Chapter 9 – Long-Term Assets: Fixed and Intangible
74. Which of the following are criteria for determining whether to record an asset as a fixed asset?
a.
must be an investment and long lived
b.
must be long lived and used by the company in its normal operations
c.
must be short lived and tangible
d.
must be tangible and an investment
75. Factors contributing to a decline in the usefulness of a fixed asset may be divided into the following two categories
a.
salvage and functional
b.
physical and functional
c.
residual and salvage
d.
functional and residual
76. A fixed asset’s estimated value at the time it is to be retired from service is called
a.
b.
c.
d.
Chapter 9 – Long-Term Assets: Fixed and Intangible
77. All of the following are needed for the calculation of straight-line depreciation except
a.
cost
b.
residual value
c.
estimated life
d.
units produced
78. The method of determining depreciation that yields successive reductions in the periodic depreciation charge over the
estimated life of the asset is the
a.
units-of-production method
b.
double-declining-balance method
c.
straight-line method
d.
time-valuation method
79. When the amount of use of a fixed asset varies from year to year, the method of determining depreciation expense that
best matches allocation of cost with revenue is
a.
double-declining-balance method
b.
straight-line method
c.
units-of-output method
d.
MACRS
Chapter 9 – Long-Term Assets: Fixed and Intangible
80. A machine with a cost of $120,000 has an estimated residual value of $15,000 and an estimated life of 5 years or
15,000 hours. It is to be depreciated by the units-of-output method. What is the amount of depreciation for the second full
year, during which the machine was used 5,000 hours?
a.
$5,000
b.
$35,000
c.
$21,000
d.
$45,000
81. Equipment with a cost of $220,000 has an estimated residual value of $30,000 and an estimated life of 10 years or
19,000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year,
during which the equipment was used 2,100 hours?
a.
$19,000
b.
$21,000
c.
$22,000
d.
$30,000
82. A machine with a cost of $75,000 has an estimated residual value of $5,000 and an estimated life of 4 years or 18,000
hours. What is the amount of depreciation for the second full year, using the double-declining-balance method?
a.
$17,500
b.
$37,500
c.
$18,750
d.
$16,667
Chapter 9 – Long-Term Assets: Fixed and Intangible
83. Equipment with a cost of $160,000, an estimated residual value of $40,000, and an estimated life of 15 years was
depreciated by the straight-line method for 4 years. Due to obsolescence, it was determined that the remaining useful life
should be shortened by 3 years and the residual value changed to zero. The depreciation expense for the current and future
years is
a.
$11,636
b.
$16,000
c.
$11,000
d.
$8,000
84. The depreciation method that does not use residual value in calculating the first year’s depreciation expense is
a.
straight-line
b.
units-of-output
c.
double-declining-balance
d.
sum-of-the-digits
Chapter 9 – Long-Term Assets: Fixed and Intangible
85. If a fixed asset, such as a computer, were purchased on January 1 for $3,750 with an estimated life of 3 years and a
salvage or residual value of $150, the journal entry for monthly expense under straight-line depreciation is
a.
Depreciation Expense 100
Accumulated Depreciation 100
b.
Depreciation Expense 1,200
Accumulated Depreciation 1,200
c.
Accumulated Depreciation 1,200
Depreciation Expense 1,200
d.
Accumulated Depreciation 100
Depreciation Expense 100
86. The proper journal entry to purchase a computer costing $975 on account to be utilized within the business would be
a.
Office Supplies 975
Accounts Payable 975
b.
Office Equipment 975
Accounts Payable 975
c.
Office Supplies 975
Accounts Receivable 975
d.
Office Equipment 975
Accounts Receivable 975
Chapter 9 – Long-Term Assets: Fixed and Intangible
87. Residual value is also known as all of the following except
a.
scrap value
b.
trade-in value
c.
salvage value
d.
net book value
88. The formula for depreciable cost is
a.
Initial cost + Residual value
b.
Initial cost – Residual value
c.
Initial cost – Accumulated depreciation
d.
Depreciable cost = Initial cost
89. Expected useful life is
a.
calculated when the asset is sold
b.
estimated at the time that the asset is placed in service
c.
determined each year that the depreciation calculation is made
d.
none of these
Chapter 9 – Long-Term Assets: Fixed and Intangible
90. The calculation for annual depreciation using the straight-line depreciation method is
a.
Initial cost / Estimated useful life
b.
Depreciable cost / Estimated useful life
c.
Depreciable cost × Estimated useful life
d.
Initial cost × Estimated useful life
91. The calculation for annual depreciation using the units-of-output method is
a.
(Initial cost / Estimated output) × Actual yearly output
b.
(Depreciable cost / Yearly output) × Estimated output
c.
Depreciable cost / Yearly output
d.
(Depreciable cost / Estimated output) × Actual yearly output
92. On June 1, Aaron Company purchased equipment at a cost of $120,000 that has a depreciable cost of $90,000 and an
estimated useful life of 3 years and 30,000 hours, which ends on December 31.
Using straight-line depreciation, calculate depreciation expense for the final (partial) year of service.
a.
$17,500
b.
$30,000
c.
$12,500
d.
$40,000
Chapter 9 – Long-Term Assets: Fixed and Intangible
93. On June 1, Michael Company purchased equipment at a cost of $120,000 that has a depreciable cost of $90,000 and an
estimated useful life of 3 years or 30,000 hours.
Using straight-line depreciation, calculate depreciation expense for the second year.
a.
$17,500
b.
$30,000
c.
$12,500
d.
$40,000
94. On June 1, Scotter Company purchased equipment at a cost of $120,000 that has a depreciable cost of $90,000 and an
estimated useful life of 3 years or 30,000 hours.
Using straight-line depreciation, calculate depreciation expense for the first year, which ends on December 31.
a.
$17,500
b.
$30,000
c.
$12,500
d.
$40,000
95. Computer equipment was acquired at the beginning of the year at a cost of $57,000 that has an estimated residual
value of $9,000 and an estimated useful life of 5 years. Determine the second-year depreciation using the straight-line
method.
a.
$13,200
b.
$19,200
c.
$9,600
d.
$9,000
Chapter 9 – Long-Term Assets: Fixed and Intangible
96. Which of the following is true?
a.
If using the double-declining-balance method, the total amount of depreciation expense during the life of the
asset will be the highest.
b.
If using the units-of-output method, it is possible to depreciate more than the depreciable cost.
c.
If using the straight-line method, the amount of depreciation expense during the first year is higher than that of
the double-declining-balance.
d.
Regardless of the depreciation method, the amount of total depreciation expense during the life of the asset
will be the same.
97. An asset was purchased for $120,000 on January 1, Year 1 and originally estimated to have a useful life of 10 years
with a residual value of $10,000. At the beginning of the third year, it was determined that the remaining useful life of the
asset was only 4 years with a residual value of $2,000. Calculate the third-year depreciation expense using the revised
amounts and straight-line method.
a.
$25,000
b.
$11,000
c.
$24,000
d.
$24,500
Chapter 9 – Long-Term Assets: Fixed and Intangible
98. The accumulated depletion account is
a.
an expense account
b.
an intangible asset account
c.
reported on the income statement as other expense
d.
reported on the balance sheet as a deduction from the cost of the mineral deposit
99. The accumulated depletion of a natural resource is reported on the
a.
balance sheet as depreciation from the cost of the resource
b.
income statement as an increase in revenue
c.
balance sheet as a deduction from the cost of the resource
d.
income statement as a deduction from revenues
100. The process of transferring the cost of metal ores and other minerals removed from the earth to an expense account is
called
a.
depletion
b.
deferral
c.
amortization
d.
depreciation
Chapter 9 – Long-Term Assets: Fixed and Intangible
101. Sands Company purchased mining rights for $500,000. They expect to harvest 1 million tons of ore over the next
five years. During the current year, Sands mined 350,000 tons of ore. The entry to record the depletion would include
a.
a debit to Depletion Expense for $175,000
b.
a credit to Depletion Expense for $350,000
c.
a debit to Accumulated Depletion for $175,000
d.
a credit to Accumulated Depletion for $350,000
102. The natural resources of some companies include
a.
timber, metal ores, and minerals
b.
timber, equipment, and patents
c.
minerals, trademarks, and land
d.
metal ores, copyrights, and supplies
103. The Weber Company purchased a mining site for $1,750,000 on July 1. The company expects to mine ore for the
next 10 years and anticipates that a total of 400,000 tons will be recovered. The estimated residual value of the property is
$150,000. During the first year, the company extracted 6,500 tons of ore. The depletion expense is
a.
$17,500
b.
$16,000
c.
$26,000
d.
$15,000
Chapter 9 – Long-Term Assets: Fixed and Intangible
104. Expenditures for research and development are generally recorded as
a.
current operating expenses
b.
assets and amortized over their estimated useful life
c.
assets and amortized over 40 years
d.
current assets
105. The term applied to the amount of cost to transfer to expense resulting from a decline in the utility of intangible
assets is
a.
amortization
b.
depletion
c.
depreciation
d.
allocation
106. Xtra Company purchased a business from Argus for $96,000 above the fair value of its net assets. Argus had
developed the goodwill over 12 years. How much would Xtra amortize the goodwill for its first year?
a.
$7,000
b.
$8,000
c.
goodwill is not amortized
d.
not enough information to calculate amortization
Chapter 9 – Long-Term Assets: Fixed and Intangible
107. Which intangible assets are amortized over their useful life?
a.
trademarks
b.
goodwill
c.
patents
d.
all of these
108. The name, term, or symbol used to identify a business and its products is called
a.
goodwill
b.
a patent
c.
a trademark
d.
a copyright
109. The process of transferring the cost of an asset to an expense account is called all of the following except
a.
depletion
b.
allocation
c.
amortization
d.
depreciation
Chapter 9 – Long-Term Assets: Fixed and Intangible
110. Fixed assets are ordinarily presented on the balance sheet
a.
at current market values
b.
at replacement costs
c.
at cost less accumulated depreciation
d.
in a separate section along with intangible assets
111. The ratio measuring the number of dollars of sales earned per dollar of fixed assets is the
a.
fixed asset turnover ratio
b.
days’ in assets ratio
c.
current asset turnover ratio
d.
intangible asset ratio
112. The higher the fixed asset turnover, the
a.
less efficiently a company is using its fixed assets in generating sales
b.
more efficiently a company is using its fixed assets in generating sales
c.
more efficiently a company is using its current assets in generating sales
d.
more efficiently a company is using its intangible assets in generating sales
Chapter 9 – Long-Term Assets: Fixed and Intangible
113. Which of the following statements is true?
a.
A larger fixed asset turnover ratio is associated with firms that are more labor intensive and require smaller
fixed asset investments.
b.
The fixed asset ratio cannot be compared across time for an individual company.
c.
A smaller fixed asset turnover ratio is associated with firms that are more labor intensive and require smaller
fixed asset investments.
d.
The fixed asset ratio is not useful for comparing different companies.
114. Newport Company has sales of $2,025,000 for the current year. The book value of its fixed assets at the beginning of
the year was $550,000 and at the end of the year was $800,000. The fixed asset turnover ratio for Newport is
a.
3.0
b.
3.6
c.
3.7
d.
2.5
Fixed Asset Turnover Ratio = Sales / Average Book Value of Fixed Assets =
115. A fixed asset with a cost of $52,000 and accumulated depreciation of $47,500 is traded for a similar asset priced at
$60,000 (fair market value) in a transaction with commercial substance. Assuming a trade-in allowance of $5,000, at
what cost will the new equipment be recorded in the books?
a.
$54,000
b.
$59,500
c.
$60,000
d.
$60,500
Chapter 9 – Long-Term Assets: Fixed and Intangible
116. A fixed asset with a cost of $41,000 and accumulated depreciation of $36,000 is traded for a similar asset priced at
$50,000 (fair market value) in a transaction with commercial substance. Assuming a trade-in allowance of $4,000, at what
cost will the new equipment be recorded in the books?
a.
$54,000
b.
$45,000
c.
$51,000
d.
$50,000
117. A fixed asset with a cost of $41,000 and accumulated depreciation of $36,500 is traded for a similar asset priced at
$60,000. Assuming a trade–in allowance of $3,000, the recognized loss on the trade is
a.
$3,000
b.
$4,500
c.
$500
d.
$1,500
118. A fixed asset with a cost of $30,000 and accumulated depreciation of $28,500 is sold for $3,500. What is the amount
of the gain or loss on disposal of the fixed asset?
a.
$2,000 loss
b.
$1,500 loss
c.
$3,500 gain
d.
$2,000 gain
Chapter 9 – Long-Term Assets: Fixed and Intangible
119. The Bacon Company acquired new machinery with a price of $15,200 by trading in similar old machinery and
paying $12,700. The old machinery originally cost $9,000 and had accumulated depreciation of $5,000. In recording this
transaction, Bacon Company should record
a.
the new machinery at $16,700
b.
the new machinery at $12,700
c.
a gain of $1,500
d.
a loss of $1,500
120. When a company discards machinery that is fully depreciated, this transaction would be recorded with the following
entry
a.
debit Accumulated Depreciation; credit Machinery
b.
debit Machinery; credit Accumulated Depreciation
c.
debit Cash; credit Accumulated Depreciation
d.
debit Depreciation Expense; credit Accumulated Depreciation
121. When a company sells machinery at a price equal to its book value, this transaction would be recorded with an entry
that would include the following:
a.
debit Cash and Accumulated Depreciation; credit Machinery
b.
debit Machinery; credit Cash and Accumulated Depreciation
c.
debit Cash and Machinery; credit Accumulated Depreciation
d.
debit Cash and Depreciation Expense; credit Accumulated Depreciation
Chapter 9 – Long-Term Assets: Fixed and Intangible
122. When a company exchanges machinery and receives a trade-in allowance greater than the book value, this
transaction would be recorded with which of the following entries (assuming the exchange was considered to have
commercial substance)?
a.
debit Machinery and Accumulated Depreciation; credit Machinery, Cash, and Gain on Exchange of Machinery
b.
debit Machinery and Accumulated Depreciation; credit Machinery and Cash
c.
debit Cash and Machinery; credit Accumulated Depreciation
d.
debit Cash and Machinery; credit Accumulated Depreciation and Machinery
123. When a company exchanges machinery and receives a trade-in allowance less than the book value, this transaction
would be recorded with which of the following entries?
a.
debit Machinery and Accumulated Depreciation; credit Machinery and Cash
b.
debit Cash and Machinery; credit Accumulated Depreciation
c.
debit Cash and Machinery; credit Accumulated Depreciation and Machinery
d.
debit Machinery, Accumulated Depreciation, and Loss on Exchange of Machinery; credit Machinery and Cash
124. On December 31, Strike Company has decided to discard one of its batting cages. The equipment had an initial cost
of $310,000 and has accumulated depreciation of $260,000. Depreciation has been recorded up to the end of the year.
Which of the following will be included in the entry to record the disposal?
a.
Accumulated Depreciation, debit, $310,000
b.
Loss on Disposal of Asset; debit, $260,000
c.
Equipment, credit, $310,000
d.
Gain on Disposal of Asset, credit, $50,000
Chapter 9 – Long-Term Assets: Fixed and Intangible
125. On December 31, Strike Company sold one of its batting cages for $50,000. The equipment had an original cost of
$310,000 and has accumulated depreciation of $260,000. Depreciation has been recorded up to the end of the year. What
is the amount of the gain or loss on this transaction?
a.
gain of $50,000
b.
loss of $50,000
c.
no gain or loss
d.
cannot be determined
126. On December 31, Strike Company sold one of its batting cages for $20,000. The equipment had an initial cost of
$310,000 and had accumulated depreciation of $260,000. Depreciation has been recorded up to the end of the year. What
is the amount of the gain or loss on this transaction?
a.
gain of $20,000
b.
gain of $30,000
c.
loss of $20,000
d.
loss of $30,000
127. On December 31, Strike Company sold one of its batting cages for $55,000. The equipment had an initial cost of
$310,000 and has accumulated depreciation of $260,000. Depreciation has been taken up to the end of the year. What is
the amount of the gain or loss on this transaction?
a.
loss of $55,000
b.
loss of $5,000
c.
gain of $5,000
d.
gain of $55,000
Chapter 9 – Long-Term Assets: Fixed and Intangible
128. On December 31, Strike Company traded in one of its batting cages for another one that has a cost of $500,000.
Strike receives a trade-in allowance of $11,000. The old equipment had an initial cost of $215,000 and has accumulated
depreciation of $185,000. Depreciation has been recorded up to the end of the year. The difference will be paid in
cash. What is the amount of the gain or loss on this transaction?
a.
loss of $11,000
b.
gain of $11,000
c.
loss of $19,000
d.
no loss or gain will be recorded
129. Machinery was purchased on January 1 for $51,000. The machinery has an estimated life of 7 years and an
estimated salvage value of $9,000. Double-declining-balance depreciation for the second year would be (round
calculations to the nearest dollar):
a.
$10,929
b.
$6,000
c.
$10,500
d.
$10,408
Second-year depreciation = ($51,000 – $14,571) × 28.57% = $10,408