23) After an asset is fully depreciated, the asset:
A) must be removed from the Balance Sheet.
B) remains on the Balance Sheet at a value of $0.
C) remains on the Balance Sheet at (cost – Accumulated Depreciation).
D) remains on the Balance Sheet at cost.
24) Ironworks Industries purchased a piece of equipment for $65,000 with an estimated salvage
value of $15,000 on January 1. Its estimated life is 5 years. To the nearest dollar, what is the
equipment’s depreciation using double-declining-balance for year 2?
A) $26,000
B) $20,000
C) $15,600
D) $12,000
25) Only Organics has a delivery truck that was purchased for $42,000 and has a salvage value
of $5,000. It expects the truck to last 125,000 miles. During Year 1, the truck traveled 32,500
miles and during Year 2, the truck traveled 28,500 miles. What is the depreciation expense for
Year 2 to the nearest dollar using the units-of-production method? (Round to three decimal
places to get the unit rate.)
A) $10,920
B) $9,620
C) $9,576
D) $8,436
26) An asset has a cost of $50,000 with a residual value of $10,000. It has a life of 5 years and
was purchased on January 1. Its fourth full year of depreciation expense under double-declining-
balance will be:
A) $7,200.
B) $4,320.
C) $800.
D) $0.
27) It is determined that a computer’s depreciation expense for the year is $3,500. The journal
entry to record this will be:
A) debit Depreciation Expense – computer $3,500; credit Cash $3,500.
B) debit Accumulated Depreciation – computer $3,500; credit Cash $3,500.
C) debit Depreciation Expense – computer $3,500; credit Accumulated Depreciation, $3,500.
D) debit Cash $3,500; credit Depreciation Expense – computer $3,500.
28) A building was purchased on August 1 for $450,000. It has a salvage value of $38,000 and a
useful life of 35 years. To the nearest dollar, how much will the depreciation expense for the
building be for the first year ended December 31, using the straight-line method?
A) $12,857
B) $5,357
C) $4,905
D) $11,771
29) After 4 years, a machine had an accumulated depreciation of $38,000. Originally, the
machine had an anticipated life of 8 years and a salvage value of $5,000. If the current book
value after 4 years is $43,000 and the machine has only 2 years of useable life left, how much
will be depreciated in Year 5 and in Year 6 using the straight-line method of depreciation, and
assuming the salvage value is still $5,000?
A) $21,500 each year
B) $9,500 each year
C) $19,000 each year
D) $10,125 each year
30) The depreciation method in which the depreciable cost of an asset is apportioned equally
over its estimated life in terms of month or years is called the:
A) double-declining-balance method.
B) units-of-production method.
C) amortization method.
D) straight-line method.
31) A company purchased a van at a cost of $42,000 and expects its salvage value to be $6,000
after 120,000 miles of service. Using the units-of-production method, what is the first year’s
depreciation if the van is driven 24,000 miles?
A) $1,200
B) $4,200
C) $7,200
D) $12,000
32) Acme paid $100,000 for a machine with a $5,000 salvage value and an estimated life of
190,000 hours.
Acme reports on a calendar year basis and used the machine for 1,700 hours during the first year
it owned the asset. Which of the following statements accurately compare the first year
depreciation expense if the asset had been purchased on January 1 of the current year versus a
March 1 acquisition date.
A) Depreciation Expense if acquired January 1 is $850 and if acquired March 1 is $708.
B) Depreciation Expense if acquired January 1 is $850 and if acquired March 1 is $637.
C) In both cases, the Depreciation Expense is $850.
D) Depreciation Expense if acquired January 1 is $895 and if acquired March 1 is $746.
8.4 Questions
1) Expenditures incurred, such as changing the oil and filter on a delivery truck, would be
considered ordinary repairs.
2) Replacing an engine on a delivery truck would be considered a betterment.
3) Adding on 30 rooms to an existing hotel would be considered a betterment because the
addition added to the hotel’s capacity.
4) The matching principle dictates whether the cost of a repair should be expensed or
depreciated.
5) Betterments are items that add to the life of the asset.
6) Lubricating a machine on a regular basis would be considered a(n):
A) betterment.
B) capital expenditure.
C) ordinary repair.
D) capital expense.
7) Upgrading the RAM on a computer would be an example of a(n):
A) betterment.
B) extraordinary repair.
C) ordinary repair.
D) capital expense.
8) A company replaced an engine on a vehicle and debited the amount to Repairs and
Maintenance expense, rather than debiting the Vehicle account. Which of the following would
occur because of this error?
A) Repairs expense would be understated.
B) Net income would be overstated.
C) Assets would be overstated.
D) Assets would be understated.
9) A company replaced tires on a vehicle and debited the amount to Vehicle instead of Repairs
and Maintenance Expense. Which of the following would occur because of this error?
A) Expenses would be understated.
B) Net income would be understated.
C) Retained Earnings would be understated.
D) Assets would be understated.
10) Which accounting principle dictates whether the cost of a repair should be expensed?
A) Conservatism
B) Entity
C) Objectivity
D) Matching
11) If an extraordinary repair is incorrectly expensed in the current period, the net income for
that period will be:
A) overstated and net income in future periods will not be affected.
B) understated and net income in future periods will not be affected.
C) overstated and net income in future periods will be understated.
D) understated and net income in future periods will be overstated.
12) A repair that extends the useful life of an asset would be considered a(n):
A) extraordinary repair.
B) ordinary repair.
C) betterment.
D) capital expense.
13) Island Industries inadvertently recorded a $5,000 betterment as an ordinary repair. Which of
the following will occur as a result of this mistake?
A) Assets will be overstated by $5,000.
B) Assets will be understated by $5,000.
C) Net income will be overstated by $5,000.
D) Retained Earnings will be overstated by $5,000.
14) TLR Inc. has installed a piece of machinery for a total of $76,000. In its third month of
operation, repairs of $1,300 had to be made on the machine. This $1,300 would be:
A) added to the cost of the machinery.
B) treated as a repairs and maintenance expense.
C) capitalized in an asset account.
D) deducted from cost of the machinery.
15) Piper Productions inadvertently recorded an expense as a capital expenditure. Which of the
following will occur as a result of this mistake?
A) Assets will be understated.
B) Net income will be understated.
C) Net income will be overstated.
D) Both A and C will occur.
8.5 Questions
1) Disposal of a plant asset always occurs after the asset has been fully depreciated.
2) When an asset is disposed of, the current period’s depreciation expense account must be
updated to the time of the disposal.
3) The first step in recording a disposal transaction is to figure the gain or loss on the disposal.
4) GAAP requires that exchanges of assets must be categorized as like-kind or dissimilar assets.
5) If an exchange of assets lacks commercial substance, then no gain or loss on the exchange is
recognized.
6) If an asset is being discarded then there is no need to update the depreciation prior to disposal.
7) A piece of equipment that was originally purchased for $25,000, had accumulated
depreciation of $18,000, and was sold for $8,000 would recognize a gain of $1,000.
8) A piece of equipment that was originally purchased for $33,000, had accumulated
depreciation of $25,000, and was sold for $8,000 would recognize a gain of $1,000.
9) A truck costing $56,000 has accumulated depreciation of $50,000. The truck is scrapped for
$500. The journal entry to record this transaction is to:
A) debit Cash for $500, debit Truck for $50,000, debit Loss on Disposal for $5,500 and credit
Accumulated Depreciation – Truck for $56,000.
B) debit Cash for $500, debit Accumulated Depreciation – Truck for $50,000, debit Loss on
Disposal for $5,500 and credit Truck for $56,000.
C) debit Accumulated Depreciation – Truck for $50,000, debit Loss on Disposal $6,000, and
credit Truck for $56,000.
D) debit Cash for $500, debit Loss on Disposal for $55,500 and credit Truck for $56,000.
10) A truck costing $56,000 has accumulated depreciation of $50,000. The truck is scrapped for
$0. The journal entry to record this transaction is to:
A) debit Truck for $50,000, debit Loss on Disposal for $6,000 and credit Accumulated
Depreciation – Truck for $56,000.
B) debit Accumulated Depreciation – Truck for $50,000, and credit Truck for $50,000.
C) debit Accumulated Depreciation – Truck for $50,000, debit Loss on Disposal $6,000, and
credit Truck for $56,000.
D) debit Truck for $56,000, credit Accumulated Depreciation – Truck for $50,000 and credit
Gain on Disposal for $6,000.
11) A truck costing $56,000 has accumulated depreciation of $50,000. The truck is sold for
$8,500. The journal entry to record this transaction is to:
A) debit Cash for $8,500, debit Accumulated Depreciation – Truck for $50,000, credit Truck for
$56,000, and credit Gain on Disposal for $2,500.
B) debit Accumulated Depreciation – Truck for $50,000, and credit Truck for $50,000.
C) debit Cash for $8,500, debit Truck for $56,000, credit Accumulated Depreciation – Truck for
$50,000 and credit Gain on Disposal for $14,500.
D) debit Cash for $2,500, debit Truck for $56,000, credit Accumulated Depreciation – Truck for
$50,000, and credit Gain on Disposal for $8,500.
12) Which of the following accounts would be debited in a journal entry for an asset exchange?
A) Accumulated Depreciation–Old Truck
B) Old Truck
C) Gain on Exchange of Assets
D) Notes Payable
13) Which of the following accounts would be credited in a journal entry for an asset exchange?
A) Accumulated Depreciation–Old Truck
B) Truck (Old)
C) Loss on Exchange of Assets
D) Truck (New)
14) Which of the following would be debited as part of what you got in a transaction involving
an exchange of assets?
A) Old machine
B) Equipment (new)
C) Accumulated Depreciation
D) Gain on exchange
15) If an asset is being sold or exchanged, the gain or loss is always computed by comparing the:
A) market value and book value.
B) market value and salvage value.
C) book value and salvage value.
D) market value and cost.
16) Equipment costing $118,000 has accumulated depreciation of $92,000. The equipment is a
trade-in for new equipment costing $187,000. If the trade-in value received for the old equipment
is $30,000, the journal entry to record this transaction is to:
A) debit Equipment (New) for $187,000, debit Accumulated Depreciation – Equipment for
$92,000, credit Equipment (Old) for $118,000 and credit Cash for $161,000.
B) debit Equipment (New) for $187,000, debit Accumulated Depreciation – Equipment for
$92,000, credit Equipment (Old) for $118,000, credit Cash for $157,000, and credit Gain on
Exchange of Assets for $4,000.
C) debit Equipment (New) for $187,000, debit Accumulated Depreciation – Equipment for
$92,000, debit Loss on Exchange of Assets for $26,000, credit Equipment (Old) for $118,000
and credit Cash for $187,000.
D) debit Equipment (New) for $187,000, and credit Cash for $187,000.
17) Equipment costing $118,000 has accumulated depreciation of $92,000. The equipment is a
trade-in for new equipment costing $187,000. If the trade-in value received for the old equipment
is $20,000, the journal entry to record this transaction is to:
A) debit Equipment (New) for $187,000, and credit Cash for $187,000.
B) debit Equipment (New) for $187,000, debit Accumulated Depreciation – Equipment for
$92,000, credit Equipment (Old) for $118,000 and credit Cash for $161,000.
C) debit Equipment (New) for $187,000, debit Accumulated Depreciation – Equipment for
$92,000, debit Loss on Exchange of Assets for $26,000, credit Equipment (Old) for $118,000,
credit Cash for $187,000.
D) debit Equipment (New) for $187,000, debit Accumulated Depreciation – Equipment for
$92,000, debit Loss on Exchange of Assets for $6,000, credit Equipment (Old) for $118,000 and
credit Cash for $167,000.
1) The process of allocating the cost of intangible assets to expense is called amortization.
2) Amortization is computed over the useful life of the intangible asset using the double-
declining-balance method.
3) Instead of using an accumulated amortization account similar to accumulated depreciation, the
expense of amortization is directly credited to the intangible asset itself.
4) As with natural resources, the residual value of most intangibles is determined by the
accounting department.
5) Intangible assets have no physical form and therefore are not at risk of becoming obsolete.
6) A patent is the exclusive right to reproduce and sell a book, musical composition, or film.
7) In general, companies don’t report R&D costs as assets on their balance sheets.
8) Patents to produce and sell inventions are conveyed by the federal government for a period of:
A) 70 years.
B) 50 years.
C) 20 years.
D) time that is agreed upon by the company.
9) Copyrights to protect various forms of media are conveyed by the federal government for a
period of:
A) 70 years beyond the author’s life.
B) 50 years beyond the author’s life.
C) 20 years.
D) a useful life that is agreed upon by the company.
10) The slogan “Can you hear me now?” for Verizon is a protected slogan called a:
A) patent.
B) copyright.
C) trademark.
D) brand name.