Accounting I – Week 7

• Question 1

1 out of 1 points

	Carmel Company acquires a mineral deposit at a cost of $5,900,000. It incurs additional costs of $600,000 to access the deposit, which is estimated to contain 2,000,000 tons and is expected to take five years to extract. Compute the depletion expense for the first year, assuming 418,000 tons were mined.
	Selected Answer: $1,358,500   Response Feedback: Correct! The depletion expense for the first year, assuming 418,000 tons were mined, is $1,358,500. Depletion uses the method of units-of-production, which charges a varying amount to expense for each period of an asset’s useful life depending on usage.

• Question 2

1 out of 1 points

	Financial accounting and tax accounting require the same recordkeeping, and there should be no difference in results between the two accounting systems.
	Selected Answer: False   Response Feedback: Correct! The records a company keeps for financial accounting purposes are usually separate from the records it keeps for tax purposes. This is so because financial accounting aims to report useful information on financial performance and position, whereas tax accounting reflects government objectives in raising revenues. A difference between the two is normal and expected, and is carried on the balance sheet as either a tax asset or tax liability.

• Question 3

1 out of 1 points

	Land improvements are ______.
	Selected Answer: assets that increase the usefulness of land, but have a limited useful life and are subject to depreciation   Response Feedback: Correct! Land improvements are assets that increase the usefulness of land, but have a limited useful life and are subject to depreciation.

• Question 4

1 out of 1 points

	A company purchased a tract of land for its natural resources at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected to be $250,000. The depletion expense per ton of ore is _____.
	Selected Answer: $0.625   Response Feedback: Correct! The depletion expense per ton of ore is calculated as: depletion expense per ton = ($1,500,000 – $250,000)/2,000,000 = $0.625/ton.

• Question 5

1 out of 1 points

	The first step in accounting for an asset disposal is to calculate the gain or loss on disposal.
	Selected Answer: False   Response Feedback: Correct! The last step is calculating the gain or loss on the sale. The first is to record partial-year depreciation, if any, and then debit accumulated depreciation and credit the sold asset. The difference between the asset and the accumulated depreciation amount is zero, a debit (loss), or a credit (gain).

• Question 6

1 out of 1 points

	All of the following statements regarding increases in the value of plant assets under U.S. GAAP and IFRS are true except which one?
	Selected Answer: Under U.S. GAAP, a company can reverse impairment and include it in comprehensive income.   Response Feedback: Correct! One of the major differences between the U.S. GAAP and IFRS is that IFRS allows revaluation of previously impaired assets. In U.S. GAAP, once an asset is impaired, it is permanently impaired and revaluation is not allowed.

• Question 7

1 out of 1 points

	Big River Rafting pays $310,000, plus $15,000 in closing costs, to buy out a competitor. The real estate consists of land appraised at $105,000, a building appraised at $210,000, and equipment appraised at $35,000. Compute the cost that should be allocated to the land.
	Selected Answer: $97,500   Response Feedback: Correct! In this problem, the cost allocated to land = $105,000/$350,000 = 0.30 x $325,000 = $97,500.

• Question 8

1 out of 1 points

	A company used straight-line depreciation for an item of equipment that cost $12,000, had a salvage value of $2,000, and had a five-year useful life. After depreciating the asset for three complete years, the salvage value was reduced to $1,200, and its total useful life was increased from five years to six years. Determine the amount of depreciation to be charged against the machine during each of the remaining years of its useful life.
	Selected Answer: $1,600   Response Feedback: Correct! Accumulated depreciation through the end of year three = (cost of asset – salvage value)/estimated useful life * years elapsed = ($12,000 – $2,000)/5 * 3 = $6,000. Depreciation, years four through six = (cost of asset accumulated depreciation – salvage value)/remaining estimated useful life = ($12,000 – $6,000 – $1,200)/3 = $1,600.

• Question 9

1 out of 1 points

	Total depreciation expense over an asset’s useful life will be identical under all methods of depreciation.
	Selected Answer: True   Response Feedback: Correct! Depreciation is determined starting with the identical cost amount minus estimated salvage, and ending with the depreciation of the identical amount regardless of depreciation method.

• Question 10

1 out of 1 points

	Huffington Company traded in an old delivery truck for a new one. The old truck had a cost of $75,000 and an accumulated depreciation of $60,000. The new truck had an invoice price of $125,000. Huffington was given a $12,000 trade-in allowance on the old truck, which meant they paid $113,000 in addition to the old truck to acquire the new truck. If this transaction has commercial substance, what is the recorded value of the new truck?
	Selected Answer: $125,000   Response Feedback: Correct! In this problem, the calculation is: $125,000 – (($75,000- $60,000) – $113,000) = $3,000 loss. In the discarding of an asset that is not fully depreciated, the book value of the old asset and the additional cost of the new asset are subtracted from the purchase cost of the new asset to arrive at the gain or loss of discarding the old asset.