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Exam 8: Long-Term Assets

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Question 101

True/False

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When a company constructs a building,the cost of the building includes materials and labor,design fees,building permits,and insurance during construction.

A) True
B) False

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Question 102

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Both the straight-line depreciation method and the double-declining-balance depreciation method:

A) Produce the same total depreciation over an asset's useful life.
B) Produce the same depreciation expense each year.
C) Produce the same book value each year.
D) Are acceptable for tax purposes only.
E) Are the only acceptable methods of depreciation for financial reporting.

F) A) and C)
G) B) and C)

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Question 103

Multiple Choice

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January 2010,Giant Green Company pays $3,000,000 for a tract of land with two buildings on it.It plans to demolish Building 1 and build a new store in its place.Building 2 will be a company office; it is appraised at $742,000,with a useful life of 25 years and a $75,000 salvage value.A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $400,500 that are expected to last another 18 years with no salvage value.Without the buildings and improvements,the tract of land is valued at $2,020,600.Giant Green also incurs the following additional costs: $\begin{array}{llr} \text { Cost to demolish Building 1} &\$400,200\\ \text { Cost of additional land grading} &200,000\\ \text { Cost to construct new building (Building 3) , having a useful life of 25 } &\\ \text { years and a \$ 322,000 salvage value } &3,851,000\\ \text { Cost of new land improvements (Land Improvements 2) near Building 2 } &\\ \text { having a 20 -vear useful life and no salvage value } &122,000\\\end{array}$ What is the amount that should be recorded for land?

A company exchanged its used machine for a new machine.The old machine cost $70,000 and the new one had a cash price of $95,000.The company had taken $60,000 depreciation on the old machine and was allowed a $2,500 trade-in allowance and the balance of $92,500 was paid in cash.What gain or loss should be recorded on the exchange?

Land improvements are:

A new machine is expected to produce 600,000 units of product during its eight-year useful life.The machine cost $1,800,000 cash and it is estimated to have a $60,000 salvage value.If the machine produces 70,000 units of product during its first year,what is the depreciation for the first year as calculated by the units-of-production method?

A depreciable asset currently has a $40,100 book value.The company owning the asset uses straight-line depreciation.They paid $70,000 for this asset and consider it to have a $1,000 salvage value with a 12-year useful life.How long has the company owned this asset?

A company purchased mining property for $1,560,000.The property was estimated to contain 13,000,000 tons of ore.In the current year,the company removed and sold 247,000 tons of ore.Calculate the depletion expense for the current year.

A patent:

Amortization is the process of allocating the cost of natural resources to periods when they are consumed.

On September 1,2010,Drill Far Company purchased a tract of land for $2,300,000.The land is estimated to have a salvage value or $50,000,a useful life of four years,and contain an estimated 4,234,000 tons of iron ore.The company also purchased equipment to use in the extraction process that cost $220,450.The company plans to abandon the equipment when the ore is completely mined.During 2010,the company extracted and sold 1.25 million tons of ore.What is the depletion expense recorded for 2010?

A company purchased mining property containing 7,350,000 tons of ore for $1,837,500.In 2012 it mined and sold 857,000 tons of ore and in 2013 it mined and sold 943,000 tons of ore.Calculate the depletion expense for 2012 and 2013.What was the book value of the property at the end of 2013?

The cost principle requires that an asset be recorded at the cash or cash equivalent amount that was given in exchange for it.

A company purchased equipment valued at $825,000 on January 1.The equipment has an estimated useful life of seven years or 6 million units.The equipment is estimated to have a salvage value of $35,000.Assuming the straight-line method of depreciation,what is the book value at the end of the second year?

Compare the different depreciation methods (straight-line,units-of-production,and double-declining-balance)with respect to the computation of depreciation per period and the total depreciation over the life of the asset.

Natural resources are assets that include standing timber,mineral deposits,oil wells,and gas fields.

Many companies use accelerated depreciation in computing taxable income because:

The three main factors in computing depreciation are: (1)____________________,(2)____________________,(3)___________________.

The useful life of a plant asset is:

On December 31,2013,Stable Company sold a piece of equipment that was purchased on January 1,2009.The equipment originally cost $820,000 and has an estimated useful life of eight years.Stable uses the double-declining-balance method of depreciation.What is the gain/loss on the sale of equipment that Stable will recognize if the equipment was sold for $230,000?