Question 1

Carrying amount (or net book value) is always the same as fair value.

Accepted Answer

A) True 
 B)False  False

Question 2

The declining-balance method of depreciation is appropriate for companies that expect their equipment or other assets to become obsolete rapidly.

Accepted Answer

A) True 
 B)False  True

Question 3

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?

Accepted Answer

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 C

Question 4

Depreciation expense is a non-cash expense that has no effect on cash.

Accepted Answer

A) True 
 B)False

Question 5

Tweed Feed & Seed purchased a new machine on January 1, 20X1: $$\begin{array} { | l | r | } 
\hline \text { Cost when acquired } & \$ 26,000 \
\hline \text { Estimated residual value } & 2,000 \
\hline \text { Estimated useful life } & 10 \text { years } \
\hline
\end{array}$$ Accumulated depreciation at the end of year 5 (assume straight-line depreciation) $12,000 It is now the beginning of year 6 and the management re-evaluated the estimates related to the machine. Compute the depreciation expense for year 6 under each of the following independent cases: $$\begin{array} { | l | l | l | } 
\hline \text { Case } & \text { Event } & \text { Depreciation Expense } \
\hline \text { A } & \text { The estimated total useful life is changed to 15 years } & \
\hline \text { B } & \begin{array} { l } 
\text { The residual value is changed to } \$ 1,000 ; \text { useful life } \
\text { unchanged }
\end{array} & \
\hline \text { C } & \begin{array} { l } 
\text { The estimated total useful life is changed to 7 years and } \
\text { the residual value is changed to } \$ 3,000 .
\end{array} & \
\hline
\end{array}$$

Accepted Answer

The answer of Tweed Feed & Seed purchased a new...

Question 6

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

Accepted Answer

A)   Proﬁt 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 7

Which of the following would be classiﬁed as an operational (ﬁxed) asset?

Accepted Answer

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 8

For each of the following three independent situations determine the gain or loss on the sale or disposal of the asset. Prepare the journal entry required at the time of sale or disposal. Assume that all assets are depreciated using the straight-line method and in every case, a year-end of December 31. 1. Equipment purchased July 1, 20X4, for $75,000 was sold for $9,500 on June 30, 20X9. At the time of purchase, it was estimated to have a $5,000 residual value and a five-year useful life. Assume that a half-year depreciation is taken in the year the equipment was acquired and in the year it was sold. 2 Calibrating equipment was purchased on July 10 , 20X8, for $120,000. At the time, it was estimated to have a six-year useful life and no residual value. On September 30, 20X9, there was a fire in the plant, and the equipment suffered water damage and is beyond repair. The company received $50,000 from the insurance company for the equipment. Assume depreciation is applied monthly. 3. Office furniture was purchased on February 11, 20X0 for $25, 000 and was estimated to have a useful life of ten years and a salvage value of$2,500. On August 1, 20X7, the company moved to new offices and donated the old furniture to charity. Assume that a half-year depreciation is taken in the year the furniture was acquired and in the year it was donated.

Accepted Answer

The answer of For each of the following three independent...

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?

Accepted Answer

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

Question 10

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:

Accepted Answer

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

Question 11

The straight-line depreciation method assumes an approximately equal decline in the economic usefulness of the asset each period and provides greater tax beneﬁts early in the useful life of the asset.

Accepted Answer

A) True 
 B)False

Question 12

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?

Accepted Answer

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

Question 13

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 ﬁve years and a residual value of $20,000. Proctor Paper uses straight-line amortization. Depreciation expense for 20X3 would be:

Accepted Answer

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

Question 14

A change in the estimated residual value of property, plant, and equipment requires a restatement of prior years' depreciation.

Accepted Answer

A) True 
 B)False

Question 15

A company that is self-constructing a new store, which will open upon completion, is permitted to capitalize the interest during the period of construction if they ﬁnance the construction with actual loans.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A)   A copyright on a book of poetry.
B)   The goodwill value resulting from a business combination.
C)   A patent on a new invention.
D)   The research costs to develop a new drug.

Question 17

On March 1, 20X1, Jance Company purchased a producing oil well at a cash cost of $100,000. It is estimated that 250,000 barrels of oil can be produced over the remaining life of the well. By December 31, 20X1 (end of the accounting period), 1,500 barrels of oil were produced and sold. What would be the amount of depletion expense for 20X1 on this well?

Accepted Answer

A)   $300
B)   $450
C)   $600
D)   $750

Question 18

During 20X0, Time & Tenders Co. sold equipment that had cost $206,000 for $127,600. This resulted in a gain of $9,600. The total balance in accumulated depreciation-equipment was$660,000 on January 1 20X0, and $630,000 on December 31. No other equipment was disposed of during 2010. Depreciation expense for 2010 was

Accepted Answer

A)   $101,000
B)   $38,600
C)   $59,600
D)   $58,000

Question 19

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

Accepted Answer

A)   They do it even though this practice is illegal and in violation of international ﬁnancial 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 ﬁnancial 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 proﬁt.

Question 20

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

Accepted Answer

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) .

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

Carrying amount (or net book value) is always the same as fair value.

The declining-balance method of depreciation is appropriate for companies that expect their equipment or other assets to become obsolete rapidly.

Depreciation expense is a non-cash expense that has no effect on cash.

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

Which of the following would be classiﬁed as an operational (ﬁxed) asset?

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?

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:

The straight-line depreciation method assumes an approximately equal decline in the economic usefulness of the asset each period and provides greater tax beneﬁts early in the useful life of the asset.

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 change in the estimated residual value of property, plant, and equipment requires a restatement of prior years' depreciation.

A company that is self-constructing a new store, which will open upon completion, is permitted to capitalize the interest during the period of construction if they ﬁnance the construction with actual loans.

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

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

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