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Exam 11: Depreciation, Impairments, and Depletion

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Question 1

Multiple Choice

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Dillman Corporation owns machinery with a book value of $190,000.It is estimated that the machinery will generate future cash flows of $175,000.The machinery has a fair value of $140,000.Dillman should recognize a loss on impairment of

A) $ -0-.
B) $15,000.
C) $50,000.
D) $35,000.

E) B) and D)
F) A) and B)

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C

Question 2

Multiple Choice

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The following is true of depreciation accounting.

A) It is not a matter of valuation.
B) It is part of the matching of revenues and expenses.
C) It retains funds by reducing income taxes and dividends.
D) All of these.

E) None of the above
F) B) and C)

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Question 3

True/False

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Gains or losses on disposals of assets do not distort periodic income when the group or composite method is used to compute depreciation.

Dividends representing a return of capital to stockholders are not uncommon among companies which

A depreciable asset has an estimated 15% salvage value.At the end of its estimated useful life, the accumulated depreciation would equal the original cost of the asset under which of the following depreciation methods? $\begin{array}{lll}&\text { Straight-line } & \text { Productive Output }\\\text { a. } & \text { Yes } & \text { No } \\\text { b. } & \text { Yes } & \text { Yes } \\\text { c. } & \text { No } & \text { Yes } \\\text { d. } & \text { No }& \text { No }\end{array}$

On September 19, 2006, Rosen Co.purchased machinery for $190,000.Salvage value was estimated to be $10,000.The machinery will be depreciated over eight years using the sum-of-the-years'-digits method.If depreciation is computed on the basis of the nearest full month, Rosen should record depreciation expense for 2007 on this machinery of

Depreciation accounting

A principal objection to the straight-line method of depreciation is that it

Tolan Resources Company acquired a tract of land containing an extractable natural resource.Tolan is required by its purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource.Geological surveys estimate that the recoverable reserves will be 2,000,000 tons, and that the land will have a value of $1,200,000 after restoration.Relevant cost information follows: $\begin{array}{lr}\text { Land } & \$ 9,000,000 \\\text { Estimated restoration costs } & 1,800,000\end{array}$ If Tolan maintains no inventories of extracted material, what should be the charge to depletion expense per ton of extracted material?

A graph is set up with "yearly depreciation expense" on the vertical axis and "time" on the horizontal axis.Assuming linear relationships, how would the graphs for straight-line and sum-of-the-years'-digits depreciation, respectively, be drawn?

Peppers Corporation owns machinery with a book value of $190,000.It is estimated that the machinery will generate future cash flows of $200,000.The machinery has a fair value of $140,000.Peppers should recognize a loss on impairment of

On January 2, 2005, Payne Company acquired equipment to be used in its manufacturing operations.The equipment has an estimated useful life of 10 years and an estimated salvage value of $15,000.The depreciation applicable to this equipment was $70,000 for 2008, computed under the sum-of-the-years'-digits method.What was the acquisition cost of the equipment?

Lennon Company purchased a depreciable asset for $200,000.The estimated salvage value is $10,000, and the estimated useful life is 10,000 hours.Lennon used the asset for 1,100 hours in the current year.The activity method will be used for depreciation.What is the depreciation expense on this asset?

Depreciation is normally computed on the basis of the nearest

For the composite method, the composite

Sloane, Inc.purchased equipment in 2005 at a cost of $600,000.Two years later it became apparent to Sloane, Inc.that this equipment had suffered an impairment of value.In early 2007, the book value of the asset is $360,000 and it is estimated that the fair value is now only $240,000.The entry to record the impairment is $\begin{array} { l } \text {a. No entry is necessary as a write-off violates the historical cost principle. }\\ \text {b. Retained Earnings }&120,000\\ \text {Accumulated Depreciation-Equipment }&&120,000\\ \text { c. Loss on Impairment of Equipment }&120,000\\ \text {Accumulated Depreciation-Equipment }&&120,000\\ \text {d. Retained Earnings }&120,000\\ \text { Reserve for Loss on Impairment of Equipment.. }&&120,000\\\end{array}$

The asset turnover ratio is computed by dividing

Inadequacy is the replacement of one asset with another more efficient and economical asset.

Weston Company purchased a tooling machine on January 3, 2000 for $500,000.The machine was being depreciated on the straight-line method over an estimated useful life of 10 years, with no salvage value.At the beginning of 2007, the company paid $125,000 to overhaul the machine.As a result of this improvement, the company estimated that the useful life of the machine would be extended an additional 5 years (15 years total) .What should be the depreciation expense recorded for the machine in 2007?

On January 1, 2007, the Accumulated Depreciation-Machinery account of a particular company showed a balance of $370,000.At the end of 2007, after the adjusting entries were posted, it showed a balance of $395,000.During 2007, one of the machines which cost $125,000 was sold for $60,500 cash.This resulted in a loss of $4,000.Assuming that no other assets were disposed of during the year, how much was depreciation expense for 2007?