149) On January 1, 2020, a company purchased a commercial truck for $48,000 and uses the
straight-line depreciation method. The truck has a useful life of eight years and an estimated
residual value of $8,000. On December 31, 2022, the company sold the truck for $30,000. What
amount of gain or loss should the company record on December 31, 2022?
A) Gain, $22,000.
B) Loss, $18,000.
C) Gain, $5,000.
D) Loss, $3,000.
150) On January 1, 2020, Jacob Inc. purchased a commercial truck for $48,000 and uses the
straight-line depreciation method. The truck has a useful life of eight years and an estimated
residual value of $8,000.
On December 31, 2021, Jacob Inc. sold the truck for $43,000. What amount of gain or loss should
Jacob Inc. record on December 31, 2021?
A) Gain, $22,000.
B) Loss, $18,000.
C) Gain, $5,000.
D) Loss, $3,000.
151) On January 1, 2021, Jacob Inc. purchased a commercial truck for $48,000 and uses the
straight-line depreciation method. The truck has a useful life of eight years and an estimated
residual value of $8,000.
Assume the truck was totaled in an accident on December 31, 2022. What amount of gain or loss
should Jacob Inc. record on December 31, 2022?
A) Gain, $5,000.
B) Loss, $18,000.
C) Loss, $38,000.
D) Loss, $3,000.
152) On January 1, 2021, Jacob Inc. purchased a commercial truck for $48,000 and uses the
straight-line depreciation method. The truck has a useful life of eight years and an estimated
residual value of $8,000.
On December 31, 2022, the truck was exchanged for a new truck valued at $60,000. Jacob
received a trade allowance of $35,000 on the exchange with the remaining $25,000 paid in cash.
What amount of gain or loss should Jacob Inc. record on December 31, 2022?
A) Gain, $5,000.
B) Loss, $18,000.
C) Loss, $38,000.
D) Loss, $3,000.
153) Alliance Products purchased equipment that cost $120,000. It had an estimated useful life of
four years and no residual value. The equipment was depreciated by the straight-line method and
was sold at the end of the second year of use.
For what amount should Alliance record the gain or loss if the equipment is sold for $65,000?
A) Gain of $5,000.
B) Loss of $5,000.
C) Neither a gain nor a loss since the equipment was sold at its book value.
D) Neither a gain nor a loss since the gain would not be recognized.
154) Alliance Products purchased equipment that cost $120,000. It had an estimated useful life of
four years and no residual value. The equipment was depreciated by the straight-line method and
was sold at the end of the third year of use.
For what amount should Alliance record the gain or loss if the equipment is sold for $25,000?
A) A gain of $5,000.
B) A loss of $5,000.
C) Neither a gain nor a loss since the equipment was sold at its book value.
D) Neither a gain nor a loss since the gain would not be recognized.
155) Career Services, Incorporated sold some office equipment for $52,000 on December 31,
2021. The journal entry to record the sale would include which of the following if the original cost
of the equipment was $80,000 with a residual value of $5,000 and a useful life of 10 years?
Assume the machine was purchased on January 1, 2018, and depreciated using the straight-line
method.
A) Gain of $2,000.
B) Loss of $9,500.
C) Gain of $9,500.
D) Loss of $2,000.
156) ABO purchased a truck at the beginning of 2021 for $140,000. They sold the truck at the end
of 2022 for $95,000. If the expected useful life of the truck was six years with a residual value of
$20,000 and ABO uses straight-line depreciation, which of the following is true regarding the
entry to record the sale of the truck?
A) Credit Gain $5,000.
B) Debit Loss $5,000.
C) Credit Accumulated Depreciation $40,000.
D) Credit Equipment $100,000.
157) Oregon Adventures purchased equipment for $80,000. They sold the equipment at the end of
three years for $45,000. If the expected useful life of the equipment was seven years with a
residual value of $10,000, and they use straight-line depreciation, which of the following is true
regarding the entry to record the sale of the equipment?
A) Debit Loss $5,000.
B) Credit Gain $5,000.
C) Credit Accumulated Depreciation $40,000.
D) Credit Equipment $5,000.
158) Gains on the sale of long-term assets for cash:
A) Are the excess of the book value over the cash received.
B) Are recorded as a debit.
C) Are reported on a net-of-tax basis, if material.
D) Are the excess of the cash received over the book value.
159) Losses on the sale of long-term assets for cash:
A) Are the excess of the book value over the cash received.
B) Are recorded as a credit.
C) Are reported on a net-of-tax basis, if material.
D) Are the excess of the cash received over the book value.
160) Return on assets is calculated as:
A) Net Income divided by total assets.
B) Net Income divided by average total assets.
C) Net Income divided by ending total assets.
D) Ending total assets divided by net income.
161) Return on assets is equal to:
A) Profit margin plus asset turnover.
B) Profit margin minus asset turnover.
C) Profit margin times asset turnover.
D) Profit margin divided by asset turnover.
162) The balance sheet of Paradise Pizza reports total assets of $1,500,000 and $1,700,000 at the
beginning and end of the year, respectively. Net income and sales for the year are $240,000 and
$2,000,000, respectively.
What is Paradise Pizza’s return on assets?
A) 15%.
B) 14.12%.
C) 16%.
D) 12%.
163) The balance sheet of Paradise Pizza reports total assets of $1,500,000 and $1,700,000 at the
beginning and end of the year, respectively. Net income and sales for the year are $240,000 and
$2,000,000, respectively.
What is Paradise Pizza’s profit margin?
A) 15%.
B) 14.12%.
C) 16%.
D) 12%.
164) The balance sheet of Paradise Pizza reports total assets of $1,500,000 and $1,700,000 at the
beginning and end of the year, respectively. Net income and sales for the year are $240,000 and
$2,000,000, respectively.
What is Paradise Pizza’s asset turnover?
A) 1.25 times.
B) 1.33 times.
C) 8.33 times.
D) 0.80 times.
165) The balance sheet of Purdy’s BBQ reports total assets of $800,000 and $900,000 at the
beginning and end of the year, respectively. Net income and sales for the year are $85,000 and
$1,700,000, respectively.
What is Purdy’s return on assets?
A) 10%.
B) 20%.
C) 200%.
D) 5%.
166) The balance sheet of Purdy’s BBQ reports total assets of $800,000 and $900,000 at the
beginning and end of the year, respectively. Net income and sales for the year are $85,000 and
$1,700,000, respectively.
What is Purdy’s profit margin?
A) 5%.
B) 10%.
C) 20%.
D) 50%.
167) The balance sheet of Purdy’s BBQ reports total assets of $800,000 and $900,000 at the
beginning and end of the year, respectively. Net income and sales for the year are $85,000 and
$1,700,000, respectively.
What is Purdy’s asset turnover?
A) 0.5 times.
B) 20.0 times.
C) 10.0 times.
D) 2.0 times.
168) The balance sheet of Purdy’s BBQ reports total assets of $800,000 and $900,000 at the
beginning and end of the year, respectively. The return on assets for the year is 20%.
What is Purdy’s net income for the year?
A) $4,500,000.
B) $170,000.
C) $4,250,000.
D) $85,000.
169) The balance sheet of Hidden Valley Farms reports total assets of $450,000 and $550,000 at
the beginning and end of the year, respectively. Net income and sales for the year are $100,000 and
$800,000, respectively.
What is Hidden Valley’s return on assets?
A) 10%.
B) 20%.
C) 160%.
D) 18%.
170) The balance sheet of Hidden Valley Farms reports total assets of $450,000 and $550,000 at
the beginning and end of the year, respectively. Net income and sales for the year are $100,000 and
$800,000, respectively.
What is Hidden Valley’s profit margin?
A) 10%.
B) 12.5%.
C) 18%.
D) 22%.
171) The balance sheet of Hidden Valley Farms reports total assets of $450,000 and $550,000 at
the beginning and end of the year, respectively. Net income and sales for the year are $100,000 and
$800,000, respectively.
What is Hidden Valley’s asset turnover?
A) 1.6 times.
B) 1.8 times.
C) 1.5 times.
D) 0.2 times.
172) The balance sheet of Hidden Valley Farms reports total assets of $450,000 and $550,000 at
the beginning and end of the year, respectively. The return on assets for the year is 10%.
What is Hidden Valley’s net income for the year?
A) $5,000,000.
B) $55,000.
C) $5,500,000.
D) $50,000.
173) Recognition of impairment for long-term assets is required if book value exceeds:
A) Original cost.
B) Fair value.
C) Future cash flows.
D) Accumulated depreciation.
174) The amount of impairment loss is the excess of book value over:
A) Carrying value.
B) Future cash flows.
C) Fair value.
D) Future revenues.
175) Accounting for impairment losses:
A) Involves a two-step process to first test for impairment and then record the loss.
B) Applies only to depreciable, operational assets.
C) Applies only to assets with finite lives.
D) All of these.
176) In testing for impairment of an operational asset, an impairment loss has occurred if the:
A) Asset’s book value exceeds the present value of its expected future cash flows.
B) Expected future cash flows exceeds the asset’s book value.
C) Present value of expected future cash flows exceeds its carrying value.
D) Asset’s book value exceeds the expected future cash flows.
177) Wilson Inc. owns equipment for which it originally paid $70 million and has recorded
accumulated depreciation on the equipment of $12 million. Due to adverse economic conditions,
Wilson’s management determined that it should assess whether an impairment should be
recognized for the equipment. The estimated future cash flows to be provided by the equipment
total $60 million, and its fair value at that point totals $50 million. Under these circumstances,
Wilson:
A) Would record no impairment loss on the equipment.
B) Would record an $8 million impairment loss on the equipment.
C) Would record a $20 million impairment loss on the equipment.
D) Would record a $2 million impairment loss on the equipment.
178) Leonard’s Jewelry owns a patent with a carrying value of $50 million. Due to adverse
economic conditions, Leonard’s management determined that it should assess whether an
impairment should be recognized for the patent. The estimated future cash flows to be provided by
the patent total $43 million, and its fair value at that point totals $35 million. Under these
circumstances, Leonard:
A) Would record no impairment loss on the patent.
B) Would record a $7 million impairment loss on the patent.
C) Would record a $15 million impairment loss on the patent.
D) Would record a $31 million impairment loss on the patent.
179) C-Stop reports the following information at year-end:
Book Value
Fair Value
Building
$
500,000
$
380,000
$
360,000
Patent
$
35,000
$
40,000
$
38,000
Copyright
$
40,000
$
38,000
$
39,000
Machine
$
100,000
$
120,000
$
85,000
Based on the above information, what is the total amount of impairment loss that C-Stop should
record at year-end?
A) $141,000.
B) $126,000.
C) $123,000.
D) $122,000.
180) Maple Inc. has the following information regarding its assets:
Estimated
Book Value
Cash Flows
Fair Value
Equipment
$
35,000
$
30,000
$
28,000
Building
$
68,000
$
70,000
$
65,000
Patent
$
30,000
$
34,000
$
32,000
What amount of loss should be recorded due to asset impairment?
A) $10,000.
B) $9,000.
C) $8,000.
D) $7,000.
181) Based on the information below, what amount of impairment loss would be reported?
Estimated
Asset
Fair value
cash flows
Book value
Equipment
$
25,000
$
36,000
$
30,000
Truck
$
34,000
$
45,000
$
42,000
Building
$
135,000
$
138,000
$
140,000
A) $5,000.
B) $23,000.
C) $13,000.
D) $18,000.
78
Match the following:
A) Addition
B) Repairs and maintenance
C) Capitalize
D) Materiality
E) Improvement
182) Recording an expenditure as an asset.
Difficulty: 2 Medium
Topic: Acquisition – Property, Plant, and Equipment; Expenditures after Acquisition
Learning Objective: 07-01 Identify the major types of property, plant, and equipment.; 07-03
Describe the accounting treatment of expenditures after acquisition.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
183) Expenses after acquisition that maintain a given level of benefits.
Difficulty: 2 Medium
Topic: Acquisition – Property, Plant, and Equipment; Expenditures after Acquisition
Learning Objective: 07-01 Identify the major types of property, plant, and equipment.; 07-03
Describe the accounting treatment of expenditures after acquisition.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
184) The cost of replacing a major component of an asset.
Difficulty: 2 Medium
Topic: Acquisition – Property, Plant, and Equipment; Expenditures after Acquisition
Learning Objective: 07-01 Identify the major types of property, plant, and equipment.; 07-03
Describe the accounting treatment of expenditures after acquisition.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
185) Occurs when we add a new major component to an existing asset.
Difficulty: 2 Medium
Topic: Acquisition – Property, Plant, and Equipment; Expenditures after Acquisition
Learning Objective: 07-01 Identify the major types of property, plant, and equipment.; 07-03
Describe the accounting treatment of expenditures after acquisition.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
79
186) Large enough to influence an investor’s or creditor’s decision.
Difficulty: 2 Medium
Topic: Acquisition – Property, Plant, and Equipment; Expenditures after Acquisition
Learning Objective: 07-01 Identify the major types of property, plant, and equipment.; 07-03
Describe the accounting treatment of expenditures after acquisition.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
80
Match the following:
A) Declining-balance method
B) Straight-line method
C) Activity-based method
D) Amortization
E) Depletion
187) Allocates an asset’s cost based on its use.
Difficulty: 2 Medium
Topic: Acquisition – Property, Plant, and Equipment; Depreciation – General; Amortization of
Intangible Assets
Learning Objective: 07-01 Identify the major types of property, plant, and equipment.; 07-04
Calculate depreciation of property, plant, and equipment.; 07-05 Calculate amortization of
intangible assets.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
188) Allocates an equal amount of depreciation to each year of the asset’s service life.
Difficulty: 2 Medium
Topic: Acquisition – Property, Plant, and Equipment; Depreciation – General; Amortization of
Intangible Assets
Learning Objective: 07-01 Identify the major types of property, plant, and equipment.; 07-04
Calculate depreciation of property, plant, and equipment.; 07-05 Calculate amortization of
intangible assets.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
189) Allocating the cost of an intangible asset over its service life.
Difficulty: 2 Medium
Topic: Acquisition – Property, Plant, and Equipment; Depreciation – General; Amortization of
Intangible Assets
Learning Objective: 07-01 Identify the major types of property, plant, and equipment.; 07-04
Calculate depreciation of property, plant, and equipment.; 07-05 Calculate amortization of
intangible assets.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking