ACC 206 Week 5 Mid-Term Exam – Strayer
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Chapters 10 Through 13
CHAPTER10
PLANTASSETS,NATURALRESOURCES,ANDINTANGIBLEASSETS
CHAPTERSTUDYOBJECTIVES
1.Describehowthecostprincipleappliestoplantassets.
2.Explaintheconceptofdepreciation..
3.Computeperiodicdepreciationusingdifferentmethods.
4.Describetheprocedureforrevisingperiodicdepreciation.
5.Distinguishbetweenrevenueandcapitalexpenditures,andexplaintheentriesforeach.
6.Explainhowtoaccountforthedisposalofaplantasset.
7.Computeperiodicdepletionofnaturalresources.
8.Explainthebasicissuesrelatedtoaccountingforintangibleassets.
9.Indicatehowplantassets,naturalresources,andintangibleassetsarereported.
10.Explainhowtoaccountfortheexchangeofplantassets.
TRUE-FALSESTATEMENTS
1. Allplantassets(fixedassets)mustbedepreciatedfor accountingpurposes.
2. Whenpurchasingland,thecostsforclearing,draining,filling,andgradingshouldbe chargedto aLandImprovementsaccount.
3. Whenpurchasingdeliveryequipment,salestaxesandmotorvehiclelicensesshouldbe
chargedto DeliveryEquipment.
4. Landimprovementsaregenerallychargedto
theLandaccount.
5. Oncecostisestablishedforaplantasset,itbecomes thebasis
ofaccounting fortheasset
unlesstheassetappreciatesinvalue,inwhichcase,marketvaluebecomesthebasisfor accountability.
6. Thebookvalueof
aplantassetisalwaysequaltoitsfairmarketvalue.
7. Recordingdepreciationonplantassetsaffectsthebalancesheetandtheincome statement.
8. Thedepreciablecostof
aplant asset is itsoriginalcostminusobsolescence.
9. Recordingdepreciationeachperiodisanapplicationof
thematchingprinciple.
10. TheAccumulatedDepreciationaccountrepresentsacashfundavailabletoreplaceplant assets.
11. Incalculatingdepreciation,bothplantassetcost andusefullifearebasedonestimates.
12. Usingtheunits-of-activitymethodofdepreciatingfactoryequipmentwillgenerallyresultin
moredepreciationexpensebeingrecordedoverthelifeoftheassetthanifthestraight-line
method hadbeenused.
13. Salvagevalueisnotsubtractedfromplantassetcostindeterminingdepreciationexpense
underthedeclining-balancemethodofdepreciation.
14. Thedeclining-balancemethodofdepreciationiscalledanaccelerateddepreciation methodbecauseitdepreciatesanassetinashorterperiodoftimethantheasset'suseful life.
15. Underthedouble-declining-balancemethod,thedepreciationrateusedeachyear remainsconstant.
16. TheIRSdoesnotrequirethetaxpayertousethesamedepreciationmethodonthetax returnthatisusedinpreparingfinancialstatements.
17. Achangeintheestimatedusefullifeofaplantassetmaycauseachangeintheamount ofdepreciationrecognizedinthecurrentandfutureperiods,but
nottopriorperiods.
18. Achangeintheestimatedsalvagevalueofaplantassetrequiresarestatementofprior years'depreciation.
19. Todetermineanewdepreciationamountafterachangeinestimateofaplantasset's useful life, the asset'sremaining depreciablecost isdividedbyits remainingusefullife.
20. Additionsand improvementstoaplantassetthatincreasethe
asset'soperatingefficiency, productive capacity,or expectedusefullife
aregenerallyexpensed intheperiodincurred.
21. Capitalexpendituresareexpendituresthatincreasethecompany'sinvestmentin
productive facilities.
22. Ordinaryrepairs
shouldberecognizedwhenincurredas revenueexpenditures.
23. A characteristicofcapitalexpendituresis that theexpendituresoccurfrequently
duringthe period ofownership.
24. Onceanassetisfullydepreciated,noadditionaldepreciationcanbetakeneventhough theasset
is still beingusedbythebusiness.
25. Thefairmarketvalueof a plantasset
isalwaysthesameasits bookvalue.
26. Iftheproceedsfromthesaleofaplantassetexceeditsbookvalue,againondisposal occurs.
27. Alossondisposalofaplantassetcanonlyoccurifthecashproceeds received fromthe assetsaleis
lessthanthe asset'sbook value.
28. Thebookvalueofaplantassetistheamount originallypaid
fortheassetlessanticipated salvagevalue.
29. Alossondisposal ofaplantasset
asaresult ofasaleoraretirementiscalculated inthe sameway.
30. A plantassetmustbefullydepreciatedbeforeit canberemovedfromthe books.
31. Ifaplantasset issoldata gain,thegain
ondisposal shouldreducethecost ofgoodssold section of the incomestatement.
32. Depletioncostperunitiscomputedbydividingthetotalcostofanaturalresourcebythe
estimatednumberof unitsintheresource.
33. TheAccumulatedDepletionaccountisdeductedfromthecostofthenaturalresourcein thebalancesheet.
34. Depletionexpenseforaperiodisonlyrecognizedonnaturalresourcesthathavebeen extractedandsoldduringtheperiod.
35. Naturalresourcesarelong-livedproductiveassetsthatareextractedinoperationsand arereplaceableonlybyanactof
nature.
36. Thecostofnaturalresourcesisnotallocatedtoexpensebecausethenaturalresources
arereplaceableonlybyanactof nature.
37. Conceptually,thecostallocationproceduresfornaturalresourcesparallelsthatofplant
assets.
38. Naturalresourcesincludestandingtimberandundergrounddepositsofoil,gas,and
minerals.
39. Ifanacquiredfranchiseorlicensehasanindefinitelife,thecostoftheassetisnot
amortized.
40. Whenanentirebusinessispurchased,goodwillistheexcessofcostoverthebookvalue
of
thenet assetsacquired.
41. Researchand
development
costswhich result
in asuccessful product which ispatentable arechargedtothePatentaccount.
42. Thecostof
apatentmustbeamortizedovera 20-yearperiod.
43. Thecostofapatentshouldbeamortizedoveritslegallifeorusefullife,whicheveris shorter.
44. The
balancesofthe majorclassesofplantassetsand
accumulated depreciationby major
classes shouldbedisclosedinthebalance sheetornotes.
45. Theassetturnover ratioiscalculated
astotalsales
dividedbyendingtotalassets.
46. Researchanddevelopmentcostscanbeclassifiedasaproperty,plant,andequipment itemoras
an
intangibleasset.
a47. An exchangeofplantassetshas commercial substanceifthe futurecashflows
change as a resultofthe
exchange.
a48. Companiesrecordagainorlossontheexchangeofplantassetsbecausemost
exchangeshavecommercialsubstance.
a49. Whenplantassetsareexchanged,thecostofthenewassetisthebookvalueoftheold
assetplus anycashpaid.
Additional
True-FalseQuestions
50. Whenconstructingabuilding,acompanyispermittedtoincludetheacquisitioncostand certaininterest
costs incurredinfinancingtheproject.
51. Recognitionofdepreciationpermitstheaccumulationofcashforthereplacementofthe asset.
52. Whenanassetispurchasedduringtheyear,itisnotnecessarytorecorddepreciation
expense
inthefirst yearunderthedeclining-balancedepreciationmethod.
53. Depletionexpenseisreported intheincomestatementas anoperatingexpense.
54. Goodwillisnotrecognizedinaccountingunlessitisacquiredfromanotherbusiness
enterprise.
55. Researchanddevelopmentcostsshouldbechargedtoexpensewhenincurred.
56. Alossontheexchangeofplantassetsoccurswhenthefairmarketvalueoftheoldasset islessthanitsbookvalue.
MULTIPLECHOICEQUESTIONS
57. Thecostof apurchasedbuildingincludes
allofthefollowingexcept
a.closingcosts.
b.realestatebroker's
commission. c.remodeling costs.
d.Allof
theseareincluded.
58. Acompanypurchasedlandfor$90,000cash.Realestatebrokers'commissionwas
$5,000and$7,000wasspentfordemolishinganoldbuildingonthelandbefore
constructionofanewbuildingcouldstart.Underthecostprinciple,thecostoflandwould
be recordedat
a.$97,000. b.$90,000. c.$95,000. d.$102,000.
59. Whichoneofthefollowingitemsisnotconsideredapartofthecostofatruckpurchased for businessuse?
a.Salestax
b.Trucklicensec.Freightcharges
d.Costofletteringonsideoftruck
60. Whichofthefollowingassetsdoesnotdeclineinservicepotentialoverthecourseofits useful life?
a.Equipment b.Furnishings
c.Land
d.Fixtures
61. Thefoursubdivisions forplantassetsare
a.land,landimprovements,buildings,andequipment. b.intangibles,land,buildings,andequipment.
c.furnishingsandfixtures,land,buildings, andequipment.
d.property,plant,equipment,andland.
62. Thecostof
landdoesnotinclude
a.realestatebrokers' commission. b.annualpropertytaxes.
c.accruedpropertytaxesassumedbythepurchaser.
d.title fees.
63. FeeneyClinicpurchaseslandfor$130,000cash.Theclinicassumes$1,500inproperty taxesdueontheland.Thetitleandattorneyfeestotaled$1,000.Theclinichastheland
gradedfor
$2,200.WhatamountdoesFeeneyClinicrecordasthecostforthe land?
a.$132,200 b.$130,000 c.$134,700 d.$132,500
64. BelleCompanybuyslandfor$50,000on12/31/07.Asof3/31/08,thelandhas
appreciatedinvalueto$50,700.On12/31/08,thelandhasanappraisedvalueof
$51,800.Bywhatamountshouldthe Landaccount
beincreasedin 2008?
a.$0b.$700
c.$1,100
d.$1,800
65. PineCompanyacquireslandfor$86,000cash.Additional costsareasfollows:
Removalof shed $300 Fillingandgrading 1,500 Salvagevalue
oflumberofshed 120 Brokercommission 1,130 Pavingofparkinglot 10,000 Closingcosts
560
Pinewillrecordtheacquisitioncostof thelandas
a.$86,000.
b.$87,690.
c.$89,610. d.$89,370.
66. ShawneeHospitalinstallsanewparkinglot.Thepavingcost$30,000andthelightsto illuminatethenewparkingareacost$15,000.Whichofthefollowingstatementsistrue with
respecttotheseadditions?
a.$30,000shouldbedebitedtothe Landaccount.
b.$15,000shouldbedebitedtoLandImprovements.
c.$45,000shouldbedebitedtotheLandaccount.d.$45,000shouldbedebitedtoLandImprovements.
10-10
67. Landimprovementsshouldbedepreciatedovertheusefullife
of the a.land.
b.buildingsontheland.
c.land or landimprovements,whicheverislonger.
d.landimprovements.
68. GeneralMoldingisbuildinganewplantthatwilltakethreeyearstoconstruct.The constructionwillbefinancedinpartbyfundsborrowedduringtheconstructionperiod.
Therearesignificantarchitectfees,excavationfees,andbuildingpermitfees.Whichof
the followingstatementsis true?
a.Excavationfeesarecapitalizedbut building
permitfeesarenot.
b.Architectfeesarecapitalizedbut buildingpermitfeesarenot.
c.Interestiscapitalizedduring theconstructionas partof thecostofthebuilding.
d.The capitalizedcost
is equaltothecontractprice
tobuildthe
plant less any intereston borrowed funds.
69. Acompanypurchasesaremotesitebuildingforcomputeroperations.Thebuildingwillbe
suitableforoperationsaftersomeexpenditures.Thewiringmustbereplacedtocomputer specifications.Theroofisleakyandmustbereplaced.Allroomsmustberepaintedand recarpetedandtherewillalsobesomeplumbingworkdone.Whichofthefollowing
statements is true?
a.Thecost ofthebuildingwillnot includetherepaintingandrecarpeting costs.
b.Thecostofthebuildingwillincludethecostof
replacing theroof.
c.Thecostofthebuildingisthepurchasepriceofthebuilding,whiletheadditional expendituresareallcapitalizedas BuildingImprovements.
d.Thewiringis
partofthecomputercosts,notthebuildingcost.
70. CarleyCompany purchasesanewdeliverytruck
for$45,000.Thesalestaxesare$3,000.
Thelogo of thecompanyis painted
on thesideofthe truckfor$1,200.Thetrucklicenseis $120.Thetruckundergoessafetytestingfor$220.WhatdoesCarleyrecordasthecostof
thenewtruck?
a.$49,540
b.$49,420 c.$48,000 d.$47,420
71. Allof thefollowingfactorsincomputingdepreciationareestimatesexcept a.cost.
b.residualvalue. c.salvagevalue. d.usefullife.
72. StoriesCompanypurchasedequipmentandthesecostswereincurred:
Cashprice Salestaxes
Insuranceduringtransit
Installationandtesting Totalcosts
$22,500
1,800 320
430$25,050
PlantAssets,NaturalResources,andIntangibleAssets 10-11
Storieswillrecordtheacquisitioncostofthe equipmentas a.$22,500.
b.$24,300. c.$24,620. d.$25,050.
73. Becky’sBloomspurchasedadeliveryvanfor$20,000.Thecompany wasgivena$2,000
cashdiscountbythedealer,andpaid$1,000salestax.Annualinsuranceonthevanis
$500.Asaresultofthepurchase,byhowmuchwillBecky’sBloomsincreaseitsvan account?
a.$20,000
b.$18,000 c.$19,500 d.$19,000
74. UptonCompanypurchasedequipmentonJanuary1atalistpriceof$50,000,withcredit terms2/10,n/30.PaymentwasmadewithinthediscountperiodandUptonwasgivena
$1,000cashdiscount.Uptonpaid$2,500salestaxontheequipment,andpaidinstallation chargesof$880.Priortoinstallation,Uptonpaid$2,000topouraconcreteslabonwhich
toplacethe equipment.Whatisthetotalcostofthe newequipment?
a.$52,380
b.$54,380 c.$55,380 d.$50,500
75. Interestmaybe includedintheacquisitioncost ofa
plantasset a.duringtheconstructionperiodof aself-constructedasset.b.if theassetis
purchasedoncredit.
c.if theassetacquisitionisfinancedbyalong-termnotepayable.
d.ifit
isapart of a lump-sumpurchase.
76. ThebalanceintheAccumulatedDepreciationaccountrepresentsthe
a.cashfundtobeusedtoreplaceplantassets.
b.amounttobedeductedfromthecostoftheplantassettoarriveatitsfairmarket value.
c.amountchargedtoexpenseinthecurrentperiod.
d.amountchargedto
expensesincetheacquisitionof theplantasset.
77. Whichoneofthefollowingitemsisnotaconsiderationwhenrecordingperiodic
depreciationexpenseonplantassets?
a.Salvagevalue
b.Estimatedusefullife
c.Cashneededtoreplacethe plantasset
d.Cost
78. Depreciationisthe
processof allocating thecostof
aplantasset overits
servicelife
in a.anequaland equitablemanner.
b.an acceleratedand accuratemanner. c.asystematicandrationalmanner.
d.a conservativemarket-basedmanner.
10-12
79. Thebookvalueof anassetisequaltothe
a.asset'smarketvaluelessits
historicalcost.
b.bluebookvaluereliedonbysecondarymarkets.
c.replacementcostof theasset.
d.asset'scostlessaccumulateddepreciation.
80. Accountantsdonotattempttomeasurethechangeinaplantasset'smarketvalueduring ownership
because
a.theassetsare notheldfor
resale.
b.plantassetscannotbesold.
c.losseswouldhavetoberecognized.
d.itismanagement'sresponsibilityto determinefair values.
81. Depreciationis
aprocessof a.assetdevaluation.
b.costaccumulation.
c.cost allocation.
d.assetvaluation.
82. Recordingdepreciationeachperiodisnecessaryinaccordancewiththe
a.goingconcernprinciple.
b.costprinciple.
c.matchingprinciple.
d.assetvaluationprinciple.
83. Incomputingdepreciation,salvagevalueis
a.thefairmarketvalueofa plantassetonthedate of acquisition.
b.subtractedfromaccumulateddepreciationtodeterminetheplantasset'sdepreciable
cost.
c.anestimateof aplantasset'svalueattheendofitsusefullife.
d.ignoredinallthedepreciationmethods.
84. Whenestimatingtheusefullifeofanasset,accountantsdonotconsider a.thecosttoreplacetheassetat theendofits
usefullife.
b.obsolescencefactors.
c.expectedrepairsandmaintenance.
d.theintendeduse of theasset.
85. Usefullifeisexpressedintermsof
useexpectedfromtheassetunderthe a.declining-balancemethod.
b.straight-linemethod.
c.units-of-activitymethod.
d.noneof these.
86. Equipmentwaspurchasedfor$75,000.Freightchargesamountedto$3,500andthere wasacostof$10,000forbuildingafoundationandinstallingtheequipment.Itis estimatedthattheequipmentwillhavea$15,000salvagevalueattheendofits5-year useful life. Depreciationexpenseeachyearusingthe
straight-linemethodwillbe
a.$17,700. b.$14,700.
c.$12,300. d.$12,000.
PlantAssets,NaturalResources,andIntangibleAssets 10-13
87. Atruckwaspurchasedfor$120,000anditwasestimatedtohavea$24,000salvage valueattheendofitsusefullife.Monthlydepreciationexpenseof$2,000wasrecorded using thestraight-linemethod.Theannualdepreciationrateis
a.20%. b.2%.c.8%. d.25%.
88. AcompanypurchasedfactoryequipmentonApril1,2008for$64,000.Itisestimatedthat theequipmentwillhavean$8,000salvagevalueattheendofits10-yearusefullife.
Usingthestraight-linemethodofdepreciation,theamounttoberecordedasdepreciation expense atDecember31,2008is
a.$6,400. b.$5,600. c.$4,200. d.$4,800.
89. Acompanypurchasedofficeequipmentfor$40,000andestimatedasalvagevalueof
$8,000attheendofits5-yearusefullife.Theconstantpercentagetobeappliedagainst
book valueeachyearifthedouble-declining-balancemethodisusedis
a.20%. b.25%. c.40%. d.4%.
90. Thedeclining-balancemethodofdepreciationproduces a.adecreasingdepreciationexpenseeachperiod.
b.an increasingdepreciationexpenseeachperiod. c.a decliningpercentagerateeachperiod.
d.a constantamount
ofdepreciationexpenseeachperiod.
91. Acompanypurchasedfactoryequipmentfor$250,000.Itisestimatedthattheequipment willhavea$25,000salvagevalueattheendofitsestimated5-yearusefullife.Ifthe companyusesthedouble-declining-balancemethodofdepreciation,theamountofannual depreciationrecordedforthesecondyear afterpurchasewould be
a.$100,000. b.$60,000.
c.$90,000. d.$43,200.
92. Theunits-of-activitymethodisgenerallynot
suitablefor a.airplanes.
b.buildings.
c.deliveryequipment. d.factorymachinery.
93. Aplantassetcost$144,000andisestimatedtohavean$18,000salvagevalueattheend
ofits8-yearusefullife.Theannualdepreciation expenserecordedforthethirdyearusing
thedouble-declining-balancemethodwouldbe
a.$12,060. b.$20,250. c.$17,718. d.$13,785.
10-14
94. Afactorymachinewaspurchased for$75,000onJanuary1,2008.Itwasestimatedthatit wouldhavea$15,000salvagevalueattheendofits5-yearusefullife.Itwasalso
estimatedthatthemachinewouldberun40,000hoursinthe5years.Thecompanyran themachinefor4,000actualhoursin2008.Ifthecompanyusestheunits-of-activity
methodof depreciation,the amountof depreciationexpensefor 2008 wouldbe
a.$7,500.b.$12,000. c.$15,000. d.$6,000.
95. TheModifiedAcceleratedCostRecoverySystem(MACRS)isadepreciationmethod which
a.isusedfortaxpurposes.
b.mustbeusedforfinancialstatementpurposes.
c.isrequiredbytheSEC.
d.expensesanassetoverasingleyearbecausecapitalacquisitionsmustbeexpensed in
theyearpurchased.
96. Whichofthefollowingmethodsof computing depreciationisproductionbased? a.Straight-line
b.Declining-balance c.Units-of-activityd.Noneof these
97. Managementshouldselect
thedepreciationmethodthat a.iseasiesttoapply.
b.bestmeasurestheplantasset'smarketvalueover
its usefullife.
c.bestmeasuresthe plantasset'scontributiontorevenue
overits
usefullife.
d.hasbeenusedmostofteninthepastbythe company.
98. Thedepreciationmethodthatappliesaconstantpercentagetodepreciablecostin calculating depreciation is
a.straight-line.
b.units-of-activity.
c.declining-balance.
d.noneof these.
Usethefollowing
informationforquestions99–100.
OnOctober1,2008,DoleCompanyplacesanewassetintoservice.Thecostoftheassetis
$60,000withanestimated5-yearlifeand$15,000salvagevalueattheendof its usefullife.
99. Whatisthedepreciationexpensefor2008ifDoleCompanyusesthestraight-linemethod ofdepreciation?
a.$2,250 b.$12,000 c.$3,000
d.$6,000
PlantAssets,NaturalResources,andIntangibleAssets 10-15
100. WhatisthebookvalueoftheplantassetontheDecember31,2008,balancesheet assuming that DoleCompanyusesthedouble-declining-balancemethodof
depreciation? a.$39,000
b.$45,000 c.$54,000 d.$57,000
101. Whichdepreciationmethod ismostfrequentlyusedinbusinessestoday?
a.Straight-line
b.Declining-balance c.Units-of-activity
d.Double-declining-balance
102. WineCompanyusestheunits-of-activitymethodincomputingdepreciation.Anewplant assetispurchased
for$24,000thatwillproduceanestimated100,000unitsoveritsuseful life.Estimatedsalvagevalue
attheend ofitsuseful lifeis$2,000.
Whatis the
depreciation costperunit?
a.$2.20 b.$2.40 c.$.22 d.$.24
103. Units-of-activityisanappropriatedepreciationmethodtouse when
a.it isimpossibleto
determinetheproductivityof
theasset.
b.theasset'susewillbeconstantoverits
usefullife.
c.theproductivityof
theassetvariessignificantlyfromoneperiodtoanother.
d.thecompanyisamanufacturingcompany.
104. Thecalculationof
depreciationusingthedecliningbalancemethod,
a.ignoressalvage
valueindeterminingtheamounttowhicha constantrateisapplied.
b.multipliesaconstantpercentagetimesthepreviousyear'sdepreciationexpense.
c.yieldsan increasingdepreciationexpenseeachperiod.
d.multipliesadecliningpercentagetimesaconstantbookvalue.
Use thefollowing
informationforquestions105–106.
GreyCompanypurchasedanewvanforfloraldeliveriesonJanuary1,2008.Thevancost $36,000withanestimatedlifeof5yearsand$9,000salvagevalueattheendofitsusefullife. Thedouble-declining-balancemethodof depreciationwillbeused.
105. Whatisthedepreciationexpensefor2008?
a.$7,200
b.$5,400c.$10,800 d.$14,400
106. WhatisthebalanceoftheAccumulatedDepreciationaccountattheendof2009?
a.$5,760
b.$17,280
c.$23,040 d.$8,640
10-16
107. PorterCompanypurchasedequipmentfor$450,000onJanuary1,2007,andwillusethe
double-declining-balancemethodofdepreciation.Itisestimatedthattheequipmentwill
havea3-yearlifeanda$20,000salvagevalueattheendofitsusefullife.Theamountof
depreciationexpenserecognizedintheyear2009willbe
a.$50,000. b.$30,000.
c.$54,440. d.$34,440.
108. Aplant
asset was purchasedon January 1 for$50,000withan estimatedsalvagevalueof $10,000attheendofitsusefullife.Thecurrentyear'sDepreciationExpenseis$5,000 calculatedonthestraight-linebasisandthebalanceoftheAccumulatedDepreciation accountattheendof
theyearis$25,000.Theremainingusefullifeof
theplantasset is
a.10 years. b.8years. c.5 years. d.3years.
109. Equipmentwaspurchasedfor$60,000.Freightchargesamountedto$2,800andthere
wasacostof$8,000forbuildingafoundation andinstallingtheequipment.Itisestimated thattheequipmentwillhavea$12,000salvagevalueattheendofits5-yearusefullife.
Depreciation expenseeachyearusingthestraight-linemethodwill be
a.$14,160. b.$11,760.
c.$9,840. d.$9,600.
110. Equipmentwaspurchased
for$17,000onJanuary1,2008.Freightchargesamountedto
$700andtherewasacostof$2,000forbuildingafoundationandinstallingthe equipment.Itisestimatedthattheequipmentwillhavea$3,000salvagevalueattheend ofits5-year
useful life.What
istheamountofaccumulateddepreciationatDecember31, 2009,if thestraight-linemethodof depreciationisused?
a.$6,680 b.$3,340 c.$2,860
d.$5,720
111. Acompanypurchasedfactoryequipment onJune 1,2008,for$48,000.Itisestimatedthat
theequipmentwillhavea$3,000salvagevalueattheendofits10-yearusefullife.Using
thestraight-linemethodofdepreciation,theamounttoberecordedasdepreciation expense atDecember31,2008,is
a.$4,500.
b.$2,625. c.$2,250. d.$1,875.
112. Aplant asset
was purchasedon January 1 for$40,000withan
estimatedsalvagevalueof
$8,000attheendofitsusefullife.Thecurrentyear'sDepreciationExpenseis$4,000
calculatedonthestraight-linebasisandthebalanceoftheAccumulatedDepreciation
accountattheendof theyearis$20,000.Theremainingusefullifeof theplantasset
is
PlantAssets,NaturalResources,andIntangibleAssets 10-17
a.10 years. b.8years. c.5 years. d.3years.
Usethefollowing
informationforquestions113–115.
BrinkmanCorporationboughtequipmentonJanuary1,2008.Theequipmentcost$90,000and hadanexpectedsalvagevalueof$15,000.Thelifeoftheequipmentwasestimatedtobe6 years.
113. Thedepreciablecostof
theequipmentis
a.$90,000.
b.$75,000. c.$50,000. d.$12,500.
114. Thedepreciationexpenseusingthestraight-linemethodof depreciationis a.$17,500.
b.$18,000. c.$12,500.
d.noneof theabove.
115. Thebookvalueof
the equipmentatthebeginningof thethirdyear wouldbe a.$90,000.
b.$75,000. c.$65,000. d.$25,000.
116. BadenCompanypurchasedmachinerywithalistpriceof$32,000.Theyweregivena 10%discountbythemanufacturer.Theypaid$200forshippingandsalestaxof$1,500.
Badenestimatesthatthemachinerywillhaveausefullifeof10yearsandaresidual value of$10,000.IfBadenusesstraight-linedepreciation,annualdepreciationwillbe
a.$2,050.
b.$2,036. d.$3,050. d.$1,880.
117. BatesCompanypurchasedequipmentonJanuary1,2008,atatotalinvoicecostof
$600,000.Theequipmenthasanestimatedsalvagevalueof$15,000andanestimated
usefullifeof5years.WhatistheamountofaccumulateddepreciationatDecember31,
2009,if thestraight-linemethodof depreciationisused?
a.$120,000
b.$240,000 c.$117,000 d.$234,000
10-18
118. OnJanuary1,amachinewithausefullifeoffiveyearsandaresidualvalueof$15,000
waspurchasedfor$45,000.Whatisthedepreciationexpenseforyear2underthe
double-declining-balancemethodof depreciation?
a.$10,800 b.$18,000 c.$14,400 d.$8,640
119. Amachinewithacostof$160,000hasanestimatedsalvagevalueof$10,000andan
estimatedusefullifeof5yearsor15,000hours.Itistobedepreciatedusingtheunits-of-activitymethodofdepreciation.Whatistheamountofdepreciationforthesecondfull year,during whichthe machinewasused5,000hours?
a.$50,000 b.$30,000 c.$43,333 d.$53,333
120. Equipmentwithacostof$240,000hasanestimatedsalvagevalueof$15,000andan estimatedlifeof4yearsor15,000hours.Itistobedepreciatedusingtheunits-of-activity
method.Whatistheamountofdepreciationforthefirstfullyear,duringwhichthe equipmentwasused 3,300 hours?
a.$60,000
b.$67,800 c.$49,500 d.$56,250
121. LarimeCompanypurchasedequipmentfor$40,000onJanuary1,2007,andwillusethe
double-declining-balancemethodofdepreciation.Itisestimatedthattheequipmentwill havea5-yearlifeanda$2,000salvagevalueattheendofitsusefullife.Theamountof
depreciationexpenserecognizedintheyear2009willbe
a.$5,760. b.$9,120. c.$9,600. d.$5,472.
122. InterlineTruckingpurchasedatractortrailerfor$98,000. Interlineusestheunits-of-activity
methodfordepreciatingitstrucksandexpectstodrivethetruck1,000,000milesoverits 12-yearusefullife.Salvagevalueisestimated tobe$14,000.Ifthetruckisdriven90,000
miles in itsfirstyear,howmuchdepreciationexpenseshouldInterlinerecord?
a.$7,000 b.$8,820
c.$7,560 d.$8,167
123. Anassetwaspurchasedfor$150,000.Ithadanestimatedsalvagevalueof$30,000and
anestimatedusefullifeof10years.After5yearsofuse,theestimatedsalvagevalueis
revisedto$24,000buttheestimatedusefullifeisunchanged.Assumingstraight-line depreciation, depreciationexpenseinyear6
wouldbe
a.$18,000. b.$13,200.
c.$9,000. d.$12,600.
PlantAssets,NaturalResources,andIntangibleAssets 10-19
124. Equipmentcosting$30,000withasalvagevalueof$6,000andanestimatedlifeof8
yearshasbeendepreciatedusingthestraight-linemethodfor2years.Assuminga revisedestimatedtotallifeof5yearsandnochangeinthesalvage value,thedepreciation expense for year3wouldbe
a.$3,600.
b.$8,000. c.$6,000. d.$4,800.
125. Joe'sQuikShopboughtmachineryfor$25,000onJanuary1,2008.Joeestimatedthe usefullifetobe5yearswithnosalvagevalue,andthestraight-line methodofdepreciation
willbeused. OnJanuary 1,2009,Joedecidesthatthebusinesswillusethemachineryfor a total of6
years.What is
thereviseddepreciationexpensefor2009?
a.$4,000 b.$2,000
c.$3,333 d$5,000
126. Eachofthefollowingisusedincomputingrevisedannualdepreciationforachangein
estimateexcept
a.bookvalue. b.cost.
c.depreciablecost.
d.remaininguseful life.
127. A
changeintheestimatedusefullife of equipmentrequires
a.aretroactivechangeintheamountofperiodicdepreciationrecognizedinprevious
years.
b.thatnochangebemadeintheperiodicdepreciation sothatdepreciationamounts are
comparableoverthelifeof theasset.
c.thattheamountofperiodicdepreciationbechangedinthecurrentyearandinfuture
years.
d.that incomeforthecurrent yearbeincreased.
128. HuntCompanyhasdecidedtochangetheestimateoftheusefullifeofanassetthathas
beeninservicefor2years. Whichofthefollowingstatementsdescribestheproperwayto
revise
a usefullifeestimate?
a.Revisionsinusefullifeare permittedifapprovedbytheIRS.
b.Retroactivechangesmustbemadeto correctpreviouslyrecordeddepreciation.
c.Onlyfuture yearswill beaffectedbytherevision.
d.Bothcurrentandfutureyearswillbeaffectedbythe revision.
129. Jim'sCopyShopboughtequipmentfor$90,000onJanuary1,2007.Jimestimatedthe
usefullifetobe3yearswithnosalvage
value, andthestraight-line
methodofdepreciation willbeused.OnJanuary1,2008,Jimdecidesthat the businesswilluse theequipmentfor5years.Whatisthereviseddepreciationexpensefor
2008?
a.$30,000 b.$12,000 c.$15,000 d.$22,500
10-20
130. Costsincurredtoincreasetheoperatingefficiencyorusefullifeofaplantassetare
referred toas
a.capitalexpenditures.b.expenseexpenditures. c.ordinaryrepairs.
d.revenueexpenditures.
131. Expendituresthatmaintain theoperatingefficiencyandexpectedproductivelifeofaplant
assetaregenerally
a.expensedwhenincurred.
b.capitalizedasa partofthecostof
theasset.
c.debitedto the AccumulatedDepreciationaccount.d.notrecordeduntiltheybecomematerialinamount.
132. Whichofthefollowingisnottrue of
ordinaryrepairs?
a.Theyprimarilybenefitthecurrentaccountingperiod. b.Theycan bereferredto asrevenueexpenditures.
c.Theymaintaintheexpectedproductivelifeof theasset. d.Theyincreasetheproductivecapacityof
theasset.
133. Thepaneling ofthe body ofanopenpickuptruckwouldbeclassifiedasa(n)
a.revenueexpenditure.
b.addition.
c.improvement.d.ordinaryrepair.
134. Additionsand improvements
a.occurfrequentlyduringtheownershipof
aplantasset. b.normallyinvolveimmaterialexpenditures.
c.increasethebookvalueof
plantassetswhenincurred.
d.typicallyonlybenefitthecurrentaccountingperiod.
135. Ifa
plantassetisretiredbeforeit
isfullydepreciatedandnosalvagevalueisreceived, a.againondisposaloccurs.
b.a lossondisposal occurs.
c.eitheragainor
a losscan occur. d.neitheragainnor
alossoccurs.
136. Againorlossondisposalof aplantassetis determinedbycomparingthe a.replacementcost oftheassetwiththeasset'soriginal cost.
b.bookvalueof
theassetwiththeasset'soriginalcost.
c.originalcost oftheassetwiththeproceedsreceivedfromitssale. d.bookvalueof the assetwiththe proceedsreceivedfromits
sale.
137. Thebookvalueof aplantassetisthedifferencebetweenthe a.replacementcost oftheassetandits
historicalcost.
b.costof the asset
andtheamountofdepreciationexpenseforthe year. c.costoftheasset
andtheaccumulateddepreciationtodate.
d.proceedsreceivedfromthesaleoftheassetand its
originalcost.
PlantAssets,NaturalResources,andIntangibleAssets 10-21
138. Ifa plantassetissoldbefore it
isfullydepreciated, a.onlyagainondisposalcanoccur.
b.onlya losson disposalcanoccur.c.eitheragainor
a losscan occur.d.neitheragainnor
alosscanoccur.
139. Ifaplantassetisretiredbeforeitisfullydepreciated,andthesalvagevaluereceivedis less
thanthe
asset's book value,
a.a gainondisposaloccurs.
b.a lossondisposal occurs.
c.thereis nogain
or lossondisposal.
d.additionaldepreciationexpensemust berecorded.
140 Acompanysellsaplantassetwhichoriginallycost$180,000for$60,000onDecember31,
2008.TheAccumulatedDepreciationaccounthadabalanceof$72,000afterthecurrent year'sdepreciationof $18,000 hadbeenrecorded.Thecompanyshouldrecognizea
a.$120,000lossondisposal.
b.$48,000gainondisposal.
c.$48,000lossondisposal.
d.$30,000lossondisposal.
141. Ifdisposalofa plantassetoccursduringtheyear,depreciationis
a.not recordedfortheyear.
b.recordedforthewholeyear.
c.recordedforthefractionof theyeartothedateof thedisposal.
d.not recordediftheasset isscrapped.
142. Ifafullydepreciatedplant
asset is still usedbya company,the
a.estimatedremainingusefullifemustberevisedtocalculatethecorrectrevised
depreciation.
b.assetisremovedfromthebooks.
c.accumulateddepreciationaccountisremovedfromthebooksbuttheassetaccount remains.
d.assetandtheaccumulateddepreciation
continue tobereportedonthebalancesheet
withoutadjustment
untiltheassetisretired.
143. Whichofthefollowingstatementsisnottruewhenafullydepreciatedplantassetis
retired?
a.Theplantasset'sbookvalue isequaltoitsestimated
salvagevalue. b.Theaccumulateddepreciationaccountisdebited.
c.Theassetaccount iscredited.
d.Theplantasset'soriginalcost
equalsitsbookvalue.
144. Ifaplantassetisretiredbeforeitisfullydepreciated,andnosalvageorscrapvalueis received,
a.againondisposalwillberecorded.
b.phantomdepreciationmustbetakenasthoughtheassetwerestillonthe
books. c.a losson disposalwill
berecorded.
d.nogainorlossondisposal
willberecorded.
10-22
145. Thebookvalueof anassetwillequalitsfairmarket valueatthedateofsaleif a.a gainondisposalisrecorded.
b.nogainorlossondisposalisrecorded.
c.theplantassetisfully
depreciated.
d.a lossondisposal isrecorded.
146. Atruckcosting$110,000wasdestroyedwhenitsenginecaughtfire.Atthedateofthe fire,theaccumulateddepreciationonthetruckwas$50,000.Aninsurancecheckfor $125,000wasreceivedbasedonthereplacementcostofthetruck.Theentrytorecord
theinsuranceproceedsandthedispositionof the
truckwill include a
a.GainonDisposalof
$15,000.
b.creditto theTruckaccountof
$60,000.
c.credittotheAccumulatedDepreciationaccountfor$50,000. d.GainonDisposalof
$65,000.
147. OnJuly1,2008,MeedKennelssellsequipmentfor$66,000.Theequipmentoriginally cost$180,000,hadanestimated5-yearlifeandanexpectedsalvagevalueof$30,000. Theaccumulateddepreciationaccounthadabalanceof$105,000onJanuary1,2008, using thestraight-linemethod.Thegainorlossondisposalis
a.$9,000gain.
b.$6,000loss. c.$9,000loss. d.$6,000gain.
148. A lossondisposalof
aplantassetisreportedinthefinancialstatements
a.intheOtherRevenuesandGainssection
oftheincomestatement.b.intheOtherExpensesandLossessectionof theincomestatement.
c.asadirectincreasetothecapitalaccount
onthe
balancesheet.
d.as adirectdecrease tothecapitalaccount onthe balancesheet.
149. WellsCompany'sdeliverytruck,whichoriginallycost$70,000,wasdestroyedbyfire.At thetimeofthefire,thebalanceoftheAccumulatedDepreciationaccountamountedto
$47,500.The companyreceived$40,000reimbursementfromits insurancecompany.The
gain orlossasaresultof thefire was
a.$30,000loss. b.$17,500loss. c.$30,000gain.
d.$17,500gain.
150. Atruckthatcost$21,000andonwhich$10,000ofaccumulateddepreciationhasbeen
recordedwasdisposedoffor
$9,000cash.Theentrytorecordthiseventwouldincludeaa.gainof $2,000.
b.lossof $2,000.
c.credittotheTruckaccountfor$11,000.
d.creditto AccumulatedDepreciationfor$10,000.
151. Atruckthatcost$36,000andonwhich$30,000ofaccumulateddepreciationhasbeen
recordedwasdisposedoffor
$9,000cash.Theentrytorecordthiseventwouldincludeaa.gainof $3,000.
b.lossof $3,000.
c.credittotheTruckaccountfor$6,000.
d.creditto AccumulatedDepreciationfor$30,000.
PlantAssets,NaturalResources,andIntangibleAssets 10-23
152. AceCorporationsoldequipmentfor$12,000.Theequipmenthadanoriginalcostof $36,000andaccumulateddepreciationof
$18,000.Asaresultof
thesale,
a.netincomewill increase$12,000.
b.netincomewillincrease$6,000.c. netincomewilldecrease$6,000.d.netincomewilldecrease$12,000.
153. Jarman’s
CourierServicerecorded alossof$3,000whenitsoldavanthatoriginallycost $28,000for $5,000.Accumulateddepreciationonthevanmusthavebeen
a.$26,000. b.$8,000.c.$25,000.
d.$20,000.
154. Onabalancesheet,naturalresourcesmaybedescribedmorespecificallyasallofthe
followingexcept
a.landimprovements.
b.mineraldeposits.
c.oilreserves.
d.timberlands.
155. Naturalresourcesare
a.depreciatedusingtheunits-of-activity
method.
b.physicallyextractedinoperationsandarereplaceableonlybyanact
ofnature. c.reportedattheirmarketvalue.
d.amortizedovera
periodnolongerthan40years.
156. Depletionis
a.a decreaseinmarketvalueof naturalresources.
b.the amountof
spoilagethatoccurswhennaturalresourcesareextracted.
c.theallocationof the
costof naturalresources toexpense.
d.themethodusedtorecordunsuccessfulpatents.
157. Toqualifyasnaturalresourcesintheaccountingsense,assetsmustbe a.underground.
b.replaceable.
c.of amineralnature.
d.physicallyextractedinoperations.
158. Themethodmostcommonlyusedtocomputedepletionisthe
a.straight-linemethod.
b.double-declining-balancemethod.
c.units-of-activitymethod.
d.effectiveinterestmethod.
159. Incomputingdepletion,salvagevalueis
a.alwaysimmaterial.
b.ignored.
c.impossibletoestimate.
d.includedinthe
calculation.
10-24
160. Ifa
miningcompanyextracts1,500,000tonsinaperiodbutonlysells1,200,000 tons,
a.totaldepletiononthemineis basedonthe1,200,000tons.
b.depletionexpenseisrecognized onthe1,500,000tonsextracted.
c.depletionexpenseisrecognized
onthe1,200,000tonsextractedandsold.
d.aseparateaccumulateddepletionaccountissetuptorecorddepletiononthe 300,000tonsextractedbutnotsold.
161. Acoalcompanyinvests$16millioninamineestimatedtohave20milliontonsofcoaland
nosalvagevalue.Itisexpectedthattheminewillbeinoperationfor5years.Inthefirst year,1,000,000 tonsofcoalareextractedandsold.Whatisthedepletionexpenseforthe
first
year?
a.$800,000 b.$320,000 c.$80,000
d.Cannotbedeterminedfromtheinformationprovided.
162. AccumulatedDepletion
a.isusedbyallcompanieswithnaturalresources.
b.hasanormaldebitbalance.
c.isacontra-assetaccount.
d.isnevershown onthebalancesheet.
163. OnJuly4,2008,MontanaMiningCompanypurchasedthemineralrightstoagranite
depositfor$800,000.Itisestimatedthattherecoverablegranitewillbe400,000tons. During2008,100,000tonsofgranitewasextractedand60,000tonsweresold.The amount of
theDepletionExpenserecognizedfor2008wouldbe
a.$100,000. b.$60,000.c.$120,000. d.$200,000.
164. Depletionexpenseiscomputedbymultiplyingthedepletioncostperunitbythe
a.totalestimatedunits.
b.totalactualunits.
c.numberof
unitsextracted.
d.numberof unitssold.
165. Intangibleassetsaretherightsandprivilegesthatresultfromownershipoflong-lived assets that
a.mustbegeneratedinternally.
b.aredepletablenaturalresources.
c.havebeenexchangedatagain. d.donothavephysicalsubstance.
166. Identifytheitembelowwherethetermsarenotrelated. a.Equipment—depreciation
b.Franchise—depreciation c. Copyright—amortization d.Oilwell—depletion
PlantAssets,NaturalResources,andIntangibleAssets 10-25
167. A
patentshould
a.be amortizedovera periodof20years.b.notbeamortizedifithas an indefinitelife.
c.beamortizedoveritsusefullifeor20 years,whicheverislonger.
d.beamortizedoveritsusefullifeor20 years,whicheveris shorter.
168. Theentrytorecordpatent
amortizationusuallyincludes
a creditto a.AmortizationExpense.
b.AccumulatedAmortization. c.Accumulated Depreciation.
d.Patents.
169. Thecostof successfullydefendingapatentinaninfringementsuitshouldbe
a.chargedtoLegalExpenses.
b.deductedfromthebookvalueof
thepatent. c.addedtothecostof thepatent.
d.recognizedasalossinthecurrentperiod.
170. Anassetthatcannotbesoldindividuallyinthe marketplaceis a.apatent.
b.goodwill.
c.a copyright.d.a tradename.
171. Goodwillcan berecorded
a.whencustomerskeepreturningbecausetheyaresatisfiedwiththecompany's
products.
b.whenthe companyacquires agoodlocationforits business. c.whenthecompanyhas exceptionalmanagement.
d.onlywhenthereisanexchangetransactioninvolvingthepurchaseofanentire
business.
172. OnJuly1,2008,MarshCompanypurchasedthecopyrighttoParsonsComputertutorials for$162,000.Itisestimatedthatthecopyrightwillhaveausefullifeof5yearswithan estimatedsalvagevalueof$12,000.TheamountofAmortizationExpenserecognizedfor
theyear2008wouldbe
a.$32,400. b.$15,000.
c.$30,000. d.$16,200.
173. Allof thefollowingintangibleassetsare amortizedexcept
a.copyrights.
b.limited-lifefranchises. c.patents.
d.trademarks.
174. Whichofthefollowingisnot
anintangibleassetarisingfromagovernmentgrant?
a.Goodwill
b.Patent
c.Trademarkd.Tradename
10-26
175. Theamortizationperiodforapatentcannotexceed
a.50years.
b.40years.
c.20years. d.10 years.
176. Costallocationof anintangibleassetisreferredto
as a.amortization.
b.depletion. c.accretion.
d.capitalization.
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