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Exam 10: Plant Assets, natural Resources, and Intangibles

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Question 71

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A company had net sales of $230,000 for 2013 and $288,000 for 2014.The company's average total assets for 2013 were $150,000 and $180,000 for 2014.Calculate the total asset turnover for each year and comment on the company's efficiency in the use of its assets.

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2013: $230,000/$150,000 = 1.53
2014: $28...

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Question 72

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Capital intensive companies have a relatively large amount invested in assets to generate a given level of sales.

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Question 73

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Describe the accounting for natural resources,including their acquisition,cost allocation,and account titles.

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

When the usefulness of plant assets used to extract natural resources is directly related to the depletion of a natural resource,their costs are depreciated using the units-of-production method of depreciation,as long as the assets will not be moved to and used at another site when extraction of the natural resources is complete.

___________________ are additional costs of plant assets that do not materially increase the asset's life or productive capabilities.

The purchase of a property that included land,building,and related improvements is called a lump-sum purchase.

A company purchased a machine on January 1 of the current year for $750,000.Calculate the annual depreciation expense for each year of the machine's life (estimated at 5 years or 20,000 hours,with a salvage value of $75,000)using each of the below-mentioned methods .During the machine's 5-year life its hourly usage was: 3,000; 4,000; 5,000; 5,000; and 3,000 hours. Double- Units-of- Declining- Year Straight-line Production Balance Year 1 $__________ $___________ $___________ Year 2 __________ ___________ ___________ Year 3 __________ ___________ ___________ Year 4 __________ ___________ ___________ Year 5 __________ ___________ ___________ Total __________ ___________ ___________

On April 1 of the current year,a company disposed of an automobile that had cost $20,000.The auto had a salvage value of $2,000,and a useful life of 5 years.The accounting records showed accumulated depreciation for this automobile of $8,100 as of April 1 of the current year.The asset was discarded after an accident,and $10,500 cash was received from an insurance claim.Prepare the journal entry to record the disposal of the automobile.

The double-declining balance method is applied by (1)computing the asset's straight-line depreciation rate,(2)doubling it,(3)subtracting salvage value from cost,and (4)multiplying the rate times the net value.

Cambria owns equipment that cost $93,500 with accumulated depreciation of $64,000.Cambria asks $35,000 for the equipment but sells the equipment for $33,000.Compute the amount of gain or loss on the sale.

The book value of an asset when using double-declining-balance depreciation is always greater than the book value from using straight-line depreciation,except at the beginning and the end of the asset's useful life,when it is the same.

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.If the transaction has commercial substance,the company should record the new display case at:

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 the company paid $300,000 in addition to the old boat to acquire the new boat.If this transaction lacks commercial substance,what amount of gain or loss should be recorded on this exchange?

Decision makers and other users of financial statements are especially interested in evaluating a company's ability to use its assets in generating sales.

Natural resources:

Explain how to calculate total asset turnover.Describe what it reveals about a company's financial condition,whether a higher or lower ratio is desirable,and how it is best applied for comparative purposes.

Betterments are a type of capital expenditure.

Depreciation is the process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use.

Heidel Co.paid $750,000 cash to buy the plant assets of Rogers Co.that went out of business.An independent appraiser assigned the following values to the assets acquired: Land……………………………………..$522,000 Building…………………………………. 243,000 Equipment………………………………. 135,000 Total…………………………………….. $900,000 Prepare Heidel's journal entry to record the acquisition of these assets.