BUS103: Introduction to Financial Accounting

True-false

1. False. No more depreciation can be taken on a fully depreciated plant asset.

2. True. The new asset is recorded at the fair market value of the asset received or given up, whichever is more clearly evident.

3. False. The residual value of land should be deducted from total costs subject to depletion.

4. False. Only intangible assets with finite useful lives should be amortized.

Multiple choice

1. d. The cost and accumulated depreciation should not be removed from the accounts until the disposal of the asset.

2. a. On the date of exchange, the book value of the old truck is USD 20,700 (USD 45,000 minus accumulated depreciation of USD 24,300). The trade-in allowance of USD 22,500 indicates a gain on exchange of USD 1,800. In an exchange of nonmonetary assets not having commercial substance, a gain is not recognized, but reduces the cost of a new asset. Therefore, the cost of the new truck is USD 55,200 (USD 57,000 minus USD 1,800), and no gain is recognized.

3. c. The depletion charge for the first year is:

$\begin{aligned} & \text { Depletion charger per ton }=\frac{(\text { USD } 375,000-\text { USD } 75,000)}{1,000,000} \\ =& \text { USD o.30 } \\ & \text { Depletion charge for the year }=\text { USD } 0.30 \times 100,000 \\ =& \text { USD } 30,000 \end{aligned}$

Since all of the ore that was extracted was sold, all of the USD 30,000 is expensed as cost of ore sold.

4. b. The patent is amortized over 10 years:

$\begin{aligned} & \text { Annual amortization expense }=\frac{\text { USD } 36,000}{10} \\ =& \text { USD 3,600 } \end{aligned}$