Question 1

A gain is recorded on the sale of fixed assets when:
A) the asset is sold for a price less than its book value.
B) the asset is sold for a price more than its book value.
C) accumulated depreciation on asset is less than its selling price.
D) accumulated depreciation on asset is more than its selling price.

Accepted Answer

A gain is recorded when an asset is sold for a price more than its book value, which is the original cost of the asset minus the accumulated depreciation.

Question 2

A fixed asset with a cost of $15,000 and accumulated depreciation of $12,500 is sold for $1,750.What is the amount of gain or loss on disposal of the fixed asset?
A) $750 loss
B) $2,500 loss
C) $2,500 gain
D) $750 gain

Accepted Answer

The cost of the fixed asset is $15,000 and the accumulated depreciation is $12,500, which means that the book value or carrying value of the asset is $2,500 ($15,000 - $12,500). The sale price of the asset is $1,750, which is lower than its book value, resulting in a loss on disposal. The amount of the loss is $750 ($2,500 - $1,750). Therefore, the correct answer is A) $750 loss.

Question 3

Which method of depreciation considers residual value in computing the normal periodic depreciation?
A) Straight-line
B) MACRS
C) Double-declining-balance
D) Accelerated

Accepted Answer

The straight-line method of depreciation considers residual value in computing the normal periodic depreciation. This method reduces the asset's cost evenly over its useful life, and residual value is subtracted from the cost to determine the depreciable base. Other methods, such as MACRS and double-declining-balance, do not consider residual value in computing depreciation. Accelerated depreciation methods may consider residual value, but it is not a defining characteristic of those methods.

Question 4

A machine was purchased for $35,500, having a useful life of 10 years, and a residual value of $6,000.Compute the annual depreciation expense using the straight-line method.
A) $3,550
B) $4,150
C) $5,800
D) $2,950

Accepted Answer

The answer of A machine was purchased for $35,500, having...

Question 5

An equipment was purchased for $30,000.It has a useful life of 5 years, and a residual value of $4,000.Compute the depreciation expense for the second year using the double-declining-balance method.
A) $5,200
B) $6,000
C) $6,240
D) $7,200

Accepted Answer

The double-declining-balance method calculates depreciation by doubling the straight-line rate. The straight-line rate is 1/5 = 20%, so double is 40%. First-year depreciation: $30,000 * 40% = $12,000. Second-year depreciation: ($30,000 - $12,000) * 40% = $7,200.

Question 6

A computer equipment was acquired at the beginning of the year at a cost of $56,000 with an estimated residual value of $5,000, and an estimated useful life of 5 years.Determine the second year's depreciation expense using the straight-line method.
A) $10,200
B) $22,400
C) $11,200
D) $12,200

Accepted Answer

Depreciation expense = (Cost - Residual value) / Useful life= (56,000 - 5,000) / 5= 51,000 / 5= $10,200

Question 7

A machine was purchased for $68,000.It has a useful life of 5 years and a residual value of $8,000.Determine the annual depreciation expense using the straight-line method?
A) $20,000
B) $12,000
C) $60,000
D) $16,000

Accepted Answer

Annual depreciation expense using straight-line method = (Cost - Residual value) / Useful life
= ($68,000 - $8,000) / 5 years
= $12,000 per year. 
Therefore, the correct answer is option B.

Question 8

Recording depreciation:
A) decreases liability and cash flow.
B) decreases net income but has no effect on cash flows.
C) decreases capital and operating expense.
D) decreases retained earning but has no effect on fixed assets.

Accepted Answer

Recording depreciation decreases the value of assets over time, which in turn reduces net income. However, it has no direct effect on cash flows as it is a non-cash expense.

Question 9

A company sold office furniture costing $15,800 with accumulated depreciation of $13,000 for $1,500 cash.The entry to record the sale would include:
A) an increase in accumulated depreciation for $15,800.
B) a loss for $1300.
C) a total decrease in office furniture for $2,800.
D) a decrease in cash for $1,300.

Accepted Answer

The sale of the office furniture for $1,500 cash results in a loss of $13,000 (accumulated depreciation) - $1,500 (cash received) = $1,300. Therefore, the entry to record the sale would include a debit to cash for $1,500, a credit to office furniture for $15,800, a credit to accumulated depreciation for $13,000, and a debit to loss on sale of office furniture for $1,300.

Question 10

On September 1, a machine was purchased for $47,000 with a useful life of 8 years, and a residual value of $3,000.What is the depreciation expense in the year of purchase under straight-line method, assuming a December 31 year-end?
A) $3,917
B) $3,667
C) $1,958
D) $1,833

Accepted Answer

The answer of On September 1, a machine was purchased...

Question 11

Which of the following is a characteristic of accumulated depreciation account?
A) Accumulated depreciation represents cash reserved for asset replacement.
B) Accumulated depreciation account is a contra-liability account.
C) Accumulated depreciation may be disclosed in the notes to the income statement.
D) Accumulated depreciation is reported on the balance sheet as a deduction from the cost of the asset.

Accepted Answer

Accumulated depreciation is reported on the balance sheet as a deduction from the cost of the asset, reducing the net book value of the asset. This is because accumulated depreciation represents the total amount of depreciation related to the asset that has been charged to expense over its useful life.

Question 12

A company sold a delivery truck for $22,000 cash.The truck costs $45,800 and had accumulated depreciation of $32,000 as of the date of sale.The entry to record the sale would include:
A) an increase in accumulated depreciation for $32,000.
B) a total decrease in delivery truck for $13,800.
C) a gain for $8,200.
D) a loss for $10,000.

Accepted Answer

The company sold the delivery truck for $22,000 cash, which is less than the original cost of $45,800. Additionally, the truck had accumulated depreciation of $32,000 as of the date of sale.

To record the sale, the company would need to do the following:
- Debit Cash for $22,000 (as this is the amount received from the sale)
- Debit Accumulated Depreciation for $32,000 (as this is the total amount of depreciation recognized for the truck up to the date of sale)
- Credit Delivery Truck for $45,800 (as this is the original cost of the truck)

The credit to Delivery Truck account ($45,800) is greater than the debit to Accumulated Depreciation account ($32,000) and the Cash received ($22,000), resulting in a gain for the company.

The calculation for the gain is as follows:
Sale Price - Book Value
$22,000 - ($45,800 - $32,000)
$22,000 - $13,800
= $8,200 gain.

Therefore, the correct answer is C (a gain for $8,200).

Question 13

The accounting term depreciation measures:
A) the decline in an asset's market value.
B) the amount of cash a company sets aside for asset replacement.
C) the amount of asset cost allocated to expense over periods benefited.
D) the anticipated loss if asset is sold in the used-asset market.

Accepted Answer

Depreciation is the accounting process of allocating the cost of a tangible asset over its useful life. It does not measure the decline in an asset's market value (option A) or the amount of cash a company sets aside for asset replacement (option B). It also does not measure the anticipated loss if an asset is sold in the used-asset market (option D). Option C is the correct answer as it reflects the true definition of accounting depreciation.

Question 14

Losses on discarding fixed assets are _____.
A) opportunity costs
B) nonoperating items
C) capital expenditures
D) accumulated depreciation

Accepted Answer

The answer of Losses on discarding fixed assets are _____.
A)...

Question 15

Which of the following is the effect on the transaction metrics of a company when it records depreciation? ​
A) ​Its profitability decreases.
B) ​Its profitability and liquidity remain unaffected.
C) ​Its profitability increases.
D) ​Its liquidity increases.

Accepted Answer

The answer of Which of the following is the effect...

Question 16

The Modified Accelerated Cost Recovery System is used to:
A) compute income for audit reporting.
B) compute depreciation for tax purposes.
C) report liabilities.
D) ascertain break-even point.

Accepted Answer

The Modified Accelerated Cost Recovery System (MACRS) is a tax depreciation method used by the United States Internal Revenue Service (IRS) to determine the amount of depreciation on assets. Therefore, MACRS is used to compute depreciation for tax purposes.

Question 17

If a fixed asset with an original cost of $18,000 and accumulated depreciation of $2,000 is sold for $15,000, the company must:
A) recognize a loss on the income statement under other expenses.
B) recognize a loss on the income statement under operating expenses.
C) recognize a gain on the income statement under other revenues.
D) recognize a gain on the income statement under revenues.

Accepted Answer

When a fixed asset is sold for less than its original cost and accumulated depreciation, it results in a loss for the company. This loss is recognized on the income statement as an expense, under "other expenses." Therefore, choice A is the correct answer.

Question 18

A fully depreciated asset must be:
A) removed from the books.
B) kept on the books until sold or discarded.
C) disclosed only in the notes to the financial statements.
D) recognized on the income statement as a loss.

Accepted Answer

A fully depreciated asset should be kept on the books until it is sold, disposed of, or retired. While it no longer has any useful value, it has had an impact on the company's financial statements in the past and should continue to be reflected in the company's fixed asset listing until it leaves the company's ownership. The asset should not be removed from the books entirely or recognized on the income statement as a loss. It should also not just be disclosed in the notes to the financial statements but still remain on the fixed asset listing.

Question 19

An equipment was purchased for $15,000.It has a useful life of 5 years and a residual value of $4,000.Determine the depreciation expense for the first year using the double-declining-balance method?
A) $5,400
B) $6,000
C) $2,200
D) $2,600

Accepted Answer

The double-declining-balance method calculates depreciation by doubling the straight-line rate. The straight-line rate is 1/5 = 20%. Double that rate is 40%. First-year depreciation is 40% of $15,000, which is $6,000.

Question 20

To measure depreciation, which of the following must be known?
A) market value of asset.
B) fixed asset turnover
C) cost of asset.
D) the amount of cash to replace fixed asset

Accepted Answer

Depreciation is calculated based on the cost of the asset, not its market value or the amount of cash needed to replace it. Fixed asset turnover is a different concept related to how efficiently a company uses its fixed assets to generate revenue.

Quiz 7: Fixed Assets, Natural Resources, and Intangible Assets

A gain is recorded on the sale of fixed assets when:

A fixed asset with a cost of $15,000 and accumulated depreciation of $12,500 is sold for $1,750.What is the amount of gain or loss on disposal of the fixed asset?

Which method of depreciation considers residual value in computing the normal periodic depreciation?

A machine was purchased for $35,500, having a useful life of 10 years, and a residual value of $6,000.Compute the annual depreciation expense using the straight-line method.

An equipment was purchased for $30,000.It has a useful life of 5 years, and a residual value of $4,000.Compute the depreciation expense for the second year using the double-declining-balance method.

A computer equipment was acquired at the beginning of the year at a cost of $56,000 with an estimated residual value of $5,000, and an estimated useful life of 5 years.Determine the second year's depreciation expense using the straight-line method.

A machine was purchased for $68,000.It has a useful life of 5 years and a residual value of $8,000.Determine the annual depreciation expense using the straight-line method?

Recording depreciation:

A company sold office furniture costing $15,800 with accumulated depreciation of $13,000 for $1,500 cash.The entry to record the sale would include:

On September 1, a machine was purchased for $47,000 with a useful life of 8 years, and a residual value of $3,000.What is the depreciation expense in the year of purchase under straight-line method, assuming a December 31 year-end?

Which of the following is a characteristic of accumulated depreciation account?

A company sold a delivery truck for $22,000 cash.The truck costs $45,800 and had accumulated depreciation of $32,000 as of the date of sale.The entry to record the sale would include:

The accounting term depreciation measures:

Losses on discarding fixed assets are _____.

Which of the following is the effect on the transaction metrics of a company when it records depreciation? ​

The Modified Accelerated Cost Recovery System is used to:

If a fixed asset with an original cost of $18,000 and accumulated depreciation of $2,000 is sold for $15,000, the company must:

A fully depreciated asset must be:

An equipment was purchased for $15,000.It has a useful life of 5 years and a residual value of $4,000.Determine the depreciation expense for the first year using the double-declining-balance method?

To measure depreciation, which of the following must be known?

Which of the following is the effect on the transaction metrics of a company when it records depreciation?