Chapter 9
Long-Lived Assets
MULTIPLE CHOICE QUESTIONS
1. Which one of the following should be classified as land on the balance sheet?
a. A shed that houses the company’s equipment.
b. Mineral rights representing gold in the soil
c. Two tracts of property that house the company’s backup computer site
d. Sidewalks and driveways which lead to the company’s office building
2. Which of the following long-lived assets is not amortized or depreciated to an expense?
a. Equipment used in production of inventory goods
b. Land improvements
c. Land
d. Company computers replaced every two years
3. A company which complains that although their income is quite satisfactory, cash is not
available for dividends because of the high cost of replacing fixed assets is operating in an
economic environment where:
a. inflation is non-existent.
b. the balance sheet value of long-lived assets is more than their replacement value.
c. the prices of long-lived assets have been decreasing over an extended period of time.
d. expenditures required to replace long-lived assets are greater than depreciation expense.
4. Which one of the following actions will help solve a cash shortage problem?
a. Issue common stock in exchange for plant assets
b. Recognize depreciation expense
c. Purchase long-lived asset by issuing long-term debt
d Retire plant assets at salvage value
9-2 Test Bank – Chapter 9 – Long-Lived Assets
5. The purpose of recording depreciation expense is to:
a. provide cash necessary to replace plant assets when they are used up.
b. record the balance sheet amount of plant assets at replacement value.
c. match expenses with revenues using a reasonable systematic method.
d. gain a better understanding of estimating the extraction of natural resources.
6. Monroe Co. purchased a tract of land paying $100,000 in cash and assuming an existing
mortgage of $60,000. The municipal tax bill disclosed an assessed valuation of $180,000.
The amount Monroe should record as land connected with this acquisition is:
a. $100,000.
b. $160,000.
c. $180,000.
d. $200,000.
7. The process of allocating the cost of plant and equipment over the time period in which they
are used is referred to as:
a. depreciation.
b. depletion.
c. amortization.
d. deferred costs.
8. The process of expensing the cost of a gold mine as gold is withdrawn is referred to as:
a. amortization.
b. depletion.
c. depreciation.
d. decomposition.
9. The process of expensing the cost of patents over an extended period of years is referred to
as:
a. classification.
b. depletion.
c. depreciation.
d. amortization.
Test Bank – Chapter 9 –Long-Lived Assets 9-3
10. Accumulated depreciation is an account which:
a. adjusts plant and equipment so that its balance sheet value approximates its replacement cost.
b. is a long-term liability.
c. is equal to total depreciation expense recorded and decreases total plant and equipment.
d. reduces intangible assets.
11. An increase in accumulated depreciation:
a. increases total assets.
b. decreases total assets.
c. decreases the current ratio.
d. increases the quick ratio.
12. During extended periods of rising prices of plant and equipment, the amount required to replace
long-lived assets is typically:
a. less than total accumulated depreciation of those assets.
b. equal to the sum of all the depreciation recognized on those assets.
c. less than the balance sheet value of those assets.
d. greater than the sum of total depreciation expense recognized on those assets.
13. On January 1, a company purchased land that was foreclosed on for $270,000. At the time of
purchase, the fair market values of the land was $290,000. The gain from the purchase of the
land is:
a. $0.
b. $20,000.
c. $270,000.
d. $290,000.
14. Equipment with a cost of $22,000 and accumulated depreciation of $15,000 was sold at a gain
of $1,000. The cash received from the disposition of equipment is:
a. $7,000.
b. $8,000.
c. $6,000.
d. $14,000.
Solution: ($22,000 – $15,000) + $1,000 = $8,000
9-4 Test Bank – Chapter 9 – Long-Lived Assets
15. Moss Company purchased a building costing $800,000 on January 1, 2017. Moss is
depreciating the building over 80 years using the straight-line method with no salvage value.
The economic life of the building is expected to be 40 years. As a result of Moss’s accounting
procedure, its 2017:
a. earnings per share is understated and debt/equity ratio is overstated.
b. earnings per share is understated and debt/equity ratio is understated.
c. earnings per share is overstated and debt/equity ratio is overstated.
d. earnings per share is overstated and debt/equity ratio is understated.
16. The Favre Company made the following expenditures related to its building:
Annual repainting of exterior
$ 1,700
Replacement of old fiberglass shingles with a fireproof tile roof
33,000
Major improvements to electrical system required to run new machinery
18,000
The amount of the preceding expenditures that should be immediately expensed is:
a. $0.
b. $1,700.
c. $34,700.
d. $19,700.
17. Depreciation is an expense that does not use cash during the period in which it is recognized.
When did (will) the cash outflow associated with the asset occur?
a. When the asset is retired
b. There is no cash outflow associated with depreciation or the asset.
c. When the replacement cost of the asset increases
d. When the asset was acquired
18. The balance in accumulated depreciation on January 1 and December 31 is $15,000 and
$19,000, respectively, during a year in which no assets were disposed. Depreciation expense
during the year is:
a. $19,000.
b. $15,000.
c. $4,000.
d. $34,000.
Test Bank – Chapter 9 –Long-Lived Assets 9-5
19. On January 1, Comicon Corp. purchased land with a usable building on it for $300,000. The
cost of the land and building were $120,000 and $180,000, respectively. Comicon
depreciates the building using the straight-line method over 20 years with an expected
$24,000 salvage value. The annual depreciation expense on the building is:
a. $0.
b. $5,000.
c. $7,800.
d. $10,800.
20. On January 1, Scion Co. purchased land with a usable building on it for $210,000. The
appropriate cost of the land and building were $70,000 and $140,000, respectively. Scion
erroneously assigned the entire purchase cost of $210,000 to land. Scion should depreciate
the building using the straight-line method over 20 years with an expected zero salvage
value. As a result of Scion’s treatment of the purchase of land and building, its current net
income is:
a. understated by $10,500.
b. understated by $7,000.
c. overstated by $7,000.
d. overstated by $10,500.
21. The balance in accumulated depreciation on January 1 and December 31 is $12,000 and
$9,000, respectively, during a year in which an asset with a cost of $4,000 and net book
value of $0 was retired. Depreciation expense for the current year is:
a. $9,000.
b. $3,000.
c. $1,000.
d. $7,000.
22. Which one of the following depreciation methods will typically result in the smallest amount of
current taxes paid during the early periods of an asset’s life?
a. 150% declining balance method.
b. Units of production method.
c. Double-declining-balance method.
d. Straight-line method.
9-6 Test Bank – Chapter 9 – Long-Lived Assets
23. Which one of the following depreciation methods will typically result in the smallest earnings
per share during the early periods of an asset’s life?
a. 150% declining balance method.
b. Units of production method.
c. Double-declining-balance method.
d. Straight-line method.
24. Sandeep Inc. uses double-declining-balance depreciation for an asset with a 4-year life
expectancy and no salvage value. Depreciation expense for the second year of the asset’s
life is calculated by:
a. [2 x Book Value]/4
b. [2 x (Cost – Salvage Value]/4
c. [(2 x Book Value)/4] – Accumulated Depreciation
d. [2 x Cost]/4
25. Kristin, Inc. depreciates its plant assets over a 10-year life with a 10% salvage value. Using
straight-line depreciation, which calculation will Kristin use during year 2 of the asset’s life?
a. 10% x (Cost – Salvage Value)
b. (Cost – Salvage Value)/10 x 10%
c. Book Value x 10%
d. Book Value x [10% – Salvage Value]
26. Forgetting to record depreciation expense during 2017:
a. understates the debt/equity ratio.
b. understates the current ratio.
c. overstates the debt/equity ratio.
d. overstates the current ratio.
27. If the straight-line method of depreciation of an asset with a 5-year life expectancy and no
salvage value is used, then the percentage of cost that is recognized as depreciation
expense for the first two years of the asset’s life is, respectively,
a. 25% and 25%.
b. 40% and 20%.
c. 40% and 40%.
d. 20% and 20%.
Test Bank – Chapter 9 –Long-Lived Assets 9-7
28. On January 1, 2017, Lane Company made a $12,000 expenditure on a fully depreciated
machine. The expenditure increased the expected life of the new machine for two years until
December 31, 2018. Lane uses straight-line depreciation with no salvage value. However,
Lane erroneously expensed this capital expenditure. As a result of this error,
a. 2017 income is overstated by $3,000 and 2018 income is understated by $3,000.
b. 2017 income is understated by $6,000 and 2018 income is overstated by $6,000.
c. 2017 income is understated by $6,000 and 2018 income is overstated by $3,000.
d. 2017 income is understated by $6,000 and 2018 income is correctly stated.
29. A machine was purchased on January 1 for $50,000. The machine has an estimated useful
life of 10 years with a salvage value of $2,000. Under the double-declining-balance,
depreciation expense for each of the first two years is, respectively,
a. $12,000 and $12,000.
b. $10,000 and $8,000.
c. $12,000 and $9,500.
d. $12,500 and $12,500.
30. A machine was purchased on January 1 for $100,000. The machine has an estimated useful
life of 5 years with a salvage value of $10,000. Under the double-declining-balance method,
depreciation expense for each of the first two years is, respectively,
a. $45,000 and $22,500.
b. $40,000 and $24,000.
c. $45,000 and $ 27,500.
d. $22,500 and $ 22,500.
31. Failure to record depreciation expense during a year:
a. understates net income.
b. overstates total assets.
c. overstates total debt.
d. overstates contributed capital.
9-8 Test Bank – Chapter 9 – Long-Lived Assets
32. A machine was purchased on January 1 for $100,000. The machine has an estimated useful
life of 4 years with a salvage value of $20,000. Under the straight-line method, accumulated
depreciation at the end of year 2 is:
a. $25,000
b. $22,500
c. $50,000
d. $40,000
33. Natural resource costs:
a. include rights, privileges, and benefits of an economic resource that have no physical
existence.
b. are depreciated.
c. include the cost of the equipment used to extract the natural resource.
d. include the cost of acquiring the rights to extract natural resources.
34. A machine was purchased on January 1 for $100,000. The machine has an estimated useful
life of 5 years with a salvage value of $20,000. Under the straight-line method, the book value
and the accumulated depreciation of the machine at the end of year two is respectively,
a. $60,000 and $40,000
b. $68,000 and $32,000
c. $40,000 and $60,000
d. $48,000 and $32,000
35. Which one of the following will impact the amount of depreciation expensed throughout the
life of plant assets?
a. The amount of capitalized cost.
b. Maintenance costs throughout the asset’s useful life.
c. The expected cost of a replacement asset.
d. The current market value.
Test Bank – Chapter 9 –Long-Lived Assets 9-9
36. Which one of the costs below should be included as part of the cost of land?
a. Razing an old building.
b. Cost of a building permit.
c. Cost of driveways.
d. Shrubs and trees with limited lives.
37. When companies construct their own long-lived assets, all costs required to get the asset into
operating condition must be:
a. expensed immediately.
b. included in the long-lived asset’s cost.
c. recognized as a maintenance cost.
d. treated as a cost necessary to maintain the plant asset’s current level of productivity.
38. Salvage value is:
a. a method of depreciating plant assets.
b. the dollar amount that can be recovered when the asset is sold, traded, or scrapped.
c. an asset’s current estimated market value.
d. a physical obsolescence condition.
39. Which one of the following is not one of the questions asked when accounting for long-lived
assets?
a. Over what period of time should this cost be allocated?
b. What dollar amount should be included in the capitalized cost of the long-lived asset?
c. At what rate should this cost be allocated?
d. How much will a replacement asset cost?
40. Which of the following is the least problematic factor to determine when preparing to
calculate depreciation?
a. useful life.
b. estimated salvage value.
c. technical obsolescence.
d. acquisition cost.
9-10 Test Bank – Chapter 9 – Long-Lived Assets
41. Once a company establishes that an estimated useful life of a plant asset has changed
significantly:
a. the plant asset must be disposed.
b. the change must be made for the current and future years.
c. a correcting journal entry must be made.
d. the previous year’s financial statements must be corrected.
42. The calculation of a ‘depreciation base’ requires subtracting:
a. the salvage value from the asset’s book value.
b. the asset’s book value from its original cost.
c. the asset’s salvage value from its capitalized cost.
d. accumulated depreciation from the asset’s original cost.
43. The units of production method of depreciation:
a. allocates the cost of the long-lived asset based on an activity.
b. allocates an equal amount of plant asset cost to each accounting period.
c. is an accelerated method.
d. is used when an asset has no salvage value.
44. During 2017, Erie Inc. developed a new process for packaging products. Erie paid its
employees $450,000 over the past five years in developing this process. On January 1, 2017,
Erie paid $12,000 to register the packaging patent. The company believes the patent will
produce profits for 10 years. The patent has a 17-year legal life. How much amortization
expense should be recognized during 2017?
a. $27,118
b. $46,200
c. $1,200
d. $647
45. One primary reason management may choose a particular depreciation method is:
a. to save cash for the replacement of the plant asset.
b. to avoid violation of debt covenants tied to net income.
c. to decrease the cash flows of the company.
d. to hide judgment errors that managers have made during the accounting period.
Test Bank – Chapter 9 –Long-Lived Assets 9-11
46. Once a plant asset becomes fully depreciated, the:
a. asset may no longer be used.
b. asset may still be used.
c. asset should be retired.
d. cost of the asset must be removed from the accounting records.
47. When a plant asset is sold, its original cost and its:
a. market value must be removed from the accounting records.
b. accumulated depreciation must be removed from the accounting records.
c. salvage value must be expensed immediately.
d. related maintenance costs must be transferred to the income statement immediately.
48. When a plant asset is traded in for a dissimilar asset, the valuation of the new plant asset
should be:
a. at the original cost of the old asset.
b. at the fair market value of the asset given up, or the asset received, whichever is more
clearly evident.
c. at the replacement cost of the old asset.
d. at the value at which the new asset received was carried in the accounting records of the
manufacturer.
49. Intangible assets differ from plant assets in that they:
a. are consumed in the current accounting period.
b. include prepaid expenses that extend beyond the current accounting period.
c. have no physical existence.
d. are matched against the revenue in the period the related revenue is recognized.
50. Which one of the following costs would be capitalized as an ‘organizational cost’?
a. Goodwill
b. Underwriting a company’s first stock issuance
c. Copyrights
d. None of the above would be capitalized
9-12 Test Bank – Chapter 9 – Long-Lived Assets
51. Jeter Inc. acquired machinery on January 1, 2012 at a cost of $55,000. The machinery was
depreciated over five years using the straight line method and a salvage value of $2,000. In
early 2017 the machinery was sold for $3,000. The income statement for 2017 will reflect
which of the following:
a. Gain of $1,000
b. Gain of $3,000
c. Loss of $52,000
d. No gain or loss
e.
52. On December 1, Douglas Corp. purchased a tract of land for $285,000 to be used as a
factory site. An old unusable building on the land was razed (torn down), and the salvaged
materials from the demolition were sold. These cash expenditures and receipts and other
costs incurred during December are as follows:
Demolition of old building
$51,000
Proceeds from sale of salvaged materials
8,000
Legal fees to transfer land title
7,000
Title guarantee insurance
2,500
What would be the balance in Douglas’s Land account on its December 31 balance sheet?
a. $285,000
b. $337,500
c. $340,500
d. $331,000
53. On January 1, Eagle Co. paid $65,000 for a new truck. It was estimated that the truck would
be driven 300,000 miles during the next 5 years, at which time it would have a salvage value
of $10,000. At the end of the first and second years, the odometer registered 55,000 and
115,000 miles, respectively. What is the book value of the truck using straight-line
depreciation at the end of the second year?
a. $47,000
b. $43,000
c. $43,533
d. $56,000
Test Bank – Chapter 9 –Long-Lived Assets 9-13
54. On July 31, 2017, equipment is purchased for $66,000 with a 4-year life expectancy and
salvage value of $5,000. If the double-declining-balance method is used, calculate
depreciation expense for the year ending December 31, 2017.
a. $13,750
b. $12,708
c. $33,000
d. $31,000
55. On February 1, 2013, James Co., which uses straight-line depreciation, purchased
equipment for $88,000 with a useful life of 12 years and $4,000 salvage value. On February
1, 2017, the equipment was sold for $56,000. Which of the following would James recognize
as a result of this disposition?
a. $7,000 loss
b. $4,000 loss
c. $4,000 gain
d. No gain or loss
56. On January 1, Mondale Co. paid $92,000 for a new truck. It was estimated that the truck
would be driven 200,000 miles during the next 8 years, at which time it would have a salvage
value of $7,000. At the end of the first three years, the odometer registered 27,000, 53,000,
and 78,000 miles, respectively. What is the book value of the truck using the activity method
of depreciation at the end of the third year?
a. $67,150
b. $24,850
c. $51,850
d. $58,850
9-14 Test Bank – Chapter 9 – Long-Lived Assets
57. The following items represent common postacquisition expenditures incurred on equipment.
A. An overhaul to increase useful life of the equipment
B. Replacement of muffler
C. Lubrication service
D. Costs of redesign to increase output
Identify which of these items are considered to be betterments.
a. A only
b. A, B, and D
c. A and D
d. A and B
58. The following items represent common post acquisition expenditures incurred on equipment.
A. Replacement of defective parts
B. Rewiring costs to increase operating speed
C. Painting costs
D. Repair of the major circuitry of the equipment
Identify which of these items are considered to be maintenance items.
a. A and C
b. C only
c. A, B, and C
d. A, C, and D
59. Rio Grande Company purchased equipment on January 1, 2017 for $75,000. The estimated
useful life of the equipment is 5 years, the salvage value is $10,000, and the company uses
the double-declining balance method to depreciate fixed assets. Which of the following
journal entries would Rio Grande record if the equipment is scrapped after three years?
a. Equipment …………………………………………………………………… 75,000
Gain on Disposal of Plant Asset ………………………………. 16,200
Accumulated Depreciation—Equipment ………………….. 58,800
b. Accumulated Depreciation—Equipment …………………………. 58,800
Loss on Disposal of Plant Asset …………………………………….. 16,200
Equipment ……………………………………………………………. 75,000
c. Accumulated Depreciation—Equipment …………………………. 58,800
Cash ………………………………………………………………………….. 16,200
Equipment ……………………………………………………………. 75,000
d. Depreciation Expense …………………………………………………… 58,800
Loss on Disposal of Plant Asset …………………………………….. 16,200
Equipment ……………………………………………………………. 75,000
Test Bank – Chapter 9 –Long-Lived Assets 9-15
Solution:
60. Rio Grande Company purchased equipment on January 1, 2017 for $75,000. The estimated
useful life of the equipment is 5 years, the salvage value is $10,000, and the company uses
the double-declining balance method to depreciate fixed assets. How much depreciation
would Rio Grande record for the fourth year of the equipment’s use?
a. $6,480
b. $6,200
c. $5,616
d. $6,000
Solution:
9-16 Test Bank – Chapter 9 – Long-Lived Assets
61. Rio Grande Company purchased equipment on January 1, 2017 for $75,000. The estimated
useful life of the equipment is 5 years, the salvage value is $10,000, and the company uses
the double-declining balance method to depreciate fixed assets. Which of the following
journal entries would Rio Grande record if the equipment is scrapped after five years?
a. Equipment …………………………………………………………………… 75,000
Gain on Disposal of Plant Asset ………………………………. 10,000
Accumulated Depreciation—Equipment ………………….. 65,000
b. Accumulated Depreciation—Equipment …………………………. 75,000
Equipment ……………………………………………………………. 75,000
c. Accumulated Depreciation—Equipment …………………………. 65,000
Loss on Disposal of Plant Asset …………………………………….. 10,000
Equipment ……………………………………………………………. 75,000
d. Depreciation Expense …………………………………………………… 65,000
Loss on Disposal of Plant Asset …………………………………….. 10,000
Equipment ……………………………………………………………. 75,000
62. Rio Grande Company purchased equipment on January 1, 2017 for $75,000. The estimated
useful life of the equipment is 5 years, the salvage value is $10,000, and the company uses
the double-declining balance method to depreciate fixed assets. Which of the following
journal entries would Rio Grande record if the equipment is sold for $17,000 after three
years?
a. Equipment …………………………………………………………………… 75,000
Loss on Disposal of Plant Asset …………………………………….. 800
Cash …………………………………………………………………….. 17,000
Accumulated Depreciation—Equipment ………………….. 58,800
b. Cash ……………………………………………………………………………. 17,000
Gain on Disposal of Plant Asset ………………………………. 6,200
Equipment ……………………………………………………………. 10,800
c. Cash ………………………………………………………………………….. 17,000
Depreciation Expense …………………………………………………… 10,800
Loss on Disposal of Plant Asset …………………………………….. 47,200
Equipment ……………………………………………………………. 75,000
d. Cash ………………………………………………………………………….. 17,000
Accumulated Depreciation—Equipment ……………………….. 58,800
Equipment ……………………………………………………………. 75,000
Gain on Disposal of Plant Asset ………………………………. 800
Test Bank – Chapter 9 –Long-Lived Assets 9-17
63. Rio Grande Company purchased equipment on January 1, 2017 for $75,000. The estimated
useful life of the equipment is 5 years, the salvage value is $10,000, and the company uses
the double-declining balance method to depreciate fixed assets. Which of the following
would be included in the journal entry that Rio Grande would record at the end of the fifth
year, if the equipment and $19,000 cash are traded for a dissimilar fixed asset with a FMV of
$25,000?
a. A credit to Fixed Assets for $25,000.
b. A credit to Equipment for $10,000.
c. A credit to Gain on Disposal of Plant Assets for $4,000.
d. A debit to Loss on Disposal of Plant Assets for $4,000.
9-18 Test Bank – Chapter 9 – Long-Lived Assets
MATCHING QUESTIONS
1. For each account listed in 1 through 12 below, identify which reporting section (a through d)
each would appear on a company’s financial statements. You may use each letter more than
once or not at all.
a. Balance sheet—property, plant, and equipment
b. Balance sheet—intangible assets
c. Balance sheet—other
d. Income statement
_____ 1. Depreciation expense
_____ 2. Accumulated depreciation
_____ 3. Betterments
_____ 4. Oil reserve
_____ 5. Land
_____ 6. Organizational costs
_____ 7. Amortization expense
_____ 8. Total amortization since inception
_____ 9. Gain on disposal of plant assets
_____ 10. Copyright
_____ 11. Patents
_____ 12. Goodwill
Solution:
2. For each transaction numbered 1 through 6 below, identify its effects on the accounting
equation by selecting from the effects listed in a through f. You may use each letter more
than once or not at all.
Accounting Effects
a. – A and – SE (Retained Earnings)
b. + A and + SE (Retained Earnings)
c. – A and – L
d. – A and – SE (Contributed Capital)
e. + A and + L
f. No change in total A, L, or SE
____ 1. Equipment is purchased by incurring a long-term mortgage payable and
paying the balance in cash
____ 2. Paid for transportation of equipment shipped from the vendor to our plant
____ 3. Paid for speeding ticket received while transporting the equipment to the
manufacturing plant
____ 4. Depreciated the equipment during the first year of use
____ 5. Paid for lubrication and periodic tune ups of the equipment
____ 6. Sold the equipment, receiving more money than its book value
Test Bank – Chapter 9 –Long-Lived Assets 9-19
3. For each transaction numbered 1 through 5 below, identify in which account listed in a
through d it would be reported. You may use each letter more than once or not at all.
Accounts
a. Land
b. Buildings
c. Equipment
d. Not capitalized
_____ 1. Freight charges related to the acquisition costs of a production machine
_____ 2. Interest costs incurred during the construction period of a building built by a
company for its own use
_____ 3. Costs paid to clear land
_____ 4. Annual painting costs of an office building
_____ 5. Sales taxes paid related to a machine purchased
4. For each cost that appears in items 1 through 6 below, select the account in which it would
be included and reported from those listed in a through c. You may use more than one
answer for each cost. If the cost is not capitalized, place an X in the space provided.
Accounts
a. Land
b. Buildings
c. Equipment
_____ 1. Installation costs of a special attachment to newly acquired equipment
_____ 2. Freight costs for shipping the equipment into our manufacturing facility
_____ 3. Costs of repairing a hole knocked in the wall during installation of new
equipment
_____ 4. Interest costs on a mortgage loan used to purchase a newly acquired building
_____ 5. Property taxes paid on land for the current year on which a new building was
erected
_____ 6. Training session to teach faculty how to use computer projection equipment
recently installed in classrooms
9-20 Test Bank – Chapter 9 – Long-Lived Assets
5. Select the method of depreciation listed in a through c that is best for each purpose
listed in items 1 through 4.
Methods
a. Straight-line
b. Units-of-production
c. Double-declining-balance
1. _______ Creates the largest net income in the early years of life
2. _______ Erratic due to unpredictable sales levels
3. _______ Creates the smallest taxable income in the early years of life
4. _______ More extreme accelerated method than sum-of-the-years’ digits
6. For each transaction numbered 1 through 5 below, identify which effect(s) (a through d)
that each transaction would have on the current and debt/equity ratios. You may use
each letter more than once or not at all. Some transactions have two answers.
Effects
a. Decreases current ratio
b. Increases current ratio
c. Decreases debt/equity ratio
d. Increases debt/equity ratio
____ 1. Equipment is purchased by incurring a long-term note payable and paying the
balance in cash
____ 2. Paid for transportation of equipment shipped from a supplier
____ 3. Depreciated the equipment during the first year of use
____ 4. Paid for lubrication and periodic maintenance of the equipment
____ 5. Sold the equipment, receiving more money than its book value