Deck 9: Long-Lived Assets

Question 1

Depreciation is an expense that does not use cash during the period in which it is recognized. When did (will) the cash outflow associated with the asset occur?

A)When the asset is retired
B)There is no cash outflow associated with depreciation or the asset.
C)When the replacement cost of the asset increases
D)When the asset was acquired

Answer 1

D

Question 2

Which of the following long-lived assets is not amortized or depreciated to an expense?

A)Equipment used in production of inventory goods
B)Land improvements
C)Land
D)Company computers replaced every two years

Answer 2

C

Question 3

During extended periods of rising prices of plant and equipment, the amount required to replace long-lived assets is typically:

A)less than total accumulated depreciation of those assets.
B)equal to the sum of all the depreciation recognized on those assets.
C)less than the balance sheet value of those assets.
D)greater than the sum of total depreciation expense recognized on those assets.

Answer 3

D

Question 4

On January 1, Comicon Corp. purchased land with a usable building on it for $300,000. The cost of the land and building were $120,000 and $180,000, respectively. Comicon depreciates the building using the straight-line method over 20 years with an expected $24,000 salvage value. The annual depreciation expense on the building is:

A)$0.
B)$5,000.
C)$7,800.
D)$10,800.

Question 5

An increase in accumulated depreciation:

A)increases total assets.
B)decreases total assets.
C)decreases the current ratio.
D)increases the quick ratio.

Question 6

On January 1, Scion Co. purchased land with a usable building on it for $210,000. The appropriate cost of the land and building were $70,000 and $140,000, respectively. Scion erroneously assigned the entire purchase cost of $210,000 to land. Scion should depreciate the building using the straight-line method over 20 years with an expected zero salvage value. As a result of Scion's treatment of the purchase of land and building, its current net income is:

A)understated by $10,500.
B)understated by $7,000.
C)overstated by $7,000.
D)overstated by $10,500.

Question 7

Which one of the following should be classified as land on the balance sheet?

A)A shed that houses the company's equipment.
B)Mineral rights representing gold in the soil
C)Two tracts of property that house the company's backup computer site
D)Sidewalks and driveways which lead to the company's office building

Question 8

Monroe Co. purchased a tract of land paying $100,000 in cash and assuming an existing mortgage of $60,000. The municipal tax bill disclosed an assessed valuation of $180,000. The amount Monroe should record as land connected with this acquisition is:

A)$100,000.
B)$160,000.
C)$180,000.
D)$200,000.

Question 9

The process of expensing the cost of patents over an extended period of years is referred to as:

A)classification.
B)depletion.
C)depreciation.
D)amortization.

Question 10

Moss Company purchased a building costing $800,000 on January 1, 2017. Moss is depreciating the building over 80 years using the straight-line method with no salvage value. The economic life of the building is expected to be 40 years. As a result of Moss's accounting procedure, its 2017:

A)earnings per share is understated and debt/equity ratio is overstated.
B)earnings per share is understated and debt/equity ratio is understated.
C)earnings per share is overstated and debt/equity ratio is overstated.
D)earnings per share is overstated and debt/equity ratio is understated.

Question 11

The process of expensing the cost of a gold mine as gold is withdrawn is referred to as:

A)amortization.
B)depletion.
C)depreciation.
D)decomposition.

Question 12

Equipment with a cost of $22,000 and accumulated depreciation of $15,000 was sold at a gain of $1,000. The cash received from the disposition of equipment is:

A)$7,000.
B)$8,000.
C)$6,000.
D)$14,000.

Question 13

The process of allocating the cost of plant and equipment over the time period in which they are used is referred to as:

A)depreciation.
B)depletion.
C)amortization.
D)deferred costs.

Question 14

The Favre Company made the following expenditures related to its building:
$\begin{array}{lrr} \text { Annual repainting of exterior } &\$1,700\\ \text {Replacement of old fiberglass shingles with a fireproof tile roof } &33,000\\ \text { Major improvements to electrical system required to run new machinery } &18,000\end{array}$

The amount of the preceding expenditures that should be immediately expensed is:

A)$0.
B)$1,700.
C)$34,700.
D)$19,700.

Question 15

On January 1, a company purchased land that was foreclosed on for $270,000. At the time of purchase, the fair market values of the land was $290,000. The gain from the purchase of the land is:

A)$0.
B)$20,000.
C)$270,000.
D)$290,000.

Question 16

Which one of the following actions will help solve a cash shortage problem?

A)Issue common stock in exchange for plant assets
B)Recognize depreciation expense
C)Purchase long-lived asset by issuing long-term debt
D )Retire plant assets at salvage value

Question 17

The purpose of recording depreciation expense is to:

A)provide cash necessary to replace plant assets when they are used up.
B)record the balance sheet amount of plant assets at replacement value.
C)match expenses with revenues using a reasonable systematic method.
D)gain a better understanding of estimating the extraction of natural resources.

Question 18

The balance in accumulated depreciation on January 1 and December 31 is $15,000 and $19,000, respectively, during a year in which no assets were disposed. Depreciation expense during the year is:

A)$19,000.
B)$15,000.
C)$4,000.
D)$34,000.

Question 19

Accumulated depreciation is an account which:

A)adjusts plant and equipment so that its balance sheet value approximates its replacement cost.
B)is a long-term liability.
C)is equal to total depreciation expense recorded and decreases total plant and equipment.
D)reduces intangible assets.

Question 20

A company which complains that although their income is quite satisfactory, cash is not available for dividends because of the high cost of replacing fixed assets is operating in an economic environment where:

A)inflation is non-existent.
B)the balance sheet value of long-lived assets is more than their replacement value.
C)the prices of long-lived assets have been decreasing over an extended period of time.
D)expenditures required to replace long-lived assets are greater than depreciation expense.

Question 21

Failure to record depreciation expense during a year:

A)understates net income.
B)overstates total assets.
C)overstates total debt.
D)overstates contributed capital.

Question 22

Natural resource costs:

A)include rights, privileges, and benefits of an economic resource that have no physical existence.
B)are depreciated.
C)include the cost of the equipment used to extract the natural resource.
D)include the cost of acquiring the rights to extract natural resources.

Question 23

The balance in accumulated depreciation on January 1 and December 31 is $12,000 and $9,000, respectively, during a year in which an asset with a cost of $4,000 and net book value of $0 was retired. Depreciation expense for the current year is:

A)$9,000.
B)$3,000.
C)$1,000.
D)$7,000.

Question 24

A machine was purchased on January 1 for $50,000. The machine has an estimated useful life of 10 years with a salvage value of $2,000. Under the double-declining-balance, depreciation expense for each of the first two years is, respectively,

A)$12,000 and $12,000.
B)$10,000 and $8,000.
C)$12,000 and $9,500.
D)$12,500 and $12,500.

Question 25

Which one of the costs below should be included as part of the cost of land?

A)Razing an old building.
B)Cost of a building permit.
C)Cost of driveways.
D)Shrubs and trees with limited lives.

Question 26

On January 1, 2017, Lane Company made a $12,000 expenditure on a fully depreciated machine. The expenditure increased the expected life of the new machine for two years until December 31, 2018. Lane uses straight-line depreciation with no salvage value. However, Lane erroneously expensed this capital expenditure. As a result of this error,

A)2017 income is overstated by $3,000 and 2018 income is understated by $3,000.
B)2017 income is understated by $6,000 and 2018 income is overstated by $6,000.
C)2017 income is understated by $6,000 and 2018 income is overstated by $3,000.
D)2017 income is understated by $6,000 and 2018 income is correctly stated.

Question 27

Which one of the following depreciation methods will typically result in the smallest earnings per share during the early periods of an asset's life?

A)150% declining balance method.
B)Units of production method.
C)Double-declining-balance method.
D)Straight-line method.

Question 28

When companies construct their own long-lived assets, all costs required to get the asset into operating condition must be:

A)expensed immediately.
B)included in the long-lived asset's cost.
C)recognized as a maintenance cost.
D)treated as a cost necessary to maintain the plant asset's current level of productivity.

Question 29

A machine was purchased on January 1 for $100,000. The machine has an estimated useful life of 4 years with a salvage value of $20,000. Under the straight-line method, accumulated depreciation at the end of year 2 is:

A)$25,000
B)$22,500
C)$50,000
D)$40,000

Question 30

Which of the following is the least problematic factor to determine when preparing to calculate depreciation?

A)useful life.
B)estimated salvage value.
C)technical obsolescence.
D)acquisition cost.

Question 31

Kristin, Inc. depreciates its plant assets over a 10-year life with a 10% salvage value. Using straight-line depreciation, which calculation will Kristin use during year 2 of the asset's life?

A)10% x (Cost - Salvage Value)
B)(Cost - Salvage Value)/10 x 10%
C)Book Value x 10%
D)Book Value x [10% - Salvage Value]

Question 32

Which one of the following is not one of the questions asked when accounting for long-lived assets?

A)Over what period of time should this cost be allocated?
B)What dollar amount should be included in the capitalized cost of the long-lived asset?
C)At what rate should this cost be allocated?
D)How much will a replacement asset cost?

Question 33

Which one of the following depreciation methods will typically result in the smallest amount of current taxes paid during the early periods of an asset's life?

A)150% declining balance method.
B)Units of production method.
C)Double-declining-balance method.
D)Straight-line method.

Question 34

A machine was purchased on January 1 for $100,000. The machine has an estimated useful life of 5 years with a salvage value of $10,000. Under the double-declining-balance method, depreciation expense for each of the first two years is, respectively,

A)$45,000 and $22,500.
B)$40,000 and $24,000.
C)$45,000 and $ 27,500.
D)$22,500 and $ 22,500.

Question 35

Salvage value is:

A)a method of depreciating plant assets.
B)the dollar amount that can be recovered when the asset is sold, traded, or scrapped.
C)an asset's current estimated market value.
D)a physical obsolescence condition.

Question 36

A machine was purchased on January 1 for $100,000. The machine has an estimated useful life of 5 years with a salvage value of $20,000. Under the straight-line method, the book value and the accumulated depreciation of the machine at the end of year two is respectively,

A)$60,000 and $40,000
B)$68,000 and $32,000
C)$40,000 and $60,000
D)$48,000 and $32,000

Question 37

Which one of the following will impact the amount of depreciation expensed throughout the life of plant assets?

A)The amount of capitalized cost.
B)Maintenance costs throughout the asset's useful life.
C)The expected cost of a replacement asset.
D)The current market value.

Question 38

If the straight-line method of depreciation of an asset with a 5-year life expectancy and no salvage value is used, then the percentage of cost that is recognized as depreciation expense for the first two years of the asset's life is, respectively,

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

Question 39

Forgetting to record depreciation expense during 2017:

A)understates the debt/equity ratio.
B)understates the current ratio.
C)overstates the debt/equity ratio.
D)overstates the current ratio.

Question 40

Sandeep Inc. uses double-declining-balance depreciation for an asset with a 4-year life expectancy and no salvage value. Depreciation expense for the second year of the asset's life is calculated by:

A)[2 x Book Value]/4
B)[2 x (Cost - Salvage Value]/4
C)[(2 x Book Value)/4] - Accumulated Depreciation
D)[2 x Cost]/4

Question 41

Rio Grande Company purchased equipment on January 1, 2017 for $75,000. The estimated useful life of the equipment is 5 years, the salvage value is $10,000, and the company uses the double-declining balance method to depreciate fixed assets. Which of the following journal entries would Rio Grande record if the equipment is scrapped after three years?
a.
$\begin{array}{lrr} \text { Equipment } &75,000\\ \text { Gain on Disposal of Plant Asset } &&16,200\\ \text {Accumulated Depreciation-Equipment } &&58,800\\\end{array}$

b.
$\begin{array}{lrr} \text { Accumulated Depreciation-Equipment } &58,800\\ \text {Loss on Disposal of Plant Asset } &16,200\\ \text { Equipment } &&75,000\\\end{array}$

c.
$\begin{array}{lrr} \text { Accumulated Depreciation-Equipment } &58,800\\ \text { Cash } &16,200\\ \text { Equipment} &&75,000\\\end{array}$

d.
$\begin{array}{lrr} \text { Depreciation Expense } &58,800\\ \text {Loss on Disposal of Plant Asset } &16,200\\ \text { Equipment } &&75,000\\\end{array}$

Question 42

The units of production method of depreciation:

A)allocates the cost of the long-lived asset based on an activity.
B)allocates an equal amount of plant asset cost to each accounting period.
C)is an accelerated method.
D)is used when an asset has no salvage value.

Question 43

One primary reason management may choose a particular depreciation method is:

A)to save cash for the replacement of the plant asset.
B)to avoid violation of debt covenants tied to net income.
C)to decrease the cash flows of the company.
D)to hide judgment errors that managers have made during the accounting period.

Question 44

On December 1, Douglas Corp. purchased a tract of land for $285,000 to be used as a factory site. An old unusable building on the land was razed (torn down), and the salvaged materials from the demolition were sold. These cash expenditures and receipts and other costs incurred during December are as follows:
$\begin{array}{lrr} \text { Demolition of old building} &\$51,000\\ \text { Proceeds from sale of salvaged materials} &8,000\\ \text { Legal fees to transfer land title } &7,000\\ \text { Title quarantee insurance } &2,500\\\end{array}$

What would be the balance in Douglas's Land account on its December 31 balance sheet?

A)$285,000
B)$337,500
C)$340,500
D)$331,000

Question 45

Once a plant asset becomes fully depreciated, the:

A)asset may no longer be used.
B)asset may still be used.
C)asset should be retired.
D)cost of the asset must be removed from the accounting records.

Question 46

On July 31, 2017, equipment is purchased for $66,000 with a 4-year life expectancy and salvage value of $5,000. If the double-declining-balance method is used, calculate depreciation expense for the year ending December 31, 2017.

A)$13,750
B)$12,708
C)$33,000
D)$31,000

Question 47

During 2017, Erie Inc. developed a new process for packaging products. Erie paid its employees $450,000 over the past five years in developing this process. On January 1, 2017, Erie paid $12,000 to register the packaging patent. The company believes the patent will produce profits for 10 years. The patent has a 17-year legal life. How much amortization expense should be recognized during 2017?

A)$27,118
B)$46,200
C)$1,200
D)$647

Question 48

The following items represent common post acquisition expenditures incurred on equipment.
A) Replacement of defective parts
B) Rewiring costs to increase operating speed
C) Painting costs
D) Repair of the major circuitry of the equipment
Identify which of these items are considered to be maintenance items.

A)A and C
B)C only
C)A, B, and C
D)A, C, and D

Question 49

On January 1, Eagle Co. paid $65,000 for a new truck. It was estimated that the truck would be driven 300,000 miles during the next 5 years, at which time it would have a salvage value of $10,000. At the end of the first and second years, the odometer registered 55,000 and 115,000 miles, respectively. What is the book value of the truck using straight-line depreciation at the end of the second year?

A)$47,000
B)$43,000
C)$43,533
D)$56,000

Question 50

Rio Grande Company purchased equipment on January 1, 2017 for $75,000. The estimated useful life of the equipment is 5 years, the salvage value is $10,000, and the company uses the double-declining balance method to depreciate fixed assets. Which of the following journal entries would Rio Grande record if the equipment is scrapped after five years?
a.
$\begin{array}{lrr} \text { Equipment } &75,000\\ \text { Gain on Disposal of Plant Asset } &&10,000\\ \text {Accumulated Depreciation-Equipment } &&65,000\\\end{array}$

b.
$\begin{array}{lrr} \text { Accumulated Depreciation-Equipment } &75,000\\ \text {Equipment } &&75,000\\\end{array}$

c.
$\begin{array}{lrr} \text { Accumulated Depreciation-Equipment } &65,000\\ \text { Loss on Disposal of Plant Asset } &10,000\\ \text { Equipment} &&75,000\\\end{array}$

d.
$\begin{array}{lrr} \text { Depreciation Expense } &65,000\\ \text {Loss on Disposal of Plant Asset } &10,000\\ \text { Equipment } &&75,000\\\end{array}$

Question 51

On February 1, 2013, James Co., which uses straight-line depreciation, purchased equipment for $88,000 with a useful life of 12 years and $4,000 salvage value. On February 1, 2017, the equipment was sold for $56,000. Which of the following would James recognize as a result of this disposition?

A)$7,000 loss
B)$4,000 loss
C)$4,000 gain
D)No gain or loss

Question 52

On January 1, Mondale Co. paid $92,000 for a new truck. It was estimated that the truck would be driven 200,000 miles during the next 8 years, at which time it would have a salvage value of $7,000. At the end of the first three years, the odometer registered 27,000, 53,000, and 78,000 miles, respectively. What is the book value of the truck using the activity method of depreciation at the end of the third year?

A)$67,150
B)$24,850
C)$51,850
D)$58,850

Question 53

Once a company establishes that an estimated useful life of a plant asset has changed significantly:

A)the plant asset must be disposed.
B)the change must be made for the current and future years.
C)a correcting journal entry must be made.
D)the previous year's financial statements must be corrected.

Question 54

When a plant asset is sold, its original cost and its:

A)market value must be removed from the accounting records.
B)accumulated depreciation must be removed from the accounting records.
C)salvage value must be expensed immediately.
D)related maintenance costs must be transferred to the income statement immediately.

Question 55

When a plant asset is traded in for a dissimilar asset, the valuation of the new plant asset should be:

A)at the original cost of the old asset.
B)at the fair market value of the asset given up, or the asset received, whichever is more clearly evident.
C)at the replacement cost of the old asset.
D)at the value at which the new asset received was carried in the accounting records of the manufacturer.

Question 56

The calculation of a 'depreciation base' requires subtracting:

A)the salvage value from the asset's book value.
B)the asset's book value from its original cost.
C)the asset's salvage value from its capitalized cost.
D)accumulated depreciation from the asset's original cost.

Question 57

Which one of the following costs would be capitalized as an 'organizational cost'?

A)Goodwill
B)Underwriting a company's first stock issuance
C)Copyrights
D)None of the above would be capitalized

Question 58

Intangible assets differ from plant assets in that they:

A)are consumed in the current accounting period.
B)include prepaid expenses that extend beyond the current accounting period.
C)have no physical existence.
D)are matched against the revenue in the period the related revenue is recognized.

Question 59

The following items represent common postacquisition expenditures incurred on equipment.
A) An overhaul to increase useful life of the equipment
B) Replacement of muffler
C) Lubrication service
D) Costs of redesign to increase output
Identify which of these items are considered to be betterments.

A)A only
B)A, B, and D
C)A and D
D)A and B

Question 60

Rio Grande Company purchased equipment on January 1, 2017 for $75,000. The estimated useful life of the equipment is 5 years, the salvage value is $10,000, and the company uses the double-declining balance method to depreciate fixed assets. How much depreciation would Rio Grande record for the fourth year of the equipment's use?

A)$6,480
B)$6,200
C)$5,616
D)$6,000

Question 61

On January 1, Hampton Company paid $48,000 for a new delivery truck. It was estimated that the truck would be driven 100,000 miles during the next 5 years, at which time it would have a salvage value of $3,000. During the first and second years, the truck was driven 22,000 and 18,000 miles, respectively. How much is accumulated depreciation using the activity (miles driven) method at the end of year 2?

Question 62

On December 1, Dominican Corp. purchased a tract of land for $325,000 to be used as a factory site. An old unusable building on the land was razed (torn down), and the salvaged materials from the demolition were sold. These cash expenditures and receipts and other costs incurred during December are as follows:
$\begin{array}{lr}\text { Demolition of old building } & \$ 11,000 \\\text { Proceeds from sale of salvaged materials } & 5,000 \\\text { Legal fees to transfer land title } & 3,000 \\\text { Title guarantee insurance } & 1,000\end{array}$
Calculate the balance in Dominican's Land account on its December 31 balance sheet.

Question 63

Farmdale Company's President purchased an extremely used automobile on November 1 by paying $2,000. He immediately had it towed to his mechanic who overhauled the auto in order to get the car ready to be safely driven. The cost of the tow was $40 and the initial overhaul was $1,500. While driving from his mechanic's garage, he ran over a nail that punctured a tire and cost $35 to repair. Calculate the cost of the auto.

Question 64

On January 1, Bisbee Co. paid $80,000 for a new truck. It was estimated that the truck would be driven 400,000 miles during the next 8 years, at which time it would have a salvage value of $8,000. At the end of the first and second years, the odometer registered 45,000 and 97,000 miles, respectively. Calculate the book value of the truck using straight-line depreciation at the end of the second year.

Question 65

On January 1, 2017, Blackwell Company paid $90,000 for a new delivery truck. It was estimated that the truck would be driven 300,000 miles during the next 6 years, at which time it would have a salvage value of $9,000. At the end of the second year, the odometer registered 88,000 miles. Show how the plant asset would appear in Blackwell Company's balance sheet at December 31, 2018 assuming the company uses the activity method depreciation.

Question 66

Arnez Company purchased a building and equipment for $110,000. Although a reliable market value of the building could not be determined, the equipment's market value is $70,000. What are the separate costs assigned to the building and equipment?

Question 67

Harrahs Corporation purchased a dump truck at the beginning of 2015 at a cost of $60,000. The truck had an estimated life of 5 years and an estimated salvage value of $5,000. On January 1, 2017, the company made major repairs of $3,000 to the truck that extended its life 2 more years. Starting with 2017, the truck has a remaining life of 5 years. The company uses the straight-line depreciation method.
If Harrahs sells the truck at the end of 2017 for $20,000 cash, how much gain or loss would be recognized?

Question 68

On April 1, Tarpon Co. made the following expenditures on its printing press:
$\begin{array}{lrr} \text { Purchase of stapling attachment } &\$8,000\\ \text { installation of attachment } &2,000\\ \text { Cleaning and oiling press costs prior to renovation } &1,000\\ \text { Replacement parts for renovation of printing press } &1,000\\ \text { Labor used in press renovation } &3,000\\\end{array}$


The renovation increased the expected life and the attachment increased the productivity of the press. What are the total expenditures capitalized to the printing press?

Question 69

Harrahs Corporation purchased a dump truck at the beginning of 2015 at a cost of $60,000. The truck had an estimated life of 5 years and an estimated salvage value of $5,000. On January 1, 2017, the company made major repairs of $3,000 to the truck that extended its life 2 more years. Starting with 2017, the truck has a remaining life of 5 years. The company uses the straight-line depreciation method.
How much is the book value of the truck to be reported on the balance sheet at the end of 2016?

Question 70

Harvey Ltd. purchased land in exchange for 50,000 shares of its stock that is trading on the New York Stock Exchange at $20 a share. Although the market value of the land is unknown, the current assessed value is $900,000. What is the cost of the land?

Question 71

Courtney Corp. has significant stock that can be issued by the company. The managers are planning to sell the stock for a large profit by fraudulently inflating reported earnings. They plan to sell the stock after current earnings are reported, then leave for the carnival in Brazil. To accomplish their devious plans, they purchased inventory for $800,000 and charged the inventory purchase to equipment that is being depreciated using the straight-line method with a life of 8 years and no salvage value. If beginning and ending inventories were correctly stated and a full year's depreciation is recognized on the equipment, what is the amount of Courtney's current net income overstatement?

Question 72

On January 1, Weston Company paid $88,000 for a copy machine. It was estimated that the machine would produce 1,000,000 copies over the next 8 years, at which time it would have a salvage value of $8,000. During the first and second years, the copies totaled 180,000 and 300,000, respectively. Calculate depreciation expense using the activity method for each of the first two years.

Question 73

Carson Co. purchased a printer for $10,000, for which it paid $1,000 a month for 10 months. Carson had the option of paying $9,500 cash for the printer but chose the delayed payment plan. It cost Carson $80 to transport the printer to its place of business and $200 for installing and initial timing adjustments to the printer. Calculate the cost of the printer.

Question 74

On January 1, Summers Co. purchased equipment with a 10-year life and zero salvage value for $900,000. Summers uses the straight-line method on its financial statements and double-declining-balance method on its income tax returns. By what amount does the tax deduction for depreciation exceed depreciation expense on Summers' income statements for each of the first two years?

Question 75

Lincoln Co. purchased a piece of property (land and building) at a tax sale for $110,000. A reliable estimate of the fair market value of the land and building is $114,000. What is the gain that Lincoln Co. should record from this advantageous purchase?

Question 76

On January 1, Marriott Company paid $80,000 for a copy machine. It was estimated that the machine would produce 200,000 copies over the next 8 years, at which time it would have a salvage value of $8,000. During the first and second years, the copies totaled 24,000 and 51,000, respectively. Calculate accumulated depreciation using the double-declining-balance method at the end of year two.

Question 77

Harrahs Corporation purchased a dump truck at the beginning of 2015 at a cost of $60,000. The truck had an estimated life of 5 years and an estimated salvage value of $5,000. On January 1, 2017, the company made major repairs of $3,000 to the truck that extended its life 2 more years. Starting with 2017, the truck has a remaining life of 5 years. The company uses the straight-line depreciation method.
What amount should be recorded as depreciation expense each year starting in 2017?

Question 78

Calculate depreciation expense for each of the first two full years of life for an airplane with a cost of $600,000, salvage value of $40,000, and an estimated life of 4 years under the double-declining-balance depreciation method.

Question 79

Rio Grande Company purchased equipment on January 1, 2017 for $75,000. The estimated useful life of the equipment is 5 years, the salvage value is $10,000, and the company uses the double-declining balance method to depreciate fixed assets. Which of the following journal entries would Rio Grande record if the equipment is sold for $17,000 after three years?
a.
$\begin{array}{lrr} \text { Equipment } &75,000\\ \text {Loss on Disposal of Plant Asset } &800\\ \text {Cash } &&17,000\\ \text {Accumulated Depreciation-Equipment}&&58,800\end{array}$

b.
$\begin{array}{lrr} \text { Cash } &17,000\\ \text {Gain on Disposal of Plant Asset } &&6,200\\ \text { Equipment}&&10,800\end{array}$

c.
$\begin{array}{lrr} \text { Cash } &17,000\\ \text { Depreciation Expense} &10,800\\ \text { Loss on Disposal of Plant Asset}&47,200\\ \text { Equipment} &&75,000\\\end{array}$

d.
$\begin{array}{lrr} \text {Cash } &17,000\\ \text {Accumulated Depreciation-Equipment } &58,800\\ \text { Equipment } &&75,000\\\text {Gain on Disposal of Plant Asset}&&800\end{array}$

Solution (next page):
Assuming that Rio Grande Company kept the equipment for its entire five-year estimated useful life, the depreciation schedule on the equipment would be as follows.
$\begin{array}{lccrrr}\text { Depreciation }&&\text { Depreciation }&&\text { Accumulated }&\text { Book }\\\text { Date}&\text { Factor}&\text { Expense}&\text { Cost}&\text { Depreciation}&\text { Value }\\\hline1 / 1 / 17 & & & \$ 75,000 & \$0 &\$75,000 \\12 / 31 / 17 & 40 \% & \$ 30,000 & 75,000 & 30,000 & 45,000 \\12 / 31 / 18 & 40 \% & 18,000 & 75,000 & 48,000 & 27,000 \\12 / 31 / 19 & 40 \% & 10,800 & 75,000 & 58,800 & 16,200 \\12 / 31 / 20 & 40 \% & 6,2000^{*} & 75,000 & 65,000 & 10,000 \\12 / 31 / 21 & 40 \% & 0 & 75,000 & 65,000 & 10,000\end{array}$
__________________
* Because the equipment's book value can't drop below its estimated salvage value, depreciation expense for 2020 can't exceed $6,200.

Question 80

Apple Inc. purchased a used pickup truck with an advertised price of $18,900 for $17,000 cash. While Jeff, the CEO, was driving the truck to get supplies, he was stopped by a highway patrol woman and received a $50 speeding ticket and a warning for a nonfunctioning brake light. Jeff had failed to notice when this problem when he purchased the truck. If Jeff knew about the brake light condition, he would have paid only $16,500 for the car. The cost, not under warranty, of replacing the brake light was $50. Calculate the cost to be capitalized to the truck account.