• Home
  • Textbooks
  • Financial Accounting
  • Plant Assets, Natural Resources, & Intangibles

Financial Accounting

Walter T. Harrison Jr., Charles T. Horngren, C. William Thomas

Chapter 7

Plant Assets, Natural Resources, & Intangibles - all with Video Answers

Educators

Chapter Questions

00:43

Problem 1

Bentley, Inc., purchased a tract of land, a small office building, and some equipment for
$1,800,000. The appraised value of the land was $1,144,000, the building $660,000, and
the equipment $396,000. What is the cost of the land?
a. $936,000
b. $600,000
c. $1,144,000
d. None of the above

Michelle Nguyen
Michelle Nguyen
Numerade Educator

Problem 2

Which statement is false?
a. Depreciation is based on the expense recognition principle because it apportions the
cost of the asset against the revenue generated over the asset’s useful life.
b. Depreciation is a process of allocating the cost of a plant asset over its useful life.
c. The cost of a plant asset minus accumulated depreciation equals the asset’s book value.
d. Depreciation creates a fund to replace the asset at the end of its useful life.
Use the following data for questions 3–6.
On October 1, 2014, Freedom Communications purchased a new piece of equipment that
cost $35,000. The estimated useful life is five years and estimated residual value is $8,000.

Check back soon!
01:04

Problem 3

What is the depreciation expense for 2014 if Freedom uses the straight-line method?
a. $5,400
b. $1,350
c. $1,750
d. $7,000

Breanna Ollech
Breanna Ollech
Numerade Educator

Problem 4

Assume Freedom Communications purchased the equipment on January 1, 2014. If
Freedom uses the straight-line method for depreciation, what is the asset’s book value at
the end of 2015?
a. $16,200
b. $21,000
c. $24,200
d. $32,200

Check back soon!

Problem 5

Assume Freedom Communications purchased the equipment on January 1, 2014. If Freedom uses the double-declining-balance method, what is depreciation for 2015?
a. $14,000
b. $8,400
c. $22,400
d. $6,480

Check back soon!

Problem 6

Return to Freedom’s original purchase date of October 1, 2014. Assume that Freedom uses
the straight-line method of depreciation and sells the equipment for $22,400 on October 1,
2018. The result of the sale of the equipment is a gain (loss) of
a. $9,000.
b. $1,000.
c. ($4,600).
d. $0.

Check back soon!
03:16

Problem 7

A company bought a new machine for $23,000 on January 1. The machine is expected
to last four years and to have a residual value of $3,000. If the company uses the doubledeclining-balance method, accumulated depreciation at the end of year 2 will be
a. $23,000.
b. $20,000.
c. $15,000.
d. $17,250.

Narayan Hari
Narayan Hari
Numerade Educator

Problem 8

Which of the following is not a capital expenditure?
a. A complete overhaul of an air-conditioning system
b. Replacement of an old motor with a new one in a piece of equipment
c. The cost of installing a piece of equipment
d. A tune-up of a company vehicle
e. The addition of a building wing

Check back soon!

Problem 9

Which of the following assets is not subject to a decreasing book value through depreciation, depletion, or amortization?
a. Natural resources
b. Land improvements
c. Goodwill
d. Intangibles

Check back soon!
04:59

Problem 10

Why would a business select an accelerated method of depreciation for tax purposes?
a. Accelerated depreciation generates higher depreciation expense immediately and
therefore lowers tax payments in the early years of the asset’s life.
b. MACRS depreciation follows a specific pattern of depreciation.
c. Accelerated depreciation is easier to calculate because salvage value is ignored.
d. Accelerated depreciation generates a greater amount of depreciation over the life of the
asset than does straight-line depreciation

Harmender Singh Yadav
Harmender Singh Yadav
Numerade Educator

Problem 11

A company purchased an oil well for $210,000. It estimates that the well contains 30,000
barrels, has an eight-year life, and no salvage value. If the company extracts and sells 2,000
barrels of oil in the first year, how much in cost of sales should be recorded?
a. $26,250
b. $105,000
c. $21,000
d. $14,000

Check back soon!

Problem 12

Which item among the following is not an intangible asset?
a. Goodwill
b. A copyright
c. A trademark
d. A patent
e. All of the above are intangible assets.

Check back soon!

Problem 13

An important measure of profitability is
a. inventory turnover.
b. return on assets (ROA).
c. quick (acid test) ratio.
d. net sales.

Check back soon!

Problem 14

In 2014, total asset turnover for JBC Company has increased. This means that the
a. company has become more effective.
b. company has become more efficient.
c. company has become more effective and more efficient.
d. company has neither become more effective nor more efficient.

Check back soon!