Concept of depreciation of plant assets through short questions.
1. For income statement purposes, depreciation is a variable expense if the depreciation method used is
a.units-of-production.
b.straight-line.
c.sum-of-the-years'-digits.
d.declining-balance.
2. Each year a company has been investing an increasingly greater amount in machinery. Since there is a large number of small items with relatively similar useful lives, the c company has been applying straight-line depreciation at a uniform rate to the machinery as a group. The ratio of this group's total accumulated depreciation to the total cost of the machinery has been steadily increasing and now stands at .75 to 1.00. The most likely explanation for this increasing ratio is the
a.company should have been using one of the accelerated methods or depreciation.
b.estimated average life of the machinery isles than the actual average useful life.
c.estimated average life of the machinery is greater than the actual average useful life.
d.company has been retiring fully depreciated machinery that should have remained in service.
3. white Printing Company determines that a printing press used in its operations has suffered a permanent impairment in value because of technological changes. An entry to record the impairment should
a.recognize an extraordinary loss for the period.
b.include a credit to the equipment accumulated depreciation account.
c.include a credit to the equipment account.
d.not be made if the equipment is still being used.
4. Depletion expense
a.is usually of cost of goods sold.
b.includes tangible equipment costs in the depletion base.
c.excludes intangible development costs from the depletion base.
d.excludes restoration costs from the depletion base.
5. The asset turnover ratio is computed by dividing
a.net income by ending total assets.
b.net income average total assets.
c.net sales by ending total assets.
d.net sales by average total assets.
6. On July 1, 2007, Hernandez Corporation purchased factory equipment for $300,000. Salvage value was estimated to be $8,000. The equipment will be depreciated over ten years using the double-declining balance method. Counting the year of acquisition as one-half year, Hernandez should record depreciation expense for 2008 on this equipment of
a.$60,000.
b..$54,000.
c.$52,560.
d.$48,000.
7. A plant asset has a cost of $48,000 and a salvage value of $12,000. The asset has a three-year life. If depreciation in the third year amounted to $6,000, which depreciation method was used?
a.Straight-line
b.Declining-balance
c.Sum-of-the-years'-digits
d.Cannot tell from information given
8. On January 1, 2007, the Accumulated Depreciation Machinery account of a particular company showed a balance of $740,000. At the end of 2007, after the adjusting entries were posted, it showed a balance of $790,000. During 2007, one of the machines which cost $250,000 was sold for $121,000 cash. This resulted in a loss of $8,000. Assuming that no other assets were disposed of during the year, how much was depreciation expense for 2007?
a.$171,000
b.$187,000
c.$50,000
d.$121,000
9. Mintz Company acquired a tract of land containing an extractable natural resource. Mintz is required by the purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be 4,000,000 tons, and that the land will have a value of $1,000,000 after restoration. Relevant cost information follows:
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Land
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$7,000,000
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Estimated restoration costs
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$1,500,000
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If Mintz maintains no inventories of extracted material, what should be the charge to depletion expense per ton of extracted material?
a.$2.13
b.$1.88
c.$1.76
d.$1.50
10. Net income is understated if, in the first year, estimated salvage value is excluded from the depreciation computation when using the
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Straight-line Method
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Production or Use Method
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a.
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Yes
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No
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b.
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Yes
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Yes
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c.
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No
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No
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d.
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No
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Yes
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