33) Anderson Corporation has purchased a group of assets for $20,300. The assets and their relative
market values are listed below.
Land
$6800
Equipment
2300
Building
3600
Which of the following amounts would be debited to the Land account? (Round any intermediate
calculations to two decimal places, and your final answer to the nearest dollar.)
A) $4233
B) $10,962
C) $3654
D) $5684
34) Millburn Corporation has acquired a property that included both land and a building for $510,000.
The corporation hired an appraiser who has determined that the market value of the land is $320,000 and
that of the building is $440,000. At what amount should the corporation record the cost of land? (Round
any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)
A) $341,700
B) $134,400
C) $255,000
D) $214,200
35) Laramie Corporation has acquired a property that included both land and a building for $560,000. The
corporation hired an appraiser who has determined that the market value of the land is $370,000 and that
of the building is $440,000. At what amount should the corporation record the cost of the building?
(Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)
A) $237,600
B) $302,400
C) $280,000
D) $386,400
36) Great Plains Corporation has acquired a property that included both land and a building for $500,000.
The corporation paid cash. The corporation hired an appraiser who has determined that the market value
of the land is $300,000 and that of the building is $400,000. Journalize the lump-sum purchase. Omit
explanation. (Round any intermediate calculations to two decimal places, and your final answer to the
nearest dollar.)
37) An expenditure that increases the capacity or efficiency of a plant asset or that extends the asset’s life
is known as a revenue expenditure.
38) Repair work that generates a capital expenditure because it extends a plant asset‘s useful life past the
normal expected life is known as an extraordinary repair.
39) Ordinary repairs to plant assets are referred to as revenue expenditures.
40) If a minor repair was incorrectly debited to the asset account, expenses and net income would be
understated.
41) If a company expenses an extraordinary repair, net income would be understated and the asset would
be understated.
42) Freeman, Inc. owns a delivery truck. Which of the following costs, associated with the truck, will be
capitalized and depreciated?
A) modification for new use
B) oil change and lubrication
C) replacement of tires
D) normal engine repair
43) Westin Delivery Service, Inc. owns a delivery truck. Which of the following costs, associated with the
truck, will be treated as a revenue expenditure?
A) oil change and lubrication
B) major engine overhaul
C) modification for new use
D) addition to storage capacity
44) A company’s accountant capitalized a payment that should have been recorded as a revenue
expenditure. How will this error affect the company’s financial statements?
A) Net income will be understated.
B) Expenses will be overstated.
C) Assets will be overstated.
D) Liabilities will be overstated.
45) A company’s accountant capitalized a payment that should have been recorded as a revenue
expenditure. How will this error affect the company‘s financial statements?
A) Net income will be overstated.
B) Revenues will be understated.
C) Assets will be understated.
D) Liabilities will be understated.
46) Newell Corp. has acquired land and paid $500 as a brokerage commission to acquire the land.
However, the company’s accountant has recorded the $500 as a revenue expenditure. What is the effect of
this error?
A) Net income is understated by $500.
B) Liabilities are overstated by $500.
C) Revenue is overstated by $500.
D) Assets are overstated by $500.
47) Which of the following costs related to a business car would be capitalized?
A) the cost to install an engine with higher horsepower
B) the cost to change the oil
C) the cost to replace a broken windshield
D) the cost of new tires
48) For each of the following expenditures, indicate whether the amount is debited to an asset account or
to an expense account.
Transaction
Paint job
Major engine overhaul
Tire replacement
Asset modified for new use
Routine maintenance that keeps a machine in
normal operating condition
Replacement of a roof
Transaction
Paint job
Major engine overhaul
Tire replacement
Asset modified for new use
Routine maintenance that keeps a machine in
normal operating condition
Replacement of a roof
49) Provide definitions for the following terms.
1. Depreciation
2. Extraordinary Repair
3. Property, Plant, and Equipment
50) Provide definitions for the following terms.
1. Capitalize
2. Revenue Expenditure
3. Depreciation
51) Classify each of the following expenditures as capital expenditure (CE) or revenue expenditure (RE).
1. _______ Ordinary recurring repairs to keep the machinery in good working order
2. _______ Major overhaul to extend the useful life of a vehicle by three years
3. _______ Installation costs for a new machine
4. _______ Painting
52) Classify each of the following expenditures as capital expenditure (CE) or revenue expenditure (RE).
1. _______ Repair of transmission or engine
2. _______ Sales tax paid on the purchase price
3. _______ Training of personnel for initial operation of machinery
4. _______ Modification for new use
1) Depreciation is the allocation of a plant asset’s cost to expense over its useful life.
2) An asset is considered to be obsolete when a newer asset can perform the job more efficiently.
3) Depreciation means that the business sets aside cash to replace an asset when it is used up.
4) An asset is considered to be obsolete ________.
A) only when it wears out
B) only at the end of its useful life
C) when it is fully depreciated
D) when a newer asset can perform the job more efficiently than the old asset can
5) Which of the following requires businesses to record depreciation?
A) revenue recognition principle
B) matching principle
C) cost principle
D) going concern principle
6) Residual value is also known as depreciable cost.
7) The useful life of a plant asset is the length of the service period expected from the asset.
8) Estimated residual value is not depreciated because the company is guaranteed to receive this amount
when the asset is sold.
9) Estimated residual value can be zero if the company does not expect to receive anything when
disposing of the asset.
10) The expected value of an asset at the end of its useful life is known as ________.
A) book value
B) residual value
C) carrying value
D) market value
11) When a business uses the straight-line method of depreciation, the amount of depreciation is reduced
from year to year.