The result of recording a capital expenditure as a

This preview shows page 18 - 20 out of 33 pages.

The result of recording a capital expenditure as a revenue expenditure is an: a. Overstatement of current year's expense. b. Understatement of current year's expense. c. Understatement of subsequent year's net income. d. Overstatement of current year's net income. e. None of the above.
Chapter 11 Multiple-choice Select the best answer for each of the following questions. When a fully depreciated asset is still in use:
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: 1. Take the annual depreciation (8,100 via excel) * 3 (years truck has been depreciated) = 24,300. 2. Subtract accumulated depreciated from original cost to get current value of truck 3. 3. Find the gain on the exchange by subtracting the current value of the truck
(20,700) from the allowance received (22,500) a. 22,500 – 20,700 = 1,800 gain on exchange i. In an exchange of nonmonetary assets not having commercial substance, a gain is not recognized, but reduces the cost of a new asset. ii. Therefore, the cost of the new truck is USD 55,200 iii. (USD 57,000 (price of new truck) - USD 1,800 (gain)), and no gain is recognized.
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. 1. Depletion charges per ton = (375,000 (cost of land) – 75,000 (salvage value) / 1,000,000 (Estimated amount of resource)
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:

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture