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Exam 11: Depreciation, Impairments, and Depletion

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Question 41

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Nolan Company acquired a tract of land containing an extractable natural resource.Nolan 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 5,000,000 tons, and that the land will have a value of $1,000,000 after restoration.Relevant cost information follows: $\begin{array}{lr}\text { Land } & \$ 7,000,000 \\\text { Estimated restoration costs } & 1,500,000\end{array}$ If Nolan maintains no inventories of extracted material, what should be the charge to depletion expense per ton of extracted material?

A) $1.70
B) $1.50
C) $1.40
D) $1.20

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

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Question 42

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Composite or group depreciation is a depreciation system whereby

A) the years of useful life of the various assets in the group are added together and the total divided by the number of items.
B) the cost of individual units within an asset group is charged to expense in the year a unit is retired from service.
C) a straight-line rate is computed by dividing the total of the annual depreciation expense for all assets in the group by the total cost of the assets.
D) the original cost of all items in a given group or class of assets is retained in the asset account and the cost of replace?ments is charged to expense when they are acquired.

E) None of the above
F) B) and D)

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Question 43

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An accelerated depreciation method is appropriate when the asset's economic usefulness is the same each year.

Intangible development costs and restoration costs are part of the depletion base.

On July 1, 2006, Rodriguez Corporation purchased factory equipment for $150,000.Salvage value was estimated to be $4,000.The equipment will be depreciated over ten years using the double-declining balance method.Counting the year of acquisition as one-half year, Gonzalez should record depreciation expense for 2007 on this equipment of

Use the following information for questions A schedule of machinery owned by Dougan Co.is presented below: $\begin{array} { l c c c } & \text { Total Cost } & \begin{array} { c } \text { Estimated } \\\text { Salvage Value }\end{array} & \begin{array} { c } \text { Estimated } \\\text { Life in Years }\end{array} \\\hline \text { Machine A } & \$ 320,000 & \$ 20,000 & 12 \\\text { Machine C } & 390,000 & 30,000 & 10 \\\text { Machine M } & 225,000 & 15,000 & 6\end{array}$ Dougan computes depreciation by the composite method. -The composite rate of depreciation (in percent) for these assets is

Use the following information for questions A schedule of machinery owned by Dougan Co.is presented below: $\begin{array} { l c c c } & \text { Total Cost } & \begin{array} { c } \text { Estimated } \\\text { Salvage Value }\end{array} & \begin{array} { c } \text { Estimated } \\\text { Life in Years }\end{array} \\\hline \text { Machine A } & \$ 320,000 & \$ 20,000 & 12 \\\text { Machine C } & 390,000 & 30,000 & 10 \\\text { Machine M } & 225,000 & 15,000 & 6\end{array}$ Dougan computes depreciation by the composite method. -The composite life (in years) for these assets is

Pine Company purchased a depreciable asset for $360,000.The estimated salvage value is $24,000, and the estimated useful life is 8 years.The double-declining balance method will be used for depreciation.What is the depreciation expense for the second year on this asset?

Vinson Co.purchased machinery that was installed and ready for use on January 3, 2006, at a total cost of $69,000.Salvage value was estimated at $9,000.The machinery will be depreciated over five years using the double-declining balance method.For the year 2007, Vinson should record depreciation expense on this machinery of

Which of the following disclosures is not required in the financial statements regarding depreciation?

In January, 2007, Miley Corporation purchased a mineral mine for $3,400,000 with removable ore estimated by geological surveys at 2,000,000 tons.The property has an estimated value of $200,000 after the ore has been extracted.The company incurred $1,000,000 of development costs preparing the mine for production.During 2007, 500,000 tons were removed and 400,000 tons were sold.What is the amount of depletion that Miley should expense for 2007?

Gant Co.purchased a machine on July 1, 2007, for $400,000.The machine has an estimated useful life of five years and a salvage value of $80,000.The machine is being depreciated from the date of acquisition by the 150% declining-balance method.For the year ended December 31, 2007, Gant should record depreciation expense on this machine of

The declining-balance method does not deduct the salvage value in computing the depreciation base.

In 1999, Morton Company purchased a tract of land as a possible future plant site.In January, 2007, valuable sulphur deposits were discovered on adjoining property and Morton Company immediately began explorations on its property.In December, 2007, after incurring $400,000 in exploration costs, which were accumulated in an expense account, Morton discovered sulphur deposits appraised at $2,250,000 more than the value of the land.To record the discovery of the deposits, Morton should

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 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

Bigbie Company purchased a depreciable asset for $600,000.The estimated salvage value is $30,000, and the estimated useful life is 10,000 hours.Bigbie used the asset for 1,100 hours in the current year.The activity method will be used for depreciation.What is the depreciation expense on this asset?

A plant asset has a cost of $24,000 and a salvage value of $6,000.The asset has a three-year life.If depreciation in the third year amounted to $3,000, which depreciation method was used?

On January 3, 2006, Lopez Co.purchased machinery.The machinery has an estimated useful life of eight years and an estimated salvage value of $30,000.The depreciation applicable to this machinery was $65,000 for 2008, computed by the sum-of-the-years'-digits method.The acquisition cost of the machinery was

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

Use of the sum-of-the-years'-digits method