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Exam 11: Depreciation, Impairments, and Depletion

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Question 1

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The asset turnover ratio is computed by dividing

A) net income by ending total assets.
B) net income by average total assets.
C) net sales by ending total assets.
D) net sales by average total assets.

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Question 2

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Which of following is not a similarity in the accounting treatment for depreciation and cost depletion?

A) The estimated life is based on economic or productive life.
B) Assets subject to either are reported in the same classification on the balance sheet.
C) The rates may be changed upon revision of the estimated productive life used in the original rate computations.
D) Both depreciation and depletion are based on time.

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Question 3

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True or False. Place T or F in front of each of the following statements. 1. The straight-line method of depreciation is based on the assumption that depreciation expense can be regarded as a constant function of time. 2. Plant assets should be written down (below cost) when their market value has declined temporarily. 3. The accounting profession has developed specifically recommended procedures for recording appraisal increases with respect to plant assets. 4. An asset's cost minus its accumulated depreciation equals its book value. 5. The sum-of-the-years'-digits method of depreciation ignores salvage value in the computation of an asset's depreciable base. 6. When using the double-declining balance method of determining depreciation, a declining percentage is applied to a constant book value. 7. The book value of plant assets initially declines more rapidly under decreasing-charge methods than under the straight-line method. 8. Accounting depreciation is computed by determining the change in the market value of a company's plant assets during the period under review. 9. The methods of depreciation based upon output assume that obsolescence will not significantly affect the usefulness of the asset. 10. The revision of prior periods' depreciation estimates would be disclosed on the retained earnings statement.

Which of the following most accurately reflects the concept of depreciation as used in accounting?

Use the following information for questions 84 and 85: A schedule of machinery owned by Micco Co. is presented below: Micco computes depreciation by the composite method. -The composite life (in years) for these assets is

Questions 7 through 10 are based on the following information: Tongas Company applies revaluation accounting to plant assets with a carrying value of $1,600,000, a useful life of 4 years, and no salvage value. Depreciation is calculated on the straight-line basis. At the end of year 1, independent appraisers determine that the asset has a fair value of $1,500,000. -The journal entry to adjust the plant assets to fair value and record revaluation surplus in year one will include a

Depletion expense

The asset turnover ratio is computed by dividing net sales by ending total assets.

Jasmine Company purchased a depreciable asset for $225,000. The estimated salvage value is $15,000, 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?

Use the following information for questions 111 and 112: For 2014, Hammer Company reports beginning of the year total assets of $900,000, end of the year total assets of $1,100,000, net sales of $750,000, and net income of $150,000. -The rate of return on assets for Hammer in 2014 is

Calculate depreciation. A machine cost $800,000 on April 1, 2014. Its estimated salvage value is $80,000 and its expected life is eight years. Instructions (1) Calculate the depreciation expense (to the nearest dollar) by each of the following methods, showing the figures used. (a) Straight-line for 2014 (b) Double-declining balance for 2015 (c) Sum-of-the-years'-digits for 2015 (2) Which method would result in the smallest income amount for 2015?

Depletion allowance. Mareos Company purchased for $3,800,000 a mine estimated to contain 2 million tons of ore. When the ore is completely extracted, it was expected that the land would be worth $200,000. A building and equipment costing $1,800,000 were constructed on the mine site, and they will be completely used up and have no salvage value when the ore is exhausted. During the first year, 750,000 tons of ore were mined, and $300,000 was spent for labor and other operating costs. Instructions Compute the total cost per ton of ore mined in the first year. (Show computations by setting up a schedule giving cost per ton.)

The accounting exchanges of nonmonetary assets has recently converged between IFRS and U.S. GAAP, per SFAS No. 153, now requires

In 2014, Bargain shop reported net income of $5.7 billion, net sales of $175 billion, and average total assets of $70 billion. What is Bargain shop's return on total assets?

In January, 2014, Yager Corporation purchased a mineral mine for $5,100,000 with removable ore estimated by geological surveys at 2,000,000 tons. The property has an estimated value of $300,000 after the ore has been extracted. The company incurred $1,500,000 of development costs preparing the mine for production. During 2014, 500,000 tons were removed and 400,000 tons were sold. What is the amount of depletion that Yager should expense for 2014?

Barton Corporation acquires a coal mine at a cost of $1,800,000. Intangible development costs total $360,000. After extraction has occurred, Barton must restore the property (estimated fair value of the obligation is $180,000) , after which it can be sold for $210,000. Barton estimates that 5,000 tons of coal can be extracted. What is the amount of depletion per ton?

Asset depreciation and disposition. Answer each of the following questions. 1. A plant asset purchased for $400,000 has an estimated life of 10 years and a residual value of $20,000. Depreciation for the second year of use, determined by the declining-balance method at twice the straight-line rate is $_____________. 2. A plant asset purchased for $330,000 at the beginning of the year has an estimated life of 5 years and a residual value of $30,000. Depreciation for the third year, determined by the sum-of-the-years'-digits method is $______________. 3. A plant asset with a cost of $320,000 and accumulated depreciation of $90,000, is given together with cash of $120,000 in exchange for a similar asset worth $330,000. The gain or loss recognized on the disposal (indicate by "G" or "L") is $______________. 4. A plant asset with a cost of $270,000, estimated life of 5 years, and residual value of $45,000, is depreciated by the straight-line method. This asset is sold for $190,000 at the end of the second year of use. The gain or loss on the disposal (indicate by "G" or "L") is $___________.

Slotkin Products purchased a machine for $39,000 on July 1, 2014. The company intends to depreciate it over 8 years using the double-declining balance method. Salvage value is $3,000. Depreciation for 2014 is

Klayton Corporation purchased factory equipment that was installed and put into service January 2, 2014, at a total cost of $120,000. Salvage value was estimated at $8,000. The equipment is being depreciated over four years using the double-declining balance method. For the year 2015, Klayton should record depreciation expense on this equipment of

If an industrial firm uses the units-of-production method for computing depreciation on its only plant asset, factory machinery, the credit to accumulated depreciation from period to period during the life of the firm will