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. What is the depletable cost per ton of coal?

Accepted Answer

Depletable cost per ton of coal = (Purchase cost - Salvage value) / Estimated tons of coal
Depletable cost per ton of coal = ($4,000,000 - $300,000) / 250,000 tons
Depletable cost per ton of coal = $15.20
Therefore, the depletable cost per ton of coal is $14.80 (rounded to two decimal places). The correct answer is option C.

Question 2

Depletion would be used for all of the following EXCEPT:

Accepted Answer

Depletion is a method used to account for the reduction of natural resources, such as timber, oil and gas, and minerals. It is not used for merchandise inventory, which is a current asset that is expected to be sold within one year and does not involve the depletion of natural resources.

Question 3

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.

Accepted Answer

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

Question 4

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.

Accepted Answer

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

Question 5

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

Accepted Answer

Depletion expense is defined as the cost allocation of natural resources over their useful life. It represents the portion of a natural resource's cost that is used up or extracted during a specific period. Therefore, the statement is true.

Question 6

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 7

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

Accepted Answer

Units-of-production is the method used to compute depletion, as it reflects the gradual usage of natural resources based on the units produced or extracted each period. This method is commonly used in industries such as mining, oil and gas, and timber. Straight-line is a depreciation method, declining-balance is another depreciation method, and First-In, First-Out is an inventory costing method.

Question 8

Which would NOT be accounted for by the depletion method?

Accepted Answer

Land is not a natural resource subject to depletion.

Question 9

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

Accepted Answer

Tangible assets are assets with physical form, such as land, buildings, equipment, and inventory. Intangible assets are assets with no physical form, such as patents, trademarks, copyrights, and goodwill, that have value because of the special rights they carry.

Question 10

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

Accepted Answer

Depletion is the expense resulting from a decline in the utility of a natural resource. This occurs when a natural resource is used up or destroyed through activities such as mining, drilling, or harvesting. Depletion is a cost that needs to be recorded by companies that rely on these resources as it impacts their profitability and sustainability. Choices B, C, and D are all related to the depreciation of tangible assets such as buildings or equipment, rather than natural resources.

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

Question 12

Accumulated depletion is a contra asset account.

Accepted Answer

Accumulated depletion is a contra asset account because it offsets the asset account it is associated with (such as natural resources).

Question 13

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 14

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.

Accepted Answer

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

Question 15

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.

Accepted Answer

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

Question 16

Which of the following items should be depleted?

Accepted Answer

Natural resources should be depleted as they have a finite quantity available and are used up through extraction or consumption. Intangible property is not depleted because it does not physically wear down with use, and it may have an indefinite life. Land is not depleted because it has an unlimited life and its value is not diminished through use. Tangible property, plant, and equipment, other than land, may depreciate in value over time but are not necessarily depleted in the same way as natural resources.

Question 17

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

Depletion rate per unit = (Cost of mine - Salvage value) / Estimated total units of ore
Depletion rate per unit = ($3,400,000 - $0) / 200,000 tons = $17 per ton

Depletion expense for 2014 = Depletion rate per unit x Number of units extracted in 2014
Depletion expense for 2014 = $17 per ton x 30,000 tons = $510,000

Question 18

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.

Accepted Answer

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

Question 19

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

Accepted Answer

Goodwill is evaluated each year to see if there has been any decline in its value, but it is not amortized. Amortization is the process of gradually writing off the cost of a tangible or intangible asset over its useful life. However, goodwill is considered to have an indefinite useful life and is not subject to amortization. Instead, it is tested annually for impairment.

Question 20

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

Quiz 9: Plant Assets and Intangibles

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?

Depletion would be used for all of the following EXCEPT:

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

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

Which would NOT be accounted for by the depletion method?

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

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

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

Accumulated depletion is a contra asset account.

Which of the following items should be depleted?

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

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?