Question 1

A company purchased a mineral deposit for $800,000.It expects this property to produce 1,200,000 tons of ore and to have a salvage value of $50,000.In the current year,the company mined and sold 90,000 tons of ore.Its depletion expense for the current period is equal to:
A)$15,000
B)$60,000
C)$150,000
D)$56,250
E)$139,500

Accepted Answer

Depletion expense = (Cost of resource - Salvage value) / Total estimated units * Current period units
Depletion expense = ($800,000 - $50,000) / 1,200,000 * 90,000
Depletion expense = $56,250

Question 2

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 a plant asset 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 the same as depletion.

Accepted Answer

Amortization refers specifically to the allocation of the cost of an intangible asset over its useful life.

Question 3

Endor Fishing Company exchanged an old boat for a new one.The old boat had a cost of $260,000 and accumulated depreciation of $200,000.The new boat had an invoice price of $400,000.Endor received a trade in allowance of $100,000 on the old boat,which meant they paid $300,000 in addition to the old boat to acquire the new boat.What amount of gain or loss should be recorded on this exchange? (The exchange lacks commercial substance.)
A)$0 gain or loss
B)$40,000 gain
C)$40,000 loss
D)$60,000 loss
E)$100,000 loss

Accepted Answer

Since the exchange lacks commercial substance, no gain or loss is recognized. The book value of the old boat is $60,000 ($260,000 cost - $200,000 accumulated depreciation), and the trade-in allowance is $100,000, but the lack of commercial substance means the gain is deferred.

Question 4

A company purchased equipment valued at $200,000 on January 1.The equipment has an estimated useful life of six years or 5 million units.The equipment is estimated to have a salvage value of $13,400.
-Assuming the double declining balance method of depreciation,what is the depreciation for the second year? 
A) $41,445.91
B)$62,137.80
C)$31,100.00
D)$55,980.00
E)$44,442.22

Accepted Answer

The answer of A company purchased equipment valued at $200,000...

Question 5

A company sold equipment for $50,000.Total accumulated depreciation at the time of the sale was $20,000 and a loss of $10,000 was recognized on the sale.What was the original cost of the asset?
A)$60,000
B)$80,000
C)$70,000
D)$40,000
E)$30,000

Accepted Answer

The original cost of the asset can be calculated by adding the sale price, the loss, and the accumulated depreciation: $50,000 (sale price) + $10,000 (loss) + $20,000 (accumulated depreciation) = $80,000.

Question 6

A company bought a new display case for $42,000 and was given a trade-in of $2,000 on an old display case,so the company paid $40,000 cash with the trade-in.The old case had an original cost of $37,000 and accumulated depreciation of $34,000.The company should record the value of new display case at:
A)$2,000
B)$3,000
C)$40,000
D)$42,000
E)$43,000

Accepted Answer

The company paid $42,000 for the new display case, but received a $2,000 trade-in allowance for the old case. Therefore, the net cost of the new display case is $40,000 ($42,000 - $2,000). The cost of the old display case is irrelevant to the value of the new display case. Therefore, the value of the new display case should be recorded at $42,000, the net cost paid by the company.

Question 7

A leasehold:
A)Is a short-term rental agreement.
B)Is the same as a patent.
C)Are the rights granted to the lessee by the lessor of a lease.
D)Is recorded as rent expense.
E)Is an investment asset.

Accepted Answer

A leasehold is the legal rights granted to the lessee (tenant) by the lessor (landlord) of a lease. It is not a short-term rental agreement, a patent, rent expense, or an investment asset.

Question 8

A company purchased a tract of land for its natural resources at a cost of $1,500,000.It expects to mine 2,000,000 tons of ore from this land.The salvage value of the land is expected to be $250,000.The depletion expense per ton of ore is:
A)$0.75
B)$0.625
C)$0.875
D)$6.00
E)$8.00

Accepted Answer

Depletion expense per ton of ore = (Cost of land - Salvage value of land) / Total amount of ore expected to be mined

Depletion expense per ton of ore = ($1,500,000 - $250,000) / 2,000,000 tons
Depletion expense per ton of ore = $1,250,000 / 2,000,000 tons
Depletion expense per ton of ore = $0.625
Therefore, the correct answer is choice B.

Question 9

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.What is the recorded value of the new truck?
A)$15,000
B)$75,000
C)$113,000
D)$125,000
E)$128,000

Accepted Answer

The answer of Huffington Company traded in an old delivery...

Question 10

A patent:
A)Gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 70 years.
B)Is an exclusive right granted to its owner to manufacture and sell a device or to use a process for 20 years.
C)Is an exclusive right granted to its owner to manufacture and sell a device or to use a process for 50 years.
D)Is the amount by which the value of a company exceeds the fair market value of a company's net assets if purchased separately.
E)Gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 17 years.

Accepted Answer

A patent is an exclusive right granted to its owner to manufacture and sell a device or to use a process for 20 years. This is typically granted by a government agency to the inventor in order to promote innovation and invention.

Question 11

Assume BizChair.com sold a used conveyor belt for $172,000 cash.If accumulated depreciation on the sale date was $58,311 and a gain of $6,721 was recognized on the sale,what was the original cost of the asset?
A)$223,590
B)$216,869
C)$165,279
D)$65,032
E)$113,689

Accepted Answer

The original cost of the asset can be calculated by adding the sale price, accumulated depreciation, and subtracting the gain: $172,000 + $58,311 - $6,721 = $223,590.

Question 12

A company purchased a machine valued at $66,000.It traded in an old (similar) machine for a $9,000 trade-in allowance,meaning the company paid $57,000 cash with the trade-in.The old machine cost $44,000 and had accumulated depreciation of $36,000.What is the recorded value of the new machine?
A)$8,000
B)$9,000
C)$57,000
D)$65,000
E)$66,000

Accepted Answer

The recorded value of the new machine is the amount that the company actually paid in cash. 
$57,000 (cash paid with trade-in) + $9,000 (trade-in allowance) = $66,000. 
Therefore, the recorded value of the new machine is $66,000.

Question 13

A company purchased equipment valued at $200,000 on January 1.The equipment has an estimated useful life of six years or 5 million units.The equipment is estimated to have a salvage value of $13,400.
-Assuming the units of production method of depreciation,what is the annual depreciation for the second year if 1.5 million units were produced? 
A) $41,445.91
B)$62,137.80
C)$31,100.00
D)$55,980.00
E)$33,333.00

Accepted Answer

The answer of A company purchased equipment valued at $200,000...

Question 14

A company purchased equipment valued at $200,000 on January 1.The equipment has an estimated useful life of six years or 5 million units.The equipment is estimated to have a salvage value of $13,400.
-Assuming the straight-line method of depreciation,what is the depreciation for the second year? 
A) $41,445.91
B)$62,137.80
C)$31,100.00
D)$55,980.00
E)$33,333.00

Accepted Answer

To calculate the depreciation for the second year, we need to first calculate the annual depreciation. Using the straight-line method, we can calculate the annual depreciation as follows:

Annual depreciation = (Cost - Salvage value) / Useful life
Annual depreciation = ($200,000 - $13,400) / 6
Annual depreciation = $31,100

Now, to calculate the depreciation for the second year, we simply multiply the annual depreciation by the fraction of the useful life that has elapsed. At the end of the second year, 2/6 or 1/3 of the useful life has elapsed. Therefore, the depreciation for the second year is:

Depreciation for second year = Annual depreciation x Fraction of useful life elapsed
Depreciation for second year = $31,100 x 1/3
Depreciation for second year = $10,366.67

Therefore, the correct answer is C) $31,100.00.

Question 15

A company had a bulldozer destroyed by fire.The bulldozer originally cost $125,000.The accumulated depreciation on it was $60,000.The proceeds from the insurance company were $90,000.The company should recognize:
A)A loss of $25,000.
B)A gain of $25,000.
C)A loss of $65,000.
D)A gain of $65,000.
E)A gain of $90,000.

Accepted Answer

The book value of the bulldozer is $125,000 - $60,000 = $65,000. The insurance proceeds are $90,000. Therefore, the gain is $90,000 - $65,000 = $25,000.

Question 16

Depletion:
A)Is the process of allocating the cost of natural resources to periods in which they are consumed.
B)Is also called depreciation.
C)Is also called amortization.
D)Is an unrealized expense reported in equity.
E)Is the process of allocating the cost of intangibles to periods in which they are used.

Accepted Answer

Depletion specifically refers to the process of allocating the cost of natural resources (such as oil or timber) to the periods in which they are consumed or used up. Depreciation and amortization refer to similar processes for allocating the cost of other types of assets to periods in which they are used or consumed, but depletion specifically applies to natural resources. Option D is incorrect as there is no unrealized expense reported in equity. Option E is incorrect as intangibles are usually amortized instead of depleted.

Question 17

Blanket Corporation sold equipment for cash of $40,500.Accumulated depreciation on the sale date amounted to $34,000 and a loss of $1,800 was recognized on the sale. What was the original cost of the asset?
A)$72,300
B)$75,900
C)$4,700
D)$76,300
E)$42,300

Accepted Answer

Original cost of asset = cash received from sale + accumulated depreciation + loss recognized 
Original cost of asset = $40,500 + $34,000 + $1,800 
Original cost of asset = $76,300

Question 18

A copyright:
A)Gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 70 years.
B)Is an exclusive right granted to its owner to manufacture and sell a device or to use a process for 17 years.
C)Is an exclusive right granted to its owner to manufacture and sell a device or to use a process for 50 years.
D)Is the amount by which the value of a company exceeds the fair market value of a company's net assets if purchased separately.
E)Gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 17 years.

Accepted Answer

A copyright gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 70 years.

Question 19

A company purchased equipment valued at $200,000 on January 1.The equipment has an estimated useful life of six years or 5 million units.The equipment is estimated to have a salvage value of $13,400.
-Assuming the straight-line method of depreciation,what is the book value at the end of the second year? 
A) $166,667.00
B)$88,977.80
C)$96,416.25
D)$168,900.00
E)$137,800.00

Accepted Answer

The annual depreciation expense using the straight-line method is ($200,000 - $13,400) / 6 = $31,100. After two years, the accumulated depreciation is $31,100 * 2 = $62,200. The book value at the end of the second year is $200,000 - $62,200 = $137,800.

Question 20

A company's old machine,which cost $40,000 and had accumulated depreciation of $30,000,was traded in on a new machine of like purpose having an estimated 20-year life with an invoice price of $50,000.The company also paid $43,000 cash,along with its old machine to acquire the new machine.The value of new machine should be recorded at:
A)$40,000
B)$47,000
C)$50,000
D)$53,000
E)$10,000

Accepted Answer

The company traded in their old machine with a cost of $40,000 and accumulated depreciation of $30,000, meaning the net book value of the old machine is $10,000 ($40,000 - $30,000). The company also paid $43,000 in cash to acquire the new machine with an invoice price of $50,000. Therefore, the total cost of the new machine is $93,000 ($50,000 + $43,000). The company should record the value of the new machine at its total cost of $93,000.

Quiz 8: Reporting and Analyzing Long-Term Assets

A company purchased a mineral deposit for $800,000.It expects this property to produce 1,200,000 tons of ore and to have a salvage value of $50,000.In the current year,the company mined and sold 90,000 tons of ore.Its depletion expense for the current period is equal to:

Amortization:

A company sold equipment for $50,000.Total accumulated depreciation at the time of the sale was $20,000 and a loss of $10,000 was recognized on the sale.What was the original cost of the asset?

A leasehold:

A company purchased a tract of land for its natural resources at a cost of $1,500,000.It expects to mine 2,000,000 tons of ore from this land.The salvage value of the land is expected to be $250,000.The depletion expense per ton of ore is:

A patent:

Assume BizChair.com sold a used conveyor belt for $172,000 cash.If accumulated depreciation on the sale date was $58,311 and a gain of $6,721 was recognized on the sale,what was the original cost of the asset?

A company purchased a machine valued at $66,000.It traded in an old (similar) machine for a $9,000 trade-in allowance,meaning the company paid $57,000 cash with the trade-in.The old machine cost $44,000 and had accumulated depreciation of $36,000.What is the recorded value of the new machine?

A company purchased equipment valued at $200,000 on January 1.The equipment has an estimated useful life of six years or 5 million units.The equipment is estimated to have a salvage value of $13,400. -Assuming the straight-line method of depreciation,what is the depreciation for the second year?

A company had a bulldozer destroyed by fire.The bulldozer originally cost $125,000.The accumulated depreciation on it was $60,000.The proceeds from the insurance company were $90,000.The company should recognize:

Depletion:

Blanket Corporation sold equipment for cash of $40,500.Accumulated depreciation on the sale date amounted to $34,000 and a loss of $1,800 was recognized on the sale. What was the original cost of the asset?

A copyright: