Question 1

The book value of a plant asset is the amount originally paid for the asset less anticipated salvage value.

Accepted Answer

A) True 
 B)False

Question 2

Equipment that cost $144,000 and on which $120,000 of accumulated depreciation has been recorded was disposed of for $36,000 cash. The entry to record this event would include a

Accepted Answer

A) gain of $12,000. 
B) loss of $12,000. 
C) credit to the Equipment account for $36,000. 
D) credit to Accumulated Depreciation for $120,000. 
A) gain of $12,000. 
B) loss of $12,000. 
C) credit to the Equipment account for $36,000. 
D) credit to Accumulated Depreciation for $120,000.

Question 3

Which of the following would not be included in the Equipment account?

Accepted Answer

A) Installation costs. 
B) Freight costs. 
C) Cost of trial runs. 
D) Electricity used by the machine. 
A) Installation costs. 
B) Freight costs. 
C) Cost of trial runs. 
D) Electricity used by the machine.

Question 4

A company purchased factory equipment on April 1, 2017, for $128,000. It is estimated that the equipment will have a $16,000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2017, is

Accepted Answer

A) $12,800. 
B) $11,200. 
C) $8,400. 
D) $9,600. 
A) $12,800. 
B) $11,200. 
C) $8,400. 
D) $9,600.

Question 5

A change in the estimated salvage value of a plant asset requires a restatement of prior years' depreciation.

Accepted Answer

A) True 
 B)False

Question 6

The cost of an intangible asset must be amortized over a 20-year period.

Accepted Answer

A) True 
 B)False

Question 7

On October 1, 2017, Hess Company places a new asset into service. The cost of the asset is $120,000 with an estimated 5-year life and $30,000 salvage value at the end of its useful life. What is the book value of the plant asset on the December 31, 2017, balance sheet assuming that Hess Company uses the double-declining-balance method of depreciation?

Accepted Answer

A) $78,000. 
B) $90,000. 
C) $108,000. 
D) $114,000. 
A) $78,000. 
B) $90,000. 
C) $108,000. 
D) $114,000.

Question 8

The declining-balance method of depreciation is called an accelerated depreciation method because it depreciates an asset in a shorter period of time than the asset's useful life.

Accepted Answer

A) True 
 B)False

Question 9

Foyle Company purchased a new van for floral deliveries on January 1, 2017. The van cost $56,000 with an estimated life of 5 years and $14,000 salvage value at the end of its useful life. The double-declining-balance method of depreciation will be used. What is the depreciation expense for 2017?

Accepted Answer

A) $11,200. 
B) $8,400. 
C) $16,800. 
D) $22,400. 
A) $11,200. 
B) $8,400. 
C) $16,800. 
D) $22,400.

Question 10

On July 1, 2017, Linden Company purchased the copyright to Norman Computer Tutorials for $210,000. It is estimated that the copyright will have a useful life of 5 years. The amount of amortization expense recognized for the year 2017 would be

Accepted Answer

A) $42,000. 
B) $19,687. 
C) $38,850. 
D) $21,000. 
A) $42,000. 
B) $19,687. 
C) $38,850. 
D) $21,000.

Question 11

Newell Company purchased a machine with a list price of $160,000. They were given a 10% discount by the manufacturer. They paid $1,000 for shipping and sales tax of $7,500. Newell estimates that the machine will have a useful life of 10 years and a salvage value of $50,000. If Newell uses straight-line depreciation, annual depreciation will be

Accepted Answer

A) $10,250. 
B) $10,180. 
C) $15,250. 
D) $9,400. 
A) $10,250. 
B) $10,180. 
C) $15,250. 
D) $9,400.

Question 12

All of the following statements are false regarding depreciation except

Accepted Answer

A) depreciation is an asset valuation process. 
B) depreciation does not apply to land improvements. 
C) recognizing depreciation results in the accumulation of cash for asset replacement. 
D) depreciation does not apply to land. 
A) depreciation is an asset valuation process. 
B) depreciation does not apply to land improvements. 
C) recognizing depreciation results in the accumulation of cash for asset replacement. 
D) depreciation does not apply to land.

Question 13

A patent should

Accepted Answer

A) be amortized over a period of 20 years. 
B) not be amortized. 
C) be amortized over its useful life or 20 years, whichever is longer. 
D) be amortized over its useful life or 20 years, whichever is shorter. 
A) be amortized over a period of 20 years. 
B) not be amortized. 
C) be amortized over its useful life or 20 years, whichever is longer. 
D) be amortized over its useful life or 20 years, whichever is shorter.

Question 14

A company purchased land for $350,000 cash. Real estate brokers' commission was $25,000 and $35,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the historical cost principle, the cost of land would be recorded at

Accepted Answer

A) $385,000. 
B) $350,000. 
C) $375,000. 
D) $410,000. 
A) $385,000. 
B) $350,000. 
C) $375,000. 
D) $410,000.

Question 15

A plant asset cost $192,000 and is estimated to have a $24,000 salvage value at the end of its 8-year useful life. The annual depreciation expense recorded for the third year using the double-declining-balance method would be

Accepted Answer

A) $16,080. 
B) $27,000. 
C) $23,625. 
D) $18,375. 
A) $16,080. 
B) $27,000. 
C) $23,625. 
D) $18,375.

Question 16

The cost of a patent should be amortized over its legal life or useful life, whichever is shorter.

Accepted Answer

A) True 
 B)False

Question 17

Land improvements should be depreciated over the useful life of the

Accepted Answer

A) land. 
B) buildings on the land. 
C) land or land improvements, whichever is longer. 
D) land improvements. 
A) land. 
B) buildings on the land. 
C) land or land improvements, whichever is longer. 
D) land improvements.

Question 18

Interest may be included in the acquisition cost of a plant asset

Accepted Answer

A) during the construction period of a self-constructed asset. 
B) if the asset is purchased on credit. 
C) if the asset acquisition is financed by a long-term note payable. 
D) if it is a part of a lump-sum purchase. 
A) during the construction period of a self-constructed asset. 
B) if the asset is purchased on credit. 
C) if the asset acquisition is financed by a long-term note payable. 
D) if it is a part of a lump-sum purchase.

Question 19

National Molding is building a new plant that will take three years to construct. The construction will be financed in part by funds borrowed during the construction period. There are significant architect fees, excavation fees, and building permit fees. Which of the following statements is true?

Accepted Answer

A) Excavation fees are capitalized but building permit fees are not. 
B) Architect fees are capitalized but building permit fees are not. 
C) Interest is capitalized during the construction as part of the cost of the building. 
D) The capitalized cost is equal to the contract price to build the plant less any interest on borrowed funds. 
A) Excavation fees are capitalized but building permit fees are not. 
B) Architect fees are capitalized but building permit fees are not. 
C) Interest is capitalized during the construction as part of the cost of the building. 
D) The capitalized cost is equal to the contract price to build the plant less any interest on borrowed funds.

Question 20

A machine was purchased for $180,000 and it was estimated to have an $12,000 salvage value at the end of its useful life. Monthly depreciation expense of $1,750 was recorded using the straight-line method. The annual depreciation rate is

Accepted Answer

A) 15.0%. 
B) 2.5%. 
C) 10.0%. 
D) 12.5%. 
A) 15.0%. 
B) 2.5%. 
C) 10.0%. 
D) 12.5%.

Exam 8: Reporting and Analyzing Long-Lived Assets

The book value of a plant asset is the amount originally paid for the asset less anticipated salvage value.

Equipment that cost $144,000 and on which $120,000 of accumulated depreciation has been recorded was disposed of for $36,000 cash. The entry to record this event would include a

Which of the following would not be included in the Equipment account?

A change in the estimated salvage value of a plant asset requires a restatement of prior years' depreciation.

The cost of an intangible asset must be amortized over a 20-year period.

The declining-balance method of depreciation is called an accelerated depreciation method because it depreciates an asset in a shorter period of time than the asset's useful life.

Foyle Company purchased a new van for floral deliveries on January 1, 2017. The van cost $56,000 with an estimated life of 5 years and $14,000 salvage value at the end of its useful life. The double-declining-balance method of depreciation will be used. What is the depreciation expense for 2017?

On July 1, 2017, Linden Company purchased the copyright to Norman Computer Tutorials for $210,000. It is estimated that the copyright will have a useful life of 5 years. The amount of amortization expense recognized for the year 2017 would be

All of the following statements are false regarding depreciation except

A patent should

A company purchased land for $350,000 cash. Real estate brokers' commission was $25,000 and $35,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the historical cost principle, the cost of land would be recorded at

A plant asset cost $192,000 and is estimated to have a $24,000 salvage value at the end of its 8-year useful life. The annual depreciation expense recorded for the third year using the double-declining-balance method would be

The cost of a patent should be amortized over its legal life or useful life, whichever is shorter.

Land improvements should be depreciated over the useful life of the

Interest may be included in the acquisition cost of a plant asset

National Molding is building a new plant that will take three years to construct. The construction will be financed in part by funds borrowed during the construction period. There are significant architect fees, excavation fees, and building permit fees. Which of the following statements is true?

A machine was purchased for $180,000 and it was estimated to have an $12,000 salvage value at the end of its useful life. Monthly depreciation expense of $1,750 was recorded using the straight-line method. The annual depreciation rate is

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Liabilities

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Financial Analysis: The Big Picture

Managerial Accounting

Job Order Costing

Process Costing

Activity-Based Costing

Cost-Volume-Profit

Cost-Volume-Profit Analysis: Additional Issues

Incremental Analysis

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Planning for Capital Investments

Filters