Question 1

A mine is purchased for $4,000,000.There will be a salvage value of $300,000 when the land is restored after mining is completed.The mine has an estimated 250,000 tons of coal.During 2012,there were 35,000 tons of coal removed.What is the depletion expense for 2012?

Accepted Answer

A) Calculations: [($4,000,000 - $300,000)/250,000] × 35,000 = $518,000

Question 2

Accumulated depletion is a contra asset account.

Accepted Answer

Accumulated depletion is a contra asset account because it reduces the value of the related asset. As natural resources are depleted, the accumulated depletion account will increase, lowering the value of the asset on the balance sheet.

Question 3

Navajo Mining Company purchased a mine in 2013 for $3,400,000.It was estimated that the mine contained 200,000 tons of ore and that the mine would be worthless after all of the ore was extracted.The company extracted 25,000 tons of ore in 2013 and 30,000 tons of ore in 2014. What is the book value of the mine at the end of 2014?

Accepted Answer

D) Calculations: $3,400,000 - [($3,400,000/200,000) × 55,000] = $2,465,000

Question 4

Which would NOT be accounted for by the depletion method?

Accepted Answer

Land is not a natural resource that can be depleted over time; therefore, it cannot be accounted for using the depletion method.

Question 5

Which of the following is the expense resulting from a decline in the utility of a natural resource?

Accepted Answer

Depletion refers to the expense resulting from the decline in the utility of a natural resource, such as oil or timber, due to its usage or extraction. Amortization refers to the accounting for the gradual reduction of the value of intangible assets, such as patents or trademarks. Depreciation refers to the accounting for the gradual reduction in the value of tangible assets, such as buildings or equipment. Obsolescence refers to the expense resulting from the decline in the utility of an asset due to technological advancements, changing consumer preferences, or other reasons.

Question 6

Tangible assets are assets with no physical form that have value because of the special rights they carry.

Accepted Answer

Tangible assets are assets that have physical form, such as property, equipment, and inventory. Intangible assets, on the other hand, have no physical form but have value because of the special rights they carry, such as patents, trademarks, copyrights, and goodwill.

Question 7

Navajo Mining Company purchased a mine in 2013 for $3,400,000.It was estimated that the mine contained 200,000 tons of ore and that the mine would be worthless after all of the ore was extracted.The company extracted 25,000 tons of ore in 2013 and 30,000 tons of ore in 2014. What is depletion expense for 2014?

Accepted Answer

D) Calculations: ($3,400,000/200,000) × 30,000 = $510,000

Question 8

Which of the following items should be depleted?

Accepted Answer

Natural resources should be depleted because they are physical assets that have a limited useful life and their value decreases over time as they are used up or consumed. Intangible property does not have a physical substance, so it is not subject to depletion. Land is considered to have an indefinite useful life and is not depleted. Tangible property, plant and equipment (other than land) should be depreciated rather than depleted.

Question 9

On September 1,2013,Algernon Company sold a truck for $15,000 cash.The truck was originally purchased for $40,000,had an estimated salvage value of $4,000 and an estimated life of 6 years.Algernon had recorded depreciation of $30,000 through the end of 2012 using the straight-line method.
First,Algernon had to update the depreciation prior to sale.Then Algernon recorded the sale transaction.Please provide the journal entry to record the sale.
 $$\begin{array} { | l | l | l | } 
\hline \quad\quad& \quad&\quad \
\hline & & \\hline & & \\hline & & \
\hline
\end{array}$$

Accepted Answer

The answer of On September 1,2013,Algernon Company sold a truck...

Question 10

Which of the following accounting methods is the method used to compute depletion?

Accepted Answer

Units-of-production method is used to compute depletion. This method considers the actual usage of the asset in terms of units produced or consumed, and charges a proportionate amount of cost as depletion. It is commonly used in the natural resource industry, where the depletion of resources such as oil, gas, minerals etc. need to be accounted for.

Question 11

Depletion is the word we use instead of depreciation to attach to recovering the cost of natural resources.

Accepted Answer

Depletion is the correct term for recovering the cost of natural resources, while depreciation is used for the recovery of costs of tangible assets such as buildings and equipment.

Question 12

Navajo Mining Company purchased a mine in 2013 for $3,400,000.It was estimated that the mine contained 200,000 tons of ore and that the mine would be worthless after all of the ore was extracted.The company extracted 25,000 tons of ore in 2013 and 30,000 tons of ore in 2014. What is depletion expense for 2013?

Accepted Answer

D) Calculations: ($3,400,000/200,000) × 25,000 = $425,000

Question 13

Barnhart's sold a piece of restaurant equipment to another restaurant on July 1,2013 for $1,100 cash.The equipment originally cost $12,000,had an estimated life of 20 years,and an estimated salvage value of $2,000.Barnhart's had recorded total depreciation of $9,000 through the end of 2012,using the straight-line method.Barnhart's had to update the depreciation of the asset before recording the sale.After the depreciation was updated,Barnhart's then recorded the sale transaction.Please provide the entry for the sale transaction.
 $$\begin{array} { | l | l | l | } 
\hline \quad\quad& \quad&\quad \
\hline & & \\hline & & \\hline & & \
\hline
\end{array}$$

Accepted Answer

The answer of Barnhart's sold a piece of restaurant equipment...

Question 14

Job Sales traded a truck they had owned for some time,in an even like-kind exchange for another truck.The original truck had been purchased by Job for $36,000,and had accumulated depreciation of $30,000 at the time it was exchanged.The truck Job received in exchange was valued at $8,000.Please provide the journal entry for this transaction.
 $$\begin{array} { | l | l | l | } 
\hline \quad\quad& \quad&\quad \
\hline & & \\hline & & \\hline & & \
\hline
\end{array}$$

Accepted Answer

The answer of Job Sales traded a truck they had...

Question 15

Barnhart's sold a piece of restaurant equipment to another restaurant on July 1,2013 for $1,100 cash.The equipment originally cost $12,000,had an estimated life of 20 years,and an estimated salvage value
of $2,000.Barnhart's had recorded total depreciation of $9,000 through the end of 2012,using the straight-line method.Barnhart's had to update the depreciation of the asset before recording the sale.Please provide the entry to record that additional depreciation.
 $$\begin{array} { | l | l | l | } 
\hline \quad\quad& \quad&\quad \
\hline & & \
\hline
\end{array}$$

Accepted Answer

The answer of Barnhart's sold a piece of restaurant equipment...

Question 16

A mine is purchased for $4,000,000.There will be a salvage value of $300,000 when the land is restored after mining is completed.The mine has an estimated 250,000 tons of coal.What is the depletable cost per ton of coal?

Accepted Answer

C) Calculations: ($4,000,000 - $300,000)/250,000 = $14,80

Question 17

Depletion would be used for all of the following EXCEPT:

Accepted Answer

Depletion is a method of accounting used to allocate the cost of a natural resource over the period in which it is extracted or consumed. It is commonly used for depletable natural resources such as timber, oil and gas, and minerals. Merchandise inventory is not a depletable resource, and therefore, depletion is not used for it.

Question 18

Goodwill is NOT amortized-but evaluated-each year for a decline in value.

Accepted Answer

Goodwill is considered an indefinite-lived intangible asset and is not amortized. However, it is evaluated each year for a decline in value through a goodwill impairment test. If the fair value of the reporting unit to which the goodwill belongs falls below its carrying value, an impairment loss must be recognized.

Question 19

Depletion expense is the portion of a natural resource's cost used up in a particular period.

Accepted Answer

Depletion expense is the cost allocated to the using up of natural resources such as oil, gas, minerals or timber. It is recognized as an expense as the resources are depleted or used up over time.

Question 20

Job Sales traded a truck they had owned for some time plus $2,500 cash in exchange for another truck of similar type.The original truck had been purchased by Job for $36,000,and had accumulated depreciation of $30,000 at the time it was exchanged.Please provide the journal entry for this transaction.
 $$\begin{array} { | l | l | l | } 
\hline \quad\quad& \quad&\quad \
\hline & & \\hline & & \\hline & & \
\hline
\end{array}$$

Accepted Answer