Quick check and quiz answers -- chapter seven

Quick check and quiz answers -- chapter seven - Chapter Six...

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Chapter Six – Quick Check – Plant Assets and Intangibles This chapter is concerned with assets that provide benefit to the entity for more than one period. The issues we have to focus on are: acquisition; expensing the asset while it is being used (depreciation, depletion, amortization); and disposition. 1. C. This question deals with acquisition. How do we assign values to individual items when we purchase a basket of items? We allocate the costs according to the appraised values. Note: the basket price often differs from the sum of the appraised values. appraised % of appraised allocated value value purchase price 1,500,000 Land 850,000 42.50% 637,500 =42.5% x 1,500,000 Office Building 675,000 33.75% 506,250 =33.75% x 1,500,000 Equipment 475,000 23.75% 356,250 =23.75% x 1,500,000 2,000,000 100.00% 1,500,000 2. A. The wrong answer is that depreciation creates a fund. Answers A, B, and D are all correct. Calculation of depreciation: There are different methods of calculating depreciation. Straight-line: (Cost – estimated salvage value)/Estimated Life=Annual depreciation expense Double-declining balance method: (Cost – accumulated depreciation)x(2 x straight-line rate)=Annual expense. Note: the calculation is for a complete year so if we have a fractional year the expense must be prorated. 3. B. Straight-line method for a fractional year. (25,000 – 2,500)/5 = 4,500 x (4 months / 12 months) = 1,500 4. D. Book value is cost minus accumulated depreciation. Note: the facts now show the asset was purchased on January 1 st of X3 so we have two years of depreciation. Cost:
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Quick check and quiz answers -- chapter seven - Chapter Six...

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