvage value of $20,000 and an estimated life of 8 years, or 10,000 hours of operation. The tractor was purchased on January 1, 2019 and was used 2,400 hours in 2019 and 2,100 hours in 2020. On January 1, 2021, the company decided to sell the tractor for $70,000. Steve uses the units-of-production method to account for the depreciation on the tractor.
Based on this information, the entry to record the sale of the tractor will show:
A) No gain or loss on the sale
B) A loss of $38,000
C) A loss of $70,000
D) A gain of $70,000

Accepted Answer

Rate = ($180,000 - $20,000) / 10,000 hours = $16 per hour
Expense for 2 years = $16 x 4,500 hours = $72,000
Gain (loss) on sale = Selling price - Book value = $70,000 - ($180,000 - $72,000) = $38,000 loss

Question 11

Berning Company purchased a tractor at a cost of $540,000. The tractor has an estimated salvage value of $60,000 and an estimated life of 8 years, or 10,000 hours of operation. The tractor was purchased on January 1, 2019 and was used 2,400 hours in 2019 and 2,100 hours in 2020. On January 1, 2021, the company decided to sell the tractor for $210,000. Berning uses the units-of-production method to account for the depreciation on the tractor.
Based on this information, the entry to record the sale of the tractor will show:
A) No gain or loss on the sale
B) A loss of $114,000
C) A loss of $150,000
D) A gain of $150,000

Accepted Answer

Rate = ($540,000 - $60,000) / 10,000 hours = $48 per hour
Expense for 2 years = $48 x 4,500 hours = $216,000
Gain (loss) on sale = Selling price - Book value = $210,000 - ($540,000 - $216,000) = $114,000 loss

Question 12

Oaks Company purchased a tractor at a cost of $180,000 on January 1, 2019. The tractor has an estimated salvage value of $20,000 and an estimated life of 8 years. At the end of two years of service, Oaks reevaluated the tractor's useful life. Management extended the useful life an additional four years, but estimated that the tractor would have no residual value at the end of this time.
If the company uses straight-line depreciation, what amount would be recorded as the depreciation expense each year, beginning with the third year?
A) $ 7,500
B) $18,750
C) $15,834
D) $14,000

Accepted Answer

$180,000 - ($20,000* x 2) = $140,000
Revised remaining life = 8 - 2 + 4 = 10 years
$140,000 / 10 years = $14,000
*($180,000 - $20,000) / 8

Question 13

Natalie Company purchased a tractor at a cost of $540,000 on January 1, 2019. The tractor has an estimated salvage value of $60,000 and an estimated life of 8 years. At the end of two years of service, Natalie reevaluated the tractor's useful life. Management extended the useful life an additional four years, but estimated that the tractor would have no residual value at the end of this time.
If the company uses straight-line depreciation, what amount would be recorded as the depreciation expense each year, beginning with the third year?
A) $22,500
B) $56,250
C) $47,502
D) $42,000

Accepted Answer

$540,000 - ($60,000 x 2) = $420,000
Revised remaining life = 8 - 2 + 4 = 10 years
$420,000 / 10 years = $42,000

Question 14

Oval Company acquired a machine that involved the following expenditures and related factors:
 The initial accounting cost of the machine should be:
A) $87,010
B) $84,460
C) $89,860
D) $85,600

Accepted Answer

$76,000 + $2,850 - $1,140 + $1,350 + $1,800 + $2,700 + $900 = $84,460

Question 15

Triangle Company acquired a machine that involved the following expenditures and related factors:
 The initial accounting cost of the machine should be:
A) $203,220
B) $253,380
C) $180,180
D) $196,380

Accepted Answer

$228,000 + $8,550 - $3,420 + $4,050 + $5,400 + $8,100 + $2,700 = $253,380

Question 16

Peak, Inc. acquired a machine that involved the following expenditures and related factors:
 The initial accounting cost of the machine should be:
A) $34,576
B) $28,016
C) $32,016
D) $31,616

Accepted Answer

$27,200 + $1,760 - $544 + $960 + $800 + $1,200 + $640 = $32,016

Question 17

Summit, Inc. acquired a machine that involved the following expenditures and related factors:
 The initial accounting cost of the machine should be:
A) $102,528
B) $ 84,480
C) $ 96,048
D) $ 94,848

Accepted Answer

$81,600 + $5,280 - $1,632 + $2,880 + $2,400 + $3,600 + $1,920 = $96,048

Question 18

A land site for a new office building is purchased for $360,000 by Texas Coast Company. A barn on the site will be razed at a net cost of $34,000.
The $34,000 razing expenditure is properly debited to:
A) Office Building
B) Land
C) Razing Expense
D) Land Improvements

Accepted Answer

A payment to remove a barn increases the land's acquisition cost, because removing the barn prepares the land for its intended use. The cost should be capitalized or added to the cost of the land.

Question 19

Minerva Company purchased land and a building for a total price of $5,200,000. Individually, the land was appraised at $840,000 and the building at $4,760,000.
How much should be recorded as the acquisition cost of each asset?
A) Land, $840,000; building, $4,760,000
B) Land, $840,000; building, $4,360,000
C) Land, $780,000; building, $4,420,000
D) Land, $800,000; building, $4,400,000

Accepted Answer

Total appraised value: $840,000 + $4,760,000 = $5,600,000
Land: ($840,000 / $5,600,000) x ($5,200,000) = $780,000
Building: ($4,760,000 / $5,600,000) x ($5,200,000) = $4,420,000

Question 20

Nair Company purchased land and a building for a total price of $15,600,000. Individually, the land was appraised at $2,520,000 and the building at $14,280,000.
How much should be recorded as the acquisition cost of each asset?
A) Land, $2,520,000; building, $14,280,000
B) Land, $2,520,000; building, $13,080,000
C) Land, $2,340,000; building, $13,260,000
D) Land, $2,400,000; building, $13,200,000

Accepted Answer

Total appraised value: $2,520,000 + $14,280,000 = $16,800,000
Land: ($2,520,000 / $16,800,000) x ($15,600,000) = $2,340,000
Building: ($14,280,000 / $16,800,000) x ($15,600,000) = $13,260,000

Quiz 9: Accounting for Long-Lived and Intangible Assets

Accumulated Depletion is the estimated cost of natural resources removed from their natural setting to date.

On January 1, 2019, Upward Company purchased a copy machine. The machine costs $320,000, its estimated useful life is 8 years, and its expected salvage value is $20,000. What is the depreciation expense for 2020 using double-declining-balance method?

On January 1, 2019, Seek Company purchased a copy machine. The machine costs $960,000, its estimated useful life is 8 years, and its expected salvage value is $60,000. What is the depreciation expense for 2020 using double-declining-balance method?

Saul Company purchased a tractor at a cost of $120,000 on January 1, 2019. The tractor has an estimated salvage value of $20,000 and an estimated life of 8 years. If Saul uses the straight-line method, what is the book value at January 1, 2023?

Spencer Company purchased a tractor at a cost of $360,000 on January 1, 2019. The tractor has an estimated salvage value of $60,000 and an estimated life of 8 years. If Spencer uses the straight-line method, what is the book value at January 1, 2023?

Oval Company acquired a machine that involved the following expenditures and related factors: The initial accounting cost of the machine should be:

Triangle Company acquired a machine that involved the following expenditures and related factors: The initial accounting cost of the machine should be:

Peak, Inc. acquired a machine that involved the following expenditures and related factors: The initial accounting cost of the machine should be:

Summit, Inc. acquired a machine that involved the following expenditures and related factors: The initial accounting cost of the machine should be:

A land site for a new office building is purchased for $360,000 by Texas Coast Company. A barn on the site will be razed at a net cost of $34,000. The $34,000 razing expenditure is properly debited to:

Minerva Company purchased land and a building for a total price of $5,200,000. Individually, the land was appraised at $840,000 and the building at $4,760,000. How much should be recorded as the acquisition cost of each asset?

Nair Company purchased land and a building for a total price of $15,600,000. Individually, the land was appraised at $2,520,000 and the building at $14,280,000. How much should be recorded as the acquisition cost of each asset?