Question 1

A company purchased a weaving machine for $190,000.The machine has a useful life of 8 years and a residual value of $10,000.It is estimated that the machine could produce 75,000 bolts of woven fabric over its useful life.In the first year,15,000 bolts were produced.In the second year,production increased to 19,000 units.Using the units-of-production method,what is the amount of depreciation expense that should be recorded for the second year?

Accepted Answer

The answer of A company purchased a weaving machine for...

Question 2

Marlow Company purchased a point of sale system on January 1 for $3,400.This system has a useful life of 10 years and a salvage value of $400.What would be the accumulated depreciation at the end of the second year of its useful life using the double-declining-balance method?

Accepted Answer

The double-declining-balance method doubles the straight-line depreciation rate, so the annual depreciation rate would be 20% (2/10 * 100%).

Double-declining-balance depreciation for Year 1: $3,400 x 20% = $680.
Book value at the end of Year 1: $3,400 - $680 = $2,720.

Double-declining-balance depreciation for Year 2: $2,720 x 20% = $544.
Book value at the end of Year 2: $2,720 - $544 = $2,176.

Therefore, the accumulated depreciation at the end of the second year of its useful life using the double-declining-balance method would be $544 + $680 = $1,224.

Question 3

An asset's book value is $36,000 on January 1,Year 6.The asset is being depreciated $500 per month using the straight-line method.Assuming the asset is sold on July 1,Year 7 for $25,000,the company should record:

Accepted Answer

First, we need to calculate the total depreciation expense from January 1, Year 6 to July 1, Year 7. There are 18 months in total (from January 1, Year 6 to June 1, Year 7, it's 17 months plus half a month in July), so the total depreciation expense is:
$500/month x 18 months = $9,000
On July 1, Year 7, the accumulated depreciation will be:
$500/month x 18 months = $9,000
So the asset's carrying value (book value) on July 1, Year 7 will be:
$36,000 - $9,000 = $27,000
Since the asset is sold for $25,000, the company will record a loss on sale of:
$25,000 - $27,000 = -$2,000 or a loss of $2,000.

Question 4

Revenue expenditures:

Accepted Answer

Revenue expenditures are expenses incurred that do not increase the useful life or productive capabilities of the asset. These expenses are recognized as expenses in the current period rather than being capitalized and added to the asset account.

Question 5

Martinez owns an asset that cost $87,000 with accumulated depreciation of $40,000.The company sells the equipment for cash of $42,000.At the time of sale,the company should record:

Accepted Answer

To determine the gain or loss on the sale of an asset, we need to compare the amount received from the sale (cash received) to the asset's net book value.

Net book value = cost of asset - accumulated depreciation

In this case, the net book value of the asset is:

$87,000 - $40,000 = $47,000

Since the cash received from the sale is only $42,000, the company will record a loss on sale of:

$42,000 - $47,000 = -$5,000

Therefore, the correct answer is C, a loss on sale of $5,000.

Question 6

A machine costing $75,000 is purchased on September 1,Year 1.The machine is estimated to have a salvage value of $10,000 and an estimated useful life of 4 years.Double-declining-balance depreciation is used.If the machine is sold on December 31,Year 3 for $13,000,the journal entry to record the sale will include:

Accepted Answer

To find the amount of depreciation each year, we use the double-declining-balance formula, which is:

(2 x straight-line rate) x (cost - accumulated depreciation)

The straight-line rate is 1/4 (since the estimated useful life is 4 years).

So the depreciation expense for Year 1 is:

(2 x 1/4) x ($75,000 - $0) = $37,500

The depreciation expense for Year 2 is:

(2 x 1/4) x ($75,000 - $37,500) = $22,500

The depreciation expense for Year 3 is:

(2 x 1/4) x ($75,000 - $60,000) = $7,500

*Note: For Year 3, we calculate the depreciation on the net book value at the beginning of the year, which is the cost ($75,000) minus the accumulated depreciation at the end of Year 2 ($60,000).

So, the total accumulated depreciation at the end of Year 3 is:

$37,500 + $22,500 + $7,500 = $67,500

The net book value (NBV) of the machine at the end of Year 3 is:

Cost - accumulated depreciation = $75,000 - $67,500 = $7,500

If the machine is sold for $13,000, there will be a gain on sale of:

Sale price - NBV = $13,000 - $7,500 = $5,500

The journal entry to record the sale will be:

Debit: Cash $13,000 
Debit: Loss on sale $2,625 
Credit: Accumulated depreciation $67,500 
Credit: Machine $75,000 
Credit: Gain on sale $5,500

The loss on sale is calculated as follows:

$75,000 (cost) - $67,500 (accumulated depreciation) - $13,000 (sale price) = -$2,500 (which is why we debit "Loss on sale" for $2,625).

Question 7

A company discarded a computer system originally purchased for $18,000.The accumulated depreciation was $17,200.The company should recognize a(an):

Accepted Answer

The book value of the computer system is $800 ($18,000 - $17,200). Since the system was discarded, the company should recognize an $800 loss.

Question 8

An asset can be disposed of by all of the following except:

Accepted Answer

Continuing to use an asset after it is fully depreciated is not a disposal method, as the asset is still being used by the organization. All other options - discarding, selling, exchanging, and donating - involve removing the asset from the organization's possession.

Question 9

An asset's book value is $18,000 on December 31,Year 5.The asset has been depreciated at an annual rate of $3,000 on the straight-line method.Assuming the asset is sold on December 31,Year 5 for $15,000,the company should record:

Accepted Answer

The asset's book value on December 31, Year 5 is $18,000. However, it is sold for $15,000. Therefore, there is a loss on sale of $3,000. The gain or loss on sale of an asset is calculated by comparing the selling price of the asset to its book value. Since the selling price is less than the book value, there is a loss on sale of $3,000. Therefore, the correct answer is E - a loss on sale of $3,000.

Question 10

Which of the following is an example of an extraordinary repair?

Accepted Answer

Replacing the entire roof on a large building is considered an extraordinary repair, as it entails a significant and costly repair that goes beyond routine maintenance. The other options (A, B, C, and E) are examples of routine maintenance or minor repairs.

Question 11

A company purchased a weaving machine for $190,000.The machine has a useful life of 8 years and a residual value of $10,000.It is estimated that the machine could produce 75,000 bolts of woven fabric over its useful life.In the first year,15,000 bolts were produced.In the second year,production increased to 19,000 units.Using the units-of-production method,what is the book value of the machine at the end of the second year?

Accepted Answer

Depreciation expense for the first year = (190,000 - 10,000) / 75,000 * 15,000 = $24,000Depreciation expense for the second year = (190,000 - 10,000) / 75,000 * 19,000 = $46,400Book value at the end of the second year = 190,000 - 24,000 - 46,400 = $120,000

Question 12

Marlow Company purchased a point of sale system on January 1 for $3,400.This system has a useful life of 10 years and a salvage value of $400.What would be the book value of the asset at the end of the first year of its useful life using the double-declining-balance method?

Accepted Answer

To use the double-declining-balance method, we need to first calculate the straight-line depreciation rate. This is done by subtracting the salvage value from the cost, and then dividing that by the useful life:

($3,400 - $400) / 10 years = $300 per year

The double-declining-balance rate is twice this amount, or $600 per year. To calculate the book value at the end of the first year, we multiply this rate by the asset's beginning book value:

Year 1 depreciation = $600 x $3,400 = $2,040
Book value at end of Year 1 = $3,400 - $2,040 = $1,360

This process would continue for subsequent years until the salvage value is reached.

Question 13

Another name for a capital expenditure is:

Accepted Answer

The answer of Another name for a capital expenditure is:
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Question 14

Martinez owns machinery that cost $87,000 with accumulated depreciation of $40,000.The company sells the machinery for cash of $42,000.The journal entry to record the sale would include:

Accepted Answer

The journal entry to record the sale would include a debit to Cash of $42,000.

Question 15

A company sold equipment that originally cost $100,000 for $60,000 cash.The accumulated depreciation on the equipment was $40,000.The company should recognize a:

Accepted Answer

The book value of the equipment is $60,000 ($100,000 cost - $40,000 accumulated depreciation). Since the equipment was sold for $60,000, there is no gain or loss.

Question 16

Ordinary repairs meet all of the following criteria except:

Accepted Answer

Ordinary repairs are meant to keep an asset in normal operating condition and are necessary if the asset is to perform to expectations over its useful life. They include cleaning, lubricating, and normal adjusting and are treated as expenses. However, ordinary repairs do not extend the useful life of an asset beyond its original estimate. That is the criteria of extraordinary repairs.

Question 17

Betterments are:

Accepted Answer

Betterments are expenditures made on a plant asset to improve its efficiency or productivity. Unlike ordinary repairs which are small, recurring expenditures to maintain the asset's existing operating condition, betterments improve its operational capabilities or extend its useful life. Betterments are capitalized and increase the asset's book value.

Question 18

A company purchased a weaving machine for $190,000.The machine has a useful life of 8 years and a residual value of $10,000.It is estimated that the machine could produce 75,000 bolts of woven fabric over its useful life.In the first year,15,000 bolts were produced.In the second year,production increased to 19,000 units.Using the units-of-production method,what is the amount of accumulated depreciation at the end of the second year?

Accepted Answer

The units-of-production depreciation method calculates depreciation based on actual usage. The depreciation per unit is ($190,000 - $10,000) / 75,000 = $2.40 per bolt. For the first year: 15,000 bolts * $2.40 = $36,000. For the second year: 19,000 bolts * $2.40 = $45,600. Accumulated depreciation at the end of the second year is $36,000 + $45,600 = $81,600.

Question 19

Marks Consulting purchased equipment costing $45,000 on January 1,Year 1.The equipment is estimated to have a salvage value of $5,000 and an estimated useful life of 8 years.Straight-line depreciation is used.If the equipment is sold on July 1,Year 5 for $20,000,the journal entry to record the sale will include a:

Accepted Answer

The accumulated depreciation by July 1, Year 5 is $22,500. This is calculated as ($45,000 - $5,000) / 8 years = $5,000 per year. For 4.5 years, it is $5,000 * 4.5 = $22,500.

Question 20

Extraordinary repairs:

Accepted Answer

Extraordinary repairs are costs incurred to extend the useful life of an asset beyond its original estimate. They are not considered revenue expenditures and are not expensed when incurred. They do not affect accumulated depreciation, as they are capitalized and added to the cost of the asset. They are different from ordinary repairs or maintenance expenses, which are expensed when incurred and do not extend the useful life of an asset.

Quiz 10: Plant Assets, Natural Resources, and Intangibles