44) Charterhouse Services purchased a van on January 1, 2012, for $56,000. It has an estimated life of 5
years, and an estimated salvage value of $6,000. Dawson uses straight–line depreciation. At the end of 2014,
Charterhouse revised the estimated life of the asset from 5 years to 8 years. How much was the depreciation
expense in the year 2015?
A) $5,000
B) $4,000
C) $6,000
D) $5,600
45) If an asset’s physical condition deteriorates more rapidly than would be reflected by normal depreciation, that is
referred to as:
A) accelerated depreciation.
B) asset impairment.
C) asset disposal.
D) shrinkage.
46) Pallmall Company has a truck that was purchased in prior years for $60,000. At the end of 2014, there is
$30,000 of accumulated depreciation. The value of the truck has been impaired, and its remaining value is now
estimated at $18,000. When Pallmall adjusts for the loss of value, how much will the loss on impairment be?
A) $6,000
B) $12,000
C) $18,000
D) $42,000
47) On January 1, 2014, a company buys a truck for $42,000 cash. It has estimated residual value of $2,000, and an
estimated life of 8 years, or 200,000 miles. Please provide the journal entry for the purchase of the truck.
Truck
48) On January 1, 2012, a company buys a truck for $42,000 cash. It has estimated residual value of $2,000, and an
estimated life of 8 years, or 200,000 miles. If the company uses straight–line depreciation, please show the journal
entry for the first year depreciation.
Depreciation expense
49) On January 1, 2012, a company buys a truck for $42,000 cash. It has estimated residual value of $2,000, and an
estimated life of 8 years, or 200,000 miles. At the end of 2012, the truck had driven 30,000 miles. If the company
uses units-of-production depreciation, please show the journal entry for the first year depreciation.
Depreciation expense
50) On January 1, 2012, a company buys a truck for $42,000 cash. It has estimated residual value of $2,000, and an
estimated life of 8 years, or 200,000 miles. If the company uses double-declining-balance depreciation, please show
the journal entry for the first year depreciation.
Depreciation expense
51) On January 1, 2012, a company buys a truck for $42,000 cash. It has estimated residual value of $2,000, and an
estimated life of 4 years, or 200,000 miles. Assume the company uses straight-line depreciation. Please complete
the depreciation schedule below.
52) On January 1, 2012, a company buys a truck for $42,000 cash. It has estimated residual value of $2,000, and an
estimated life of 4 years, or 200,000 miles. Assume the company uses units–of-production depreciation. The truck
drove 40,000 miles in 2012, 60,000 miles in 2013, 80,000 miles in 2014, and 20,000 miles in 2015. Please complete
the depreciation schedule below.
53) On January 1, 2012, a company buys equipment for $10,000. It has estimated residual value of $1,000, and an
estimated life of 5 years. Assume the company uses double-declining-balance depreciation. Please complete the
depreciation schedule below.
54) Pallmall Company has a truck which was purchased in prior years for $60,000. At the end of 2013, there is
$30,000 of accumulated depreciation. The value of the truck has been impaired, and its remaining value is now
estimated at $18,000. Please provide the journal entry needed to record the asset impairment.
Loss on impairment
Accumulated depreciation
Learning Objective 9-3
1) A loss on the sale of a plant asset is recorded when the sales price exceeds the book value.
2) If assets are junked before being fully depreciated, there is a loss equal to the book value of the asset.
3) A loss occurs on the exchange of a plant asset if the market value of the new asset received is greater than the
total amount given up in the exchange.
4) A gain on disposal of an asset is recorded when cash received is less than book value.
5) A loss on disposal of an asset is recorded when cash received is less than book value.
6) When a plant asset is sold, the first step is to bring the depreciation up to date.
7) When a plant asset is sold, if the book value is higher than the sales price, there will be a loss on sale.
8) When a plant asset is sold, if the book value is lower than the sales price, there will be a loss on sale.
9) If the sales price of a plant asset is lower than the book value, there will be a loss on sale.
10) A plant asset is sold for $1,000. The original cost was $9,000, salvage value was estimated at $200, and useful
life was estimated at 12 years. At time of sale, accumulated depreciation was $8,500. The sale resulted in a gain of
$500.
11) A plant asset is sold for $1,000. The original cost was $9,000, salvage value was estimated at $200, and useful
life was estimated at 12 years. At time of sale, accumulated depreciation was $8,500. The sale resulted in a loss of
$500.
12) A company purchased equipment for $100,000 in 2012. The machine will be used for 10,000 hours and will
have a residual value of $20,000. The equipment was used for 2,400 hours in 2012. How much depreciation will be
recorded in 2012 if the company elects the units-of-production method?
A) $19,200
B) $20,000
C) $10,000
D) $24,000
13) An asset was purchased for $12,000. The asset’s estimated useful life was 5 years, and its residual value was
$2,000. Straight-line depreciation was used. How much gain or loss is reported if the asset is sold for $3,000 at the
end of the fifth year?
A) $1,000 gain
B) $2,000 loss
C) No gain or loss
D) $1,000 loss
14) An asset was purchased for $12,000. The asset’s estimated useful life was 5 years, and its residual value was
$2,000. Straight-line depreciation was used. How much gain or loss is reported if the asset is sold for $9,000 at the
end of the first year?
A) $1,000 gain
B) $2,000 loss
C) No gain or loss
D) $1,000 loss
15) An asset was purchased for $12,000. The asset’s estimated useful life was 5 years, and its residual value was
$2,000. Straight-line depreciation was used. How much gain or loss is reported if the asset is sold for $9,000 at the
end of the second year?
A) $1,000 gain
B) $2,000 loss
C) No gain or loss
D) $1,000 loss
16) An asset was purchased for $12,000. The asset’s estimated useful life was 5 years, and its residual value was
$2,000. Straight-line depreciation was used. How much gain or loss is reported if the asset is sold for $4,500 at the
end of the third year?
A) $1,500 gain
B) $2,000 loss
C) No gain or loss
D) $1,500 loss
17) An asset was purchased for $12,000. The asset’s estimated useful life was 5 years, and its residual value was
$2,000. Straight-line depreciation was used. How much gain or loss is reported if the asset is sold for $4,500 at the
end of the fourth year?
A) $1,500 gain
B) $500 gain
C) No gain or loss
D) $1,500 loss
18) An asset was purchased for $12,000. The asset’s estimated useful life was 5 years, and its residual value was
$2,000. Straight-line depreciation was used. How much gain or loss is reported if the asset is sold for $400 at the
end of the fifth year?
A) $1,600 gain
B) $500 gain
C) No gain or loss
D) $1,600 loss
19) Which of the following items is included in the journal entry if a company sells equipment at a price equal to its
book value?
A) A debit to Loss on sale of equipment
B) A credit to Equipment for its original cost
C) A credit to Accumulated depreciation
D) A debit to Equipment for its book value
20) Which of the following items is included in the journal entry if a company sells equipment at a price greater than
its book value?
A) A credit to Gain on sale of equipment
B) A debit to Loss on sale of equipment
C) A credit to Accumulated depreciation
D) A debit to Equipment for its book value
21) Which of the following items is included in the journal entry if a company sells equipment at a price less than its
book value?
A) A debit to Equipment for its book value
B) A credit to Gain on sale of equipment
C) A debit to Loss on sale of equipment
D) A credit to Accumulated depreciation
22) Kelly Petroleum Products owns furniture that was purchased for $19,600. Accumulated depreciation is $17,300.
The furniture was sold for $3,800. Which of the following is the correct entry to record the transaction?
A)
Accumulated depreciation
17,300
Cash
3,800
Gain on sale
1,500
Furniture
19,600
B)
Accumulated depreciation
17,300
Cash
3,800
Furniture
31,100
C)
Furniture
19,600
Gain on sale
3,800
Cash
2,700
Accumulated depreciation
17,300
D)
Furniture
19,600
Cash
2,700
Gain on sale
5,000
Accumulated depreciation
17,300
23) Kelly Petroleum Products owns fully depreciated furniture that was purchased for $26,500. The furniture had an
estimated useful life of 8 years and an estimated residual value of $2,500. The furniture was sold for $2,700. Which
of the following is the correct entry to record the transaction?
A)
Accumulated depreciation
26,500
Cash
2,700
Gain on sale
2,700
Furniture
26,500
B)
Accumulated depreciation
24,000
Cash
2,700
Gain on sale
200
Furniture
26,500
C)
Furniture
26,500
Gain on sale
200
Cash
2,700
Accumulated depreciation
24,000
D)
Furniture
2,000
Cash
2,700
Loss on sale
19,300
Accumulated depreciation
24,000
24) Barnhart’s sold a piece of restaurant equipment to another restaurant on July 1, 2013 for $1,100 cash. The
equipment originally cost $12,000, had an estimated life of 20 years, and estimated salvage value of $2,000.
Barnhart’s had recorded total depreciation of $9,000 through the end of 2012, using the straight-line method.
Barnhart’s had to update the depreciation of the asset before recording the sale. How much additional depreciation
expense was recorded for the period of January 1, 2013 through July 1, 2013?
A) $250
B) $500
C) $460
D) $220
25) Barnhart’s sold a piece of restaurant equipment to another restaurant on July 1, 2013 for $1,100 cash. The
equipment originally cost $12,000, had an estimated life of 20 years, and estimated salvage value of $2,000,
Barnhart’s had recorded total depreciation of $9,000 through the end of 2012, using the straight-line method.
Barnhart’s had to update the depreciation of the asset before recording the sale. After the depreciation was updated,
Barnhart’s then recorded the sale transaction. The effect of the sale on the income of the company was a:
A) gain of $250.
B) loss of $1,650.
C) loss of $1,000.
D) loss of $2,900.
26) On September 1, 2012, Algernon Company sold a truck for $15,000 cash. The truck was originally purchased
for $40,000, had an estimated salvage value of $4,000 and an estimated life of 6 years. Algernon had recorded
depreciation of $30,000 through the end of 2011 using the straight-line method. Algernon had to update the
depreciation prior to sale. After updating the depreciation, how much was the total accumulated depreciation on the
truck?
A) $34,250
B) $34,440
C) $36,000
D) $34,000
27) On September 1, 2012, Algernon Company sold a truck for $15,000 cash. The truck was originally purchased
for $40,000, had an estimated salvage value of $4,000 and an estimated life of 6 years. Algernon had recorded
depreciation of $30,000 through the end of 2011 using Straight-Line. First, Algernon had to update the depreciation
prior to sale. Then Algernon recorded the sale transaction. What was the effect of that transaction on the net income
of the company?
A) No gain or loss
B) Gain of $9,000
C) Gain of $15,000
D) Loss of $9,000
28) 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.
29) To determine if there is a gain or loss on the sale of an asset, you must compare:
A) sales price and book value.
B) sales price and salvage value.
C) sales price and original cost.
D) book value and salvage cost.
30) Corey Sales sold its old office furniture for $400. The original cost was $8,000, and at the time of sale, it had
accumulated depreciation of $7,000. What was the effect of the transaction?
A) Gain of $600
B) Gain of $400
C) Loss of $1,600
D) Loss of $600
31) Corey Sales sold its old office furniture for $1,100. The original cost was $8,000, and at the time of sale, it had
accumulated depreciation of $7,000. What was the effect of the transaction?
A) Gain of $100
B) Gain of $400
C) Loss of $1,600
D) Loss of $600
32) Albatross Services scrapped a van. The van originally cost $40,000 and had accumulated depreciation of
$38,000. What was the effect of scrapping the van?
A) Gain of $2,000
B) No gain or loss
C) Loss of $1,600
D) Loss of $2,000
33) Albatross Services scrapped a van. The van originally cost $40,000, had an estimated salvage value of $1,000,
and an estimated life of 10 years. At the time it was scrapped, it was fully depreciated. What was the effect of
scrapping the van?
A) Gain of $2,000
B) No gain or loss
C) Loss of $1,000
D) Loss of $2,000
34) Albatross Services scrapped a van. The van originally cost $40,000, had an estimated salvage value of zero, and
an estimated life of 10 years. At the time it was scrapped, it was fully depreciated. What was the effect of scrapping
the van?
A) Gain of $2,000
B) No gain or loss
C) Loss of $1,000
D) Loss of $2,000
35) Albatross Services scrapped a van. The van originally cost $40,000, had an estimated salvage value of zero, and
an estimated life of 10 years. At the time it was scrapped, it had accumulated depreciation of $40,000. What was the
effect of scrapping the van?
A) Gain of $2,000
B) No gain or loss
C) Loss of $1,000
D) Loss of $2,000
36) Job Sales sold a truck for $2,000 cash. It was originally purchased for $36,000, and had accumulated
depreciation of $30,000 at the time of sale. Please provide the journal entry for the sale of the truck.
Accumulated depreciation
Cash
Loss on sale