Question 1

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

Additions and improvements increase the company's investment in productive facilities, meaning they add to the cost basis of the asset and extend its useful life. This results in long-term benefits for the company and is not limited to the current accounting period. Occurrences can be frequent or infrequent and expenditures can be material or immaterial, but the main effect is that the investment in the asset increases.

Question 2

Ron's Quik Shop bought equipment for $70,000 on January 1, 2013. 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, 2014, Ron decides that the business will use the equipment for a total of 6 years. What is the revised depreciation expense for 2014?
A) $11,200.
B) $5,600.
C) $9,333. d $14,000.

Accepted Answer

The revised depreciation expense for 2014 is $11,200. This is calculated by dividing the remaining cost of the equipment ($70,000 - $14,000 = $56,000) by the remaining useful life (6 years - 1 year = 5 years).

Question 3

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

Capital expenditures are expenditures that add to the utility of plant assets for more than one accounting period. These expenditures are typically larger and are recorded as assets on the balance sheet, rather than as expenses on the income statement. Committed expenditures are those that the business is legally obligated to make, while revenue expenditures are those that maintain the existing usefulness of a plant asset but do not increase its utility. Current expenditures are simply expenses that occur in the current period.

Question 4

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

If the estimated useful life of equipment is changed, the amount of periodic depreciation should be changed in the current year and in future years to reflect the new estimate. This ensures accurate matching of expenses with revenues over the life of the asset. A retroactive change in the amount of periodic depreciation recognized in previous years (option A) would not be appropriate, as it would not accurately reflect the asset's depreciation over its useful life. Option B is incorrect because it suggests that depreciation amounts should not be modified, even if the estimated useful life changes. Finally, option D is incorrect because a change in estimated useful life does not necessarily impact income for the current year.

Question 5

Equipment costing $70,000 with a salvage value of $14,000 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) $10,500.
B) $9,333.
C) $14,000.
D) $7,000.

Accepted Answer

The depreciation expense for Year 3 would be $10,500. This is calculated as follows:Depreciation expense = (Cost - Salvage value) / Estimated life= (70,000 - 14,000) / 6= $10,500

Question 6

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

Expensing a $4,500 improvement to an airplane would be improper because improvements should be capitalized as assets and not expensed. This would result in understating net income for the year.

Question 7

An asset was purchased for $100,000. It had an estimated salvage value of $25,000 and an estimated useful life of 10 years. After 5 years of use, the estimated salvage value is revised to $20,000 but the estimated useful life is unchanged. Assuming straight-line depreciation, depreciation expense in Year 6 would be
A) $15,000.
B) $10,625.
C) $8,500.
D) $12,500.

Accepted Answer

The book value at the end of Year 5 is $100,000 - ($7,500 * 5) = $62,500. The new depreciable amount is $62,500 - $20,000 = $42,500. With 5 years remaining, the annual depreciation is $42,500 / 5 = $8,500.

Question 8

An asset was purchased for $300,000. It had an estimated salvage value of $60,000 and an estimated useful life of 10 years. After 5 years of use, the estimated salvage value is revised to $48,000 but the estimated useful life is unchanged. Assuming straight-line depreciation, depreciation expense in Year 6 would be
A) $36,000.
B) $26,400.
C) $18,000.
D) $25,200.

Accepted Answer

The answer of An asset was purchased for $300,000. It...

Question 9

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, which would require major improvements or replacements. Therefore, choice D is not true of ordinary repairs.

Question 10

A machine that was purchased on January 1 for $45,000 has an estimated salvage value of $9,000. If the machine's depreciation rate is 20%, its annual depreciation is
A) $9,000.
B) $36,000.
C) $7,200.
D) $10,800.

Accepted Answer

The annual depreciation is calculated by multiplying the depreciation rate (20%) by the cost of the machine minus the salvage value: 20% * ($45,000 - $9,000) = $7,200.

Question 11

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 repair is considered a maintenance and repair expense, which should be debited to the Maintenance and Repairs Expense account and credited to Cash. Debiting it to the Equipment account would increase the value of that asset, which is not appropriate for a repair expense.

Question 12

Machinery was purchased for $170,000 on January 1, 2013. Freight charges amounted to $7,000 and there was a cost of $20,000 for building a foundation and installing the machinery. It is estimated that the machinery will have a $30,000 salvage value at the end of its 5-year useful life. What is the amount of accumulated depreciation at December 31, 2014, if the straight-line method of depreciation is used?
A) $66,800.
B) $33,400.
C) $28,600.
D) $57,200.

Accepted Answer

The correct answer is A.The total cost of the machinery is $170,000 + $7,000 + $20,000 = $197,000. The annual depreciation expense is ($197,000 - $30,000) / 5 = $33,400. The accumulated depreciation at December 31, 2014 is $33,400 x 2 = $66,800.

Question 13

Machinery was purchased for $170,000. Freight charges amounted to $7,000 and there was a cost of $20,000 for building a foundation and installing the machinery. It is estimated that the machinery will have a $30,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be
A) $39,400.
B) $33,400.
C) $28,600.
D) $28,000.

Accepted Answer

The answer of Machinery was purchased for $170,000. Freight charges...

Question 14

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 is a routine expense that is necessary to keep the asset in good working condition, but it does not enhance the asset's longevity or productivity. Plant asset (A), addition (C), and improvements (D) are all capital expenditures because they involve significant investments that increase the asset's value or extend its useful life.

Question 15

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 16

Jack's Copy Shop bought equipment for $150,000 on January 1, 2013. 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, 2014, Jack decides that the business will use the equipment for a total of 5 years. What is the revised depreciation expense for 2014?
A) $50,000.
B) $20,000.
C) $25,000.
D) $37,500.

Accepted Answer

The equipment was initially depreciated over 3 years, so the annual depreciation was $50,000 ($150,000/3). After 1 year, the book value is $100,000. With a revised useful life of 5 years total, there are 4 years remaining. The new annual depreciation is $25,000 ($100,000/4).

Question 17

Equipment costing $40,000 with a salvage value of $8,000 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) $4,800.
B) $10,667.
C) $8,000.
D) $6,400.

Accepted Answer

The answer of Equipment costing $40,000 with a salvage value...

Question 18

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 are not a factor that should be considered before a write-down impairment of an asset is recorded. The factors that should be considered include an appraisal of the asset, market trends, and obsolescence of the asset. These factors help the company determine the fair value of the asset and whether it has been impaired.

Question 19

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

Impairments are recorded when the book value exceeds the market value, not when it falls below.

Question 20

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 a company changes the estimate of an asset's useful life, the change affects both the current and future periods. Past depreciation is not adjusted retroactively.

Quiz 9: Reporting and Analyzing Long-Lived Assets

Additions and improvements

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

Equipment costing $70,000 with a salvage value of $14,000 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

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?

Which of the following is not true of ordinary repairs?

A machine that was purchased on January 1 for $45,000 has an estimated salvage value of $9,000. If the machine's depreciation rate is 20%, its annual depreciation is

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?

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

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

Equipment costing $40,000 with a salvage value of $8,000 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

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

All of the following statements regarding impairments are true except

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?