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1. Long-lived assets that are
intangible in nature, used in the operations of the business and not held
for sale in the ordinary course of
business are called fixed assets.
a.
True
b. False
2. The acquisition costs of
property, plant, and equipment should include all normal, reasonable and
necessary costs to get the asset in
place and ready for use.
a.
True
b. False
3. When land is purchased to
construct a new building, the cost of removing any structures on the land
should be charged to the building
account.
a.
True
b. False
4.
Land
acquired as a speculation is reported under Investments on the balance sheet.
a. True
b. False
5. Standby equipment held for use
in the event of a breakdown of regular equipment is reported as property,
plant, and equipment on the balance
sheet.
a.
True
b. False
6. The cost of repairing damage to
a machine during installation is debited to a fixed asset account.
a. True
b. False
7. During construction of a
building, the cost of interest on a construction loan should be charged to an
expense account.
a.
True
b. False
8.
The
cost of computer equipment does not include the consultant's fee to
supervise installation of the equipment.
a. True
b. False
9. Capital expenditures are costs
of acquiring, constructing, adding, or replacing property, plant and equipment.
a. True
b. False
10.
The
cost of new equipment is called a revenue expenditure because it will help
generate revenues in the future.
a. True
b. False
11. Expenditures that increase
operating efficiency or capacity for the remaining useful life of a fixed asset
are called capital expenditures.
a.
True
b. False
12. The cost of replacing an engine
in a truck is an example of ordinary maintenance.
a. True
b. False
13.
An
intangible asset is one that has a physical existence.
a. True
b. False
14. A capitalized asset will appear
on the balance sheet as a long-term asset.
a. True
b. False
15. Long-lived assets held for sale
are classified as fixed assets.
a. True
b. False
16. Functional depreciation occurs
when a fixed asset is no longer able to provide services at the level for which
it was intended.
a.
True
b. False
17. The normal balance of the accumulated
depreciation account is a debit.
a. True
b. False
18. As a company records
depreciation expense for a period of time, a corresponding cash inflow from
investing activities is reported on
the statement of cash flows.
a.
True
b. False
19.
All
property, plant, and equipment assets are depreciated over time.
a. True
b. False
20. The book value of a fixed asset
reported on the balance sheet represents its market value on that date.
a. True
b. False
21. The depreciable cost of a
building is the same as its acquisition cost.
a. True
b. False
22. It is necessary for a company to
use the same depreciation method for all of its depreciable assets.
a. True
b. False
23. It is not necessary for a company to
use the same depreciation method for financial statements and for determining income taxes.
a.
True
b. False
24. An estimate of the amount for
which an asset can be sold at the end of its useful life is called residual
value.
a. True
b. False
25. The units-of-output depreciation
method provides a good match of expenses against revenue.
a. True
b. False
26. Once the useful life of a depreciable
asset has been estimated and the amount to be depreciated each year has been determined, the amounts can not be
changed.
a.
True
b. False
27.
Residual
value is not
incorporated in the initial calculations for double-declining-balance
depreciation.
a. True
b. False
28. The double-declining-balance
method is an accelerated depreciation method.
a. True
b. False
29. The double-declining-balance
depreciation method calculates depreciation each year by taking twice the
straight- line rate times the book
value of the asset at the beginning of each year.
a.
True
b. False
30. When minor errors occur in the
estimates used in the determination of depreciation, the amounts recorded for depreciation expense in the past should be
corrected.
a.
True
b. False
31. The amount of depreciation
expense for the first full year of use of a fixed asset costing $95,000, with
an estimated residual value of $5,000
and a useful life of 5 years, is $19,000 by the straight-line method.
a.
True
b. False
32. The amount of depreciation
expense for a fixed asset costing $95,000, with an estimated residual value of
$5,000 and a useful life of 5 years or
20,000 operating hours, is $21,375 by the units-of-output method during a
period when the asset was used for
4,500 hours.
a.
True
b. False
33. The amount of the depreciation
expense for the second full year of use of a fixed asset costing $100,000, with
an estimated residual value of $5,000
and a useful life of 4 years, is $25,000 by the double-declining-balance
method.
a.
True
b. False
34. When depreciation estimates are
revised, all years of the asset’s life are affected.
a. True
b. False
35.
For
income tax purposes, most companies use an accelerated deprecation method
called double declining balance.
a. True
b. False
36. Regardless of the depreciation
method, the amount that will be depreciated during the life of the asset will
be the same.
a.
True
b. False
37. Revising depreciation estimates
affects the amounts of depreciation expense recorded in past periods.
a. True
b. False
38.
Capital
expenditures are costs that are charged to stockholders' equity accounts.
a. True
b. False
39. Minerals removed from the earth
are classified as intangible assets.
a. True
b. False
40. The method used to calculate the
depletion of a natural resource is the straight-line method.
a. True
b. False
41. Intangible assets differ from
property, plant, and equipment assets in that they lack physical substance.
a. True
b. False
42. The cost of a patent with a
remaining legal life of 10 years and an estimated useful life of 7 years is
amortized over 10 years.
a.
True
b. False
43. The transfer to expense of the
cost of intangible assets attributed to the passage of time or decline in
usefulness is called amortization.
a.
True
b. False
44. Costs associated with normal
research and development activities should be treated as intangible assets.
a. True
b. False
45.
Patents
are exclusive rights to produce and sell goods with one or more unique
features.
a. True
b. False
46. When a company establishes an
outstanding reputation and has a competitive advantage because of it, the
company should record goodwill on its
financial statements.
a.
True
b. False
47. The difference between the
balance in a fixed asset account and its related accumulated depreciation
account is the asset's book value.
a.
True
b. False
48. Though a piece of equipment is
still being used, the equipment should be removed from the accounts if it has
been fully depreciated.
a.
True
b. False
49. When selling a piece of
equipment for cash, a loss will result when the proceeds of the sale are less
than the book value of the asset.
a.
True
b. False
50. When a property, plant, and
equipment asset is sold for cash, any gain or loss on the asset sold should be
recorded.
a. True
b. False
51.
Losses
on the discarding of fixed assets are reported in the income statement.
a. True
b. False
52. A gain can be realized when a
fixed asset is discarded.
a. True
b. False
53. When old equipment is traded in
for a new equipment, the difference between the list price and the trade in allowance is called boot.
a.
True
b. False
54.
When
a plant asset is traded for another similar asset, losses on the asset traded
are not
recognized.
a. True
b. False
55. When exchanging equipment, if
the trade-in allowance is greater than the book value a loss results.
a. True
b. False
56. If a fixed asset with a book
value of $10,000 is traded for a similar fixed asset, a trade-in allowance of
$15,000 is granted by the seller, and
the transaction is deemed to have commercial substance, the buyer would report
a gain on exchange of fixed assets of
$5,000.
a.
True
b. False
57.
The
entry to record the disposal of fixed assets will include a credit to
accumulated depreciation.
a. True
b. False
58. Both the initial cost of the
asset and the accumulated depreciation will be taken off the books with the
disposal of the asset.
a.
True
b. False
59. When a seller allows a buyer an
amount for old equipment that is traded in for new equipment of similar use,
this amount is known as boot.
a.
True
b. False
60. An exchange is said to have commercial
substance if future cash flows remain the same as a result of the exchange.
a.
True
b. False
61. A characteristic of a fixed
asset is that it is
a. used in the operations of a
business
b. a short-term investment
c. intangible
d. held for sale in the ordinary
course of the business
62. Land acquired so it can be
resold in the future is listed on the balance sheet as a(n)
a. fixed asset
b. intangible asset
c. investment
d. current asset
63.
Which
of the following should be included in the acquisition cost of a piece of
equipment?
a.
installation
costs
b. transportation costs
c. testing costs prior to placing
the equipment into production
d. all of these
64. Which of the following is
included in the cost of constructing a building?
a. cost of paving the parking lot
b. cost of removing the demolished
building existing on the land when it was purchased
c. insurance costs during
construction
d. cost of repairing vandalism
damage during construction
65. Which of the following is
included in the cost of land?
a. outdoor parking lot lighting
attached to the land
b. cost of paving a parking lot
c. fences on the land
d. brokerage commission
66.
Accumulated
Depreciation
a.
is
the same as Depreciation Expense
b.
is
used to show the amount of cost expiration of intangibles
c.
is
a contra asset account
d.
is
used to show the amount of cost expiration of natural resources
67. A building with an appraisal
value of $154,000 is made available at an offer price of $172,000. The purchaser acquires the property for $40,000 in cash, a 90-day note payable
for $45,000, and a mortgage amounting to $75,000. The cost basis recorded in the buyer's
accounting records to recognize this purchase is
a. $160,000
b. $120,000
c. $172,000
d. $154,000
68. A used machine with a purchase
price of $77,000, requiring an overhaul costing $8,000, installation costs of
$5,000, and special acquisition fees
of $3,000, would have a cost basis of
a. $82,000
b. $90,000
c. $85,000
d. $93,000
69. A new machine with a purchase
price of $109,000, with transportation costs of $12,000, installation costs of
$5,000, and special acquisition fees
of $6,000, would have a cost basis of
a. $121,000
b. $132,000
c. $114,000
d. $126,000
70. Expenditures that add to the
utility of fixed assets for more than one accounting period are
a.
capital
expenditures
b.
revenue
expenditures
c.
utility
expenditures
d.
committed
expenditures
71. A capital expenditure results in
a debit to
a.
an
asset account
b.
an
expense account
c.
a
liability account
d.
a
capital account
72.
Which
of the following below is an example of a capital expenditure?
a. replacing an engine in a company
car
b. cleaning the carpet in the front
room
c. replacing all burned-out light
bulbs in the factory
d. tune-up for a company truck
73. In a lease contract, the party
who legally owns the asset is the
a. lessor
b. lessee
c. banker
d. operator
74. The journal entry for recording
payment for the short-term lease of a fixed asset would
a. debit the fixed asset and credit
Cash
b. debit Rent Expense and credit
Cash
c. debit a liability and credit
Cash
d. be a memo entry only
75.
Which
of the following are criteria for determining whether to record an asset as a
fixed asset?
a. must be tangible and an
investment
b. must be long lived and used by
the company in its normal operations
c. must be short lived and tangible
d. must be an investment and long
lived
76. Factors contributing to a
decline in the usefulness of a fixed asset may be divided into the following
two categories
a. functional and residual
b. salvage and functional
c. physical and functional
d. residual and salvage
77. A fixed asset's estimated value
at the time it is to be retired from service is called
a. book value
b. carrying value
c. residual value
d. market value
78.
All
of the following are needed for the calculation of straight-line depreciation except
a. units produced
b. estimated life
c. residual value
d. cost
79. The method of determining
depreciation that yields successive reductions in the periodic depreciation
charge over the estimated life of the
asset is the
a. time-valuation method
b. units-of-production method
c. straight-line method
d. double-declining-balance method
80. When the amount of use of a
fixed asset varies from year to year, the method of determining depreciation
expense that best matches allocation
of cost with revenue is
a. units-of-output method
b. MACRS
c. straight-line method
d. double-declining-balance method
81. A machine with a cost of
$120,000 has an estimated residual value of $15,000 and an estimated life of 5
years or 15,000 hours. It is to be
depreciated by the units-of-output method.
What is the amount of depreciation for the second full year, during which the machine was used 5,000 hours?
a. $5,000
b. $21,000
c. $35,000
d. $45,000
82. Equipment with a cost of
$220,000 has an estimated residual value of $30,000 and an estimated life of 10
years or 19,000 hours. It is to be
depreciated by the straight-line method. What is the amount of depreciation for
the first full year, during which the
equipment was used 2,100 hours?
a. $21,000
b. $30,000
c. $22,000
d. $19,000
83. A machine with a cost of $75,000
has an estimated residual value of $5,000 and an estimated life of 4 years or 18,000 hours. What is the amount of
depreciation for the second full year, using the double-declining-balance method?
a. $17,500
b. $18,750
c. $37,500
d. $16,667
84. The most widely used
depreciation method is
a.
straight-line
b.
other
c.
units-of-output
d.
double-declining-balance
85. Equipment with a cost of
$160,000, an estimated residual value of $40,000, and an estimated life of 15
years was depreciated by the
straight-line method for 4 years. Due to obsolescence, it was determined that
the useful life should be shortened by
3 years and the residual value changed to zero. The depreciation expense for
the current and future years is
a. $16,000
b. $11,636
c. $11,000
d. $8,000
86.
The
depreciation method that does not use residual value in calculating the
first year's depreciation expense is
a. straight-line
b. units-of-output
c. double-declining-balance
d. none of the above
87. If a fixed asset, such as a
computer, were purchased on January 1 for $3,750 with an estimated life of 3
years and a salvage or residual value
of $150, the journal entry for monthly expense under straight-line depreciation
is
|
a.
Accumulated Depreciation
Depreciation
Expense
|
1,200
|
1,200
|
|
b.
Depreciation Expense
Accumulated
Depreciation
|
1,200
|
1,200
|
|
c.
Accumulated Depreciation
Depreciation
Expense
|
100
|
100
|
|
d.
Depreciation Expense
Accumulated Depreciation
|
100
|
100
|
88. The proper journal entry to
purchase a computer costing $975 on account to be utilized within the business
would be
|
a.
Office Supplies
Accounts
Payable
|
975
|
975
|
|
b.
Office Equipment
Accounts
Receivable
|
975
|
975
|
|
c.
Office Equipment
Accounts
Payable
|
975
|
975
|
|
d.
Office Supplies
Accounts
Receivable
|
975
|
975
|
89.
Residual
value is also known as all of the following except
a. net book value
b. salvage value
c. scrap value
d. trade-in value
90. The formula for depreciable cost
is
a. Initial cost + Residual value
b. Initial cost – Residual value
c. Depreciable cost = Initial cost
d. Initial cost – Accumulated
depreciation
91.
Expected
useful life is
a. calculated when the asset is
sold
b. estimated at the time that the
asset is placed in service
c. determined each year that the
depreciation calculation is made
d. none of these
92. The calculation for annual
depreciation using the straight-line depreciation method is
a. Initial cost / Estimated useful
life
b. Initial cost × Estimated useful
life
c. Depreciable cost × Estimated
useful life
d. Depreciable cost / Estimated
useful life
93. The calculation for annual
depreciation using the units-of-output method is
a. (Depreciable cost / Estimated
output) × Actual yearly output
b. Depreciable cost / Yearly output
c. (Initial cost / Estimated
output) × Actual yearly output
d. (Depreciable cost / Yearly
output) × Estimated output
94. On June 1, Aaron Company
purchased equipment at a cost of $120,000 that has a depreciable cost of
$90,000 and an estimated useful life
of 3 years and 30,000 hours.
Using straight-line
depreciation, calculate depreciation expense for the final (partial) year of
service.
a. $12,500 b. $17,500
c. $40,000 d. $30,000
95. On June 1, Michael Company
purchased equipment at a cost of $120,000 that has a depreciable cost of
$90,000 and an estimated useful life of
3 years or 30,000 hours.
Using straight-line
depreciation, calculate depreciation expense for the second year.
a. $17,500 b. $12,500
c. $30,000 d. $40,000
96. On June 1, Scotter Company
purchased equipment at a cost of $120,000 that has a depreciable cost of
$90,000 and an estimated useful life
of 3 years or 30,000 hours.
Using straight-line
depreciation, calculate depreciation expense for the first year.
a. $12,500 b. $30,000
c. $17,500 d. $40,000
97. Computer equipment was acquired
at the beginning of the year at a cost of $57,000 that has an estimated
residual value of $9,000 and an
estimated useful life of 5 years. Determine the second-year depreciation using
the straight- line method.
a. $13,200
b. $19,200
c. $9,000
d. $9,600
98. Which of the following is true?
a. If using the straight-line
method, the amount of depreciation expense during the first year is higher than
that of the double-declining-balance.
b. Regardless of the depreciation
method, the amount of total depreciation expense during the life of the asset will be the same.
c. If using the
double-declining-balance method, the total amount of depreciation expense
during the life of the asset will be
the highest.
d. If using the units-of-output
method, it is possible to depreciate more than the depreciable cost.
99. An asset was purchased for
$120,000 on January 1, Year 1 and originally estimated to have a useful life of
10 years with a residual value of
$10,000. At the beginning of the third
year, it was determined that the remaining useful
life of the asset was only 4 years with a residual value of $2,000. Calculate the third-year depreciation expense using the revised amounts and
straight-line method.
a. $24,000
b. $25,000
c. $11,000
d. $24,500
100. The accumulated depletion
account is
a.
an
intangible asset account
b.
reported
on the balance sheet as a deduction from the cost of the mineral deposit
c.
reported
on the income statement as other expense
d.
an
expense account
101. The accumulated depletion of a
natural resource is reported on the
a.
balance
sheet as depreciation from the cost of the resource
b.
income
statement as a deduction from revenues
c.
income
statement as an increase in revenue
d.
balance
sheet as a deduction from the cost of the resource
102. The process of transferring the
cost of metal ores and other minerals removed from the earth to an expense account is called
a. deferral
b. depreciation
c. amortization
d. depletion
103. Sands Company purchased mining
rights for $500,000. They expect to harvest 1 million tons of ore over the next five years. During the current year, Sands
mined 350,000 tons of ore. The entry to record the depletion would include
a.
a
credit to Accumulated Depletion for $350,000
b.
a
debit to Accumulated Depletion for $175,000
c.
a
debit to Depletion Expense for $175,000
d.
a
credit to Depletion Expense for $350,000
104. The natural resources of some
companies include
a.
metal
ores, copyrights, and supplies
b.
timber,
equipment, and patents
c.
minerals,
trademarks, and land
d.
timber,
metal ores, and minerals
105. The Weber Company purchased a
mining site for $1,750,000 on July 1.
The company expects to mine ore for the
next 10 years and anticipates that a total of 400,000 tons will be
recovered. The estimated residual value
of the property is $150,000. During the first year, the company extracted
6,500 tons of ore. The depletion expense
is
a. $15,000
b. $16,000
c. $17,500
d. $26,000
106. Expenditures for research and
development are generally recorded as
a.
assets
and amortized over their estimated useful life
b.
current
operating expenses
c.
assets
and amortized over 40 years
d.
current
assets
107. The term applied to the amount
of cost to transfer to expense resulting from a decline in the utility of
intangible assets is
a.
allocation
b.
depreciation
c.
amortization
d.
depletion
108. Xtra Company purchased a
business from Argus for $96,000 above the fair value of its net assets. Argus
had developed the goodwill over 12
years. How much would Xtra amortize the goodwill for its first year?
a. not enough information to
calculate amortization
b. $7,000
c. $8,000
d. goodwill is not amortized
109. Which intangible assets are
amortized over their useful life?
a. goodwill
b. patents
c. trademarks
d. all of the above
110. The name, term, or symbol used
to identify a business and its products is called
a. goodwill
b. a trademark
c. a patent
d. a copyright
111.
The
process of transferring the cost of an asset to an expense account is called
all of the following except
a. depletion
b. allocation
c.
amortization
d.
depreciation
112. Fixed assets are ordinarily
presented on the balance sheet
a. at current market values
b. at cost less accumulated
depreciation
c. at replacement costs
d. in a separate section along with
intangible assets
113. The ratio measuring the number
of dollars of sales earned per dollar of fixed assets is the
a. fixed asset turnover ratio
b. days' in assets ratio
c. current asset turnover ratio
d. intangible asset ratio
114.
The
higher the fixed asset turnover, the
a. more efficiently a company is
using its fixed assets in generating sales
b. more efficiently a company is
using its intangible assets in generating sales
c. less efficiently a company is
using its fixed assets in generating sales
d. more efficiently a company is
using its current assets in generating sales
115. Which of the following
statements is true?
a. The fixed asset ratio is not
useful for comparing different companies.
b. A smaller fixed asset turnover
ratio is associated with firms that are more labor intensive and require
smaller fixed asset investments.
c. The fixed asset ratio cannot be
compared across time for an individual company.
d. A larger fixed asset turnover
ratio is associated with firms that are more labor intensive and require smaller
fixed asset investments.
116. Newport Company has sales of
$2,025,000 for the current year. The book value of its fixed assets at the beginning of the year was $550,000 and at
the end of the year was $800,000. The fixed asset turnover ratio for Newport is
a. 3.0
b. 3.6
c. 2.5
d. 3.7
117. A fixed asset with a cost of
$52,000 and accumulated depreciation of $47,500 is traded for a similar asset
priced at $60,000 (fair market value) in a transaction with commercial
substance. Assuming a trade-in
allowance of $5,000, at what cost will
the new equipment be recorded in the books?
a. $60,500
b. $60,000
c. $54,000
d. $59,500
118. A fixed asset with a cost of
$41,000 and accumulated depreciation of $36,000 is traded for a similar asset
priced at $50,000 (fair market value) in a transaction with commercial
substance. Assuming a trade-in allowance of $4,000, at what cost will the new equipment be recorded in the books?
a. $50,000
b. $45,000
c. $51,000
d. $54,000
119. A fixed asset with a cost of
$41,000 and accumulated depreciation of $36,500 is traded for a similar asset
priced at $60,000. Assuming a trade-in allowance of $3,000, the recognized loss
on the trade is
a. $3,000
b. $4,500
c. $500
d. $1,500
120. A fixed asset with a cost of
$30,000 and accumulated depreciation of $28,500 is sold for $3,500. What is the amount of the gain or loss on disposal of
the fixed asset?
a. $2,000 loss
b. $2,000 gain
c. $1,500 loss
d. $3,500 gain
121. The Bacon Company acquired new
machinery with a price of $15,200 by trading in similar old machinery and paying $12,700. The old machinery originally cost $9,000 and
had accumulated depreciation of $5,000.
In recording this transaction,
Bacon Company should record
a. a loss of $1,500
b. the new machinery at $16,700
c. a gain of $1,500
d. the new machinery at $12,700
122. When a company discards
machinery that is fully depreciated, this transaction would be recorded with
the following entry
a. debit Accumulated Depreciation;
credit Machinery
b. debit Machinery; credit
Accumulated Depreciation
c. debit Depreciation Expense;
credit Accumulated Depreciation
d. debit Cash; credit Accumulated
Depreciation
123. When a company sells machinery
at a price equal to its book value, this transaction would be recorded with an entry that would include the following:
a. debit Machinery; credit Cash and
Accumulated Depreciation
b. debit Cash and Machinery; credit
Accumulated Depreciation
c. debit Cash and Depreciation
Expense; credit Accumulated Depreciation
d. debit Cash and Accumulated
Depreciation; credit Machinery
124. When a company exchanges machinery
and receives a trade-in allowance greater than the book value, this transaction would be recorded with which of
the following entries (assuming the exchange was considered to have commercial substance)?
a. debit Machinery and Accumulated
Depreciation; credit Machinery, Cash, and Gain on Exchange of Machinery
b. debit Cash and Machinery; credit
Accumulated Depreciation and Machinery
c. debit Machinery and Accumulated
Depreciation; credit Machinery and Cash
d. debit Cash and Machinery; credit
Accumulated Depreciation
125. When a company exchanges
machinery and receives a trade-in allowance less than the book value, this
transaction would be recorded with
which of the following entry?
a. debit Cash and Machinery; credit
Accumulated Depreciation and Machinery
b. debit Machinery, Accumulated
Depreciation, and Loss on Exchange of Machinery; credit Machinery and Cash
c. debit Cash and Machinery; credit
Accumulated Depreciation
d. debit Machinery and Accumulated
Depreciation; credit Machinery and Cash
126. On December 31, Strike Company
has decided to discard one of its batting cages. The equipment had an initial cost of $310,000 and has accumulated
depreciation of $260,000. Depreciation
has been recorded up to the end of the
year. Which of the following will be
included in the entry to record the disposal?
a. Gain on Disposal of Asset Cr.,
$50,000
b. Loss on Disposal of Asset Dr.,
$260,000
c. Accumulated Depreciation Dr.,
$310,000
d. Equipment Cr., $310,000
127. On December 31, Strike Company
sold one of its batting cages for $50,000.
The equipment had an original cost of $310,000 and has accumulated
depreciation of $260,000. Depreciation
has been recorded up to the end of the year.
What is the amount of the gain or loss on this transaction?
a. no gain or loss
b. loss of $50,000
c. gain of $50,000
d. cannot be determined
128. On December 31, Strike Company
sold one of its batting cages for $20,000.
The equipment had an initial cost of $310,000 and had accumulated
depreciation of $260,000. Depreciation
has been recorded up to the end of the year.
What is the amount of the gain or loss on this transaction?
a. gain of $20,000
b. loss of $30,000
c. gain of $20,000
d. loss of $30,000
129. On December 31, Strike Company
sold one of its batting cages for $55,000.
The equipment had an initial cost of $310,000 and has accumulated
depreciation of $260,000. Depreciation
has been taken up to the end of the year. What
is the amount of the gain or loss on this transaction?
a. loss of $55,000
b. loss of $5,000
c. gain of $5,000
d. gain of $55,000
130. On December 31, Strike Company
traded-in one of its batting cages for another one that has a cost of $500,000. Strike receives a trade-in allowance of
$11,000. The old equipment had an initial cost of $215,000 and has accumulated depreciation of $185,000. Depreciation has been recorded up to the end
of the year. The difference will be paid in cash. What is the amount of the gain or loss on
this transaction?
a. loss of $11,000
b. no loss or gain will be recorded
c. loss of $19,000
d. gain of $11,000
131. Machinery was purchased on
January 1 for $51,000. The machinery has
an estimated life of 7 years and an estimated
salvage value of $9,000.
Double-declining-balance depreciation for the second year would be
(round calculations to the nearest
dollar):
a. $6,000
b. $10,500
c. $10,929
d. $10,408
132.
When
a company replaces a component of property, plant, and equipment, which
statement below does not account for one of the steps in the
process?
a. The asset cost of the replaced component is
credited.
b. Book value of the replaced component is
written off to depreciation expense.
c.
The
identifiable direct costs associated with the new component are expensed in the
current period.
d. The identifiable direct costs associated with
the new component are capitalized.
133. What is the cost of the land,
based upon the following data?
|
Land
purchase price
|
$178,000
|
|
Broker's commission
|
15,000
|
|
Payment for the demolition
|
|
|
and removal of existing building
|
5,000
|
|
Cash received from the sale of materials
|
|
|
salvaged from the demolished building
|
2,000
|
134. Falcon Company acquired an adjacent
lot to construct a new warehouse, paying $40,000 and giving a short-term note for $410,000. Legal fees paid were $13,275, delinquent
taxes assessed were $14,500, and fees paid to remove an old building from the land were $15,800. Materials salvaged from the demolition of the
building were sold for $6,800. A
contractor was paid $890,000 to construct the new warehouse. Determine the cost of the land to be reported on the balance sheet and show your
work.
135. Identify each of the following
expenditures as chargeable to (a) Land, (b) Land Improvements, (c) Buildings,
(d) Machinery and Equipment, or (e)
other account.
(1)
Cost
of paving parking area for employees and customers
(2)
Insurance
during construction of building
(3)
Interest
incurred on loan during construction of building
(4)
Fee
paid for installation of equipment
(5)
Special
foundation for new equipment acquired
(6)
Insurance
on new equipment while in transit
(7)
Freight
charges on new equipment
(8)
Cost
of repairing vandalism damage to equipment during installation
(9)
Sales
tax on new equipment
(10)
Cost
incurred in repairing damage resulting from installation of new equipment
(11)
Cost
of land fill for building site
(12)
Cost
of lubricating oil purchased for periodic oil changes for equipment
(13)
Parking
lot lighting
(14)
Installing
a fence around the parking lot
(15)
Repainting
the trim on a building
(16)
Special
assessment paid to city for extension of water main to property
(17)
Cost
of razing and removing the old building on property acquired for a building
site
(18)
Delinquent
real estate taxes assumed by purchaser on property acquired for a building site
(19)
Attorney's
fee for title search
(20)
|
136. A number of major structural
repairs completed at the beginning of the current fiscal year at a cost of
$1,000,000 are expected to extend the
life of a building 10 years beyond the original estimate. The original cost of the building was $6,552,000, and it has been depreciated
by the straight-line method for 25 years.
Estimated residual value is negligible
and has been ignored. The related
accumulated depreciation account after the depreciation adjustment at the end of the preceding fiscal year is
$4,550,000.
(a)
What
has the amount of annual depreciation been in past years?
(b)
What
was the original life estimate of the building?
(c)
To
what account should the $1,000,000 be debited?
(d)
What
is the book value of the building after the extraordinary repairs have been
made?
(e)
What
is the expected remaining life of the building after the extraordinary repairs
have been made?
(f)
What
is the amount of straight-line depreciation for the current year, assuming that
the repairs were completed at the very
beginning of the current year? Round to the nearest dollar.
137.
Journalize
each of the following transactions:
(a)
A
wing costing $2,345,000 was added to the building. A new mortgage was issued for the cost.
(b)
Equipment
was upgraded to increase its capacity to produce widgets. The upgrade cost of
$11,500 was paid in cash.
(c)
A
major overhaul costing $8,000 on a machine increased the useful life by 4
years. The payment was made in cash.
138. On April 15, Compton Co. paid
$2,800 to upgrade a delivery truck and $125 for an oil change. Journalize the entries for the upgrade to delivery truck and oil change
expenditures.
139.
XYZ
Co. incurred the following costs related to the office building used in
operating its sports supply company:
a.
Replaced
a broken window.
b.
Replaced
the roof that had been on the building 23 years.
c.
Serviced
all the air conditioners before summer started.
d.
Replaced
the air conditioners in the customer service areas.
e.
Added
a warehouse to the back of the building.
f.
Repainted
the interior walls.
g.
Installed
window shutters on all windows.
Classify each of the costs as a capital expenditure or revenue
expenditure. For those costs identified
as capital expenditures, classify each
as an additional or replacement component.
140. Comment on the validity of the
following statements. "As an asset
loses its ability to provide services, cash needs to be set aside to replace it.
Depreciation accomplishes this goal."
141.
|
142. The double-declining balance
rate for calculating depreciation expense is determined by doubling the
straight-line rate. Assuming that an
asset has a useful life of 25 years, determine the rate to be used if using the
double- declining-balance method.
143. Copy equipment was acquired at
the beginning of the year at a cost of $72,000 that has an estimated residual
value of $9,000 and an estimated
useful life of 5 years. It is estimated
that the machine will output an estimated 1,000,000
copies. This year, 315,000 copies were
made. Determine the (a) depreciable
cost, (b) depreciation rate, and (c)
the units-of-output depreciation for the year.
144. A machine costing $57,000 with a
6-year life and $54,000 depreciable cost was purchased January 1. Compute the
yearly depreciation expense using straight-line depreciation.
145. A machine costing $185,000 with
a 5-year life and $20,000 residual value was purchased January 2. Compute depreciation
for each of the five years, using the double-declining-balance method.
146. Computer equipment was acquired
at the beginning of the year at a cost of $63,000 that has an estimated
residual value of $3,000 and an
estimated useful life of 5 years. Determine the (a) depreciable cost (b)
double-declining-balance rate, and (c) double-declining-balance depreciation
for the first year.
147.
Convert
each of the following estimates of useful life to a straight-line depreciation
rate, stated as a percentage.
(1)
2
years
(2)
8
years
(3)
10
years
(4)
20
years
(5)
25
years
(6)
40
years
(7)
50
years
148.
Prior
to adjustment at the end of the year, the balance in Trucks is $300,900 and the
balance in Accumulated
Depreciation—Trucks is $88,200. Details of the subsidiary ledger are as
follows:
|
Truck No.
|
Cost
|
Estimated Residual Value
|
Estimated Useful Life
|
Accumulated Depreciation at Beginning of Year
|
Miles Operated During Year
|
|
1
|
$100,000
|
$13,000
|
300,000
|
—
|
30,000
|
|
2
|
72,900
|
9,900
|
300,000
|
$60,000
|
25,000
|
|
3
|
38,000
|
3,000
|
200,000
|
8,050
|
45,000
|
|
4
|
90,000
|
13,000
|
200,000
|
20,150
|
40,000
|
Required:
(1)
Based
on the units-of-output method, determine the depreciation rates per mile and
the amount to be credited to the accumulated
depreciation section of each of the subsidiary
accounts for the miles operated during the current year.
(2)
Journalize
the entry to record depreciation for the year.
149. An asset was purchased for
$58,000 and originally estimated to have a useful life of 10 years with a
residual value of $3,000. After two years of straight-line
depreciation, it was determined that the remaining useful life of the asset was only 2 years with a residual value of
$2,000.
a) Determine the amount of the
annual depreciation for the first two years.
b) Determine the book value at the
end of Year 2.
c) Determine the depreciation
expense for each of the remaining years after revision.
150. For each of the following fixed
assets, determine the depreciation expense for Year 3: Disposal date is N/A if asset is still in use.
Method: SL = straight
line; DDB = double declining balance Assume
the estimated life is 5 years for each asset.
|
Item
|
Cost
|
Residual Value
|
Purchase Date
|
Disposal date
|
Depr.
Method
|
Depr.
Expense
Year 3
|
|
A
|
$40,000
|
$4,000
|
July 1,Year 3
|
N/A
|
SL
|
|
|
B
|
$50,000
|
$5,000
|
Jan.
1, Year 1
|
Aug. 31,Year 3
|
SL
|
|
|
C
|
$60,000
|
$2,000
|
Oc.t 1, Year 3
|
N/A
|
DDB
|
|
|
D
|
$80,000
|
$10,000
|
Jan.
1, Year 2
|
April 1, Year 3
|
DDB
|
|
151. Equipment purchased at the
beginning of the fiscal year for $360,000 is expected to have a useful life of
5 years, or 14,000 operating hours,
and a residual value of $10,000. Compute the depreciation for the first and
second years of use by each of the
following methods:
(a)
straight-line
(b)
units-of-output
(1,200 hours first year; 2,250 hours second year)
(c)
double-declining-balance
152. Machinery is purchased on July 1
of the current fiscal year for $240,000.
It is expected to have a useful life of 4 years, or 25,000 operating hours, and a residual value of
$15,000. Compute the depreciation for the last six months of the current fiscal year ending December
31 by each of the following methods:
(a)
straight-line
(b)
double-declining-balance
(c)
units-of-output
(used for 1,600 hours during the current year)
153. Determine the depreciation, for
the year of acquisition and for the following year, of a fixed asset acquired
on October 1 for $500,000, with an
estimated life of 5 years, and residual value of $50,000, using (a) the double declining-balance method and (b) the
straight-line method. Assume a fiscal
year ending December 31.
154. Equipment costing $80,000 with a
useful life of 10 years and a residual value of $8,000 has been depreciated for
6 years by the straight-line
method. Assume a fiscal year ending
December 31.
(a)
What
is the book value at the end of the sixth year of use?
(b)
If
early in the seventh year it is estimated that the remaining useful life is 5
years (instead of 4) and the residual
value is $6,000, what is the amount of depreciation for the seventh year?
155. Golden Sales has bought $135,000
in fixed assets on January 1st associated with sales equipment. The residual value of these assets is estimated at
$10,000 at the end of their 4-year service life. Golden Sales managers want to evaluate the options of depreciation.
(a)
Compute
the annual straight-line depreciation and provide the sample depreciation
journal entry to be posted at the end
of each of the years.
(b)Write the journal entries for each year of the service life
for these assets using the double-declining balance method.
156. On July 1, Harding Construction
purchases a bulldozer for $228,000. The equipment has a 8-year life with a residual value of $16,000. Harding uses
straight-line depreciation.
(a) Calculate the depreciation expense and provide the
journal entry for the first year ending December 31.
(b) Calculate the third year’s
depreciation expense and provide the journal entry for the third year ending
December 31.
(c) Calculate the last year’s
depreciation expense and provide the journal entry for the last year.
157. On July 1, Hartford Construction
purchases a bulldozer for $228,000. The equipment has a 9-year life with a residual value of $16,000. Hartford uses
the units-of-output method depreciation, and the bulldozer is expected to yield 26,500 operating hours.
(a) Calculate the depreciation
expense per hour of operation.
(b)The bulldozer is operated 1,250 hours in the first year,
2,755 hours in the second year, and 1,225 hours in the third year of operations.
Journalize the depreciation expense for each year.
158. Eagle Country Club has acquired
a lot to construct a clubhouse. Eagle
had the following costs related to the construction:
|
Architects’ fees
|
$
45,000
|
|
Construction labor
|
80,000
|
|
Engineers’
fees
|
15,000
|
|
Fences around building
|
9,000
|
|
Grading and leveling
|
10,000
|
|
Insurance costs incurred during construction
|
7,000
|
|
Interest on money borrowed for construction
|
5,000
|
|
Land
|
73,000
|
|
Building Materials
|
237,000
|
|
Sales taxes
|
6,000
|
|
Trees and shrubs
|
6,000
|
Determine the cost of the club house to be reported on the
balance sheet.
159. Equipment was purchased on
January 5, year 1, at a cost of $90,000.
The equipment had an estimated useful life of 8 years and an estimated residual value of $8,000.
After using the equipment for 3 years, the useful life was
revised to a total of 10 years and the residual value was reduced to $2,004.
Determine the straight-line depreciation expense for the
Year 4 and following years.
160. A copy machine acquired on May 1
with a cost of $2,545 has an estimated useful life of 3 years. Assuming that it will have a residual value of $445, determine the depreciation
for the first and second year by the straight-line method. Round your answers to the nearest whole dollar.
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