Question 1

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

Accepted Answer

The total cost of the machinery is $340,000 + $14,000 + $40,000 = $394,000. The depreciable amount is $394,000 - $60,000 (salvage value) = $334,000. Using the straight-line method over 5 years, the annual depreciation expense is $334,000 / 5 = $66,800.

Question 2

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?

Accepted Answer

When a company revises the useful life of an asset, the change affects both the current and future years. The depreciation expense is recalculated based on the new estimate from the point of change onward.

Question 3

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?

Accepted Answer

Expensing the improvement instead of capitalizing it will reduce net income for the year, as the cost is fully recognized as an expense rather than being spread over the useful life of the improvement.

Question 4

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

Accepted Answer

The annual depreciation is calculated using the formula: (Cost - Salvage Value) * Depreciation Rate. So, ($60,000 - $12,000) * 20% = $9,600.

Question 5

Which of the following is not true of ordinary repairs?

Accepted Answer

Ordinary repairs are maintenance expenses that are incurred to keep an asset functioning at its expected level. These types of repairs do not increase the productive capacity of the asset. Instead, they are necessary to maintain the asset's expected productive life. Choice D is the only statement that is not true of ordinary repairs.

Question 6

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

Accepted Answer

The book value at the end of Year 5 is $140,000 - (5 * $10,500) = $87,500. The new depreciation expense is calculated as (Book Value - Revised Salvage Value) / Remaining Life = ($87,500 - $28,000) / 5 = $11,900.

Question 7

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

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 8

Additions and improvements

Accepted Answer

Additions and improvements increase the company's investment in productive facilities by enhancing the asset's capacity or efficiency, thus benefiting future periods.

Question 9

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

Accepted Answer

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

Question 10

Jack's Copy Shop bought equipment for $240,000 on January 1, 2021.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, 2022, Jack decides that the business will use the equipment for a total of 5 years.What is the revised depreciation expense for 2022?

Accepted Answer

The original depreciation was $80,000 per year ($240,000/3 years). After one year, $80,000 has been depreciated, leaving a book value of $160,000. With 4 years remaining (2022-2025), the revised annual depreciation is $40,000 ($160,000/4 years).

Question 11

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

Accepted Answer

Capital expenditures are costs that provide benefits over multiple accounting periods by improving or extending the life of plant assets.

Question 12

Ron's Quik Shop bought equipment for $140,000 on January 1, 2021.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, 2022, Ron decides that the business will use the equipment for a total of 6 years.What is the revised depreciation expense for 2022?

Accepted Answer

The original annual depreciation was $28,000 ($140,000 / 5 years). After one year, the book value is $112,000 ($140,000 - $28,000). With the revised useful life of 6 years, 5 years remain. The new annual depreciation is $22,400 ($112,000 / 5 years).

Question 13

All of the following statements regarding impairments are true except

Accepted Answer

Impairments are recorded when the book value of an asset exceeds its recoverable amount, not when it falls below the market value.

Question 14

Machinery was purchased for $340,000 on January 1, 2022.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, 2023 if the straight-line method of depreciation is used?

Accepted Answer

The correct answer is A.The total cost of the machinery is $340,000 + $14,000 + $40,000 = $394,000. The annual depreciation expense is ($394,000 - $60,000) / 5 = $66,800. The accumulated depreciation at December 31, 2023 is $66,800 x 2 = $133,600.

Question 15

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

Accepted Answer

The original annual depreciation was ($105,000 - $21,000) / 8 = $10,500. After 2 years, the book value is $105,000 - (2 * $10,500) = $84,000. With a revised life of 6 years, 4 years remain. The new annual depreciation is ($84,000 - $21,000) / 4 = $15,750.

Question 16

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

Accepted Answer

The answer of An asset was purchased for $400,000.It had...

Question 17

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?

Accepted Answer

Ordinary repairs should be recorded as an expense, not as an increase in the asset's value. Therefore, the correct entry is to debit Maintenance and Repairs Expense and credit Cash.

Question 18

A change in the estimated useful life of equipment requires

Accepted Answer

A change in the estimated useful life of equipment requires that the amount of periodic depreciation be changed in the current year and in future years to reflect the new estimate of the useful life. This is necessary to ensure that depreciation expense is allocated over the revised estimate of the asset's useful life in a systematic and rational manner. Retroactive changes to depreciation recognized in previous years would be incorrect since they would not reflect the asset's actual usage patterns over that time period. The option to keep periodic depreciation amounts the same would also be incorrect because it would not accurately reflect the lower value of the asset as it ages. Finally, changing the estimated useful life of equipment would not directly impact income for the current year - instead, it would affect the allocation of expenses over multiple accounting periods.

Question 19

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

Accepted Answer

Company profits are not a factor that should be considered before a write-down impairment of an asset is recorded.

Question 20

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

Accepted Answer

Ordinary repairs are considered revenue expenditures because they maintain the existing asset and do not increase its value or useful life.

Quiz 9: Reporting and Analyzing Long-Lived Assets