Amy’s Chemical Plant purchased a
machine on August 6, 2011. The machine cost $350,000 and has a residual value of $30,000 and an estimated useful
life of 8 years. The machine is expected to last 100,000 machine hours.
the depreciation expense for 2011 and 2012 using the straight-line method.
the depreciation expense for 2011 and 2012 using the units-of-production
method. The machine was used for 5,000 machine hours in 2011 and 25,000 machine
hours in 2012.
the depreciation expense for 2011 and 2012 using double-declining-balance
7.4-1 To account for the disposal of a plant asset, the cost of
the asset and its related accumulated depreciation are removed from the books.
7.4-2 When an asset is sold at a gain, total
assets and total equity both increase.
computing the gain or loss on the sale of a plant asset, the annual
depreciation for the year of sale must be considered, but if the amount is
small, this amount can be ignored.
7.4-4 A gain will result when the book value of a plant asset
exceeds the cash received from the sale of the asset.
7.4-5 Gains and losses on the sale of plant assets are reported on
the income statement as regular income or expense items.
7.4-6 Gains on the sale of equipment increase net income while
losses on the sale of equipment decrease net income.
7.4-7 If Valtrex Inc.
sells a major plant asset:
expense should be recorded through the date of sale.
B) the book
value of the asset should be credited to the asset account.
C) no gain
should be recognized if depreciation expense was taken on the asset before the
asset was sold.
D) a loss
should be recognized, but not a gain, if depreciation expense was taken on the
asset before the asset was sold.
7.4-8 A loss is recorded on the sale of a plant
asset when the:
A) cash received
exceeds the asset’s book value.
book value is less than its historical cost.
book value is greater than the amount of cash received from the sale.
received exceeds the cash paid for the replacement asset.
7.4-9 If a machine has been fully depreciated and
has no residual value:
A) there will
always be a loss on the disposal.
B) there will
always be a gain on the disposal.
C) there will
be no gain or loss on the disposal.
assets will be increased.