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Exam 11: Depreciation, Depletion, Impairment, and Disposal

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Question 21

Multiple Choice

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Depletion of a natural resource is typically recorded as a

A) debit to an inventory account
B) debit to Depletion Expense
C) debit to Cost of Goods Sold
D) debit to Accumulated Depletion

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

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Question 22

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Under the MACRS principles, the residual value of the asset is not included in the computation of depreciation.

A) True
B) False

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Question 23

Multiple Choice

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Which one of the following statements is true?

Which one of the following statements is not a disclosure requirement for depreciation?

Information concerning a mine is as follows: Required: Compute the total cost of inventory at the end of the year.

Assets sold on or before the 15th are not considered owned for the month based on the nearest whole month convention.

Tangible assets that are attached to natural resources are depreciated over

On January 2, 2016, Karen's Culinary Delights purchased a piece of equipment for $42,000 with a useful life of seven years and a residual value of $6,000. If Karen's used the sum-of-the-years'-digits method with the half-year convention, depreciation expense for 2016 was

What was the cost of the asset?

Green Vegetable Mfg. Co. purchased equipment on January 1, 2016, at a cost of $800,000. The equipment is expected to have a service life of ten years, or 40,000 hours, and a residual value of $70,000. During 2016, the equipment was operated for 5,000 hours, and during 2017, it was operated for 7,000 hours. Required: Fill in the blanks below with the depreciation expense to the nearest whole dollar) for this machine in 2016 and 2017 under each of the following depreciation methods:

The Antarctica Co. acquired a machine on January 1, 2016, at a cost of $60,000. The machine is expected to have a ten-year life and a residual value of $5,000. The estimated lifetime output from the machine is expected to be 55,000 units. Under which of the following depreciation methods would the depreciation charge be the greatest in 2016 if 9,100 units were produced during the year?

On June 15, 2015, Jupiter Corporation purchased a machine for $50,000 with an estimated useful life of six years and a residual value of $8,000. The company uses units-of-production depreciation and estimates the machine will last 300,000 units. The machine made 15,000 units in 2015 and 45,000 units in 2016. The accumulated depreciation balance on December 31, 2016, after the adjusting entries have been posted should be

Choice Mining Co. paid $9,000 for some land that was expected to have 50,000 units of a natural resource on it. Development costs amounted to $520. It was expected that the land would require $780 of reclamation costs after production. In the first year of mining, 5,000 units of the natural resource were mined. At the beginning of the second year, it was estimated that only 40,000 units of the natural resource remained and estimated reclamation costs should be increased to $960. In the second year, 8,000 units were mined. What was the amount of depletion for the second year?

Which one of the following statements is true?

A company must include impairment disclosures in the year of an impairment write-down and the subsequent three years following to ensure comparability in reporting.

What costs can be capitalized as part of the cost of a natural resource?

On January 1, 2016, Bauer Co. had purchased a machine for $60,000. This machine had an estimated service life of eight years and an estimated residual value of $4,000. It has been depreciated by the straight-line method since acquisition. On January 1, 2019, it was determined that the remaining service life for this machine was nine years and that the residual value would be $3,000. Required: Record the depreciation expense for 2019.

On January 1, 2016, Lefty, Inc. purchased a machine for $6,000. The estimated life and residual value were five years and $150, respectively. The machine will produce approximately 80,000 units over its life. In 2016 and 2017, the machine produced 10,000 and 15,000 units, respectively. In 2017, Lefty recorded $1,440 of depreciation expense. The depreciation method in use was the

What type of cost allocation must a company use?

Many companies that use the declining-balance method of depreciation switch to the straight-line method at some point in the life of a depreciable asset. When does that switch normally occur?