Deck 8: Receivables, Bad Debt Expense, and Interest Revenue

Question 1

When determining whether to capitalize or expense an amount relating to ?xed assets, which of the following is not relevant to the decision?

A) Matching principal
B) Income tax rules
C) Materiality concept
D) Revenue recognition principal

Answer 1

Revenue recognition principal

Question 2

IFRS permits corporations to capitalize interest costs for

A) both assets that are purchased or constructed.
B) assets that are constructed or acquired over time only.
C) capitalizing interest is never permitted.
D) assets that are purchased only.

Answer 2

assets that are constructed or acquired over time only.

Question 3

Tangible assets include which of the following?

A) Land, buildings, and leaseholds.
B) Land, buildings, and equipment.
C) Natural resources, buildings, and franchises.
D) Licenses, trademarks, and land.

Answer 3

Land, buildings, and equipment.

Question 4

Which of the following costs would normally not be included in the cost of equipment?

A) Insurance for equipment after it has started being used.
B) Installation of equipment.
C) Testing of equipment.
D) Freight paid by buyer to have equipment shipped.

Question 5

What are operational assets that have physical substance called?

A) Long-term investments.
B) Tangible assets.
C) Intangible assets.
D) Current assets.

Question 6

Which of the following is not a major characteristic of a property, plant, and equipment asset?

A) Possesses physical substance
B) Yields services over several years
C) Acquired for resale
D) Acquired for use

Question 7

To which account should the amount of sales tax paid on the purchase of new machinery be debited?

A) The sales tax expense account.
B) The separate deferred charge account.
C) The machinery account.
D) The accumulated depreciation for machinery account.

Question 8

Los Mi-os purchased a large tract of land with the intention to transform it into a cocoa plantation. Before the new seedlings can be planted, the site, which is prone to ?ooding, must be drained. The cost of the draining should be

A) expensed immediately.
B) capitalized as part of the cost of the land.
C) expensed only after the ?rst crop of has been harvested.
D) reported as an operating loss.

Question 9

On March 1, Chapin Company purchased a new stamping machine for $5,000. Chapin paid cash for the machine. Other costs associated with the machine were: transportation costs, $300; sales tax paid, $200; and installation cost, $100. What cost was recorded for the machine?

A) $5,000
B) $5,200
C) $5,500
D) $5,600

Question 10

Operational assets do not include which of the following kinds of assets?

A) Plant and equipment in use.
B) Land held for resale.
C) Patents in use.
D) Mineral deposits being mined.

Question 11

Belmont Corporation made a basket purchase of land, a building and equipment, paying a total of $1,500,000. Market values for the assets were not available, but the appraised values were $300,000 for the land, $900,000 for the building, and $600,000 for equipment. What amounts should be recorded in the Land, Building, and Equipment accounts, respectively?

A) $300,000, $900,000, and $600,000
B) $1,500,000, $-0-, and $-0-
C) $250,000, $750,000, and $500,000
D) $500,000, $500,000, and $500,000

Question 12

Under IFRS, a corporation may capitalize interest for:

A) Any asset that it purchases.
B) Any asset that it purchases with debt.
C) Only assets that are constructed or acquired over time.
D) Any asset that is either purchased or constructed

Question 13

A municipality has decided to donate a plant site to a local manufacturer that plans to open a new factory and create jobs. The donated plant site should be recorded on the manufacturer's books at

A) its market value.
B) the nominal cost of taking title to it.
C) the value assigned by the company's directors.
D) one dollar (since the site cost nothing but should be included in the balance sheet).

Question 14

Which of the following would be classi?ed as an operational (?xed) asset?

A) Land purchased and held for sale by a realtor.
B) Land purchased and held for development by Wal-Mart as a new store site.
C) Land and buildings owned by Toys "R" Us that are store sites closed due to restructuring and consolidating operations.
D) A Ford Motor Company plant used to manufacture the Focus line in Oakville, Ontario.

Question 15

Which of the following would be an example of a land improvement?

A) Land transfer tax paid on purchase of the land
B) Costs of grading the land before building
C) Costs of digging the hole for the foundation
D) Costs of installing lighting

Question 16

Which of the following is not a tangible capital asset?

A) Buildings
B) Equipment
C) Copyrights
D) Land

Question 17

If a plant asset is acquired by the issuance of a public company's common shares, the cost of the plant asset should be measured by the

A) market value of the shares
B) book value of the shares
C) stated value of the shares
D) the par value of the shares

Question 18

Intangible assets include which of the following?

A) Buildings, patents, and trademarks.
B) Trade receivables, franchises, and trademarks.
C) Copyrights, licenses, and land.
D) Leaseholds, patents, and copyrights.

Question 19

Airbury Company acquired manufacturing equipment at an invoice price of $80,000 and paid $750 to have it delivered to the factory. $400 was spent to repair a door that was damaged while installing the equipment. At what amount should this equipment be recorded on the company's books?

A) $80,000
B) $80,400
C) $80,750
D) $81,150

Question 20

Martinelli Company recently purchased a truck. The price negotiated with the dealer was $85,000. Martinelli also paid sales tax of $6,000 on the purchase, shipping and preparation costs of $950, and insurance for the first year of operation of $2,000. For the truck, what amount should be debited to the asset account Vehicles?

A) $85,000
B) $85,950
C) $91,000
D) $91,950

Question 21

Jeffers Inc. purchased a warehouse and the land upon which it was located. The total price was $450,000. The land was appraised for $180,000 while the warehouse was appraised for $360,000. What account balances should Jeffers show in its general ledger?

A) Land $180,000; Warehouse $360,000
B) Land $150,000; Warehouse $300,000
C) Land $166,667; Warehouse $333,333
D) Land $150,000; Warehouse $350,000

Question 22

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 speci?cations. The roof is leaky and must be replaced. All rooms must be repainted and re-carpeted and there will also be some plumbing work done. Which of the following statements is true?

A) The cost of the building will not include the repainting and re-carpeting 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 23

The Land account would include all of the following costs except

A) drainage costs.
B) the cost of building a fence.
C) title fees.
D) the cost of tearing down a building.

Question 24

Nadler Inc. purchased equipment for $48,000, and estimated that the equipment will have a $4,000 residual value at the end of its 8-year useful life. Using the double-declining-balance method, the depreciation expense for the third year would be

A) $9,000
B) $6,750
C) $6,188
D) $5,500

Question 25

In accounting for tangible operational assets, the continuity assumption is important because of which of the following?

A) It helps a company decide whether to use straight-line depreciation or an accelerated depreciation method.
B) It justi?es depreciating the asset over its expected useful life, without anticipating that the business will liquidate in the near future.
C) It provides justi?cation for including residual values in calculating depreciation.
D) It is consistent with maintaining assets in the accounting records at market value rather than acquisition cost.

Question 26

AA Riser owns machinery for moving and delivering plants to its customers. The recorded cost of the machinery is $38,000. It is estimated that the machinery will be able to move 120,000 plants over its life. The company depreciates the machinery using straight-line depreciation over a useful life of twelve years and an estimated residual value of $2,000. The amount that will be charged annually as depreciation will be:

A) $3,167
B) $3,000
C) $3,800
D) $3,600

Question 27

With respect to depreciation policies, the principle of consistency means:

A) a company should disclose on the ?nancial statements the depreciation method for all its capital assets.
B) a company should use the same depreciation method from year to year for a given capital asset.
C) a company should use the same depreciation methods as other companies in the same industry.
D) a company should use the same depreciation method in computing depreciation expense on all its assets.

Question 28

Which of the following would most likely not be a revenue expenditure?

A) Replacing carpet in the sales department o?ces.
B) Repairing a leaky roof.
C) Putting a hydraulic lift on our delivery truck making it easier and quicker to deliver appliances.
D) Painting the exterior of our store.

Question 29

The concept of depreciation is best explained by which accounting principle or assumption?

A) Cost principle.
B) Going concern assumption.
C) Expense recognition.
D) Economic entity assumption.

Question 30

If a company classi?es an expenditure as a capital expenditure instead of a revenue expenditure, which of the following will be false?

A) Pro?t for the year of acquisition will be higher.
B) The initial cost basis of the asset will be higher.
C) Depreciation expense will be higher over the asset's life.
D) It will be expensed in the year in which the expenditure takes place.

Question 31

When may a company include interest costs as part of the cost of the asset?

A) When they buy a piece of equipment and ?nance its acquisition by a bank loan.
B) When they must borrow money to ?nance the manufacture of their inventory items.
C) When they are self-constructing a piece of equipment they will use to manufacture their products, but only during the period of construction.
D) Interest is never allowed to be capitalized.

Question 32

What is an extraordinary repair to a building?

A) It is a revenue expenditure and it is debited to an expense account.
B) It is a capital expenditure and it is debited to an asset account.
C) It is a capital expenditure and it is debited to an expense account.
D) It is a revenue expenditure and may be debited to accumulated depreciation.

Question 33

Which of the following would not be included in the acquisition cost of a building?

A) An apportioned amount of the purchase cost when both the land and building are acquired in a basket purchase.
B) The cost of putting new windows and doors in the building before it opens for operations.
C) The cost of paving the parking lot and outdoor lighting in the lot.
D) The cost of paying an architect to design the re-modelling modi?cations of the building before the store opens.

Question 34

In 20X2, Gamma Company made an ordinary repair to a delivery truck at a cost of $300. Gamma's accountant debited the asset account, Delivery Vehicles. Was this treatment an error, and if so, what will be the effect on the ?nancial statements of Gamma?

A) The repair was accounted for correctly.
B) The error increased assets and pro?t in 20X2.
C) In the years following 20X2, net income will be too high.
D) The error decreased pro?t in 20X2.

Question 35

Which of the following is not a factor affecting the calculation of straight-line depreciation?

A) Useful life.
B) Residual value.
C) Carrying amount.
D) Cost.

Question 36

The depreciable amount is:

A) the original cost less the accumulated amortization.
B) the original cost less the residual value.
C) the accumulated amortization less residual value.
D) the net present value.

Question 37

How should an expenditure for an ordinary repair to factory equipment be recorded?

A) As an expense in the period incurred.
B) Debited to an asset account but not depreciated over future years.
C) Debited to an asset account and depreciated over the current and future years.
D) Debited to accumulated depreciation.

Question 38

Johnson Company acquires land and building for $4,000,000 including all fees related to acquisition. The land is appraised at $2,700,000 and the building at $2,100,000. The building is then renovated at a cost of $750,000. What amount is capitalized to the building account?

A) $2,078,125
B) $2,500,000
C) $2,375,000
D) $4,000,000

Question 39

The apportionment of the acquisition cost of an operational asset to future periods in which the bene?ts contribute to earning revenue must be which of the following?

A) Random.
B) Impaired.
C) Revised annually.
D) Rational.

Question 40

Which of the following costs would be excluded from the acquisition cost of equipment purchased from a supplier?

A) Cost to install the equipment.
B) The cost of freight paid to get the equipment to our factory.
C) The cost to widen an entrance in the building to bring the equipment into the facilities.
D) A purchases discount offered by the supplier.

Question 41

Sure Company purchased a machine on January 1, 20X1, at a cash cost of $12,000. The estimated useful life is 10 years, and the estimated residual value is $3,000. The company will use the declining-balance method based on a 150 percent acceleration rate. What will be the depreciation expense for the second year?

A) $900
B) $1,350
C) $1,530
D) $1,800

Question 42

Recording depreciation expense does which of the following?

A) It reduces both pro?t and the amount of cash generated by a company.
B) It does not affect pro?t or the amount of cash generated by a company.
C) It reduces pro?t and increases the amount of cash generated by a company.
D) It reduces pro?t but does not affect the amount of cash generated by a company.

Question 43

Trumble Company purchased a machine on January 1, 20X2, for $10,000. The company bookkeeper incorrectly used a six-year life instead of a ?ve-year life to depreciate the machine. What would be the effect of this error on the 20X2 ?nancial statements?

A) Overstatement of assets offset by an understatement of shareholders' equity.
B) Overstatement of assets offset by an understatement of retained earnings.
C) Overstatement of assets, pro?t, and shareholders' equity.
D) Overstatement of assets and an understatement of liabilities.

Question 44

A machine, acquired for a cash cost of $6,000, is being depreciated on a straight-line basis of $900 per year. The residual value was estimated to be 10% of cost. What is the estimated useful life?

A) 3 years
B) 4 years
C) 5 years
D) 6 years

Question 45

What is the book value of a tangible operating asset?

A) Acquisition cost.
B) Current estimated market value.
C) Acquisition cost minus the balance in accumulated depreciation.
D) Total depreciation that has been recorded on the asset to date.

Question 46

On September 1, 20X3, Sitco Limited purchased an asset for $9,000, with a $1,500 estimated residual value, and an 8-year useful life. The 20X3 depreciation expense using the double- declining-balance method would be:

A) $625
B) $750
C) $1,875
D) $2,250

Question 47

Angstrom Corporation purchased a truck at a cost of $60,000. It has an estimated useful life of five years and estimated residual value of $5,000. At the beginning of year three, Angstrom's managers concluded that the total useful life would be four years, rather than five. There was no change in the estimated residual value. What is the amount of depreciation that Angstrom should record for year 3 under the straight-line method?

A) $8,250
B) $11,000
C) $15,500
D) $16,500

Question 48

Helm Corporation purchased a machine with an initial cost of $80,000, a residual value of $5,000, and an estimated useful life of 10 years. At the beginning of the fifth year, Helm spent $10,000 for an extraordinary repair. Following the repair, Helm estimated that the machine had a remaining useful life of 8 years, and that the residual value was unchanged. Calculate depreciation expense on the machine for the fifth year, assuming that Helm uses the straight-line method.

A) $5,625
B) $6,875
C) $7,250
D) $7,500

Question 49

A depreciable asset that cost $100,000 had an estimated useful life of 5 years and estimated residual value of $10,000. What is the first year for which depreciation would be greater under the straight-line method than under the declining-balance method with an acceleration rate of 200%?

A) The first year.
B) The second year.
C) The third year.
D) The fourth year.

Question 50

On January 1, 20X3, a machine with a useful life of five years and a residual value of $2,500 was purchased for $25,000. Using the double-declining-balance method, the depreciation expense for the year ending December 31, 20X4 would be

A) $10,000
B) $9,000
C) $6,000
D) $5,400

Question 51

Most companies keep separate sets of accounting records for ?nancial reporting and for income tax computations. Which of the following statements is true?

A) They do it even though this practice is illegal and in violation of international ?nancial reporting standards.
B) They do it because the Income Tax Act requires companies to keep separate records for tax purposes.
C) They do it because ?nancial reporting rules and income tax regulations differ in many ways.
D) They do it to enable a company to do a reconciliation between taxable income and reported pro?t.

Question 52

Belton Corporation uses straight-line depreciation and, for assets acquired during the fiscal year, follows the policy of recording a full month's depreciation for all assets acquired on or before the 15th of the month. No depreciation is recorded for the month if an asset is acquired after the 15th. On May 22, 20X1, Belton purchased a car that cost $22,000 which had an estimated residual value of $2,000 and an estimated useful life of five years. To the nearest dollar, what is the amount of depreciation that should be recorded on the car for 20X1?

A) $2,000
B) $2,333
C) $2,667
D) $4,000

Question 53

Eastern Fisheries Co. purchased equipment on January 1, 20X1 for $22,500. The equipment had an estimated useful life of 10 years and an estimated residual value of $2,500. The company uses double-declining-balance depreciation.


-Assuming Eastern uses double-declining-balance depreciation, what would be the depreciation expense for 20X1?

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

Question 54

Newson's Courier Service recently purchased a new delivery van for $29,000. The van is estimated to have a useful life of 8 years or 250,000 kilometers. The van will have a residual value of $1,000. The company uses the units-of-production method of depreciation. Assuming the van travelled 36,000 kilometers. during the first year, what is the depreciation expense for the van in year 1?

A) $3,625
B) $3,500
C) $4,032
D) $4,176

Question 55

Eastern Fisheries Co. purchased equipment on January 1, 20X1 for $22,500. The equipment had an estimated useful life of 10 years and an estimated residual value of $2,500. The company uses double-declining-balance depreciation.


-Assuming Eastern uses straight-line depreciation, what would be the book value of the machine ten years later, on December 31

A) $ -0-
B) $2,350
C) $2,250
D) $2,500

Question 56

A machine that cost $72,000 has an estimated residual value of $6,000 and an estimated useful life of 5 years or 30,000 hours. Using the units-of-production method, the depreciation expense for the second year, during which the machine was used 5,000 hours, would be

A) $14,400
B) $13,200
C) $12,000
D) $11,000

Question 57

Eastern Fisheries Co. purchased equipment on January 1, 20X1 for $22,500. The equipment had an estimated useful life of 10 years and an estimated residual value of $2,500. The company uses double-declining-balance depreciation.


-Assuming Eastern uses double- declining-balance depreciation, what would be the book value of the machine on December 31 20X2?

A) $18,000
B) $14,400
C) $17,750
D) $20,000

Question 58

Bangor Industries purchased a car for $22,000 on January 1, 20X1. The car had an estimated useful life of 80,000 kilometers and an estimated residual value of $4,000. In the second year of ownership (20X2), the car was driven 25,000 kilometers. Using the units-of-production method, what was the amount of depreciation expense for 20X2?

A) $4,500
B) $5,000
C) $5,625
D) $6,875

Question 59

A company decided to use the units-of-production method to calculate depreciation on a car to be driven by the sales manager. The amount of annual depreciation will vary with which of the following?

A) Age of the car.
B) Balance in accumulated depreciation.
C) Number of kilometers the car is driven.
D) Amount of maintenance expense incurred on the car.

Question 60

An asset being amortized with the straight-line method has a residual value of $20,000 and amortization expense of $25,000 in its second year. What was the original cost of the asset if its useful life was 10 years?

A) $185,000
B) $200,000
C) $250,000
D) $270,000

Question 61

Fraser Ltd. has decided to change the estimate of the useful life of an asset that has been in service for two years. Which of the following statements describes the proper way to revise a useful life estimate?

A) Revisions in useful life are permitted if approved by Canada Revenue Agency.
B) Both the current and future years will be affected by the revision.
C) Retroactive changes must be made to correct previously recorded depreciation.
D) Only future years will be affected by the revision.

Question 62

Under what conditions would a company most likely adopt the double-declining-balance method for ?nancial reporting?

A) They have high technology, robotic equipment in their plant that have a long usable life.
B) They have a ?eet of trucks where repair costs increase annually as the ?eet ages.
C) They expect the asset to lose its value more rapidly in the ?rst few years of its life.
D) They expect the asset to lose its value in a huge portion after some years of its use.

Question 63

On April 1, 20X4, Michal Company sold equipment for $11,400 cash. The equipment had originally been purchased at a cost of $24,000 on January 1, 20X0. The equipment was expected to a useful life of 8 years with no residual value. As of January 1, 20X4, had accumulated depreciation of $12,000. The entry to record the sale of the equipment was: a)
$\begin{array}{|l|r|r|}\hline \text { Cash } & 11,400 & \\\hline \text { Accumulated Depreciation } & 12,750 & \\\hline \text { Gain on Sale of Machine } & & 150 \\\hline \text { Machine } & & 24,000 \\\hline\end{array}$


b)
$\begin{array}{|l|c|c|}\hline \text { Cash } & 11,400 \\\hline \text { Accumulated Depreciation } & 12,000 \\\hline \text { Loss on Sale of Machine } & 600 \\\hline\text { Machine }&&24,000\\\hline\end{array}$

c)
$\begin{array}{|l|r|r|}\hline \text { Cash } & 11,400 & \\\hline \text { Depreciation Expense } & 750 & \\\hline \text { Accumulated Depreciation } & 12,000 & \\\hline \text { Gain on Sale of Machine } & & 150 \\\hline \text { Machine } & & 24,000 \\\hline\end{array}$

d)
$\begin{array}{|l|r|r|}\hline \text { Cash } & 11400 & \\\hline \text { Loss on Sale of Machine } & 600 & \\\hline \text { Machine } & & 12,000 \\\hline\end{array}$

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 64

Dionne Developments. owns a piece of land it had purchased in 20X4 for $600,000. When they started to develop the land in 20X5, they discovered that there were environmental problems with the land. It is now estimated to be worth only $250,000. Which of the following is the correct way to account for this?

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

Question 65

Hershon Inc. acquires a new machine. It is comprised of 2 different identifiable components the P922 and the B14. Each of these components is expected to be overhauled at different intervals. The acquisition cost of the entire machine is as follows:

$\begin{array}{|l|r|}\hline \text { Component P922: } & \$ 198,000 \\\hline \text { Component R14: } & \$ 240,000 \\\hline \text { Total } & \$ 438,000 \\\hline\end{array}$

Component P922 is expected to have a useful life of five years and a residual value of $\$ 20,000$ before the first major overhaul is required. Component R14 is expected to have a useful life of seven years and a residual value of $\$ 15,000$ before its first overhaul.

-At the beginning of year six, component P922 undergoes a major overhaul at a cost of $100,000. The work is expected to extend its life by 3 years with a residual value of zero. Hershon uses the straight-line method to depreciate this asset. What will be the net book value of component P922 one year after the overhaul?

A) $66,667
B) $40,000
C) $120,000
D) $80,000

Question 66

Raysion Company, a public corporation, owns equipment for which the following year-end information is available: $$\begin{array} { | l | r | } \hline \text { Carrying amount } & \$ 59,000 \\\hline \text { Recoverable amount } & \$ 52,000 \\\hline & \\\hline\end{array}$$ Which of the following best describes the proper accounting treatment for Magenta's equipment?

A) It is impaired, a loss must be recognized, and may not be reversed in future periods.
B) It is impaired, a loss must be recognized, but may be reversed in future periods.
C) The equipment is not impaired.
D) It is not impaired and a loss should not be recognized Recoverable amount is lower than carrying amount therefore the asset must be written down, but may be reversed in the future.

Question 67

Barton Iron Ore, owns the following equipment: $$\begin{array} { | l | r | } \hline \text { Carrying amount } & \$ 80,000 \\\hline \text { Value in use } & \$ 68,000 \\\hline \text { Fair value less selling costs } & \$ 72,000 \\\hline\end{array}$$ The recoverable amount to be used in the determination of impairment is

A) $80,000
B) $68,000
C) $72,000
D) Cannot be determined

Question 68

Hershon Inc. acquires a new machine. It is comprised of 2 different identifiable components the P922 and the B14. Each of these components is expected to be overhauled at different intervals. The acquisition cost of the entire machine is as follows:

$\begin{array}{|l|r|}\hline \text { Component P922: } & \$ 198,000 \\\hline \text { Component R14: } & \$ 240,000 \\\hline \text { Total } & \$ 438,000 \\\hline\end{array}$

Component P922 is expected to have a useful life of five years and a residual value of $\$ 20,000$ before the first major overhaul is required. Component R14 is expected to have a useful life of seven years and a residual value of $\$ 15,000$ before its first overhaul.

-Assuming, the double declining balance is used, what will be the net book value of component R14 at the end of year one?

A) $205,321
B) $179,455
C) $171,429
D) $140,000

Question 69

The records of Pam Company showed the following about a machine on January 1, 20X8: Purchased 1/1/20X5 for $35,000 Accumulated depreciation at January 1, 20X8, $26,400 On July 1, 20X8, the machine was sold for $7,000. Depreciation for the first six months of 20X8 was $1,467. The gain or loss on disposal would be which of the following?

A) $133 loss.
B) $133 gain.
C) $1,600 loss.
D) $1,600 gain.

Question 70

Barnes Company purchased a machine on April 4, 20X1, for $210,000. The machine had an estimated useful life of ?ve years and a salvage value of $30,000. The machine is being depreciated using the double-declining-balance method. Barnes depreciates its assets from the ?rst day of the month nearest the date of purchase. The asset balance, net of accumulated depreciation, at December 31, 20X2, would be:

A) $75,600
B) $88,200
C) $94,800
D) $105,600

Question 71

Foghorn Ltd. has an asset with an original cost of $16,000 and a carrying amount (net book value) today of $4,400. The Company no longer needs the asset and has decided to sell it today for $3,000 cash. The journal entry Foghorn will use to record the sale includes:

A) a credit to the asset account for $4,400.
B) a debit to the asset account for $4,400.
C) a debit to accumulated amortization for $11,600.
D) a credit to cash account for $3,000.

Question 72

How is the matching principle related to the recording of depreciation on tangible operational assets?

A) The matching principle requires a company to use the same depreciation.
B) Once a depreciation method is adopted for a particular asset, the owner must continue to use the same method.
C) The accountant who calculates the depreciation may assume that the company will continue in business at least as long as the estimated useful life of the asset.
D) A portion of the cost of the asset should be allocated as an expense for the periods in which the asset helps the business to earn revenue.

Question 73

A loss on disposal of an asset is reported in the ?nancial statements

A) in the operating section of the income statement.
B) in the non-operating section of the income statement.
C) as part of Other Comprehensive Income.
D) as part of Cost of Goods Sold.

Question 74

Hershon Inc. acquires a new machine. It is comprised of 2 different identifiable components the P922 and the B14. Each of these components is expected to be overhauled at different intervals. The acquisition cost of the entire machine is as follows:

$\begin{array}{|l|r|}\hline \text { Component P922: } & \$ 198,000 \\\hline \text { Component R14: } & \$ 240,000 \\\hline \text { Total } & \$ 438,000 \\\hline\end{array}$

Component P922 is expected to have a useful life of five years and a residual value of $\$ 20,000$ before the first major overhaul is required. Component R14 is expected to have a useful life of seven years and a residual value of $\$ 15,000$ before its first overhaul.

-Assuming straight-line depreciation, what will be the net book value of component P922 at the end of year five?

A) $18,000
B) $20,000
C) $15,000
D) $22,000

Question 75

WD Company reports pro?t in 20X3 of $1,300 million and depreciation expense of $851 million. They also report investment in new theme parks, resorts, and other property of $2,134 million for 20X3. Which of the following disclosures would appear on their statement of cash ?ows?

A) Depreciation of $851 million would be deducted from pro?t under operating activities and the $2,134 million would be added under investing activities.
B) Depreciation of $851 million would be added to pro?t under operating activities and the $2,134 million would be added under investing activities.
C) Depreciation of $851 million would be added to pro?t under operating activities and the $2,134 million would be deducted under investing activities.
D) Depreciation of $851 million would be deducted from pro?t under operating activities and the $2,134 million would be deducted under investing activities.

Question 76

Marker Steel purchased a machine on January 1, 20X1, at a cost of $380,000 with an estimated residual value of $30,000 at the end of its estimated useful life of eight years. On January 1, 20X3, Proctor Paper estimates that the machine only has a remaining life of ?ve years and a residual value of $20,000. Proctor Paper uses straight-line amortization. Depreciation expense for 20X3 would be:

A) $54,500
B) $55,000
C) $48,500
D) $57,000

Question 77

Kovacic Company purchased a computer that cost $10,000. It had an estimated useful life of five years and residual value of $0. The computer was depreciated by the straight-line method and was sold at the end of the fourth year of use for $3,000 cash. What should Kovacic record?

A) A gain of $1,000.
B) A loss of $1,000.
C) Neither a gain nor a loss-the computer was sold at its book value.
D) Neither a gain nor a loss-the gain that occurred in this case would not be recognized.

Question 78

Which of the following is not a likely indicator of possible asset impairment?

A) Evidence of obsolescence
B) A decrease in the asset's market value
C) Double the number of asset purchases over the prior year.
D) External competitive factors

Question 79

Which of the following statements is false?

A) Depreciation expense is added to profit in the operating activities section of the statement of cash flows because it had no cash effect on profit under the indirect method.
B) Depreciation expense is included in the investing activities section of the cash flow statement.
C) The only cash effect for depreciation is the tax savings provided by its deduction to derive taxable income.
D) Depreciation is a non-cash expense that reduces profit but involves no outflow of cash.

Question 80

Which of the following statements is false?

A) A company can change the method used for depreciating assets if the change can be justified because it provides a better measure of the company's profit.
B) A change in estimate requires the company to recalculate and restate all the prior years' estimates of depreciation and adjust the impact on the statement of financial position and income statement.
C) A change in estimate is frequently necessary because the estimates of useful lives or residual values may change over time because conditions change.
D) Either a change in estimate or a change in method can only be justified on the basis it provides a better measure of profit.