Question 1

Natural resources:

Accepted Answer

Natural resources include trees, mineral deposits, and oil and gas fields and are consumed when used. They are long-term assets, but can also be amortized. Therefore, all of these answers are correct.

Question 2

At the end of the year,SportsWorld completed an asset impairment test and noted that a piece of equipment,with a book value of 12,000,has a recoverable value of $2,000.Calculate the amount of impairment loss on the equipment.

Accepted Answer

The impairment loss is calculated as the difference between the book value of the asset and its recoverable value. Therefore, the impairment loss is $12,000 (book value) - $2,000 (recoverable value) = $10,000.

Question 3

SportsWorld uses straight-line depreciation for a piece of equipment that cost $12,000,had a trade-in value of $2,000,and a five-year service life.At the end of the third year,the trade-in value was revised to $1,200 and the useful life increased to a total of 6 years.Calculate the amount of depreciation expense for each of the remaining years of the asset's useful life.

Accepted Answer

The annual depreciation expense for the equipment can be calculated as follows:

Cost of asset - salvage value
----------------------------------
 useful life in years

For the first three years, the depreciation expense would be:

($12,000 - $2,000) / 5 = $2,000 per year

At the end of year three, the remaining useful life of the asset was three years and the revised salvage value was $1,200. The remaining depreciation expense can be calculated as:

($12,000 - $1,200)/3 = $3,933.33 per year

Therefore, the total depreciation expense for the remaining three years would be:

$3,933.33 x 3 = $11,800

The annual depreciation expense for each of the remaining years would be:

$11,800 / 3 = $3,933.33

Therefore, the answer is D) $1,600.

Question 4

Factor(s)that might limit an intangible asset's useful life include:

Accepted Answer

All of the choices listed (legal, regulatory, contractual, and economic factors) can limit the useful life of an intangible asset. Legal and regulatory factors, such as changes in laws or regulations, could render an intangible asset obsolete or unusable. Contractual factors, such as the expiration of a licensing agreement, could also limit the useful life of an intangible asset. Economic factors, such as changes in market demand or technological advancements, could rapidly reduce the value or usefulness of an intangible asset.

Question 5

Intangible assets do not include:

Accepted Answer

The answer of Intangible assets do not include:
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Question 6

Sports Med sold an X-ray machine that originally cost $100,000 for $60,000.The accumulated depreciation on the machine to the date of sale was $40,000.On this sale,Sports Med should recognize:

Accepted Answer

The book value of the X-ray machine at the time of sale is calculated by subtracting the accumulated depreciation ($40,000) from the original cost ($100,000), resulting in a book value of $60,000. Since the machine was sold for $60,000, which equals its book value, there is no gain or loss recognized on the sale.

Question 7

A machine originally had an estimated service life of 5 years,and after 3 years,it was decided that the original estimate should have been for 10 years.The remaining cost to be depreciated should be allocated over the next:

Accepted Answer

After 3 years, with the revised estimate of a 10-year total service life, there are 7 years remaining (10 total years - 3 years already passed = 7 years). Therefore, the remaining cost to be depreciated should be allocated over the next 7 years.

Question 8

If the book value (or carrying amount)of a PPE item is greater than the amount to be recovered through the asset's use or sale,the asset is said to be:

Accepted Answer

This situation is known as impairment, where the carrying amount of the asset exceeds its recoverable amount (the amount to be recovered through its use or sale). Impairment of PPE must be recognized in the financial statements and the carrying amount of the asset must be reduced to its recoverable amount.

Question 9

An asset can be disposed of by:

Accepted Answer

All the options listed (discarding, selling, exchanging, donating) are valid methods of disposing of an asset.

Question 10

SportsWorld discarded a display case it had purchased for $8,000.$7,200 in accumulated depreciation had been recorded to the date of sale.SportsWorld should recognize a gain or loss on disposal of:

Accepted Answer

The loss on disposal is calculated as the difference between the book value of the asset and its disposal value. The book value is the original cost minus accumulated depreciation ($8,000 - $7,200 = $800). Since the disposal value is $0 (discarded), the loss is $800.

Question 11

Legal permissions for the extraction of oil and gas from the earth are known as:

Accepted Answer

Both drilling rights and leaseholds refer to legal permission for extracting oil and gas from the earth. Drilling rights typically refer to the permission to drill exploration or production wells on a specific piece of land. Leaseholds refer to the contractual agreement between the landowner and the oil/gas company for the right to extract resources from the land. Therefore, choices C and E are the best options.

Question 12

Once the estimated depreciation for an asset is calculated:

Accepted Answer

The estimated depreciation for an asset may be revised based on new information that becomes available. For example, if the asset's expected useful life or salvage value changes, the estimated depreciation would need to be adjusted accordingly. This would result in changes to the depreciation expense recognized in future periods.

Question 13

When originally purchased,a vehicle had cost $23,000,with an estimated residual value of $1,500,and an estimated useful life of 8 years.After 4 years of straight-line depreciation,the estimated useful life was revised from 8 to 6 years,but with zero residual value.The depreciation expense in year 5 should be:

Accepted Answer

The original annual depreciation expense is calculated as:

($23,000 - $1,500) / 8 = $2,437.50 per year

After four years of straight-line depreciation, the accumulated depreciation is:

$2,437.50 x 4 = $9,750

The book value of the vehicle at the end of year 4 is:

$23,000 - $9,750 = $13,250

With the revised estimate of zero residual value and a useful life of 6 years, the remaining depreciable cost is:

$13,250 = remaining depreciable cost / 6
Remaining depreciable cost = $79,500 / 6
Remaining depreciable cost = $13,250

The depreciation expense in year 5 is:

($13,250 - $0) / 6 = $2,208.33

Since the depreciation expense for the first four years was $2,437.50 per year, the total accumulated depreciation at the end of year 5 is:

$9,750 + ($2,437.50 x 4) + $2,208.33 = $19,125.83

Therefore, the depreciation expense in year 5 is:

$19,125.83 - $9,750 = $9,375.83

But since only the depreciation expense for year 5 is asked, the correct answer is:

$9,375.83 - $2,437.50 x 4 = $6,125.00 (option C).

Question 14

Depreciation is usually recorded:

Accepted Answer

Depreciation is usually recorded from the first of the month nearest the actual purchase date. This is known as the first day of the month convention and is the most commonly used method of recording depreciation because it simplifies record keeping and allows for more accurate allocation of the asset's value over its useful life.

Question 15

A machine that cost $40,000 and had accumulated depreciation of $30,000 was traded in on a new machine,which had an estimated 20-year life and a cash price of $50,000.If a $7,000 trade-in allowance was received on the old machine,the new machine should be valued at:

Accepted Answer

The answer of A machine that cost $40,000 and had...

Question 16

Creek Construction purchased a machine for $26,000.It traded in an old machine and received a $4,200 trade-in allowance.The old machine cost $24,000 and had accumulated depreciation of $16,000 to the date of trade-in.At what value should be new asset be recorded?

Accepted Answer

The value of the new asset should be recorded at its original cost, minus any trade-in allowance received. In this case, the original cost is $26,000 and the trade-in allowance is $4,200. Therefore, the value of the new asset should be recorded at $26,000 - $4,200 = $21,800. However, the $16,000 of accumulated depreciation on the old machine should not be taken into consideration when determining the value of the new asset. Therefore, the correct answer is C, $26,000.

Question 17

SportsWorld bought a new display case for $12,000 and was given a trade-in of $2,000 on an old display case.The old case had an original cost of $7,000 and accumulated depreciation of $4,000 to the date of trade-in.SportsWorld should record the new display case at:

Accepted Answer

The answer of SportsWorld bought a new display case for...

Question 18

SportsWorld uses straight-line depreciation for a piece of equipment that cost $12,000,had a salvage value of $2,000,and a five-year service life.At the end of the first year,an impairment loss of $2,000 was recognized on the asset.Calculate the amount of depreciation expense for each of the remaining years of the asset's useful life.

Accepted Answer

The answer of SportsWorld uses straight-line depreciation for a piece...

Question 19

A change in accounting estimate is:

Accepted Answer

A change in accounting estimate is reflected only in current and future financial statements and involves a change in a calculated amount due to new information or better judgment.

Question 20

Creek Construction owned a bulldozer which was destroyed by fire.The bulldozer originally cost $38,000.The accumulated depreciation recorded to the date of loss was $20,000.The proceeds from the insurance company were $20,000.Creek Construction should recognize:

Accepted Answer

The answer of Creek Construction owned a bulldozer which was...

Quiz 10: Property,plant and Equipment,and Intangibles