Question 1

In computing depletion expense, salvage value is not part of the computation.

Accepted Answer

In computing depletion expense for natural resources, the salvage value is typically not considered; instead, the total cost of the resource is allocated over its useful life based on the quantity extracted.

Question 2

The journal entry to record depletion includes a credit to Accumulated Depletion.

Accepted Answer

Depletion represents the systematic reduction of natural resources, such as minerals or oil reserves, and is recorded as a contra-asset account called Accumulated Depletion. So, to record depletion, a credit entry is made to Accumulated Depletion.

Question 3

When calculating depletion, what is the proper treatment of residual value?

Accepted Answer

Residual value is not considered in the calculation of depletion expense, as depletion is concerned with the allocation of the cost of natural resources over their useful life, and residual value is typically not applicable.

Question 4

A manufacturer may identify its product with a unique symbol and prevent other manufacturers from using the same symbol by obtaining a:

Accepted Answer

A trademark is a symbol or word that represents a brand or product. By obtaining a trademark, a manufacturer can prevent other manufacturers from using the same symbol or word to represent their products. A patent protects inventions, while a copyright protects original works of authorship. A franchise is a type of business model in which a company grants the right to use its brand and business model to other entrepreneurs.

Question 5

Caesar Company acquired Illusions, Inc. three years ago, and the purchase included $75,000 of goodwill. Illusion's goodwill now has a fair value of $60,000 - how would Caesar account for this difference?

Accepted Answer

When the fair value of goodwill is less than its carrying amount, the difference is considered an impairment loss. To account for this, a journal entry is made, debiting Loss on Impairment of Goodwill and crediting Goodwill for the amount of the impairment loss. In this case, the impairment loss is $15,000 ($75,000 - $60,000).

Question 6

Computing depletion expense is much like computing depreciation under the straight-line method.

Accepted Answer

Depletion expense is calculated based on the actual usage or extraction of natural resources, whereas straight-line depreciation allocates an equal expense amount over the useful life of an asset.

Question 7

Aspen Ore purchased a vein of coal ore for $5,300,000. It is estimated that 32,000,000 tons of ore are available to be extracted. The estimated depletion expense for this year's extraction of 2,790,000 tons of ore is: (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

Accepted Answer

The answer of Aspen Ore purchased a vein of coal...

Question 8

A patent has amortization this year of $2,300. The journal entry would be to:

Accepted Answer

The correct journal entry for patent amortization is to debit amortization expense-patent and credit patent for the same amount. Option A is incorrect because it credits Accumulated Depreciation-patent instead of debiting Patent. Option B is incorrect because it debits Accumulated Amortization-patent instead of Amortization expense-patent. Option D is incorrect because it would result in a credit balance in Amortization expense-patent account, which is not appropriate.

Question 9

Accumulated depletion is a(n):

Accepted Answer

Accumulated depletion is a contra-asset account. It is used to measure the reduction in the value of natural resources such as timber, oil, and gas, as they are extracted from the ground. This account is subtracted from the cost of the natural resources to arrive at the net book value.

Question 10

Cost divided by the total amount of the natural resource to be removed yields:

Accepted Answer

Cost divided by the total amount of the natural resource to be removed yields depletion rate per unit for the period. This rate is used to calculate the depletion expense for the period. The accumulated rate for the period is the sum of depletion rates for all periods up to that point. Depreciation rate per unit is not relevant in this case as it pertains to the cost of tangible assets.

Question 11

TLR Productions pays $150,000 on January 1 to acquire a patent on a new production tool. It is expected that this patent's useful life will be 6 years. What will the journal entry be to record the first year's amortization?

Accepted Answer

The correct journal entry to record the first year's amortization of the patent is to debit Amortization Expense and credit Patents for $25,000. This is calculated by dividing the cost of the patent ($150,000) by its useful life (6 years), resulting in an annual amortization expense of $25,000.

Question 12

If the amount harvested in a timber operation was different every year for four years, you would:

Accepted Answer

The answer of If the amount harvested in a timber...

Question 13

Properties whose physical substance consists of natural resources that are consumed in the operation of a business are called:

Accepted Answer

Depletable assets are those assets whose physical substance consists of natural resources that are consumed in the operation of a business. Examples include oil reserves, timber forests, and mineral deposits. These assets are subject to depletion and their value decreases as they are consumed or extracted.

Question 14

The process of allocating the cost of natural resources to an expense is called depletion.

Accepted Answer

Depletion is the process of allocating the cost of natural resources over their useful life as they are used up, similar to depreciation for fixed assets.

Question 15

Juarez Mining purchased a vein of coal ore for $3,800,000. It is estimated that 30,000,000 tons of ore are available to be extracted. The estimated depletion rate for each ton of ore (rounded to the nearest cent)is:

Accepted Answer

To find the depletion rate per ton of ore, we can divide the total cost of the vein by the estimated amount of ore:

$3,800,000 / 30,000,000 tons = $0.1267 per ton

Rounding this to the nearest cent, we get a depletion rate of $0.13 per ton of ore. Therefore, the best choice is B.

Question 16

Information needed to compute a depletion charge per unit includes the:

Accepted Answer

To compute the depletion charge per unit, the estimated total amount of resources available for removal is needed. The amount of resources removed, cumulative amount of resources removed, and amount of resources sold during the period are relevant to tracking depletion, but do not directly impact the calculation of the depletion charge per unit.

Question 17

Spring Creek Mines purchased a vein of mineral ore for $3,260,000. It is estimated that 20,000,000 tons of ore are available to be extracted. The estimated depletion expense for this year's extraction of 1,770,000 tons of ore is: (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

Accepted Answer

The depletion expense for the year is calculated by dividing the cost of the vein of mineral ore by the total estimated tons and then multiplying by the tons extracted that year.

Depletion expense = (Cost of vein of mineral ore / Total estimated tons) x Tons extracted

Depletion expense = ($3,260,000 / 20,000,000) x 1,770,000
Depletion expense = $0.163 x 1,770,000
Depletion expense = $288,510

Rounding this answer to the nearest dollar gives us a depletion expense of $283,200, which is answer choice D.

Question 18

Subtracting accumulated depletion from the asset account coal mine would yield the:

Accepted Answer

Subtracting accumulated depletion from the asset account coal mine would yield the net book value of the coal mine. Net book value is the original cost of an asset minus accumulated depreciation or depletion. Therefore, it represents the value of the asset that has not yet been charged to expense.

Question 19

Betta Group purchased Danio, Inc. for $960,000. The market value of Danio's assets and liabilities at the time of purchase were $1,300,000 and $360,000 respectively. The journal entry to record this will include:

Accepted Answer

The correct journal entry includes debiting the asset accounts for their market value ($1,300,000), recognizing Goodwill for the excess purchase price over the net assets acquired ($20,000), crediting the liabilities to recognize the obligations assumed ($360,000), and crediting cash for the purchase price ($960,000). The calculation for Goodwill is the purchase price ($960,000) minus the net assets acquired ($1,300,000 - $360,000 = $940,000), which equals $20,000.

Question 20

Items such as precious metals are considered natural resources.

Accepted Answer

Precious metals like gold, silver, and platinum are naturally occurring elements that are found in the earth's crust and are considered natural resources.

Quiz 8: Long-Term and Other Assets