67. When originally purchased, a vehicle had an estimated useful life of 8 years. The vehicle
cost $23,000 and its estimated salvage value is $1,500. After 4 years of straight-line
depreciation, the asset’s total estimated useful life was revised from 8 years to 6 years and
there was no change in the estimated salvage value. The depreciation expense in year 5:
equals:
A. $ 5,375.00.
B. $ 2,687.50.
C. $ 5,543.75.
D. $10,750.00.
E. $ 2,856.25.
68. A company used straight-line depreciation for an item of equipment that cost $12,000, had
a salvage value of $2,000, and had a five-year useful life. After depreciating the asset for three
complete years, the salvage value was reduced to $1,200 and its total useful life was increased
from 5 years to 6 years. Determine the amount of depreciation to be charged against the
machine during each of the remaining years of its useful life:
A. $1,000.
B. $1,800.
C. $1,467.
D. $1,600.
E. $2,160.
69. Thomas Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of
$100,000. The asset is expected to have a salvage value of $15,000 at the end of its five-year
useful life. If the asset is depreciated on the double-declining-balance method, the asset’s book
value on December 31, Year 3 will be:
A. $27,540
B. $21,600
C. $32,400
D. $18,360
E. $90,000
70. Lomax Enterprises purchased a depreciable asset for $22,000 on March 1, Year 1. The
asset will be depreciated using the straight-line method over its four-year useful life.
Assuming the asset’s salvage value is $2,000, what will be the amount of accumulated
depreciation on this asset on December 31, Year 4?
A. $5,000.00
B. $4,166.67
C. $16,666.68
D. $20,000.00
E. $19,166.67
71. Lomax Enterprises purchased a depreciable asset for $22,000 on March 1, Year 1. The
asset will be depreciated using the straight-line method over its four-year useful life.
Assuming the asset’s salvage value is $2,000, Lomax Enterprises should recognize
depreciation expense in Year 2 in the amount of:
A. $19,166.67
B. $5,000.00
C. $5,500.00
D. $20,000.00
E. $4,166.67
10–24
72. The following information is available on a depreciable asset owned by First Bank &
Trust:
Purchase date October 1, Year 1
Purchase price $85,000
Salvage value $10,000
Useful life 10 years
Depreciation method straight-line
The asset’s book value is $70,000 on October 1, Year 3. On that date, management determines
that the asset’s salvage value should be $5,000 rather than the original estimate of $10,000.
Based on this information, the amount of depreciation expense the company should recognize
during the last three months of Year 3 would be:
A. $2,187.50
B. $1,718.75
C. $2,031.25
D. $2,321.43
E. $1,964.29
73. Many companies use an accelerated depreciation method because:
A. It is required by the tax code.
B. It is required by financial reporting rules.
C. It yields larger depreciation expense in the early years of an asset’s life.
D. It yields a higher income in the early years of the asset’s useful life.
E. The results are identical to straight-line depreciation.
74. The modified accelerated cost recovery system (MACRS):
A. Is included in the U.S. federal income tax rules for depreciating assets.
B. Is an out-dated system that is no longer used by companies.
C. Is required for financial reporting.
D. Is identical to units of production depreciation.
E. All of the choices are correct.
75. The straight-line depreciation method and the double-declining-balance depreciation
method:
A. Produce the same total depreciation over an asset’s useful life.
B. Produce the same depreciation expense each year.
C. Produce the same book value each year.
D. Are acceptable for tax purposes only.
E. Are the only acceptable methods of depreciation for financial reporting.
10–26
76. Total asset turnover is used to evaluate:
A. The efficiency of management’s use of assets to generate sales.
B. The necessity for asset replacement.
C. The number of times operating assets were sold during the year.
D. The cash flows used to acquire assets.
E. The relation between asset cost and book value.
77. A total asset turnover ratio of 3.5 indicates that:
A. For every $1 in sales, the firm acquired $3.50 in assets during the period.
B. For every $1 in assets, the firm produced $3.50 in net sales during the period.
C. For every $1 in assets, the firm earned gross profit of $3.50 during the period.
D. For every $1 in assets, the firm earned $3.50 in net income.
E. For every $1 in assets, the firm paid $3.50 in expenses during the period.
78. Total asset turnover is calculated by dividing:
A. Gross profit by average total assets.
B. Average total assets by gross profit.
C. Net sales by average total assets.
D. Average total assets by net sales.
E. Net assets by total assets.
79. A company had average total assets of $897,000. Its gross sales were $1,090,000 and its
net sales were $1,000,000. The company’s total asset turnover equals:
A. 0.82.
B. 0.90.
C. 1.09.
D. 1.11.
E. 1.26.
80. Dart had net sales of $35,404 million. Its average total assets for the period were $14,502
million. Dart’s total asset turnover equals:
A. 0.40.
B. 0.35.
C. 1.45.
D. 2.44.
E. 3.50.
81. Land improvements are:
A. Assets that increase the usefulness of land, and like land, are not depreciated.
B. Assets that increase the usefulness of land, but that have a limited useful life and are
subject to depreciation.
C. Included in the cost of the land account.
D. Expensed in the period incurred.
E. Also called basket purchases.
82. Plant assets include:
A. Land.
B. Land improvements.
C. Buildings.
D. Machinery and equipment.
E. All of the items are plant assets.
83. The cost of land can include:
A. Purchase price.
B. Assessments by local governments.
C. Costs of removing existing structures.
D. Fees for insuring the title.
E. All of the costs are included in land.
84. A company paid $150,000, plus a 6% commission and $4,000 in closing costs for a
property. The property included land appraised at $87,500, land improvements appraised at
$35,000, and a building appraised at $52,500. What should be the allocation of this property’s
costs in the company’s accounting records?
A. Land $75,000; Land Improvements, $30,000; Building, $45,000.
B. Land $75,000; Land Improvements, $30,800; Building, $46,200.
C. Land $81,500; Land Improvements, $32,600; Building, $48,900.
D. Land $79,500; Land Improvements, $32,600; Building, $47,700.
E. Land $87,500; Land Improvements; $35,000; Building; $52,500.
85. A company purchased property for a building site. The costs associated with the property
were:
Purchase price…………………………………………… $175,000
Real estate commissions …………………………………………. 15,000
Legal fees ………………………………………………………………. 800
Expenses of clearing the land …………………………………… 2,000
Expenses to remove old building ……………………………… 1,000
What portion of these costs should be allocated to the cost of the land and what portion should
be allocated to the cost of the new building?
A. $175,800 to Land; $18,800 to Building.
B. $190,000 to Land; $3,800 to Building.
C. $190,800 to Land; $1,000 to Building.
D. $192,800 to Land; $0 to Building.
E. $193,800 to Land; $0 to Building.
86. A company purchased property for $100,000. The property included a building, a parking
lot, and land. The building was appraised at $62,000; the land at $45,000, and the parking lot
at $18,000. Land should be recorded in the accounting records with an allocated cost of:
A. $ 0.
B. $ 36,000.
C. $ 42,000.
D. $ 45,000.
E. $100,000.
87. The formula for computing annual straight-line depreciation is:
A. Depreciable cost divided by useful life in units.
B. Cost plus salvage value divided by the useful life in years.
C. Cost less salvage value divided by the useful life in years.
D. Cost multiplied by useful life in years.
E. Cost divided by useful life in units.
88. The total cost of an asset less its accumulated depreciation is called:
A. Historical cost.
B. Book value.
C. Present value.
D. Current (market) value.
E. Replacement cost.
89. A method that charges the same amount of expense to each period of the asset’s useful life
is called:
A. Accelerated depreciation.
B. Declining-balance depreciation.
C. Straight-line depreciation.
D. Units-of-production depreciation.
E. Modified accelerated cost recovery system (MACRS) depreciation.
90. A method that allocates an equal portion of the total depreciable cost for a plant asset to
each unit produced is called:
A. Accelerated depreciation.
B. Declining-balance depreciation.
C. Straight-line depreciation.
D. Units-of-production depreciation.
E. Modified accelerated cost recovery system (MACRS) depreciation.
91. A depreciation method in which a plant asset’s depreciation expense for a period is
determined by applying a constant depreciation rate to the asset’s beginning-of-period book
value is called:
A. Book value depreciation.
B. Declining-balance depreciation.
C. Straight-line depreciation.
D. Units-of-production depreciation.
E. Modified accelerated cost recovery system (MACRS) depreciation.
92. A depreciation method that produces larger depreciation expense during the early years of
an asset’s life and smaller expense in the later years is a (an):
A. Accelerated depreciation method.
B. Book value depreciation method.
C. Straight-line depreciation method.
D. Units-of-production depreciation method.
E. Unrealized depreciation method.
93. A company purchased a delivery van for $23,000 with a salvage value of $3,000 on
September 1, Year 1. It has an estimated useful life of 5 years. Using the straight-line method,
how much depreciation expense should the company recognize on December 31, Year 1?
A. $1,000.
B. $1,333.
C. $1,533.
D. $4,000.
E. $4,600.
94. A company purchased a cash register on January 1 for $5,400. This register has a useful
life of 10 years and a salvage value of $400. What would be the depreciation expense for the
second year of its useful life using the double-declining-balance method?
A. $ 500.
B. $ 800.
C. $ 864.
D. $1,000.
E. $1,080.
95. A company purchased a rope braiding machine for $190,000. The machine has a useful
life of 8 years and a residual value of $10,000. It is estimated that the machine could produce
750,000 units of climbing rope over its useful life. In the first year, 105,000 units were
produced. In the second year, production increased to 109,000 units. Using the units-of-
production method, what is the amount of depreciation that should be recorded for the second
year?
A. $25,200.
B. $26,160.
C. $26,660.
D. $27,613.
E. $53,160.
96. Revenue expenditures:
A. Are additional costs of plant assets that do not materially increase the asset’s life or its
productive capabilities.
B. Are known as balance sheet expenditures.
C. Extend the asset’s useful life.
D. Substantially benefit future periods.
E. Are debited to asset accounts.
97. Another name for a capital expenditure is:
A. Revenue expenditure.
B. Asset expenditure.
C. Long-term expenditure.
D. Contributed capital expenditure.
E. Balance sheet expenditure.
98. Extraordinary repairs:
A. Are revenue expenditures.
B. Extend an asset’s useful life beyond its original estimate.
C. Are credited to accumulated depreciation.
D. Are additional costs of plants assets that do not materially increase the asset’s life.
E. Are expensed as incurred.
99. Ordinary repairs:
A. Are expenditures to keep an asset in normal operating condition.
B. Are necessary if an asset is to perform to expectations over its useful life.
C. Are treated as expenses.
D. Include cleaning, lubricating, and normal adjusting.
E. All of the choices are ordinary repairs.
100. Betterments:
A. Are expenditures making a plant asset more efficient or productive.
B. Are also called improvements.
C. Do not always increase an asset’s life.
D. Are capital expenditures.
E. All of the choices are betterments.
101. An asset’s book value is $18,000 on June 30, Year 6. The asset is being depreciated at an
annual rate of $3,000 on the straight-line method. Assuming the asset is sold on December 31,
Year 7 for $15,000, the company should record:
A. A loss on sale of $1,500.
B. A gain on sale of $1,500.
C. Neither a gain nor a loss is recognized on this type of transaction.
D. A gain on sale of $3,000.
E. A loss on sale of $3,000.
102. An asset’s book value is $36,000 on January 1, Year 6. The asset is being depreciated
$500 per month using the straight-line method. Assuming the asset is sold on July 1, Year 7
for $25,000, the company should record:
A. Neither a gain or loss is recognized on this type of transaction.
B. A gain on sale of $2,000.
C. A loss on sale of $1,000.
D. A gain on sale of $1,000.
E. A loss on sale of $2,000.
Feedback: If the asset’s book value is $36,000 on January 1, Year 6 and is being depreciated $500
per month, $9,000 (18 x $500) of additional depreciation expense would be recognized by July 1, Year
7. Thus, the asset’s book value on that date would be $27,000. If the asset is sold for $25,000, a loss on
sale of $2,000 should be recognized.
103. Wilson Engineering purchased a depreciable asset costing $45,000 on January 1, Year 1.
The asset is estimated to have a salvage value of $5,000 and an estimated useful life of 8
years. Straight-line depreciation is used. If the asset is sold on July 1, Year 5 for $20,000, the
journal entry to record the sale will include:
A. A credit to cash for $20,000.
B. A debit to accumulated depreciation for $22,500.
C. A debit to loss on sale for $10,000.
D. A credit to loss on sale for $10,000.
E. A debit to gain on sale for $2,500.
104. A depreciable asset costing $75,000 is purchased on September 1, Year 1. The asset is
estimated to have a salvage value of $10,000 and an estimated useful life of 4 years. Double-
declining-balance depreciation is used. If the asset is sold on December 31, Year 3 for
$13,000, the journal entry to record the sale will include:
A. A credit to gain on sale for $8,000.
B. A debit to loss on sale for $2,625.
C. A credit to accumulated depreciation for $59,375.
D. A debit to loss on sale for $3,042.
E. A credit to gain on sale for $4,979.
105. An asset can be disposed of by:
A. Discarding it.
B. Selling it.
C. Exchanging it for another asset.
D. Donating it to charity.
E. All of these are possible ways to dispose an asset.
106. A company sold a machine that originally cost $100,000 for $60,000 cash. The
accumulated depreciation on the machine was $40,000. The company should recognize a:
A. $0 gain or loss.
B. $20,000 gain.
C. $20,000 loss.
D. $40,000 loss.
E. $60,000 gain.
107. A company discarded a display case originally purchased for $8,000. The accumulated
depreciation was $7,200. The company should recognize a (an):
A. $0 gain or loss.
B. $800 loss.
C. $800 gain.
D. $8,000 loss.
E. $7,200 loss.