BUS103: Introduction to Financial Accounting

True-false

1. Indicate whether each of the following statements is true or false.

2. When a plant asset is still being used after it has been fully depreciated, depreciation can be taken in excess of its cost.

3. In an exchange of nonmonetary assets having commercial substance, the new asset is recorded at the fair market value of the asset received or the fair market value of the asset given up plus cash paid, whichever is more clearly evident.

4. In calculating depletion, the residual value of acquired land containing an ore deposit is included in total costs subject to depletion.

5. All recorded intangible assets are subject to amortization.

Multiple-choice

Select the best answer for each of the following questions.

1. When a fully depreciated asset is still in use:

a. Prior years' depreciation should be adjusted.

b. The cost should be adjusted to market value.

c. Part of the depreciation should be reversed.

d. The cost and accumulated depreciation should remain in the ledger and no more depreciation should be taken.

e. It should be written off the books.

2. A truck costing USD 45,000 and having an estimated salvage value of USD 4,500 and an original life of five years is exchanged for a new truck. The cash price of the new truck is USD 57,000, and a trade-in allowance of USD 22,500 is received. The old truck has been depreciated for three years using the straight-line method. The new truck would be recorded at:

a. USD 55,200

b. USD 57,000

c. USD 34,500

d. USD 43,200

e. None of the above

3. Land containing a mine having an estimated 1,000,000 tons of economically extractable ore is purchased for USD 375,000. After the ore deposit is removed, the land will be worth USD 75,000. If 100,000 tons of ore are mined and sold during the first year, the depletion cost charged to expense for the year is:

a. USD 300,000

b. USD 37,500

c. USD 30,000

d. USD 375,000

e. None of the above

4. Bren Company purchased a patent for USD 36,000. The patent is expected to have a finite life of 10 years even though its legal life is 17 years. The amortization for the first year is:

a. USD 36,000

b. USD 3,600

c. USD 2,118

d. USD 3,240

e. None of the above

Check your answers on the next page.