81. Orton Corporation, which has a calendar year accounting period, purchased a new machine for $80,000 on April 1, 2013. At that time Orton expected to use the machine for nine years and then sell it for $8,000. The machine was sold for $44,000 on Sept. 30, 2018. Assuming straight-line depreciation, no depreciation in the year of acquisition, and a full year of depreciation in the year of retirement, the gain to be recognized at the time of sale would be
a. $8,000.
b. $6,000.
c. $4,000.
d. $0.
82. On January 1, 2017, the Accumulated Depreciation—Machinery account of a particular company showed a balance of $1,480,000. At the end of 2017, after the adjusting entries were posted, it showed a balance of $1,580,000. During 2017, one of the machines which cost $500,000 was sold for $242,000 cash. This resulted in a loss of $16,000. Assuming that no other assets were disposed of during the year, how much was depreciation expense for 2017?
a. $342,000
b. $374,000
c. $100,000
d. $242,000
83. During 2017, Node Co. sold equipment that had cost $392,000 for $235,200. This resulted in a gain of $17,200. The balance in Accumulated Depreciation—Equipment was $1,300,000 on January 1, 2017, and $1,240,000 on December 31. No other equipment was disposed of during 2017. Depreciation expense for 2017 was
a. $60,000.
b. $77,200.
c. $114,000.
d. $234,000.
A schedule of machinery owned by Micco Co. is presented below:
Estimated Estimated
Total Cost Salvage Value Life in Years
Machine X $600,000 $40,000 14
Machine Y 800,000 80,000 10
Machine Z 300,000 60,000 6
Micco computes depreciation by the composite method.
84. The composite rate of depreciation (in percent) for these assets is
a. 8.94.
b. 10.59.
c. 8.57.
d. 15.56.
A schedule of machinery owned by Micco Co. is presented below:
Estimated Estimated
Total Cost Salvage Value Life in Years
Machine X $600,000 $40,000 14
Machine Y 800,000 80,000 10
Machine Z 300,000 60,000 6
Micco computes depreciation by the composite method.
85. The composite life (in years) for these assets is
a. 15.6.
b. 8.6.
c. 8.9.
d. 10.0.
86. Song Company purchased a depreciable asset for $700,000 on April 1, 2015. The estimated salvage value is $70,000, and the estimated useful life is 5 years. The straight-line method is used for depreciation. What is the balance in accumulated depreciation on May 1, 2018 when the asset is sold?
a. $252,000
b. $294,000
c. $346,500
d. $388,500
87. Morgan Corporation purchased a depreciable asset for $600,000 on January 1, 2015. The estimated salvage value is $60,000, and the estimated useful life is 9 years. The straight-line method is used for depreciation. In 2018, Morgan changed its estimates to a total useful life of 5 years with a salvage value of $90,000. What is 2018 depreciation expense?
a. $60,000
b. $90,000
c. $165,000
d. $180,000
88. Rock Company purchased a depreciable asset for $600,000 on April 1, 2015. The estimated salvage value is $60,000, and the estimated total useful life is 5 years. The straight-line method is used for depreciation. What is the balance in accumulated depreciation on May 1, 2018 when the asset is sold?
a. $234,000
b. $252,000
c. $297,000
d. $333,000
89. Falcon Corporation purchased a depreciable asset for $840,000 on January 1, 2015. The estimated salvage value is $84,000, and the estimated total useful life is 9 years. The straight-line method is used for depreciation. In 2018, Falcon changed its estimates to a total useful life of 5 years with a salvage value of $140,000. What is 2018 depreciation expense?
a. $84,000
b. $140,000
c. $224,000
d. $252,000
90. If Labor, Inc. uses the composite method and its composite rate is 7.5% per year, what entry should it make when plant assets that originally cost $120,000 and have been used for 10 years are sold for $36,000?
a. Cash 36,000
Accumulated Depreciation - Plant Assets 84,000
Plant Assets 120,000
b. Cash 36,000
Loss on Sale of Plant Assets 84,000
Plant Assets 120,000
c. Cash 36,000
Accumulated Depreciation - Plant Assets 90,000
Plant Assets 120,000
Gain on Sale of Plant Assets 6,000
d. Cash 36,000
Plant Assets 36,000
91. Angst Company purchased equipment in January of 2008 for $400,000. The equipment was being depreciated on the straight-line method over an estimated useful life of 20 years, with no salvage value. At the beginning of 2018, when the equipment had been in use for 10 years, the company paid $50,000 to overhaul the equipment. As a result of this improvement, the company estimated that the useful life of the equipment would be extended an additional 5 years. What should be the depreciation expense recorded for this equipment in 2018?
a. $10,000
b. $16,667
c. $20,000
d. $13,333
Exiter Inc. owns the following assets:
Asset Cost Salvage Estimated Useful Life
A $420,000 $42,000 10 years
B 225,000 22,500 5 years
C 492,000 24,000 12 years
92. What is the composite depreciation rate of Exiter's assets?
a. 14.0%
b. 10.3%
c. 12.9%
d. 11.1%
Exiter Inc. owns the following assets:
Asset Cost Salvage Estimated Useful Life
A $420,000 $42,000 10 years
B 225,000 22,500 5 years
C 492,000 24,000 12 years
93. What is the composite life of Exiter's assets?
a. 14.0 years
b. 9.7 years
c. 8.9 years
d. 10.3 years
94. Torque Co. has equipment with a carrying amount of $2,400,000. The expected future net cash flows from the equipment are $2,445,000, and its fair value is $2,040,000. The equipment is expected to be used in operations in the future. What amount (if any) should Torque report as an impairment to its equipment?
a. No impairment should be reported.
b. $360,000
c. $45,000
d. $405,000
95. Regis Inc. bought a machine on January 1, 2008 for $800,000. The machine had an expected life of 20 years and was expected to have a salvage value of $80,000. On July 1, 2018, the company reviewed the potential of the machine and determined that its future net cash flows totaled $400,000 and its fair value was $280,000. If the company does not plan to dispose of it, what should Regis record as an impairment loss on July 1, 2018?
a. $ 0
b. $22,000
c. $40,000
d. $142,000
96. Hart Corporation owns machinery with a book value of $570,000. It is estimated that the machinery will generate future cash flows of $600,000. The machinery has a fair value of $420,000. Hart should recognize a loss on impairment of
a. $ -0-.
b. $30,000.
c. $150,000.
d. $180,000.
97. King Corporation owns machinery with a book value of $760,000. It is estimated that the machinery will generate future cash flows of $700,000. The machinery has a fair value of $560,000. King should recognize a loss on impairment of
a. $ -0-.
b. $ 60,000.
c. $200,000.
d. $ 140,000.
98. Marsh Corporation purchased a machine on July 1, 2015, for $1,500,000. The machine
was estimated to have a useful life of 10 years with an estimated salvage value of $84,000. During 2018, it became apparent that the machine would become uneconomical after December 31, 2022, and that the machine would have no scrap value. Accumulated depreciation on this machine as of December 31, 2017, was $354,000. What should be the charge for depreciation in 2018 under generally accepted accounting principles?
a. $212,400
b. $229,200
c. $246,000
d. $286,500
99. Rogers Company purchased a tooling machine on January 3, 2011 for $840,000. 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 2018, the company paid $210,000 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 2018?
a. $57,750
b. $70,000
c. $84,000
d. $92,400
100. Glow Co. purchased machinery on January 2, 2012, for $880,000. The straight-line method is used and useful life is estimated to be 10 years, with a $80,000 salvage value. At the beginning of 2018 Glow spent $192,000 to overhaul the machinery. After the overhaul, Glow estimated that the useful life would be extended 4 years (14 years total), and the salvage value would be $40,000. The depreciation expense for 2018 should be
a. $56,500.
b. $69,000.
c. $80,000.
d. $74,000.
101. Norton, Inc. purchased equipment in 2016 at a cost of $900,000. Two years later it became apparent to Norton, Inc. that this equipment had suffered an impairment of value. In early 2018, the book value of the asset is $585,000 and it is estimated that the fair value is now only $360,000. The entry to record the impairment is
a. No entry is necessary as a write-off violates the historical cost principle.
b. Retained Earnings 225,000
Accumulated Depreciation—Equipment 225,000
c. Loss on Impairment of Equipment 225,000
Accumulated Depreciation—Equipment 225,000
d. Retained Earnings 225,000
Reserve for Loss on Impairment of Equipment 225,000
102. Porter Resources Company acquired a tract of land containing an extractable natural
resource. Porter 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 2,500,000 tons, and that the land will have a value of $1,000,000 after restoration. Relevant cost information follows:
Land $7,500,000
Estimated restoration costs 1,500,000
If Porter maintains no inventories of extracted material, what should be the charge to depletion expense per ton of extracted material?
a. $2.60
b. $3.00
c. $3.20
d. $3.60
103. In January, 2017, Yager Corporation purchased a mineral mine for $5,100,000 with removable ore estimated by geological surveys at 2,000,000 tons. The property has an estimated value of $300,000 after the ore has been extracted. The company incurred $1,500,000 of development costs preparing the mine for production. During 2017, 600,000 tons were removed and 480,000 tons were sold. What is the amount of depletion that Yager should expense for 2017?
a. $1,152,000
b. $1,440,000
c. $1,512,000
d. $2,016,000
104. During 2017, Logan Corporation acquired a mineral mine for $4,000,000 of which $400,000 was ascribed to land value after the mineral has been removed. Geological surveys have indicated that 10 million units of the mineral could be extracted. During 2017, 1, 500,000 units were extracted and 1,250,000 units were sold. What is the amount of depletion expensed for 2017?
a. $400,000.
b. $450,000.
c. $300,000.
d. $540,000.
105. In March, 2017, Mallory Mines Co. purchased a coal mine for $8,000,000. Removable coal is estimated at 1,500,000 tons. Mallory is required to restore the land at an estimated cost of $960,000, and the land should have a value of $840,000. The company incurred $2,000,000 of development costs preparing the mine for production. During 2017, 360,000 tons were removed and 240,000 tons were sold. The total amount of depletion that Mallory should record for 2017 is
a. $1,465,600.
b. $1,619,200.
c. $2,198,400.
d. $2,428,800.
106. In 2010, Jarrett Company purchased a tract of land as a possible future plant site. In January, 2018, valuable sulphur deposits were discovered on adjoining property and Jarrett Company immediately began explorations on its property. In December, 2018, after incurring $480,000 in exploration costs, which were accumulated in an expense account, Jarrett discovered sulphur deposits appraised at $2,700,000 more than the value of the land. To record the discovery of the deposits, Jarrett should
a. make no entry.
b. debit $480,000 to an asset account.
c. debit $2,700,000 to an asset account.
d. debit $3,180,000 to an asset account.
107. Barton Corporation acquires a coal mine at a cost of $1,800,000. Intangible development costs total $360,000. After extraction has occurred, Barton must restore the property (estimated fair value of the obligation is $180,000), after which it can be sold for $210,000. Barton estimates that 6,000 tons of coal can be extracted. What is the amount of depletion per ton?
a. $355
b. $320
c. $390
d. $300
108. Barton Corporation acquires a coal mine at a cost of $1,500,000. Intangible development costs total $360,000. After extraction has occurred, Barton must restore the property (estimated fair value of the obligation is $180,000), after which it can be sold for $510,000. Barton estimates that 6,000 tons of coal can be extracted. If 900 tons are extracted the first year, which of the following would be included in the journal entry to record depletion?
a. Debit to Accumulated Depletion for $229,500
b. Debit to Inventory for $229,500
c. Credit to Inventory for $225,000
d. Credit to Accumulated Depletion for $382,500
109. In 2017, Bargain Shop reported net income of $5.7 billion, net sales of $175 billion, and average total assets of $75 billion. What is Bargain shop's asset turnover?
a. 0.29 times
b. 0.08 times.
c. 2.3 times.
d. 13.2times.
110. In 2017, Bargain Shop reported net income of $5.7 billion, net sales of $175 billion, and average total assets of $75 billion. What is Bargain shop's return on total assets?
a. 7.6%
b. 28.7%
c. 23.3%
d. 13.2%
For 2017, Hammer Company reports beginning of the year total assets of $900,000, end of the year total assets of $1,100,000, net sales of $1,000,000, and net income of $200,000.
111. Hammer’s 2017 asset turnover is
a. 0.18 times.
b. 0.20 times.
c. 0.91 times.
d. 1.00 times.
For 2017, Hammer Company reports beginning of the year total assets of $900,000, end of the year total assets of $1,100,000, net sales of $1,000,000, and net income of $200,000.
112. The rate of return on assets for Hammer in 2017 is
a. 16.0%.
b. 18.2%.
c. 20.0%.
d. 22.2%.
113. Sifton Company reported the following data:
2017 2018
Sales $3,000,000 $4,550,000
Net Income 300,000 400,000
Assets at year end 1,800,000 2,500,000
Liabilities at year end 1,100,000 1,500,000
What is Sifton’s asset turnover for 2018?
a. 1.82
b. 1.88
c. 2.12
d. 2.53
114. Frank Company reported the following data:
2017 2018
Sales $3,000,000 $4,800,000
Net Income 300,000 400,000
Assets at year end 1,800,000 2,500,000
Liabilities at year end 1,100,000 1,500,000
What is Frank’s asset turnover for 2018?
a. 1.92
b. 1.97
c. 2.23
d. 2.67
On January 1, 2017, Garrett Company purchased a machine costing $350,000. The machine is in the MACRS 5-year recovery class for tax purposes and has an estimated $70,000 salvage value at the end of its economic life.
*115. Assuming the company uses the general MACRS approach, the amount of MACRS deduction for tax purposes for the year 2017 is
a. $70,000.
b. $140,000.
c. $112,000.
d. $56,000.
On January 1, 2017, Garrett Company purchased a machine costing $350,000. The machine is in the MACRS 5-year recovery class for tax purposes and has an estimated $70,000 salvage value at the end of its economic life.
*116. Assuming the company uses the optional straight-line method, the amount of MACRS deduction for tax purposes for the year 2017 is
a. $56,000.
b. $70,000.
c. $28,000.
d. $35,000.
MULTIPLE CHOICE—CPA Adapted
117. Piazza Co. purchased a machine on July 1, 2017, for $1,000,000. The machine has an estimated useful life of five years and a salvage value of $200,000. The machine is being depreciated from the date of acquisition by the 150% declining-balance method. For the year ended December 31, 2017, Piazza should record depreciation expense on this machine of
a. $300,000.
b. $200,000.
c. $150,000.
d. $120,000.
118. A machine with an eight year estimated useful life and an estimated 10% salvage value was acquired on January 1, 2016. The depreciation expense for 2018 using the double-declining balance method would be original cost multiplied by
a. 90% × 25% × 25%.
b. 75% × 75% × 25%.
c. 90% × 75% × 25%.
d. 25% × 25%.
119. On April 1, 2016, Verlin Co. purchased new machinery for $450,000. The machinery has an estimated useful life of five years, and depreciation is computed by the sum-of-the-years'-digits method. The accumulated depreciation on this machinery at March 31, 2018, should be
a. $300,000.
b. $270,000.
c. $180,000.
d. $150,000.
120. Harris Co. takes a full year's depreciation expense in the year of an asset's acquisition and no depreciation expense in the year of disposition. Data relating to one of Harris's depreciable assets at December 31, 2018 are as follows:
Acquisition year 2016
Cost $280,000
Residual value 40,000
Accumulated depreciation 192,000
Estimated useful life 5 years
Using the same depreciation method as used in 2016, 2017, and 2018, how much depreciation expense should Harris record in 2019 for this asset?
a. $32,000
b. $48,000
c. $56,000
d. $64,000
