Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 11: Q11-24Q (page 583)

In what way may the use of percentage depletion violate sound accounting theory?

Short Answer

Expert verified

Answer

In financial statements, the wrong amount of expense will be reported.

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Depletion

Loss of natural resources as a result of access to them on a regular basis is called depletion.A company uses it when any registered asset is involved, such as oil, coal, or gravel deposits.

02

Explaining the ways in which percentage depletion violates sound accounting theory

Percentage depletion may not always reflect the right percentage of a natural resource's cost to be charged to expenditure for depletion, and it may eventually surpass the property's real cost.

In addition to exceeding the property's real expenses, percentage depletion may not always reflect the right share of a natural resource's expenditures to be charged to expense. As a result, improper amount of spending will be reflected in the financial statements.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Jurassic Company owns machinery that cost \(900,000 and has accumulated depreciation of \)380,000. The present value of expected future net cash flows from the use of the asset are expected to be \(500,000. The fair value less cost of disposal of the equipment is \)400,000. Prepare the journal entry, if any, to record the impairment loss.

Under what conditions is it appropriate for a business to use the composite method of depreciation for its plant assets? What are the advantages and disadvantages of this method?

(Ratio Analysis) The 2014 annual report of Tootsie Roll Industries contains the following information.

(in millions)

December 31, 2014

December 31, 2013

Total assets

\(910.4

\)888.4

Total liabilities

219.3

208.1

Net sales

539.9

539.6

Net income

63.2

60.8

Instructions

Compute the following ratios for Tootsie Roll for 2014.

  1. Asset turnover.
  2. Return on assets.
  3. Profit margin on sales.
  4. How can the asset turnover be used to compute the return on assets?

Shumway Oil uses successful-efforts accounting and also provides full-cost results as well. Under fullcost, Shumway Oil would have reported retained earnings of \(42 million and net income of \)4 million. Under successful effort, retained earnings were \(29 million, and net income was \)3 million. Explain the difference between full-costing and successful-efforts accounting.

Francis Corporation purchased an asset at a cost of \(50,000 on March 1, 2017. The asset has a useful life of 8 years and a salvage value of \)4,000. For tax purposes, the MACRS class life is 5 years. Compute tax depreciation for each year 2017–2022.
See all solutions

Recommended explanations on Business Studies Textbooks

Managerial Economics

Read Explanation

Corporate Finance

Read Explanation

Introduction to Business

Read Explanation

Nature of Business

Read Explanation

Operational Management

Read Explanation

Human Resources

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free