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Exam 10: Plant Assets, Natural Resources, and Intangibles

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Question 31

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Iverycoast Inc. purchased a van on January 1, 2015, for $800,000. Estimated life of the van was 5 years, and its estimated residual value was $90,000. Iverycoast uses the straight-line method of depreciation. At the beginning of 2017, the company revised the total estimated life of the asset from 5 years to 4 years. The estimated residual value remained the same as estimated earlier. Calculate the depreciation expense for the year 2017.

A) $220,000
B) $213,000
C) $145,000
D) $250,000

E) All of the above
F) C) and D)

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Question 32

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Iverycoast Inc. purchased a van on January 1, 2015, for $800,000. Estimated life of the van was 5 years, and its estimated residual value was $90,000. Iverycoast uses the straight-line method of depreciation. Give journal entry to record depreciation expense for 2015 on the van.

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Question 33

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Nobells Corp. has acquired land and paid an amount of $500 as brokerage to acquire the land. However, the company's accountant has recorded the $500 as a revenue expenditure. What is the effect of this error?

The cost principle requires a business to record the assets acquired or services received at their actual cost.

An exchange transaction is said to have commercial substance if the future cash flows change as a result of the transaction.

An intangible asset is an asset with no physical form that is valuable because of the special rights it carries.

Redribbon Gallery reported the following assets on its December 31, 2015 balance sheet: $\begin{array} { l c c } \text { Cash } & \text { Dec. } 31,2015 & \text { Dec. 31, 2014 } \\\text { Accounts Receivable } & \$ 35,000 & \$ 28,000 \\\text { Merchandise Inventory } & 97,000 & 85,000 \\\text { Prepaid Expenses } & 80,000 & 6 2 , 0 0 0 \\\text { Property, plant, and equipment, net } & 29,000 & 20,000 \\\text { rent } & 3 0 , 0 0 0& 18,000\end{array}$ If the net sales for the year amounted to $850,000, what is the asset turnover ratio for 2015?

The units-of-production method allocates varying amounts of depreciation each year based on the usage of the asset.

An asset is said to be obsolete when a newer asset can perform the job more efficiently.

Water Drops Company purchased equipment for $200,000. The company recorded total depreciation of $140,000 on the equipment. On January 1, 2015, the company traded in the equipment for new equipment, paying $150,000 cash. The fair market value of the new equipment is $250,000. Journalize Water Drop Company's exchange of equipment. Assume the exchange had commercial substance.

The asset turnover ratio is calculated by dividing cost of goods sold by average total assets.

Depreciation is the allocation of a plant asset's cost to expense over the useful life of the asset.

Fred owns a delivery truck. Which of the following costs, associated with the truck, will be capitalized and depreciated?

Repair work that generates a capital expenditure because it extends the plant asset's useful life past the normal expected life is known as an extraordinary repair.

On January 1, 2015, WAX-D purchased equipment for $60,000 cash, expecting it to remain in service for six years. The company depreciates the equipment on a straight-line basis, with $2,000 residual value. On April 30, 2017, the company sold the equipment for $48,000 cash. Record both depreciation expense for 2017 and sale of the equipment on April 30, 2017. (Do not round your intermediate calculations).

On January 1, 2015, Zade Manufacturing Company purchased a machine for $40,000,000. The company expects to use the machine for 24,000 hours over the next 6 years. The estimated sale value of the machine at the end of the sixth year is $40,000. The company used the machine for 3,600 hours in 2015 and 5,000 hours in 2016. Calculate depreciation expense for the year 2016 if the company uses the units-of-production method of depreciation.

On July 31, 2015, Colorful Printers purchased a printer for $50,000. It expects the printer to last for four years and have a residual value of $2,000. Compute the depreciation expense on the printer for the year ended December 31, 2015, using the straight-line method.

Server Solutions paid $200,000 to acquire Tabletz Inc., an electronic gadget-advertising website. At the time of the acquisition, Tabletz's balance sheet reported total assets of $200,000 and liabilities of $100,000. The fair market value of Tabletz's assets was $200,000. The fair market value of its liabilities was $100,000. How much goodwill did Server Solutions purchase as part of the acquisition of Tabletz?

A company purchased a computer on July 1, 2015 for $50,000. Estimated useful life of the computer was 5 years and it has no residual value. Which of the following methods should be used to best match its expense against the revenue it produces?

If the sale price of a plant asset is higher than its book value, there will be a loss.