Question 1

Expenditures that add to the utility of plant assets for more than one accounting period are
A)committed expenditures.
B)revenue expenditures.
C)current expenditures.
D)capital expenditures.

Accepted Answer

Expenditures that add to the utility of plant assets for more than one accounting period are considered as capital expenditures. These expenditures are usually made to acquire or improve long-term assets such as property, plant, and equipment. The costs are capitalized and recorded as assets on the balance sheet and then depreciated over the useful life of the asset.

Question 2

A change in the estimated useful life of equipment requires
A)a retroactive change in the amount of periodic depreciation recognized in previous years.
B)that no change be made in the periodic depreciation so that depreciation amounts are comparable over the life of the asset.
C)that the amount of periodic depreciation be changed in the current year and in future years.
D)that income for the current year be increased.

Accepted Answer

A change in the estimated useful life of equipment requires a change in the amount of periodic depreciation recognized in the current year and in future years to ensure that depreciation expense is based on the new estimated useful life. This is needed to reflect the changes in the asset's value over time more accurately. There is no retroactive change in the amount of periodic depreciation recognized in previous years as this would violate accounting principles, and there is no need to increase income for the current year based on a change in the useful life of equipment. The second option is incorrect as it implies that the depreciation amounts should remain the same throughout the life of the asset, which is not true if new information becomes available that changes the expected useful life of the asset.

Question 3

Which of the following is not true of ordinary repairs?
A)They primarily benefit the current accounting period.
B)They can be referred to as revenue expenditures.
C)They maintain the expected productive life of the asset.
D)They increase the productive capacity of the asset.

Accepted Answer

Ordinary repairs are intended to maintain the expected productive life of the asset and keep it in good working condition. They do not increase the productive capacity of the asset. Therefore, choice D is not true of ordinary repairs. Choices A, B, and C are all true of ordinary repairs.

Question 4

Machinery was purchased for $340,000. Freight charges amounted to $14,000 and there was a cost of $40,000 for building a foundation and installing the machinery. It is estimated that the machinery will have a $60,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be
A)$78,800.
B)$66,800.
C)$57,200.
D)$56,000.

Accepted Answer

The answer of Machinery was purchased for $340,000. Freight charges...

Question 5

Grant Company has decided to change the estimate of the useful life of an asset that has been in service for 2 years. Which of the following statements describes the proper way to revise a useful life estimate?
A)Revisions in useful life are permitted if approved by the IRS.
B)Retroactive changes must be made to correct previously recorded depreciation.
C)Only future years will be affected by the revision.
D)Both current and future years will be affected by the revision.

Accepted Answer

When revising the estimate of useful life of an asset, both current and future years will be affected by the revision. This means that the amount of depreciation recorded in the past will remain the same, but future depreciation expense will be adjusted to reflect the newly estimated useful life. Retroactive changes are not required, and IRS approval is not necessary for revising useful life estimates.

Question 6

An asset was purchased for $400,000. It had an estimated salvage value of $80,000 and an estimated useful life of 10 years. After 5 years of use, the estimated salvage value is revised to $64,000 but the estimated useful life is unchanged. Assuming straight-line depreciation, depreciation expense in Year 6 would be
A)$48,000.
B)$35,200.
C)$24,000.
D)$33,600.

Accepted Answer

The depreciable cost of the asset is $320,000 ($400,000 - $80,000). The annual depreciation expense is $32,000 ($320,000 / 10 years) under the original estimate. After 5 years, the accumulated depreciation is $160,000 ($32,000 x 5 years).

To calculate the revised annual depreciation expense in Year 6, we need to determine the new depreciable cost, which is the original cost ($400,000) minus the revised salvage value ($64,000), or $336,000. The remaining useful life is still 5 years.

The revised annual depreciation expense is $67,200 ($336,000 / 5 years). However, since we already recorded $160,000 in accumulated depreciation, we need to subtract that amount from the revised depreciable base to get the remaining depreciable amount of $176,000.

Therefore, the depreciation expense in Year 6 would be $35,200 ($176,000 / 5 years).

Question 7

An expenditure for which of the following items would be considered a revenue expenditure?
A)Plant asset.
B)Ordinary repair.
C)Addition.
D)Improvements.

Accepted Answer

An ordinary repair is a revenue expenditure because it maintains or restores the asset's operating condition and does not increase its useful life. Plant assets typically involve capital expenditures, such as additions or improvements, which are incurred to increase the asset's productivity or extend its useful life.

Question 8

All of the following are factors that a company should consider before a write-down impairment of an asset is recorded except
A)an appraisal of the asset.
B)market trends.
C)company profits.
D)obsolescence of the asset.

Accepted Answer

Company profits have no direct relation to whether a write-down impairment of an asset should be recorded. The factors that should be considered include an appraisal of the asset, market trends, obsolescence of the asset, and any other relevant economic or industry-specific factors.

Question 9

Expenditures that maintain the operating efficiency and expected productive life of a plant asset are generally
A)expensed when incurred.
B)capitalized as a part of the cost of the asset.
C)debited to the Accumulated Depreciation account.
D)not recorded until they become material in amount.

Accepted Answer

Expenditures that maintain the operating efficiency and expected productive life of a plant asset, such as repairs and maintenance, are generally expensed when incurred because they do not extend the asset's useful life beyond its original estimate.

Question 10

Equipment costing $60,000 with a salvage value of $12,000 and an estimated life of 8 years has been depreciated using the straight-line method for 2 years. Assuming a revised estimated total life of 5 years and no change in the salvage value, the depreciation expense for Year 3 would be
A)$7,200.
B)$16,000.
C)$12,000.
D)$9,600.

Accepted Answer

The answer of Equipment costing $60,000 with a salvage value...

Question 11

Additions and improvements
A)occur frequently during the ownership of a plant asset.
B)normally involve immaterial expenditures.
C)increase the company's investment in productive facilities.
D)typically only benefit the current accounting period.

Accepted Answer

The answer of Additions and improvements
A)occur frequently during the ownership...

Question 12

Machinery was purchased for $340,000 on January 1, 2017. Freight charges amounted to $14,000 and there was a cost of $40,000 for building a foundation and installing the machinery. It is estimated that the machinery will have a $60,000 salvage value at the end of its 5-year useful life. What is the amount of accumulated depreciation at December 31, 2018, if the straight-line method of depreciation is used?
A)$133,600.
B)$66,800.
C)$57,200.
D)$114,400.

Accepted Answer

The correct answer is A.The total cost of the machinery is $340,000 + $14,000 + $40,000 = $394,000. The salvage value is $60,000. The depreciable base is $394,000 - $60,000 = $334,000. The annual depreciation expense is $334,000 / 5 = $66,800. The accumulated depreciation at December 31, 2018, is $66,800 x 2 = $133,600.

Question 13

Compton Inc. made a $500 ordinary repair to a piece of equipment. Compton's accountant debited this amount to the asset account, Equipment and credited Cash. Was this the correct entry and if not, why not?
A)Yes, this was the correct entry.
B)No, the correct entry would be a debit to Maintenance and Repairs Expense and a credit to Cash.
C)No, the correct entry would be a debit to Cash and a credit to Maintenance and Repairs Expense.
D)No, the correct entry would be a debit to Service Revenue and a credit to Cash.

Accepted Answer

The $500 expense should be recorded as a debit to Maintenance and Repairs Expense (an income statement account) and a credit to Cash. Debiting the asset account, Equipment, would increase its balance and not accurately reflect the decrease in value due to the repair expense.

Question 14

Ron's Quik Shop bought equipment for $140,000 on January 1, 2016. Ron estimated the useful life to be 5 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2017, Ron decides that the business will use the equipment for a total of 6 years. What is the revised depreciation expense for 2017?
A)$22,400.
B)$11,200.
C)$18,666. d $28,000.

Accepted Answer

The revised depreciation expense for 2017 is $22,400. This is calculated by dividing the remaining cost of the equipment ($140,000 - $28,000 = $112,000) by the remaining useful life (6 years - 1 year = 5 years).

Question 15

A machine that was purchased on January 1 for $60,000 has an estimated salvage value of $12,000. If the machine's depreciation rate is 20%, its annual depreciation is
A)$12,000.
B)$48,000.
C)$9,600.
D)$14,400.

Accepted Answer

Annual depreciation = (Cost of asset - Salvage value) x Depreciation rate
= ($60,000 - $12,000) x 20%
= $48,000 x 0.2
= $9,600

Question 16

Equipment costing $105,000 with a salvage value of $21,000 and an estimated life of 8 years has been depreciated using the straight-line method for 2 years. Assuming a revised estimated total life of 6 years and no change in the salvage value, the depreciation expense for Year 3 would be
A)$15,750.
B)$14,000.
C)$21,000.
D)$10,500.

Accepted Answer

The answer of Equipment costing $105,000 with a salvage value...

Question 17

All of the following statements regarding impairments are true except
A)an impairment is a permanent decline in an asset's market value.
B)after an impairment write-down, depreciation is generally lower in a subsequent periods.
C)immediate recognition of impairment write-downs is now required.
D)impairments are generally recorded when the book value falls below the market value.

Accepted Answer

The answer of All of the following statements regarding impairments...

Question 18

An asset was purchased for $140,000. It had an estimated salvage value of $35,000 and an estimated useful life of 10 years. After 5 years of use, the estimated salvage value is revised to $28,000 but the estimated useful life is unchanged. Assuming straight-line depreciation, depreciation expense in Year 6 would be
A)$21,000.
B)$14,875.
C)$11,900.
D)$17,500.

Accepted Answer

The answer of An asset was purchased for $140,000. It...

Question 19

Jamison, Inc. is a regional air cargo carrier. Jamison made a $4,500 improvement to one of its airplanes. If Jamison's accountant expensed this amount, which of the following statements is true?
A)The entry will improperly understate net income for the year.
B)The entry will improperly overstate net income for the year.
C)The entry is the correct treatment.
D)The entry will overstate the balance sheet for the year.

Accepted Answer

The answer of Jamison, Inc. is a regional air cargo...

Question 20

Jack's Copy Shop bought equipment for $240,000 on January 1, 2016. Jack estimated the useful life to be 3 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2017, Jack decides that the business will use the equipment for a total of 5 years. What is the revised depreciation expense for 2017?
A)$80,000.
B)$32,000.
C)$40,000.
D)$60,000.

Accepted Answer

Under the straight-line method, the depreciation per year is calculated by dividing the cost of the asset by its useful life.

Original depreciation expense = $240,000 / 3 = $80,000 per year

However, when Jack decides to use the equipment for 5 years, the revised depreciation expense per year becomes:

Revised depreciation expense = $240,000 / 5 = $48,000 per year

To find the revised depreciation expense for 2017, we need to subtract the depreciation expense for 2016 ($80,000) from the new annual depreciation expense ($48,000) to get the change in depreciation expense for 2017:

Change in depreciation expense for 2017 = $48,000 - $80,000 = -$32,000

The negative sign indicates that the depreciation expense has decreased from the original estimate.

To find the revised depreciation expense for 2017, we need to add the change in depreciation expense to the original depreciation expense for 2017:

Revised depreciation expense for 2017 = $80,000 + (-$32,000) = $48,000

Therefore, the revised depreciation expense for 2017 is $40,000.

Quiz 8: Reporting and Analyzing Long-Lived Assets

Expenditures that add to the utility of plant assets for more than one accounting period are

A change in the estimated useful life of equipment requires

Which of the following is not true of ordinary repairs?

Grant Company has decided to change the estimate of the useful life of an asset that has been in service for 2 years. Which of the following statements describes the proper way to revise a useful life estimate?

An expenditure for which of the following items would be considered a revenue expenditure?

All of the following are factors that a company should consider before a write-down impairment of an asset is recorded except

Expenditures that maintain the operating efficiency and expected productive life of a plant asset are generally

Equipment costing $60,000 with a salvage value of $12,000 and an estimated life of 8 years has been depreciated using the straight-line method for 2 years. Assuming a revised estimated total life of 5 years and no change in the salvage value, the depreciation expense for Year 3 would be

Additions and improvements

Compton Inc. made a $500 ordinary repair to a piece of equipment. Compton's accountant debited this amount to the asset account, Equipment and credited Cash. Was this the correct entry and if not, why not?

A machine that was purchased on January 1 for $60,000 has an estimated salvage value of $12,000. If the machine's depreciation rate is 20%, its annual depreciation is

Equipment costing $105,000 with a salvage value of $21,000 and an estimated life of 8 years has been depreciated using the straight-line method for 2 years. Assuming a revised estimated total life of 6 years and no change in the salvage value, the depreciation expense for Year 3 would be

All of the following statements regarding impairments are true except

Jamison, Inc. is a regional air cargo carrier. Jamison made a $4,500 improvement to one of its airplanes. If Jamison's accountant expensed this amount, which of the following statements is true?