Question : 8.7 Questions 1) The process of allocating the cost of natural : 1232333

8.7 Questions

1) The process of allocating the cost of natural resources is called depletion.

2) Computing depletion expense is much like computing depreciation under the straight-line method.

3) In computing depletion expense, salvage value is not part of the computation.

4) Items such as minerals are considered natural resources.

5) Pegasus Corporation purchased a vein of coal ore for $3,500,000. It is estimated that 25,000,000 tons of ore are available to be extracted. The estimated depletion rate for each ton of ore (rounded to the nearest cent) is:

A) $0.13.

B) $0.14.

C) $0.15.

D) $1.40.

6) Pegasus Corporation purchased a vein of coal ore for $5,250,000. It is estimated that 30,000,000 tons of ore are available to be extracted. The estimated depletion expense for this year’s extraction of 2,750,000 tons of ore (rounded to the nearest dollar) is:

A) $525,000.

B) $504,167.

C) $481,250.

D) $458,333.

7) Brandon Corporation purchased a vein of mineral ore for $3,250,000. It is estimated that 15,000,000 tons of ore are available to be extracted. The estimation depletion expense for this year’s extraction of 1,760,000 tons of ore (rounded to the nearest dollar) is:

A) $428,267.

B) $400,000.

C) $334,400.

D) $381,333.

8) Accumulated depletion is a(n):

A) contra-asset account.

B) contra-liability account.

C) expense account.

D) cash account.

9) Cost divided by the total amount of the natural resource to be removed yields:

A) depletion expense for the period.

B) depletion rate per unit for the period.

C) accumulated rate for the period.

D) depreciation rate per unit for the period.

10) If the amount extracted from a coal mine was different every year for four years, you would:

A) recompute the depletion expense rate per unit each year.

B) use the same depletion expense rate per unit each year.

C) debit Depletion expense for the same amount each year.

D) credit Accumulated depletion–coal mine for the same amount each year.

11) Subtracting accumulated depletion from the asset account coal mine would yield the:

A) current market value of the coal mine.

B) original cost of the coal mine.

C) net book value of the coal mine.

D) current period’s depletion expense for the coal mine.

12) Information needed to compute a depletion charge per unit includes the:

A) estimated total amount of resources available for removal.

B) amount of resources removed during the period.

C) cumulative amount of resources removed.

D) amount of resources sold during the period.

13) Properties whose physical substance consists of natural resources that are consumed in the operation of a business are called:

A) depreciable assets.

B) depletable assets.

C) amortizable assets.

D) intangible assets.

14) When calculating depletion, what is the proper treatment of residual value?

A) There is no residual value in the calculation of depletion expense.

B) The residual value is subtracted from cost to determine the depletable base.

C) The residual value is added to cost to determine the depletable base.

D) Residual value is ignored until the end of the asset’s life at which time it is used to limit the final year’s expense amount.

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July 1, 2023

21. The percentage-of-sales procedure arises from the idea that uncollectible amounts will vary with the volume of credit business. The firm estimates the appropriate percentage by studying its own experience or by inquiring into the experience of similar firms. Default rates generally fall within the range of .01% to .02% of credit sales.

22. The percentage-of-completion method measures the proportion of total work carried out during the accounting period either from engineers' estimates of the degree of completion or from the ratio of costs incurred to date to the total costs expected for the entire contract.

23. A common-size income statement expresses each expense and net income as a percentage of
A. assets.
B. revenues.
C. liabilities.
D. expenses.
E. shareholders’ equity.

24. If the firm has received a promise of payment but cannot measure this promise with reasonable reliability,
A. U.S. GAAP would permit revenue to be recognized, but IFRS would not permit revenue to be recognized.
B. U.S. GAAP would not permit revenue to be recognized, but IFRS would permit revenue to be recognized.
C. neither U.S. GAAP nor IFRS would permit revenue to be recognized.
D. U.S. GAAP and IFRS would permit revenue to be recognized.
E. none of the above

25. Which section includes income derived from a firm’s primary business activities as well as from activities peripherally related to operations? (The firm expects these sources of earnings to continue.)
A. income from continuing operations
B. income, gains, and losses from discontinued operations
C. extraordinary gains and losses
D. retained earnings
E. paid-in-capital

26. Operating risks
A. include variability in sales from changing economic conditions (cyclicality risk).
B. include variability in sales from short product life cycles (because of technological change or changes in consumer taste).
C. include variability of earnings that arises when the firm has a high proportion of fixed costs that do not change as sales change.
D. Answers a, b, and c are correct.
E. None of these answer choices is correct.

27. Ulrich Co. sells an asset to a buyer for a total sales price of $6,000 with a payment schedule of $2,000 in year 1, $2,000 in year 2, and $2,000 in year 3. The cost of the asset is $5,000. Under the cost-recovery-first method, what amount of net profit is recognized in year 3?
A. $2,000
B. $1,000
C. $666.67
D. $333.33
E. $0

28. Which of the following is true regarding income recognition?
A. The seller must have substantially performed its obligations to the customer (for example, by transferring ownership of goods to the customer).
B. The seller must have obtained an asset from the customer that it can reliably measure. If the asset is not cash, the seller must be reasonably certain of converting it into cash.
C. The firm recognizes expenses when it consumes assets.
D. If an event or transaction leads to the recognition of revenue, the firm matches the consumption of any assets (the expense), in time, with the revenue recognized.
E. all of the above

29. Cowden Properties

Cowden Properties sold a condominium to Ms. Roberts for $90,000. Cowden originally acquired the condo at a cost of $40,000 and made improvements to the unit totaling $20,000. The contract for sale required Ms. Roberts to pay the $90,000 as follows: