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Exam 9: Long Term Assets

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Question 121

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Lester Company purchases a piece of equipment on Jan.2,2010,for $30,000.The equipment has an estimated life of eight years or 50,000 units of production and an estimated residual value of $3,000.Lester uses a calendar fiscal year.The entry to record the amount of depreciation for 2010,using the production method and assuming that 6,100 units are produced,is:

A)
$\begin{array}{ll}\text { Equipment } &3,050\\\text { Accumulated Depreciation- Equipment }&&3,050\end{array}$

B)
$\begin{array} { l } \text { Equipment }&3,172 \\\quad \text { Accumulated Depreciation- Equipment }&&3,172\end{array}$
C)
$\begin{array}{llr} \text { Depreciation Expense — Equipment} &3,294\\ \text {Accumulated Depreciation- Equipment } &&3,294\\\end{array}$

D)
$\begin{array}{llr} \text {Depreciation Expense - Equipment } &3,416\\ \text {Accumulated Depreciation- Equipment } & &3,416\\\end{array}$

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Question 122

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Leroy Mining Company purchased land containing an estimated 10,000,000 tons of ore for a cost of $750,000.The land without the ore is estimated to be worth $150,000 (the residual value).Buildings costing $45,000 with an estimated useful life of 20 years were erected on the site.Because of the remote location,the buildings have no residual value.The company expects that all the usable ore can be mined in eight years.During its first year of operation,the company mined 1,000,000 tons of ore and at the end of the year had an inventory of 200,000 tons.Determine the following amounts for the first year: (a)depletion charge per ton; (b)depletion expense for year; and (c)depreciation expense for buildings,using the straight-line method.(Show your work.)

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a.$0.06 ($750,000 - $150,000 =...

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Question 123

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On January 2,2009,Vanowen Company purchased a machine for $80,000.The machine has an eight-year estimated useful life and an $8,000 estimated residual value.In addition,the company expects to use the machine 200,000 hours.Assuming that the machine was used 35,000 hours during 2010,complete the following chart.If a figure cannot be determined,indicate so by placing an X in the box.(Show your work.) $\begin{array} { | l | c | l } \hline \text { Method } & \text { Depreciation Expense for } & \text { Carryine Value at 12/31/0 } \\& 2010 \\\hline \text { Straight-line } && \\\hline \text { Praduction } & & \\\hline \text { Dauble-decliring-balance } & & \\\hline\end{array}$

Gain on Sale of Machinery is recorded as a debit.

A capital expenditure will result in an immediate increase in long-term assets.

Prior to the disposal of an asset,depreciation should be updated and recorded.

For tax purposes,small businesses may expense the first $250,000 of equipment expenditures,rather than having to allocate their costs over a number of years.

The cost of a sewage system should be included in the Land Improvements account.

A patent has a legal life of 20 years.

Ordinary repairs usually result in a debit to the appropriate Accumulated Depreciation account.

Speedy Printing purchased a new printing press for $80,000.It depreciates the press over a five-year period,using the double-declining-balance method of depreciation.If the press has an $8,000 estimated residual value,calculate depreciation expense for each of the five years.(Show your work.)

A leasehold is a payment

Office furniture was purchased for $45,000.It had an estimated residual value of $7,000 and has a current carrying value of $9,000.Its depreciable cost must have been

The cost of assets acquired for a lump sum should be allocated equally among the acquired assets.

A building not currently used because economic conditions have limited a company's expansion is classified properly as property,plant,and equipment.

When depreciation rates are revised,all years of the asset's life are affected by the new computation.

A company purchases an oil well for $200,000.It estimates that the well contains 250,000 barrels,has a ten-year life,and has no salvage value.If the company extracts and sells 20,000 barrels during the first year,how much depletion expense should be recorded?

When an asset is sold,a gain is calculated as the difference between

On January 1,a machine with a useful life of five years and a residual value of $3,000 is purchased for $15,000.What is the depreciation expense in year 3 under straight-line depreciation?

Indicate whether each of the following expenditures should be classified as land (L),land improvements (LI),buildings (B),equipment (E),or none of these (X). _____ 1.Parking lots _____ 2.Electricity used by equipment _____ 3.Sewage system cost _____ 4.Interest on building construction loan _____ 5.Cost of trial runs for equipment _____ 6.Drainage costs _____ 7.Cost to install equipment _____ 8.Fences _____ 9.Unpaid (past)property taxes assumed _____ 10.Cost of tearing down a building when land and a building on it are purchased