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26 Nov 2019

Rayonier Forrest Resources purchased a small tract of timberland for $70,000 that contained 25,000 trees. The value of the bare land was estimated to be $20,000. The annual percentage depletion factor for timber is 10%. In the first year of operation, the lumber company cut down 7000 trees. According to the cost depletion method, the depletion deduction for year 1 would be closest to:
(a) $2000

(b) $7000
(c) $10,000

(d) $14,000

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Deanna Hettinger
Deanna HettingerLv2
8 Sep 2019
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Related questions


1. New tire retreading equipment, acquired at acost of $140,000 at the beginning

of a fiscal year, has an estimated useful life of four years andan estimated residual value of $10,000. The manager requestedinformation regarding the effect

of alternative methods on the amount of depreciation expenseeach year. On the

basis of the data presented to the manager, thedouble-declining-balance method

was selected.

In the first week of the fourth year, the equipment was sold for$23,300.


Instructions

1. Determine the annual depreciation expense for each of theestimated four

years of use, the accumulated depreciation at the end of eachyear, and the

book value of the equipment at the end of each year by (a) thestraight-line

method and (b) the double-declining-balance method. Thefollowing columnar

headings are suggested for each schedule:

Year DepreciationExpense Accumulated Depreciation, End ofYear Book value, End of Year


2. Illustrate the effects on the accounts and financialstatements of the sale.

3. Illustrate the effects on the accounts and financialstatements of the sale,

assuming a sale price of $15,250 instead of $23,300.


2. Data related to the acquisition of timberrights and intangible assets of Gemini

Company during the current year ended December 31 are asfollows:

a. On December 31, Gemini Company determined that $3,000,000 ofgoodwill

was impaired.

b. Governmental and legal costs of $920,000 were incurred byGemini Company

on June 30 in obtaining a patent with an estimated economic lifeof 8 years.

Amortization is to be for one-half year.

c. Timber rights on a tract of land were purchased for$1,350,000 on March 6.

The stand of timber is estimated at 15,000,000 board feet.During the current

year, 3,300,000 board feet of timber were cut and sold.

Instructions

1. Determine the amount of the amortization, depletion, orimpairment for the

current year for each of the foregoing items.

2. Illustrate the effects on the accounts and financialstatements of the adjustments for each item.

1.The useful life of a plant asset is:

The length of time it is used productively in a company'soperations

Never related to its physical life

Its productive life, but not to exceed one year

Determined by the FASB

Determined by law

2. Depreciation:

Measures the decline in market value of an asset

Measures physical deterioration of an asset

Is the process of allocating to expense the cost of a plantasset

Is an outflow of cash from the use of a plant asset

Is applied to land

3. Plant assets are

Tangible assets used in the operation of a business that have auseful life of more than one accounting period

Current assets

Held for sale

Intangible assets used in the operations of a business that havea useful life of more than one accounting period

Tangible assets used in the operation of business that have auseful life of less than one accounting period

4. A company has net sales of $870,000 and average accountsreceivable of $174,000. What is its accounts receivable turnoverfor the period?

0.20

5.00

20.0

73.0

1,825

5. FICA taxes include:

Social Security taxes

Charitable giving

Employee income taxes

Unemployment taxes

6. Times interest earned is calculated by:

Multiplying interest expense times income

Dividing interest expense by income before interest expense

Dividing income before interest expense and any income tax byinterest expense

Dividing interest and income tax expense by income beforeinterest and income tax expense

7. Amortization:

Is the systematic allocation of the cost of an intangible assetto expense over its estimated useful life

Is the process of allocating to expense the cost of a plantasset to the accounting periods benefiting from its use

Is the process of allocating the cost of natural resources toperiods when they are consumed

Is an accelerated form of expensing an asset's cost

Is the same as depletion

8. A method of estimating bad debts expense that involves adetailed examination of outstanding accounts and their length oftime past due is the:

Direct write-off method

Aging of accounts receivable method

Percentage of sales method

Aging of investments method

Percent of accounts receivable method

9. A company purchased a tract of land for its natural resourcesat a cost of $1,500,000. It expects to mine 2,000,000 tons of orefrom this land. The salvage value of the land is expected to be$250,000. The depletion expense per ton of ore is:

$0.75

$0.625

$0.875

$6.00

$8.00

10. The matching principle requires:

That expenses be ignored if their effect on the financialstatements are less important than revenues to the financialstatement user

The use of the direct write-off method for bad debts

The use of the allowance method of accounting for bad debts

That bad debts be disclosed in the financial statements

That bad debts not be written off

11. Liabilities:

Must be certain

Must sometimes be estimated

Must be for a specific amount

Must always have a definite date for payment

Must involve an outflow of cash

12. In the accounting records of a defendant, lawsuits:

Are estimated liabilities

Should always be recorded

Should always be disclosed

Should be recorded if payment for damages is probable and theamount can be reasonably estimated

13. A contingent liability:

Is always of a specific amount

Is a potential obligation that depends on a future event arisingout of a past transaction or event

Is an obligation not requiring future payment

Is an obligation arising from the purchase of goods or serviceson credit

Is an obligation arising from a future event

14. Total asset turnover is calculated by dividing:

Gross profit by average total assets

Average total assets by gross profit

Net sales by average total assets

Average total assets by net sales

Net assets by total assets

15. If the times interest ratio:

Increases, then risk increases

Increases, then risk decreases

Is greater than 1.5, then the company is in default

Is less than 1.5, the company is carrying too little debt

16. Promissory notes that require the issuer to make a series ofpayments consisting of both interest and principal are:

Debentures

Discounted notes

Installment notes

Indentures

Investment notes

17. A company borrowed $300,000 cash from the bank by signing a5-year, 8% installment note. The present value factor for anannuity at 8% for 5 years is 3.9927. Each annuity payment equals$75,137. The present value of the note is:

$75,137

$94,013

$300,000

$375,685

18. A bond traded at 102

The following independent situations describe facts concerningthe ownership of various assets.

(a) Dickenton Company purchased a tooling machine in 2000 for$85,000 . The machine was being depreciated on the straight-linemethod over an estimated useful life of 30 years with no salvagevalue. At the beginning of 2015, when the machine had been in usefor 15 years, Dickenton paid $17,000 to overhaul the machine. As aresult of this improvement, Dickenton estimated that the usefullife of the machine would be extended an additional five years.•

(b) Andresen Manufacturing Co., a calendar-year company,purchased a machine for $50,000 on January 1, 2013. At the date ofpurchase, Andresen incurred the following additional costs:

Loss on sale of old machinery ………………………………..$3,000

Freight Cost …………………………………………………….$900

Installation Cost ………………………………………………..$1,900

Testing costs prior to regular operation ……………….…….$800

The estimated salvage value of the machine was $8,000, andAndresen estimated that the machine would have a useful life of 15years, with depreciation being computed using the straight-linemethod. In January 2015, accessories costing $2,925were added tothe machine to reduce its operating costs. These accessoriesneither prolonged the machine’s life nor did they provide anyadditional salvage value.

(c) On July 1, 2015, Schiff Corporation purchased equipment at acost of $48,000. The equipment has an estimated salvage value of$6,000 and is being depreciated over an estimated life of fiveyears under the double-declining-balance method of depreciation.For the six months ended December 31, 2015, Schiff recorded ahalf-year’s depreciation.

(d) Quinn Company acquired a tract of land containing anextractable natural resource. Geological surveys estimate that therecoverable reserves will be 4,000,000 tons and that the land willhave a value of $800,000 after restoration. Relevant costinformation follows:

Land………………………………………………………………$14,00,000

Tons mined and sold in 2015 ………………………………….$950,000

(e) In January 2015, Bradley Corporation entered into a contractto acquire a new machine for its factory. The machine, which had acash price of $150,000, was paid for as follows:

Down Payment ……………………………………………………………….…$40,00

400 shares of Bradley common stock with an agree upon value of$325………$130,000

Prior to the machine’s use, installation costs of $10,000 wereincurred. The machine has an estimated useful life of 16 years andan estimated salvage value of $20,000 . The straight-line method ofdepreciation is used.

*** Instructions: In each case, compute the amount ofdepreciation or depletion for 2015.

Check figure (b) Depreciation expense for year 2015 = $3,265

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