College Accounting, 14e (Slater)
Chapter 16 Accounting for Property, Plant, Equipment, and Intangible Assets
16.1 Learning Objective 16-1
1) Which of the following assets would be classified as property, plant, and equipment?
A) Patent
B) Copyright
C) Goodwill
D) Equipment
2) The amount to include in the entry to record the cost of a property, plant, and equipment asset would
NOT include:
A) acquisition cost.
B) routine maintenance costs.
C) installation.
D) All of these answers are correct.
3) The entry to record the purchase of a machine on account that costs $10,000, installation costs, $1,000,
and freight, $600, would be:
A) debit Machinery $10,000; credit Accounts Payable $10,000.
B) debit Machinery $10,000; debit Expenses $1,600; credit Accounts Payable $11,600.
C) debit Machinery $11,600; credit Accounts Payable $11,600.
D) debit Machinery $11,000; debit Freight Expense $600; credit Accounts Payable $11,600.
4) Which of the following is NOT an example of a land improvement?
A) Shrubbery
B) Fences
C) Land
D) All of these answers are correct.
5) Mount Company purchased a machine at an invoice cost of $26,000 subject to terms of 2/10, n/30. The
discount was taken. Additional costs were installation, $1,200; insurance on the machine after it was in
operation, $300. The total cost to be added to the machinery account is:
A) $25,700.
B) $26,680.
C) $27,500.
D) $27,200.
6) Ben’s Supreme purchased new baking equipment for $19,000 subject to terms 3/15, n/45. The discount
was taken. Additional costs included sales tax $500 and installation $400. The total cost to be added to the
equipment account is:
A) $19,000.
B) $18,830.
C) $19,330.
D) $18,930.
7) A company purchased new machinery and incurred freight, assembly, and installation costs in
addition to the invoice cost of the machinery. These additional costs should be debited to:
A) Miscellaneous Expense.
B) Machinery.
C) Installation Expense.
D) Machinery Expense.
8) Which of the following is a non-depreciable asset?
A) Desk chairs
B) Land
C) Computer
D) Building
9) The cost of a plant asset was increased for the payment of this year’s insurance premium. This error
would cause:
A) the period’s net income to be overstated.
B) the period’s net income to be understated.
C) the period’s end assets to be understated.
D) the period’s end liabilities to be understated.
10) The cost of a plant asset did NOT include installation costs that were expensed. This error would
cause:
A) the period’s net income to be overstated.
B) the period’s net income to be understated.
C) the period’s end assets to be understated.
D) Both B and C are correct.
11) Assets that are expected to provide benefits for a number of accounting periods are called:
A) current assets.
B) fixed assets.
C) long-term assets.
D) property, plant, and equipment.
12) Tangible assets include:
A) building.
B) equipment.
C) land.
D) All of the above are correct.
13) Incidental costs or assessments that should be charged to the Land account include:
A) installing a fence.
B) installing sewers.
C) clearing the property.
D) Both B and C are correct.
14) A company purchased new computer equipment from a local vendor. An employee offered to pick
up the equipment and received a speeding ticket on his way back to the office. The cost of the speeding
ticket should be charged to the cost of the equipment.
15) Assembly costs, and any other costs necessary to get a machine ready for operation, including freight
costs, would be added to the cost of the machine.
16) If there are repairs needed in the process of installation of machine, this should not be charged to the
cost of the machine.
17) Land Improvements is an asset account that records improvements to land that have a limited life.
18) A purchase of land and buildings would require the use of two asset accounts, Land and Buildings.
19) Land is not depreciated.
20) R.J. Berkshire incurred the following expenditures to buy new equipment:
Invoice, subject to 4% discount $22,000
Installation cost 1,500
Insurance for equipment after installation 300
Sales tax 1,200
Discount taken
The amount the Equipment account will be debited for is ________.
21) Burlington Industries purchased a plant asset to be used in its business. The expenditures included:
Cost of machine $12,000
Special concrete base to support machine 400
Freight charges 1,500
Repair cost of damage incurred during installation 500
The Machine account will be debited for ________.
16.2 Learning Objective 16-2
1) The cost of equipment is expensed:
A) at the time it is paid.
B) over the periods that benefit the company.
C) in the period it is purchased.
D) in the period it is sold.
2) In the last year of useful life, the salvage value was ignored using double declining–balance
depreciation. This error would cause:
A) the period’s end assets to be overstated.
B) the period’s depreciation expense to be understated.
C) the period’s end assets to be understated.
D) the period’s end liabilities to be understated.
3) When calculating declining balance depreciation, the straight-line rate was used instead of double the
straight-line rate. In the first year of ownership, this error would cause:
A) the period’s end assets to be overstated.
B) the period’s depreciation expense to be overstated.
C) the period’s end assets to be understated.
D) None of these is correct.
4) Residual value was ignored when originally calculating the units–of-production depreciation. This
error would cause:
A) the period’s net income to be overstated.
B) the period’s net income to be understated.
C) the period’s end assets to be overstated.
D) the expenses to be overstated.
5) The depreciation method which charges more expense in earlier years than in later years is the:
A) straight-line method.
B) double declining-balance method.
C) units-of-production method.
D) All of the above are correct.
6) The depreciation method in which an even amount of depreciation expense is taken each year is called:
A) straight-line method.
B) double declining-balance method.
C) units-of-production method.
D) All of the above are correct.
7) The depreciation method that does not base the expense on the passage of time but on the level of use
is:
A) units-of-production.
B) straight-line.
C) modified accelerated cost recovery.
D) double declining-balance.
8) Which depreciation method deducts residual value when computing depreciation expense?
A) Units-of–production
B) Straight-line
C) Double declining-balance
D) Both A and B are correct.
9) Which depreciation method uses twice the straight-line rate?
A) Units-of–production
B) Modified accelerated cost recovery
C) Straight-line
D) Double declining-balance
10) Assuming a useful life of five years, which of the following GAAP methods would most likely result
in the most depreciation in the first year?
A) Straight-line
B) MACRS
C) Double declining-balance
D) None of these answers is correct.
11) Which depreciation method does NOT use the current book value in calculating depreciation
expense?
A) Straight-line
B) Double declining-balance
C) Units-of-production
D) Both A and C
12) The book value of an asset is calculated by taking the:
A) market value of the asset less its accumulated depreciation.
B) cost of the asset less its accumulated depreciation.
C) residual value of the asset less its accumulated depreciation.
D) salvage value of the asset less its accumulated depreciation.
13) Jim Kindel purchased equipment for $49,000 on January 1. Its residual value is $4,900 with a useful
life of 10 years. The amount of depreciation expense in the first year under the double declining-balance
method is:
A) $8,820.
B) $9,800.
C) $4,900.
D) $4,410.
14) Lacy purchased equipment for $76,000 on January 1. Its residual value is $4,000 with a useful life of 9
years. The amount of depreciation expense in the first year under the straight-line method is: (Round
your answer to the nearest dollar.)
A) $8,000.
B) $8,444.
C) $16,889.
D) $8,889.
15) Sam Moore purchased computer equipment for $6,000 on January 1, 2016. It has a residual value of
$300 with a useful life of 4 years. After the appropriate adjusting entries have been made, the balance in
Accumulated Depreciation account for this asset on January 1, 2018, under the straight-line method,
should be: (Round any intermediate calculations to the nearest cent, and your final answer to the nearest
dollar.)
A) $1,425.
B) $2,850.
C) $4,275.
D) $5,700.
16) J. Pohl purchased office equipment for $5,000 on January 1, 2017. It has a residual value of $500 with a
useful life of 5 years. After the appropriate adjusting entry is made, the book value of the asset on
December 31, 2017, under the double declining-balance method, is:
A) $2,500.
B) $3,000.
C) $2,000.
D) $3,500.
17) Double declining-balance depreciation is used in the first year when straight-line depreciation should
be used. This error would cause:
A) the period’s net income to be overstated.
B) the period’s net income to be understated.
C) the period’s end assets to be overstated.
D) None of the above answers are correct.
18) What would the depreciation expense be in year 6 for a computer system using the straight-line
method when cost is $12,000, residual value is $2000, and the expected life is 8 years? (Round your
answer to the nearest dollar.)
A) $1250
B) $2400
C) $2000
D) $625
19) What would be the depreciation expense using double declining-balance to compute the expense for
year 2 of a machine costing $30,000, when residual value is $2,000, and useful life is 3 years? (Round any
intermediate calculations to two decimal places, and your final answer to the nearest dollar.)
A) $4,444
B) $72,000
C) $6,667
D) $2,000
20) What would be the depreciation expense in year 1, using units-of-production, for a molding machine
that cost $15,000, had a useful life of 6 years, no residual value, and an estimated total machine hours of
50,000? Production in year 1 was 8,000 hours. (Round any intermediate calculations to two decimal
places, and your final answer to the nearest dollar.)
A) $2,400
B) $2,857
C) $4,800
D) $7,000
21) What would be the depreciation expense in year 1, using units–of-production, for a molding machine
that cost $25,000, had a useful life of 8 years, and an estimated total machine hours of 30,000? The salvage
value is $3,000 and production in year 1 was 8,000 hours. (Round any intermediate calculations to two
decimal places, and your final answer to the nearest dollar.)
A) $3,125
B) $6,667
C) $5,000
D) $5,840
22) Talarico’s Subs purchased a new van for $26,000, its estimated useful life at 80,000 miles, residual
value of $20,000. The van was driven 12,000 miles in year 1. What is the depreciation expense in year 1?
(Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)
A) $960
B) $20,000
C) $3,900
D) $1,500
23) Straight-line method is used in the first year when double declining-balance should be used. This
error would cause:
A) the period’s net income to be overstated.
B) the period’s net income to be understated.
C) the period’s end assets to be overstated.
D) None of these is correct.
24) What would be the accumulated depreciation balance at the end of year 5 for a piece of equipment
using the straight-line method when the cost is $12,000, residual value is $1,300, and the expected life is
11 years? (Round any intermediate calculations to the nearest cent, and your final answer to the nearest
dollar.)
A) $5,455
B) $4,864
C) $973
D) $5,836
25) A plant asset is fully depreciated when the book value is:
A) greater than the salvage value.
B) greater than the market value.
C) equal to the salvage value.
D) equal to the market value.
26) What would the book value be at the end of year 6 for a piece of equipment using the straight-line
method when cost is $8,000, residual value is $1,400, and the expected life is 11 years? (Round any
intermediate calculations to the nearest cent, and your final answer to the nearest dollar.)
A) $3,636
B) $3,600
C) $4,400
D) $3,000
27) Using MACRS rates for a 15 and 20-year property, what is the percentage for the depreciable rate?
A) 200 percent
B) 150 percent
C) 125 percent
D) 100 percent
28) According to the MACRS tax rate table, the following classes do NOT use straight-line depreciation:
A) residential rental property.
B) automobiles.
C) nonresidential real property.
D) All of the above use straight-line depreciation.
29) Under MACRS, which of the following classes uses the straight-line method?
A) 10-year property
B) 15-year property
C) 27.5-year property
D) All of the above are correct.
30) A tractor costing $160,000 is depreciated using MACRS. The tractor qualifies as a 3-year property, and
has a scrap value of $19,000. The depreciation rates are:
Year 1: 33.00%
Year 2: 45.00%
Year 3: 15.00%
Year 4: 7.00%
What is the depreciation expense for year 3?
A) $24,000
B) $31,020
C) $35,200
D) $21,150
31) A depreciation method that allocates depreciation of a plant asset based on the Tax Act of 1989 is the:
A) straight-line method.
B) units-of-production method.
C) modified accelerated cost recovery method.
D) double declining-balance method.
32) For tax purposes, equipment is depreciated using the straight-line method under MACRS.
33) Under MACRS, furniture is depreciated over seven years.
34) The double declining-balance method is an accelerated depreciation method.
35) The units-of-production method does not take into account the passage of time.
36) To calculate the double declining-balance rate, you would use half the straight-line rate.
37) Net income is affected by the depreciation method used.
38) The depreciation method that ignores the salvage value is ________.
39) For tax purposes, ________ establishes the guidelines and the percentages for depreciation.
40) Accumulated depreciation is a contra ________ and is reported on the ________.
41) Tender Years purchased a new van on January 1, 201X, for $60,000. The life of the van is 5 years or
100,000 miles, with an estimated residual value of $5,000. During the first year, the van was driven 22,000
miles. Compute the depreciation expense for the first year applying each of the methods below.
a) ________ Straight-line
b) ________ Units-of-production
c) ________ Double declining-balance
42) Bobson Company purchased a $60,000 machine on January 1. The machine is expected to have a
useful life of 10 years or 60,000 operating hours and a residual value of $5,000. The machine was used for
6,000 hours in the first year and 4,400 hours in the second year. Compute the amount of depreciation
expense for the first and second years under each of the methods below.
Year 1 Year 2 Method
a) $ ________ $ ________ Straight-line
b) $ ________ $ ________ Units-of-production
c) $ ________ $ ________ Double declining-balance
43) Assume an asset costing $90,000 is expected to produce 400,000 units and have a salvage value of
$2,000. During year 1, 75,000 units were produced; during year 2, 68,000 units were produced; and during
year 3, 70,000 units were produced. Using units–of-production, compute the depreciation expense for
each of the three years.
44) A car is purchased for $30,000 on January 1. It has a 5-year life and a salvage value of $2,000. Compute
the annual depreciation expense using the double declining-balance method for all 4 years.
45) A piece of equipment is purchased for $78,000 on January 1. It has a 5-year life and a salvage value of
$8,000. Compute the annual depreciation expense using the double declining–balance method for all 5
years.
46) A company purchased a new delivery van on January 1, 2012 for $25,000. The company expects to use
the van for 5 years and then sell it for $5,000. Complete the following depreciation table assuming
straight-line depreciation:
End of Year Cost of Delivery Van Depreciation Expense
Accumulated Depreciation, End of Year Book Value, End of Year
1
2
3
4
5
16.3 Learning Objective 16-3
1) Capital expenditures would include:
A) additions.
B) betterments.
C) extraordinary repairs.
D) All of these answers are correct.
2) Revenue expenditures do NOT include:
A) additions to existing plant assets.
B) changing tires on a car.
C) changing oil in a car.
D) All of the above are revenue expenditures.
3) A company incorrectly records revenue expenditures as capital expenditures on its books. As a result,
which of the following will be true?
A) Net income will be overstated for the year.
B) Owner’s equity will be understated at year-end.
C) Total assets will be understated at year-end.
D) None of the above answers are correct.
4) What is the difference between an extraordinary repair and a betterment?
A) A betterment extends the life of the asset; an extraordinary repair does not.
B) An extraordinary repair is a capital expenditure; a betterment is not.
C) An extraordinary repair may extend the life of the asset; a betterment does not.
D) None of these answers is correct.
5) The entry to record the payment of an extraordinary repair of $5,000 that will extend the life of the
machine 5 years, when the machine cost $32,000, and has accumulated depreciation of $28,000, is to:
A) debit Machinery $5,000; credit Accumulated Depreciation $5,000.
B) debit Accumulated Depreciation $5,000; credit Cash $5,000.
C) debit Accumulated Depreciation $1,000; credit Cash $1,000.
D) debit Machinery $1,000; credit Cash $1,000.