Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
49. If an expenditure related to a depreciable asset is incorrectly treated as a capital
expenditure, instead of as a revenue expenditure, which of the following statements is true?
50. Which of the following statements is incorrect?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
51. A company acquires land by issuing 10,000 shares of its $10 par value common stock
currently trading at $20 per share and the appraised value of the land is $250,000. Which of
the following statements correctly describes the recording of the land?
52. Which of the following statements is incorrect?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
53. Gilbert Company made an ordinary repair to a delivery truck during 2010 at a cost of
$500 and capitalized the repair cost. What will be the effect on the 2010 financial statements
as a result of the capitalization?
54. Which of the following would most likely not be a revenue expenditure?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
55. What is the effect on the 2010 financial statements when a capital expenditure during
2010 was incorrectly recorded as a revenue expenditure?
56. Which of the following best describes the objective of depreciation?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
57. Which of the following doesn’t properly describe the depreciation process?
58. Which of the following describes the effect of recording depreciation expense at year-
end?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
59. Why is the continuity assumption important with respect to the accounting for long-lived
tangible assets?
60. On January 1, 2010, Woodstock, Inc. purchased a machine costing $40,000. Woodstock
also paid $1,000 for transportation and installation. The expected useful life of the machine is
6 years and the residual value is $5,000. How much is the annual depreciation expense
assuming use of the straight-line depreciation method?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
61. On January 1, 2010, Woodstock, Inc. purchased a machine costing $40,000. Woodstock
also paid $1,000 for transportation and installation. The expected useful life of the machine is
6 years and the residual value is $5,000. Which of the following statements is incorrect?
62. A machine, acquired for a cash cost of $15,000, is being depreciated on a straight-line
basis of $2,700 per year. The residual value was estimated to be 10% of cost. The estimated
useful life is
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
63. Warren Company plans to depreciate a new building using the double declining-balance
depreciation method. The building cost $800,000. The estimated residual value of the building
is $50,000 and it has an expected useful life of 25 years. Assuming the first year’s
depreciation expense was recorded properly, what would be the amount of depreciation
expense for the second year?
64. Warren Company plans to depreciate a new building using the double declining-balance
depreciation method. The building cost $800,000. The estimated residual value of the building
is $50,000 and it has an expected useful life of 25 years. What is the building’s book value at
the end of the first year?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
65. Which method of depreciation results in periodic depreciation expense that fluctuates
from one period to the next, not necessarily in a steadily upward or downward direction?
66. Hill Inc. purchased an asset on January 1, 2009. Hill chose an accelerated depreciation
method to depreciate the asset. Which of the following is correct if Hill would have chosen
the straight-line depreciation method instead?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
67. On January 1, 2010, Pyle Company purchased an asset that cost $50,000 (no estimated
residual value, estimated useful life 8 years, straight-line depreciation is used). An error was
made because the total cost amount was debited to an expense account for 2010 and no
depreciation on it was recorded. Pretax income for 2010 was $42,000. How much is the
correct 2010 pretax income?
68. Schager Company purchased a computer system on January 1, 2010, at a cash cost of
$25,000. The estimated useful life is 10 years, and the estimated residual value is $3,000. The
company will use the double declining-balance depreciation method. How much is the 2011
depreciation expense?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
69. Schager Company purchased a computer system on January 1, 2010, at a cash cost of
$25,000. The estimated useful life is 10 years, and the estimated residual value is $3,000. The
company will use the double declining-balance depreciation method. What is the accumulated
depreciation balance as of December 31, 2011?
70. On January 1, 2010, Wasson Company purchased a delivery vehicle costing $40,000. The
vehicle has an estimated 6-year life and a $4,000 residual value. What is the vehicle’s book
value as of December 31, 2011 assuming Wasson uses the straight-line depreciation method?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
71. On January 1, 2010, Wasson Company purchased a delivery vehicle costing $40,000. The
vehicle has an estimated 6-year life and a $4,000 residual value. Wasson estimates that the
vehicle will be driven 100,000 miles. What is the vehicle’s book value as of December 31,
2011 assuming Wasson uses the units-of-production depreciation method and the vehicle was
driven 10,000 miles during 2010 and 18,000 miles during 2011?
72. Which of the following statements is false?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
73. Under what conditions would a company most likely adopt the double-declining-balance
method for financial reporting?
74. Which of the following statements is correct?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
75. Which of the following statements is correct?
76. Which of the following statements about the Modified Accelerated Cost Recovery System
(MACRS) is correct?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
77. Which of the following statements about asset impairment is false?
78. A company has some bottling equipment which cost $8.5 million, has a net book value of
$4.1 million, estimated future cash flows of $3.7 million, and a fair value of $3.1 million.
How much is the asset impairment loss?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
79. A company has some bottling equipment which cost $8.5 million, has a net book value of
$4.1 million, estimated future cash flows of $3.7 million, and a fair value of $3.1 million.
Which of the following correctly describes the recording of the asset impairment loss?
80. On December 31, 2010, Hamilton Inc. sold a used industrial crane for $600,000 cash. The
original cost of the crane was $5.0 million and its accumulated depreciation equaled $4.2
million on December 31, 2010. What is the gain or loss from the December 31, 2010
equipment sale?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
81. Which of the following is correct when recording the disposal of equipment for a gain?
82. Which of the following statements is incorrect with respect to the sale of a depreciable
asset?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
83. Carter Company disposed of an asset at the end of the eighth year of its estimated life for
$10,000 cash. The asset’s life was originally estimated to be 10 years. The original cost was
$50,000 with an estimated residual value of $5,000. The asset was being depreciated using the
straight-line method. What was the gain or loss on the disposal?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
84. Which of the following journal entries is correct when a depreciable asset (building) is
sold for cash subsequent to acquisition?
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
85. Which of the following statements is incorrect with respect to the sale of a depreciable
asset for a loss?
86. Amanda Company purchased a computer that cost $10,000. It had an estimated useful life
of five years and a residual value of $1,000. The computer was depreciated by the straight-
line method and was sold at the end of the third year of use for $5,000 cash. How much of a
gain or loss should Amanda record?