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125. On July 1, 2002, Meed Kennels sells equipment for $22,000. The equipment originally cost $60,000, had an estimated 5-year life and an expected salvage value of $10,000. The accumulated depreciation account had a balance of $35,000 on January 1, 2002, using the straight-line method. The gain or loss on disposal is a. $3,000 gain. b. $2,000 loss. c. $3,000 loss. d. $2,000 gain. 126. A loss on disposal of a plant asset is reported in the financial statements a. in the Other Revenues and Gains section of the income statement. b. in the Other Expenses and Losses section of the income statement. c. as a direct increase to the capital account on the balance sheet. d. as a direct decrease to the capital account on the balance sheet.

127. An exchange of similar assets means the assets a. have the same historical cost. b. have been depreciated using the same method. c. perform the same function. d. have the same book value at the time of the exchange.

128. If similar assets are exchanged and a gain results, the a. recognition of the gain will be immediate. b. cost basis of the asset received in the exchange will be decreased. c. cost basis of the asset given in the exchange will be increased. d. cost basis of the asset received in the exchange will be increased.

129. Gains on the exchange of similar assets a. results in increased depreciation expense in future periods. b. results in decreased depreciation expense in future periods. c. does not affect depreciation expense in future periods. d. only affects the current year's income.

130. Losses on the exchange of similar assets are a. not possible. b. deferred. c. recognized immediately. d. deducted from the cost of the new asset acquired.

131. The cost of a new asset acquired in the exchange of similar assets is determined in part by a. the balance of the Accumulated Depreciation account of the asset acquired. b. the fair market value of the old asset exchanged. c. the book value of the asset acquired. d. any losses resulting from the exchange.

132. Wells Company's delivery truck, which originally cost $42,000, was destroyed by fire. At the time of the fire, the balance of the Accumulated Depreciation account amounted to $28,500. The company received $24,000 reimbursement from its insurance company. The gain or loss as a result of the fire was a. $18,000 loss. b. $10,500 loss. c. $18,000 gain. d. $10,500 gain.

133. Natural resources are a. depreciated using the units-of-activity method. b. physically extracted in operations and are replaceable only by an act of nature. c. reported at their market value. d. amortized over a period no longer than 40 years.

134. Depletion is a. a decrease in market value of natural resources. b. the amount of spoilage that occurs when natural resources are extracted. c. the allocation of the cost of natural resources to expense. d. the method used to record unsuccessful patents.

135. To qualify as natural resources in the accounting sense, assets must be a. underground. b. replaceable. c. of a mineral nature. d. physically extracted in operations.

136. The method most commonly used to compute depletion is the a. straight-line method. b. double-declining-balance method. c. units-of-activity method. d. effective interest method.

137. In computing depletion, salvage value is a. always immaterial. b. ignored. c. impossible to estimate. d. included in the calculation.

138. If a mining company extracts 1,500,000 tons in a period but only sells 1,400,000 tons, a. total depletion on the mine is based on the 1,400,000 tons. b. depletion expense is recognized on the 1,500,000 tons extracted. c. depletion expense is recognized on the 1,400,000 tons extracted and sold. d. a separate accumulated depletion account is set up to record depletion on the 100,000 tons extracted but not sold.

139. A coal company invests $15 million in a mine estimated to have 20 million tons of coal and no salvage value. It is expected that the mine will be in operation for 5 years. In the first year, 3,000,000 tons of coal are extracted and sold. What is the depletion expense for the first year? a. $2,250,000. b. $900,000. c. $225,000. d. Cannot be determined from the information provided.

140. Accumulated Depletion a. is used by all companies with natural resources. b. has a normal debit balance. c. is a contra-asset account. d. is never shown on the balance sheet.

141. On July 4, 2002, Montana Mining Company purchased the mineral rights to a granite deposit for $800,000. It is estimated that the recoverable granite will be 400,000 tons. During 2002, 100,000 tons of granite was extracted and 60,000 tons were sold. The amount of the Depletion Expense recognized for 2002 would be a. $100,000. b. $60,000. c. $120,000. d. $200,000.

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