Deck 8: Inventory

Question 1

The unexpensed portion of an depreciable asset is called

A) accumulated depreciation.
B) net realizable value.
C) estimated residual value.
D) net present value.

Answer 1

C

Question 2

The cash inflows generated from a long-term asset will be received over several future periods.

Answer 2

False

Question 3

The ultimate sales value of a long-term asset is referred to as its

A) residual value.
B) value in use.
C) net book value.
D) historical value.

Answer 3

A

Question 4

Which of the following would NOT be capitalized as part of a purchased asset's cost?

A) non-refundable taxes
B) installation cost
C) shipping costs
D) insurance costs

Question 5

A plot of land was purchased for $120,000 which had $10,000 of past due property taxes on it. Non-refundable taxes on the purchase were $1,400 and the title search cost $500. The capitalized cost of the land was

A) $120,000.
B) $121,900.
C) $130,000.
D) $131,900.

Question 6

Mertle Holdings Co. purchased 12 acres of land with an office building and warehouse on it for $2,000,000. The assets were appraised at: land $1,000,000, building $600,000, and warehouse $900,000. The assets were carried on the seller's books at: land $800,000, building $500,000, and warehouse $700,000. At what cost should the purchasing company record each of the assets?

Question 7

Under ASPE, property, plant, and equipment must be recognized using the revaluation model.

Question 8

In 2017 as part of a property purchase, Melrose Ltd. incurred and paid 2016 property taxes. These costs should be

A) recognized as an impairment loss.
B) recognized on the Statement of Income as an expense.
C) recognized as a capital cost.
D) not be taken into consideration, these costs are irrelevant.

Question 9

Which of the following would NOT be classified as property, plant, and equipment?

A) buildings in current use
B) land purchased for resale
C) machinery
D) tools used in production

Question 10

Ukela Corp. purchased a piece of equipment on May 15 for $27,000. It cost $400 to ship the equipment to the company's facilities and another $1,000 to install the equipment. After the equipment was installed the company had to pay an additional $1,500 for increased insurance. The capitalized cost of the equipment was

A) $29,900.
B) $29,500.
C) $28,400.
D) $27,400.

Question 11

The depreciable cost of an asset is defined as the

A) original cost less residual value.
B) original cost less depreciation.
C) original cost less accumulated depreciation.
D) original cost.

Question 12

Assets acquired in a basket purchase are to be allocated a portion of the total price based on their respective

A) fair market values.
B) book values.
C) present values.
D) assessed values.

Question 13

When capitalizing the cost of a purchased asset, all of the following cost should be included in capitalization except for

A) the full purchase price plus any discounts.
B) set up costs.
C) legal costs.
D) shipping costs.

Question 14

Assets that produce their greatest benefits to a firm early in their useful life should be depreciated using the

A) straight-line method.
B) declining-balance method.
C) compound interest method.
D) units-of-activity method.

Question 15

The depreciation method that most closely resembles what is allowable for tax purposes under CRA is

A) the straight line method.
B) units of activity method.
C) the declining balance method.
D) depletion method.

Question 16

When deciding whether to expense or capitalize the costs incurred after acquiring a capital asset, which one of the following is NOT relevant to the decision?

A) Will these costs extend useful life?
B) Will these costs reduce asset operating costs?
C) Will these costs improve output?
D) Will these costs be incurred for more than one year?

Question 17

Which of the following is NOT a tangible capital asset?

A) buildings
B) land
C) copyrights
D) equipment

Question 18

A machine was built for $125,500 during July; the cost included $750 in interest expense. The company had to pay $4,000 for shipping and another $2,000 for insuring the parts. Following ASPE, the capitalized cost of the equipment was

A) $124,750.
B) $125,500.
C) $131,500.
D) $132,250.

Question 19

Which of the following statements is true with respect to capitalizing asset costs?

A) All additional costs related to acquiring an asset should be expensed.
B) Land cannot be depreciated so it should just be expensed when acquired.
C) When costs are capitalized, the company gets the tax deduction immediately.
D) Some small expenses related to the purchase of an asset can be expensed for simplicity.

Question 20

According to accounting standards, the method of depreciation chosen should

A) measure the change in an asset's value.
B) be systematic and rational.
C) allocate the most of the asset's cost to the early periods benefiting from its use.
D) recognize the reduced usefulness of an asset.

Question 21

The maximum capital cost allowance (CCA) that may be deducted for new assets is

A) the same as the depreciation calculated for the year.
B) restricted by the residual value.
C) restricted to 50% of the normal amount.
D) is the annual amount prorated based on when the asset was purchased during the year.

Question 22

Use the following information for questions 43-44.
Jeremiah Co. purchased a machine on January 1, 2017 for $22,500. The machine had an estimated useful life of 10 years and an estimated residual value of $2,500. The company uses double-declining-balance depreciation.
If Jeremiah Co. used the straight-line method of depreciation, what would the carrying value of the machine be at the end of 2017?

A) $20,500
B) $20,250
C) $18,250
D) $18,000

Question 23

Use the following information for questions 43-44.
Jeremiah Co. purchased a machine on January 1, 2017 for $22,500. The machine had an estimated useful life of 10 years and an estimated residual value of $2,500. The company uses double-declining-balance depreciation.
What will be the depreciation expense for 2017?

A) $4,500
B) $3,500
C) $2,250
D) $2,000

Question 24

The most commonly used method of depreciation is

A) straight-line.
B) capital cost allowance.
C) declining-balance.
D) units-of-activity.

Question 25

Use the following information for questions 45-46.
Picton Farms purchased some equipment on January 1, 2017 for $12,600. The equipment has an estimated useful life of 10 years and an estimated residual value of $1,200. The company uses double-declining-balance depreciation.
Depreciation expense for 2017 would be

A) $1,140.
B) $1,260.
C) $2,280.
D) $2,520.

Question 26

A depreciable asset with a cost of $42,500 has a residual value of $2,500 and a useful life of 8 years. Total estimated units of output are 80,000 and in year 1; 5,200 units were produced. Under the straight-line method and the units-of-activity method the depreciation expense for the first year would be

Question 27

Which of the following amortization methods ignore residual value in the calculation of the annual depreciation expense?

A) double-declining-balance and capital cost allowance
B) straight-line and double-declining-balance
C) straight-line and capital cost allowance
D) present value and straight-line

Question 28

A company is depreciating a $1,000,000 building using a straight-line rate of 5%. The building has an estimated residual value of $200,000. What would the amount of depreciation be in the first year using the straight-line method and the double-declining-balance method?

Question 29

Use the following information for questions 47-49.
On January 1, 2017, Bronson Co. purchased some equipment that initially cost $52,800. Additional costs included freight costs $300, non-refundable taxes $6,400, and installation $500. Estimated residual value is $2,000. The company uses a straight-line rate of 10%.
What would the depreciation expense be for 2017 if Bronson Co. used the double-declining-balance method?

A) $12,200
B) $12,000
C) $11,600
D) $ 6,000

Question 30

If an asset generates revenues evenly over its useful life, which depreciation method should be used?

A) capital cost allowance
B) declining-balance
C) units-of-activity
D) straight-line

Question 31

Which of the following depreciation methods calculates annual depreciation expense based on an asset's cost minus its residual value?

A) deferred depreciation
B) straight-line
C) capital cost allowance
D) declining-balance

Question 32

The correct entry to record the annual depreciation expense for a long-term asset is

A) Dr. Accumulated depreciation
B) Dr. Depreciation expense, Cr. Accumulated depreciation
C) Dr. Accumulated depreciation, Cr. Long Term asset
D) Dr. Depreciation expense, Cr. Long Term asset

Question 33

Use the following information for questions 45-46.
Picton Farms purchased some equipment on January 1, 2017 for $12,600. The equipment has an estimated useful life of 10 years and an estimated residual value of $1,200. The company uses double-declining-balance depreciation.
The net book value on January 1, 2018 would be

A) $10,080.
B) $10,320.
C) $11,340.
D) $11,460.

Question 34

To apply the units-of-activity method, all of the following information is needed EXCEPT the

A) original cost.
B) estimated residual value.
C) estimated useful life.
D) estimated usage.

Question 35

If management wanted to show an increasing income over the life of an asset which method of depreciation should they choose?

A) capital cost allowance
B) declining-balance
C) units-of-activity
D) straight-line

Question 36

The residual value is NOT directly used for the calculation of depreciation expense under which method?

A) units of activity method
B) straight line method
C) interest capitalization method
D) declining balance method

Question 37

A building currently has a net book value of $650,000 after three years of straight-line depreciation totalling $150,000. The estimated residual value is $50,000. What was the building's original cost?

A) $900,000
B) $850,000
C) $800,000
D) $750,000

Question 38

Use the following information for questions 47-49.
On January 1, 2017, Bronson Co. purchased some equipment that initially cost $52,800. Additional costs included freight costs $300, non-refundable taxes $6,400, and installation $500. Estimated residual value is $2,000. The company uses a straight-line rate of 10%.
Accumulated depreciation at the end of 2019 would be

A) $17,400.
B) $17,700.
C) $17,790.
D) $18,390.

Question 39

The Canada Revenue Agency allows corporations to deduct the following when calculating taxable income

A) declining-balance amortization.
B) straight-line amortization.
C) capital cost allowance.
D) one-half of the cost of the asset in the year of acquisition.

Question 40

Use the following information for questions 47-49.
On January 1, 2017, Bronson Co. purchased some equipment that initially cost $52,800. Additional costs included freight costs $300, non-refundable taxes $6,400, and installation $500. Estimated residual value is $2,000. The company uses a straight-line rate of 10%.
Depreciation expense for 2017 was

A) $6,130.
B) $5,900.
C) $5,800.
D) $5,930.

Question 41

Losses on the cash sale of capital assets

A) are the excess of the cash proceeds over the carrying value of the asset.
B) are the excess of the cash proceeds over the market value of the asset.
C) are the excess of the carrying value of the asset over the cash proceeds.
D) are the excess of the carrying value of the asset over the market value.

Question 42

An asset being depreciated with the straight-line method has a residual value of $10,000 and accumulated depreciation expense of $30,000 in its second year. What was the original cost of the asset if its useful life was 5 years?

A) $160,000
B) $140,000
C) $ 85,000
D) $75,000

Question 43

Bayside Ltd. owns a piece of land it had purchased in 2016 for $400,000. When they started to develop the land in 2017, they discovered that there were environmental problems with the land. It is now estimated to be worth only $150,000. Which of the following is the correct way to account for this?

A) No accounting is necessary because the land is recorded at its historical cost, not its market value.
B) The land account should be written down to $150,000 and a loss recognized.
C) The land should be written off completely because now the company cannot use it for the purpose they intended to.
D) The land should be depreciated at a new rate to reflect the decline in its value.

Question 44

Which of the following intangibles would be capitalized?

A) research
B) advertising
C) goodwill acquired in a purchase
D) internally developed patent

Question 45

Jeremiah Co. purchased a machine on January 1, 2017 for $22,500. The machine had an estimated useful life of 10 years and an estimated residual value of $2,500. The company uses double-declining-balance depreciation. Assuming Jeremiah Co. uses straight-line depreciation, what would be the book value of the machine on December 31, 2021?

A) $ 0
B) $2,000
C) $2,250
D) $2,500

Question 46

Proctor Paper Products purchased a machine on January 1, 2017 at a cost of $380,000 with an estimated residual value of $30,000 at the end of its estimated useful life of 8 years. On January 1, 2013 Proctor Paper estimates that the machine only has a remaining life of 5 years and a residual value of $20,000. Proctor Paper uses straight-line depreciation. Depreciation expense for 2019 would be

A) $48,500.
B) $54,500.
C) $57,000.
D) $72,000.

Question 47

Caricature's Inc. bought new computers on January 1 for $18,000 to improve the quality of their animation. The computers have a useful life of 8 years but Caricature's Inc. thinks that continuing technology developments will likely mean they will replace the computers after 4 years, at which time they will be worth $2,000. If they use straight-line depreciation, the depreciation expense for the first year will be

A) $2,000.
B) $2,250.
C) $4,000.
D) $4,500.

Question 48

Upon the disposal of an asset, if the proceeds are greater than the carrying value of the asset the company must

A) recognize a loss.
B) recognize a gain.
C) adjust the accumulated depreciation account so the carrying value equals the proceeds.
D) adjust the carrying value to market value.

Question 49

Which of the following statements is true with respect to intangible assets with indefinite lives?

A) They should be amortized over a period of 40 years.
B) They should be expensed to income in the year they are acquired.
C) They should be evaluated each year to determine if there has been any impairment in their value.
D) They are never amortized or written down but remain on the company's balance sheet at their original cost forever.

Question 50

Electronics R Us spent $25,000 on research and development to create a new product. The product was successfully developed and launched into the market. How should the research and development costs be treated?

A) The full $25,000 should be capitalized.
B) The research portion of the $25,000 should be capitalized.
C) The research portion of the $25,000 should be expensed.
D) The full $25,000 should be expensed.

Question 51

An asset with an original cost of $75,000, a residual value of $7,500, and a useful life of 5 years is given away without any consideration at the end of year five. The entry to record this is

A) Dr. Accumulated depreciation, Dr. Loss on disposal, Cr. Long-Term asset
B) Dr. Accumulated depreciation, Cr. Gain on disposal, Cr. Long-Term asset
C) Dr. Long-Term asset, Cr. Accumulated depreciation
D) Dr. Accumulated depreciation, Cr. Long-Term Asset

Question 52

Which of the following is an example of an intangible with an indefinite life?

A) a copyright on a song
B) a patent on a new technology
C) the development costs of a new drug
D) the goodwill value assigned to the excess purchase price when purchasing a company

Question 53

Long-term capital assets with a(n) ___ may not be depreciable.

A) finite life
B) indefinite life
C) residual value
D) undefined value

Question 54

An asset that cost $16,200 with a residual value of $1,200 and a useful life of 5 years was depreciated for two years using the straight-line method. In the third year, the useful life was determined to be 2 years longer than initially expected. Depreciation in the third year would be

A) $3,000.
B) $2,143.
C) $2,040.
D) $1,800.

Question 55

On July 1, 2017 a truck was sold for $10,000. The company originally paid $28,000 on June 30, 2010 and has recorded accumulated depreciation on it to date of $15,000. The entry to record the sale would include a

A) credit to accumulated depreciation for $15,000.
B) debit to trucks for $28,000.
C) credit to gain on sale of truck for $3,000.
D) debit to loss on sale of truck for $3,000.

Question 56

Water Company purchased a bottling machine on October 1, 2015 for $250,000. The estimated useful life is 25 years and they are using straight-line depreciation. During 2017, they spent $46,000 on the machine to double its capacity and $5,000 on routine cleaning. What should the depreciation expense be at September 30, 2017? The company's year end is September 30.

A) $10,000
B) $30,000
C) $12,200
D) $12,000

Question 57

Harmax Limited spent $5,000 registering an internally developed patent and then another $20,000 defending and enforcing the patent in its first year. How should the patent be reflected in the financial statements?

A) the full $25,000 expensed in the year
B) $5,000 capitalized as Patent asset and the $20,000 expensed
C) $20,000 capitalized as Patent asset and the $5,000 expensed
D) the full $25,000 capitalized in the year

Question 58

Which of the following methods of amortization is a company most likely to use for financial statement purposes if it purchases a patent?

A) capital cost allowance
B) double-declining-balance
C) units-of-activity
D) straight-line

Question 59

The depreciation expense of an asset can change for all of the following reasons EXCEPT

A) change in the estimated useful life.
B) change in the asset's expected residual value.
C) increases due to additions to the asset for major repairs and improvements.
D) increase in the asset due to regular repairs and maintenance.

Question 60

Changes in the estimates for residual value or useful life result in changes in the depreciation expense calculation. These changes are handled

A) retroactively.
B) as cumulative changes.
C) prospectively.
D) as prior period adjustments.