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.
