accounting_principles_12th_ed_by_weygandt

470 10 Plant Assets, Natural Resources, and Intangible Assets
plant assets are not revenue expenditures because the additions will have a long-term useful life whereas revenue expenditures are
minor repairs and maintenance that do not prolong the life of the assets; (b) additions to plant assets are debited to Plant Assets,
not Maintenance and Repairs Expense, because the Maintenance and Repairs Expense account is used to record expenditures not
intended to increase the life of the assets; and (c) additions to plant assets are debited to Plant Assets, not Purchases, because the
Purchases account is used to record assets intended for resale (inventory).
3. (b) Depreciation is a process of allocating the cost of an asset over its useful life, not a process of (a) valuation, (c) cash accumulation,
or (d) appraisal.
4. (d) Accumulated depreciation will be the sum of 2 years of depreciation expense. Annual depreciation for this asset is ($400,000 2
$10,000)/5 5 $78,000. The sum of 2 years’ depreciation is therefore $156,000 ($78,000 1 $78,000), not (a) $80,000, (b) $160,000, or
(c) $78,000.
5. (d) The units-of-activity method takes salvage value into consideration; therefore, the depreciable cost is $10,000. This
amount is divided by total estimated activity. The resulting number is multiplied by the units of activity used in 2016 and 2017
to compute the accumulated depreciation at the end of 2017, the second year of the asset’s use. The other choices are therefore
incorrect.
6. (b) For the double-declining method, the depreciation rate would be 25% or (1/8 3 2). For 2017, annual depreciation expense is
$15,000 ($60,000 book value 3 25%); for 2018, annual depreciation expense is $11,250 [($60,000 2 $15,000) 3 25%], not (a) $6,500,
(c) $15,000, or (d) $6,562.
7. (b) When there is a change in estimated depreciation, the current and future years’ depreciation computation should reflect the
new estimates. The other choices are incorrect because (a) previous years’ depreciation should not be adjusted when new estimates
are made for depreciation, and (c) when there is a change in estimated depreciation, the current and future years’ depreciation
computation should reflect the new estimates. Choice (d) is wrong because there is a correct answer.
8. (d) First, calculate accumulated depreciation from January 1, 2015, through December 31, 2016, which is $9,600 {[($60,000 2
$12,000)/10 years] 3 2 years}. Next, calculate the revised depreciable cost, which is $48,400 ($60,000 2 $9,600 2 $2,000). Thus, the
depreciation expense for 2017 is $12,100 ($48,400/4), not (a) $6,000, (b) $4,800, or (c) $15,000.
9. (a) First, the book value needs to be determined. The accumulated depreciation as of June 30, 2017, is $36,000 [($80,000/10) 3
4.5 years]. Thus, the cost of the machine less accumulated depreciation equals $44,000 ($80,000 2 $36,000). The loss recorded at
the time of sale is $18,000 ($26,000 2 $44,000), not (b) $54,000, (c) $22,000, or (d) $46,000.
10. (c) The amount of depletion is determined by computing the depletion per unit ($12 million/20 million tons 5 $0.60 per ton)
and then multiplying that amount times the number of units extracted during the year (2 million tons 3 $0.60 5 $1,200,000). This
amount is debited to Inventory and credited to Accumulated Depletion. The other choices are therefore incorrect.
11. (d) Research and development (R&D) costs are expensed when incurred, regardless of whether the research and development
expenditures result in a successful patent or not. The other choices are true statements.
12. (b) Because the $150,000 was spent developing the patent rather than buying it from another firm, it is debited to Research and
Development Expense. Only the $35,000 spent on the successful defense can be debited to Patents, not (a) $150,000, (c) $185,000,
or (d) $170,000.
13. (c) Reporting only totals of major classes of assets in the balance sheet is appropriate. Additional details can be shown in the
notes to the financial statements. The other choices are false statements.
14. (c) Asset turnover 5 Net sales ($180,000)/Average total assets [($200,000 1 $300,000)/2] 5 0.72 times, not (a) 0.90, (b) 0.20, or
(d) 1.39 times.
*15. (a) When an exchange has commercial substance, the debit to the new asset is equal to the fair value of the old asset plus the
cash paid ($35,000 1 $10,000 5 $45,000), not (b) $46,000, (c) $49,000, or (d) $50,000.
*16. (d) Both gains and losses are recognized immediately when an exchange of assets has commercial substance. The other
choices are therefore incorrect.
PRACTICE EXERCISES
Determine depreciation for
partial periods
(LO 2)
1. Numo Company purchased a new machine on October 1, 2017, at a cost of $145,000.
The company estimated that the machine will have a salvage value of $25,000.The machine
is expected to be used for 20,000 working hours during its 5-year life.
Instructions
Compute the depreciation expense under the following methods for the year indicated.
(a) Straight-line for 2017.
(b) Units-of-activity for 2017, assuming machine usage was 3,400 hours.
(c) Declining-balance using double the straight-line rate for 2017 and 2018.