Question 1

In an exchange of plant assets that has commercial substance

Accepted Answer

A)  neither gains nor losses are recognized immediately. 
B)  gains, but not losses, are recognized immediately. 
C)  losses, but not gains, are recognized immediately. 
D)  both gains and losses are recognized immediately. 
A)  neither gains nor losses are recognized immediately. 
B)  gains, but not losses, are recognized immediately. 
C)  losses, but not gains, are recognized immediately. 
D)  both gains and losses are recognized immediately.

Question 2

Mott Company uses the units-of-activity method in computing depreciation. A new plant asset is purchased for $24,000 that will produce an estimated 100,000 units over its useful life. Estimated salvage value at the end of its useful life is $2,000. What is the depreciation cost per unit?

Accepted Answer

A)  $2.20 
B)  $2.40 
C)  $.22 
D)  $.24 
A)  $2.20 
B)  $2.40 
C)  $.22 
D)  $.24

Question 3

A company purchases a remote site building for computer operations. The building will be suitable for operations after some expenditures. The wiring must be replaced to computer specifications. The roof is leaky and must be replaced. All rooms must be repainted and recarpeted and there will also be some plumbing work done. Which of the following statements is true?

Accepted Answer

A)  The cost of the building will not include the repainting and recarpeting costs. 
B)  The cost of the building will include the cost of replacing the roof. 
C)  The cost of the building is the purchase price of the building, while the additional expenditures are all capitalized as Building Improvements. 
D)  The wiring is part of the computer costs, not the building cost. 
A)  The cost of the building will not include the repainting and recarpeting costs. 
B)  The cost of the building will include the cost of replacing the roof. 
C)  The cost of the building is the purchase price of the building, while the additional expenditures are all capitalized as Building Improvements. 
D)  The wiring is part of the computer costs, not the building cost.

Question 4

Lowe Mining Company purchased a mine for $70 million which is estimated to have 250,000 tons of ore and a salvage value of $10 million.
(a) In the first year, 50,000 tons of ore are extracted and sold. Prepare the journal entry to record depletion expense for the first year.
(b) In the second year, 150,000 tons of ore are extracted but only 125,000 tons are sold. Prepare the journal entry to record depletion expense for the second year.
(c) What amount and in what account are the tons of ore not sold reported?

Accepted Answer

(a) Calculation of the depletion expense

Question 5

The Accumulated Depletion account is deducted from the cost of the natural resource in the balance sheet.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is not true of ordinary repairs?

Accepted Answer

A)  They primarily benefit the current accounting period. 
B)  They can be referred to as revenue expenditures. 
C)  They maintain the expected productive life of the asset. 
D)  They increase the productive capacity of the asset. 
A)  They primarily benefit the current accounting period. 
B)  They can be referred to as revenue expenditures. 
C)  They maintain the expected productive life of the asset. 
D)  They increase the productive capacity of the asset.

Question 7

Hull Company acquires land for $86,000 cash. Additional costs are as follows:   Hull will record the acquisition cost of the land as

Accepted Answer

A)  $86,000. 
B)  $87,690. 
C)  $89,610. 
D)  $89,370. 
A)  $86,000. 
B)  $87,690. 
C)  $89,610. 
D)  $89,370.

Question 8

A company purchased office equipment for $40,000 and estimated a salvage value of $8,000 at the end of its 5-year useful life. The constant percentage to be applied against book value each year if the double-declining-balance method is used is

Accepted Answer

A)  20%. 
B)  25%. 
C)  40%. 
D)  4%. 
A)  20%. 
B)  25%. 
C)  40%. 
D)  4%.

Question 9

Natural resources are long-lived productive assets that are extracted in operations and are replaceable only by an act of nature.

Accepted Answer

A) True 
 B)False

Question 10

Depreciation is a process of

Accepted Answer

A)  asset devaluation. 
B)  cost accumulation. 
C)  cost allocation. 
D)  asset valuation. 
A)  asset devaluation. 
B)  cost accumulation. 
C)  cost allocation. 
D)  asset valuation.

Question 11

Hadicke Company purchased a delivery truck for $35,000 on January 1, 2010. The truck was assigned an estimated useful life of 5 years and has a residual value of $10,000. Compute depreciation expense using the double-declining-balance method for the years 2010 and 2011.

Accepted Answer

Double the straight-line rate:

Question 12

Natural resources include standing timber and underground deposits of oil, gas, and minerals.

Accepted Answer

A) True 
 B)False

Question 13

The Modified Accelerated Cost Recovery System (MACRS) is a depreciation method which

Accepted Answer

A)  is used for tax purposes. 
B)  must be used for financial statement purposes. 
C)  is required by the SEC. 
D)  expenses an asset over a single year because capital acquisitions must be expensed in the year purchased. 
A)  is used for tax purposes. 
B)  must be used for financial statement purposes. 
C)  is required by the SEC. 
D)  expenses an asset over a single year because capital acquisitions must be expensed in the year purchased.

Question 14

Recognition of depreciation permits the accumulation of cash for the replacement of the asset.

Accepted Answer

A) True 
 B)False

Question 15

A company purchased land for $90,000 cash. Real estate brokers' commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the cost principle, the cost of land would be recorded at

Accepted Answer

A)  $97,000. 
B)  $90,000. 
C)  $95,000. 
D)  $102,000. 
A)  $97,000. 
B)  $90,000. 
C)  $95,000. 
D)  $102,000.

Question 16

Goodwill can be recorded

Accepted Answer

A)  when customers keep returning because they are satisfied with the company's products. 
B)  when the company acquires a good location for its business. 
C)  when the company has exceptional management. 
D)  only when there is an exchange transaction involving the purchase of an entire business. 
A)  when customers keep returning because they are satisfied with the company's products. 
B)  when the company acquires a good location for its business. 
C)  when the company has exceptional management. 
D)  only when there is an exchange transaction involving the purchase of an entire business.

Question 17

A company sells a plant asset which originally cost $180,000 for $60,000 on December 31, 2010. The Accumulated Depreciation account had a balance of $72,000 after the current year's depreciation of $18,000 had been recorded. The company should recognize a

Accepted Answer

A)  $120,000 loss on disposal. 
B)  $48,000 gain on disposal. 
C)  $48,000 loss on disposal. 
D)  $30,000 loss on disposal. 
A)  $120,000 loss on disposal. 
B)  $48,000 gain on disposal. 
C)  $48,000 loss on disposal. 
D)  $30,000 loss on disposal.

Question 18

On March 1, 2010, Joyner Company acquired real estate on which it planned to construct a small office building. The company paid $70,000 in cash. An old warehouse on the property was razed at a cost of $7,600; the salvaged materials were sold for $1,700. Additional expenditures before construction began included $1,100 attorney's fee for work concerning the land purchase, $4,000 real estate broker's fee, $7,800 architect's fee, and $14,000 to put in driveways and a parking lot.
Instructions
Determine the amount to be reported as the cost of the land.

Accepted Answer

The answer of On March 1, 2010, Joyner Company acquired...

Question 19

A plant asset must be fully depreciated before it can be removed from the books.

Accepted Answer

A) True 
 B)False

Question 20

Under the double-declining-balance method, the depreciation rate used each year remains constant.

Accepted Answer

A) True 
 B)False

Exam 10: Plant Assets, Natural Resources, and Intangible Assets

In an exchange of plant assets that has commercial substance

Mott Company uses the units-of-activity method in computing depreciation. A new plant asset is purchased for $24,000 that will produce an estimated 100,000 units over its useful life. Estimated salvage value at the end of its useful life is $2,000. What is the depreciation cost per unit?

The Accumulated Depletion account is deducted from the cost of the natural resource in the balance sheet.

Which of the following is not true of ordinary repairs?

Hull Company acquires land for $86,000 cash. Additional costs are as follows: Hull will record the acquisition cost of the land as

A company purchased office equipment for $40,000 and estimated a salvage value of $8,000 at the end of its 5-year useful life. The constant percentage to be applied against book value each year if the double-declining-balance method is used is

Natural resources are long-lived productive assets that are extracted in operations and are replaceable only by an act of nature.

Depreciation is a process of

Hadicke Company purchased a delivery truck for $35,000 on January 1, 2010. The truck was assigned an estimated useful life of 5 years and has a residual value of $10,000. Compute depreciation expense using the double-declining-balance method for the years 2010 and 2011.

Natural resources include standing timber and underground deposits of oil, gas, and minerals.

The Modified Accelerated Cost Recovery System (MACRS) is a depreciation method which

Recognition of depreciation permits the accumulation of cash for the replacement of the asset.

A company purchased land for $90,000 cash. Real estate brokers' commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the cost principle, the cost of land would be recorded at

Goodwill can be recorded

A company sells a plant asset which originally cost $180,000 for $60,000 on December 31, 2010. The Accumulated Depreciation account had a balance of $72,000 after the current year's depreciation of $18,000 had been recorded. The company should recognize a

A plant asset must be fully depreciated before it can be removed from the books.

Under the double-declining-balance method, the depreciation rate used each year remains constant.

Accounting in Action

The Recording Process

Adjusting the Accounts

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories

Accounting Information Systems

Fraud, Internal Control, and Cash

Accounting for Receivables

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Corporations: Organization and Capital Stock Transactions

Corporations: Dividends, Retained Earnings, and Income Reporting

Long-Term Liabilities

Investments

Statement of Cash Flows

Financial Analysis: the Big Picture

Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit

Incremental Analysis

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

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