Question 1

Zen Fitness Inc. purchased a machine on April 1, 2018 for $120,000. The machine is expected to have an estimated residual value of $5,000 at the end of its 5-year life. Although Zen has a policy of using straight-line depreciation for machinery, the company accountant neglected to follow policy and depreciated it in 2018 using the double diminishing-balance method. Income before income tax for the year ended December 31, 2018 was $73,000 as the result of depreciating the machine incorrectly.InstructionsUsing the method of depreciation that company policy requires, prepare the correcting entry and determine the correct net income. Ignore income tax. (Show calculations.)

Accepted Answer

The answer of Zen Fitness Inc. purchased a machine on...

Question 2

Which statement is correct regarding the use of the cost model and the revaluation model?

Accepted Answer

A)  The cost model is not allowed under IFRS. 
B)  The revaluation model is the only model allowed under IFRS. 
C)  The cost model is the only model allowed under ASPE. 
D)  Either the cost model or the revaluation model can be under ASPE.

Question 3

On July 1, 2018, a machine with a useful life of five years and a residual value of $4,000 was purchased for $20,000. Under straight-line depreciation, what is the depreciation expense for calendar 2019?

Accepted Answer

A)  $4,000 
B)  $3,556 
C)  $3,200 
D)  $1,600

Question 4

Research costs

Accepted Answer

A)  are classified as intangible assets. 
B)  must be expensed when incurred. 
C)  should be included in the cost of the asset they relate to. 
D)  are capitalized and then amortized over their estimated useful life.

Question 5

The carrying amount of an asset is the original cost less anticipated residual value.

Accepted Answer

A) True 
 B)False

Question 6

If a company incurs legal costs in unsuccessfully defending its patent, these costs would be debited to

Accepted Answer

A)  Legal Expense. 
B)  Intangible Loss account. 
C)  Patent account. 
D)  Other Comprehensive Income.

Question 7

Interest incurred on the construction of a building can be included in the cost of the building

Accepted Answer

A)  during the construction period of a building. 
B)  for as long as the interest is payable. 
C)  if the building is financed by a mortgage. 
D)  under no circumstances.

Question 8

Goodwill

Accepted Answer

A)  can be recorded when generated internally. 
B)  can be subdivided and sold in parts. 
C)  can only be identified with the business as a whole. 
D)  need not be tested annually for impairment.

Question 9

The carrying amount of an asset is equal to the

Accepted Answer

A)  asset's fair value less its original cost. 
B)  asset's cost less residual value less accumulated depreciation. 
C)  asset's cost less residual value. 
D)  asset's cost less accumulated depreciation.

Question 10

Canada Revenue Agency requires a company to use the same depreciation method on its income tax return that is used in preparing financial statements.

Accepted Answer

A) True 
 B)False

Question 11

If disposal of an asset occurs during the year, depreciation is

Accepted Answer

A)  not recorded for the year. 
B)  recorded for the whole year. 
C)  recorded for the fraction of the year to the date of the disposal. 
D)  not recorded if the asset is scrapped.

Question 12

Chevrette Corporation purchased equipment on January 1, 2017 for $87,000. It is estimated that the equipment will have a $7,000 residual value at the end of its 8-year useful life. It is also estimated that the equipment will produce 160,000 units over its 8-year life.Instructions
a. Using straight-line depreciation, calculate the depreciation expense for the year ended December 31, 2017.
b. Now assume Chevrette uses the units-of-production depreciation. If 16,000 units of product are produced in 2017 and 24,000 units are produced in 2018, what is the carrying amount of the equipment at December 31, 2018?
c. Now assume Chevrette uses double diminishing-balance depreciation. What is the balance of the Accumulated Depreciation-Equipment account at December 31, 2019? Round amounts to the nearest dollar.

Accepted Answer

The answer of Chevrette Corporation purchased equipment on January 1,...

Question 13

An intangible asset should

Accepted Answer

A)  not be amortized if it has an finite life. 
B)  not be amortized if it has an indefinite life. 
C)  be amortized over its legal or useful life, whichever is longer. 
D)  be amortized over 5 years or less.

Question 14

When purchasing a delivery truck, the cost of painting the company logo on the side should be debited to the Vehicles account.

Accepted Answer

A) True 
 B)False

Question 15

All property, plant, and equipment must be depreciated for accounting purposes.

Accepted Answer

A) True 
 B)False

Question 16

Units-of-production is an appropriate depreciation method to use when

Accepted Answer

A)  it is impossible to determine the productivity of the asset. 
B)  the asset's use will be constant over its useful life. 
C)  the company is a manufacturing company. 
D)  the asset's use varies significantly from one period to another.

Question 17

Depreciation expense and impairment losses are presented in

Accepted Answer

A)  the operating section of the income statement. 
B)  the operating section and non-operating section of the income statement, respectively. 
C)  the non-operating section of the income statement. 
D)  the non-operating section and operating section of the income statement, respectively.

Question 18

Equipment was purchased for $20,000. It is estimated that the equipment will have a $3,000 residual value at the end of its 5-year useful life. Using the straight-line method, annual depreciation expense will be

Accepted Answer

A)  $3,400. 
B)  $4,000. 
C)  $4,600. 
D)  $5,000.

Question 19

Using the units-of-production method of depreciation for equipment will generally result in more depreciation expense being recorded over the life of the asset than if the straight-line method had been used.

Accepted Answer

A) True 
 B)False

Question 20

A truck costing $15,000 and on which $14,000 of accumulated depreciation has been recorded was discarded as having no value. The entry to record this event would include a

Accepted Answer

A)  gain of $1,000. 
B)  loss of $1,000. 
C)  credit to Accumulated Depreciation for $14,000. 
D)  credit to Equipment for $1,000.

Exam 9: Reporting and Analyzing Long-Lived Assets

Which statement is correct regarding the use of the cost model and the revaluation model?

On July 1, 2018, a machine with a useful life of five years and a residual value of $4,000 was purchased for $20,000. Under straight-line depreciation, what is the depreciation expense for calendar 2019?

Research costs

The carrying amount of an asset is the original cost less anticipated residual value.

If a company incurs legal costs in unsuccessfully defending its patent, these costs would be debited to

Interest incurred on the construction of a building can be included in the cost of the building

Goodwill

The carrying amount of an asset is equal to the

Canada Revenue Agency requires a company to use the same depreciation method on its income tax return that is used in preparing financial statements.

If disposal of an asset occurs during the year, depreciation is

An intangible asset should

When purchasing a delivery truck, the cost of painting the company logo on the side should be debited to the Vehicles account.

All property, plant, and equipment must be depreciated for accounting purposes.

Units-of-production is an appropriate depreciation method to use when

Depreciation expense and impairment losses are presented in

Equipment was purchased for $20,000. It is estimated that the equipment will have a $3,000 residual value at the end of its 5-year useful life. Using the straight-line method, annual depreciation expense will be

Using the units-of-production method of depreciation for equipment will generally result in more depreciation expense being recorded over the life of the asset than if the straight-line method had been used.

A truck costing $15,000 and on which $14,000 of accumulated depreciation has been recorded was discarded as having no value. The entry to record this event would include a