142 Chapter 9 Le S. Equipment that cost $20,00 was originally estimated to have

Question

142 Chapter 9 Le S. Equipment that cost $20,00 was originally estimated to have a useftul life years and a residual value of $2,000. The equipment has been years using straight-ine depreciation. During the third or year it is estimated that the remaining useful life is 2 years (instead of 3) cat and that the residual value is $1,000 (instead of $2,000). The depreciation expense on the equipment in year 3 using the straight-line method would be: ducal a. $5,500 $5,900 20,000 cot 12t00-1,000: 5900 c. $6,000 d. $7.500 12,O EVIS 6. Assume that a drill press is rebuilt during its sixth year of use so that its useful life is extended 5 years beyond the original estimate of 10 years. In this case, the cost of rebuilding the drill press is: a. a revenue expenditure b. a capital expenditure c. a contra-expense d. an expense 7. Equipment was purchased on January 3, 2008, for $100,000 and was depreciated using the straight-line method based upon an 8-year life and $12,000 residual valae. The equipment was sold on December 31, 2012, for $50,000. What is the gain on the sale of the equipment? a. $5,000 b. $11,000 c. $45,000 d. $55,000 8. Rights to a mineral deposit estimated at 50,000,000 tons were acquired for $45,000,000. During the year, 20,000,000 tones were mined. The depletion for the year is: a. $9,000,000 b. $18,000,000 c. $20,000,000 d. $45,000,000 9. In a lease contract, the party who legally owns the asset is the: a. contractor b. operator c. lessee d. lessor

Explanation / Answer

5. Depreciation per year - original= (20000-2000)/5= 3600

Depreciation for 2 years used= 3600*2= 7200

WDV after 2 years= 20000-7200= 12800

Revised depreciation after 2 years= WDV-salvage value/ revised useful lift= 12800-1000 /2= 5900 per year

Option b is correct

6. b.capital expenditure as it substantially increases the life of the asset.

7. Depreciation per year= 100000-12000 /8= 11000 per year

by the end of 2012 total 5 years are complete, hence accumulated depreciation = 11000*5years= 55000

WDV of asset then= 100000-55000= 45000

Equipment sold for 50000, hence 50000-45000= 5000 is the gain on sale

option a is correct

8. depletion per ton= total cost/ estimated tonnes of recovery= 45M/50M= 0.9 per ton

Depletion for 20M tonnes= 0.9* 20M= 18M

Option b is correct

9. in as lease contract legal ownership of asset will be with Lessor

Option d is correct

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