978-0134125053 Chapter 8 Part 2

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11) New equipment was purchased on January 1 for $144,000. It has a salvage value of $28,000

and a useful life of 10 years. To the nearest dollar, how much will the depreciation expense for

the equipment be for the first year using the straight-line method?

A) $967

B) $14,400

C) $10

D) $11,600

Question Type: Application

12) A company purchased a computer system on March 1. Its cost was $40,000, and it had an

estimated salvage value of $5,000. It was expected to have a useful life of five years. To the

nearest dollar, the depreciation for year 1 using straight-line depreciation will be: (Assume

company year-end is December 31. Round any intermediary calculations to the nearest cent and

your final answer to the nearest dollar.)

A) $10,000.

B) $8,750.

C) $5,810.

D) $6,563.

Question Type: Application

13) A company purchased a computer system on March 1. Its cost was $55,000 and it had an

estimated salvage value of $10,000. It was expected to have a useful life of 5 years. To the

nearest dollar, the depreciation for year 2 using straight-line depreciation will be: (Round any

intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

A) $11,000.

B) $9,000.

C) $7,500.

D) $6,750.

Question Type: Application

14) A company purchased furniture on January 1. Its cost was $15,600, and it had a residual

value of $3,600. Its useful life is determined to be 8 years. Using double-declining balance

depreciation, the depreciation for year 1 to the nearest dollar will be:

A) $3,900.

B) $3,000.

C) $1,950.

D) $1,500.

Question Type: Application

15) Cesario Corporation purchases a machine for $125,000. It has an estimated salvage value of

$10,000 and is expected to produce 50,000 units in its lifetime. During the first year of operation,

it produced 15,000 units. To the nearest dollar, the depreciation for the first year under the units

of production method will be:

A) $37,500.

B) $31,250.

C) $34,500.

D) $28,750.

Question Type: Application

16) Custom Closets purchased office fixtures on January 1. The cost was $16,000, and the

fixtures had a residual value of $6,000. The fixtures were given a useful life of 8 years. After the

end of three years, it was determined that the fixtures would be obsolete in 2 more years and

their residual value would still be $6,000. What will be the depreciation under the straight-line

method to the nearest dollar be for the fourth year? (Round your final answer to the nearest

dollar.)

A) $1,250

B) $2,000

C) $3,125

D) $3,750

Question Type: Application

17) Leo’s Lawncare purchased equipment on January 1. The cost was $15,000, and the

equipment had a residual value of $5,000. The equipment was given a useful life of 10 years.

After the end of two years, it was determined that the equipment would be obsolete in 5 more

years and the residual value would still be $5,000. What will be the depreciation under the

straight-line method to the nearest dollar be for the third year?

A) $1,000

B) $1,600

C) $1,500

D) $8,000

Question Type: Application

18) If an asset generates revenue evenly over time, the depreciation method best suited for this

asset would be the:

A) double-declining balance method.

B) straight-line method.

C) units-of-production method.

D) expense method.

Question Type: Concept

19) If an asset produces more revenue in its early years, the depreciation method best suited for

this asset would be the:

A) expense method.

B) units-of-production method.

C) double-declining balance method.

D) straight-line method.

Question Type: Concept

20) A method best suited for depreciating items, such as copy machines and vehicles, would be

the:

A) expense method.

B) units-of-production method.

C) double-declining balance method.

D) straight-line method.

Question Type: Concept

21) The depreciation method often used for income tax purposes is the:

A) expense method.

B) units-of-production method.

C) double-declining balance method.

D) straight-line method.

Question Type: Concept

22) After an asset is fully depreciated, the asset:

A) must be removed from the Balance Sheet.

B) remains on the Balance Sheet at a value of $0.

C) remains on the Balance Sheet at (cost – Accumulated Depreciation).

D) remains on the Balance Sheet at cost.

Question Type: Concept

23) Ironworks Industries purchased a piece of equipment for $80,000 with an estimated salvage

value of $15,000 on January 1. Its estimated life is 5 years. To the nearest dollar, what is the

equipment’s depreciation using double-declining-balance for year 2? (Round any intermediary

calculations to the nearest cent and your final answer to the nearest dollar.)

A) $32,000

B) $13,000

C) $19,200

D) $26,000

Question Type: Application

24) Only Organics has a delivery truck that was purchased for $48,000 and has a salvage value

of $4,000. It expects the truck to last 200,000 miles. During Year 1, the truck traveled 32,500

miles and during Year 2, the truck traveled 29,500 miles. What is the depreciation expense for

Year 2 to the nearest dollar using the units-of-production method? (Round any intermediary

calculations to two decimal places and your final answer to the nearest dollar.)

A) $7,150

B) $7,080

C) $7,800

D) $6,490

Question Type: Application

25) An asset has a cost of $70,000 with a residual value of $14,000. It has a life of 5 years and

was purchased on January 1. Its fourth full year of depreciation expense under double–declining-

balance will be: (Round any intermediary calculations to the nearest cent and your final answer

to the nearest dollar.)

A) $10,080.

B) $6,048.

C) $1,120.

D) $0.

Question Type: Application

26) It is determined that a computer’s depreciation expense for the year is $3,500. The journal

entry to record this will be:

A) debit Depreciation Expense – computer $3,500; credit Cash $3,500.

B) debit Accumulated Depreciation – computer $3,500; credit Cash $3,500.

C) debit Depreciation Expense – computer $3,500; credit Accumulated Depreciation, $3,500.

D) debit Cash $3,500; credit Depreciation Expense – computer $3,500.

Question Type: Concept

27) A building was purchased on August 1 for $490,000. It has a salvage value of $38,000 and a

useful life of 30 years. To the nearest dollar, how much will the depreciation expense for the

building be for the first year ended December 31, using the straight–line method? (Round any

intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

A) $15,067

B) $16,333

C) $6,278

D) $6,805

Question Type: Application

28) After 4 years, a machine had an accumulated depreciation of $40,000. Originally, the

machine had an anticipated life of 8 years and a salvage value of $6,000. If the current book

value after 4 years is $45,000 and the machine has only 2 years of useable life left, how much

will be depreciated in Year 5 and in Year 6 using the straight-line method of depreciation, and

assuming the salvage value is still $6,000? (Round your final answer to the nearest dollar.)

A) $10,625 each year

B) $9,875 each year

C) $19,500 each year

D) $22,500 each year

Question Type: Application

29) A company purchased a van at a cost of $42,000 and expects its salvage value to be $6,000

after 100,000 miles of service. Using the units–of-production method, what is the first year’s

depreciation if the van is driven 30,000 miles? (Round any intermediary calculations to the

nearest cent and your final answer to the nearest dollar.)

A) $12,600

B) $14,400

C) $10,800

D) $1,800

Question Type: Application

30) Acme paid $120,000 for a machine with a $10,000 salvage value and an estimated life of

200,000 hours.

Acme reports on a calendar year basis and used the machine for 1800 hours during the first year

it owned the asset. Which of the following statements accurately compare the first year

depreciation expense if the asset had been purchased on January 1 of the current year versus a

March 1 acquisition date. (Round any intermediary calculations to the nearest cent and your final

answer to the nearest dollar.)

A) Depreciation Expense if acquired January 1 is $990 and if acquired March 1 is $825.

B) Depreciation Expense if acquired January 1 is $990 and if acquired March 1 is $743.

C) In both cases, the Depreciation Expense is $990.

D) Depreciation Expense if acquired January 1 is $1080 and if acquired March 1 is $900.

Question Type: Application

31) Wolfe Company purchased a truck for $62,000, with an estimated useful life of 8 years and a

salvage value of $10,000. The company uses the double-declining-balance method of

depreciation; however, after year 3 they switch to the straight–line method. There is no change to

the estimated useful life or salvage value. What is the accumulated depreciation balance at the

end of year 5 (round to the nearest dollar)? (Round any intermediary calculations to the nearest

cent and your final answer to the nearest dollar.)

A) $39,075

B) $42,306

C) $46,615

D) $42,383

Question Type: Application

32) Coyote, Inc. purchased a van for $68,000, with an estimated useful life of 5 years and a

residual value of $8000. The company uses the double-declining-balance method of

depreciation; however, for year 3 they switch to the straight-line method. There is no change to

the estimated useful life or residual value. What is the accumulated depreciation balance at the

end of year 4? (Round any intermediary calculations to the nearest cent and your final answer to

the nearest dollar.)

A) $49,013

B) $59,187

C) $54,506

D) $48,000

Question Type: Application

8.4 Account for repairs to fixed assets

1) Expenditures incurred, such as changing the oil and filter on a delivery truck, would be

considered ordinary repairs.

Question Type: Concept

2) Replacing an engine on a delivery truck would be considered a betterment.

Question Type: Concept

3) Adding on 30 rooms to an existing hotel would be considered a betterment because the

addition added to the hotel’s capacity.

Question Type: Concept

4) The matching principle dictates whether the cost of a repair should be expensed or

depreciated.

Question Type: Concept

5) Incorrectly capitalizing an expense results in net income being overstated.

Question Type: Concept

6) Lubricating a machine on a regular basis would be considered a(n):

A) betterment.

B) capital expenditure.

C) ordinary repair.

D) capital expense.

Question Type: Concept

7) Upgrading the RAM on a computer would be an example of a(n):

A) betterment.

B) extraordinary repair.

C) ordinary repair.

D) capital expense.

Question Type: Concept

8) A company replaced an engine on a vehicle and debited the amount to Repairs and

Maintenance expense, rather than debiting the Vehicle account. Which of the following would

occur because of this error?

A) Repairs expense would be understated.

B) Net income would be overstated.

C) Assets would be overstated.

D) Assets would be understated.

Question Type: Application

9) A company replaced tires on a vehicle and debited the amount to Vehicle instead of Repairs

and Maintenance Expense. Which of the following would occur because of this error?

A) Expenses would be understated.

B) Net income would be understated.

C) Retained Earnings would be understated.

D) Assets would be understated.

Question Type: Application

10) Which accounting principle dictates whether the cost of a repair should be expensed?

A) Conservatism

B) Entity

C) Objectivity

D) Matching

Question Type: Concept

11) If an extraordinary repair is incorrectly expensed in the current period, the net income for

that period will be:

A) overstated and net income in future periods will not be affected.

B) understated and net income in future periods will not be affected.

C) overstated and net income in future periods will be understated.

D) understated and net income in future periods will be overstated.

Question Type: Concept

12) A repair that extends the useful life of an asset would be considered a(n):

A) extraordinary repair.

B) ordinary repair.

C) betterment.

D) capital expense.

Question Type: Concept

13) KLF Co. inadvertently recorded a $7,000 betterment as an ordinary repair. Which of the

following will occur as a result of this mistake?

A) Assets will be overstated by $7,000.

B) Assets will be understated by $7,000.

C) Net income will be overstated by $7,000.

D) Retained Earnings will be overstated by $7,000.

Question Type: Concept

14) Torres Co. has installed a piece of machinery for a total of $45,000. In its third month of

operation, repairs of $900 had to be made on the machine. This $900 would be:

A) added to the cost of the machinery.

B) treated as a repairs and maintenance expense.

C) capitalized in an asset account.

D) deducted from cost of the machinery.

Question Type: Application

15) Sassycat Designs inadvertently recorded an expense as a capital expenditure. Which of the

following will occur as a result of this mistake?

A) Assets will be understated.

B) Net income will be understated.

C) Net income will be overstated.

D) Both A and C will occur.

Question Type: Application

16) Classy Cooks did a major overhaul of their ovens, which extended the useful life of the

ovens by 4 years. The journal entry to record this included a debit to repairs expense. This entry

is:

A) incorrect, and as a result assets will be overstated.

B) correct, as this is an example of an ordinary repair.

C) incorrect, and as a result net income will be understated.

D) correct, as this is an example of a betterment.

Question Type: Application

8.5 Account for the disposal of fixed assets

1) Disposal of a plant asset always occurs after the asset has been fully depreciated.

Question Type: Concept

2) When an asset is disposed of, the current period’s depreciation expense account must be

updated to the time of the disposal.

Question Type: Concept

3) The first step in recording a disposal transaction is to figure the gain or loss on the disposal.

Question Type: Concept

4) If an exchange of assets lacks commercial substance, then no gain or loss on the exchange is

recognized.

Question Type: Concept

5) If an asset is being discarded then there is no need to update the depreciation prior to disposal.

Question Type: Application

6) A piece of equipment that was originally purchased for $25,000, had accumulated

depreciation of $18,000, and was sold for $8,000, would recognize a gain of $1,000.

Question Type: Application