Question 1

The depreciable cost of an asset is defined as:

Accepted Answer

The depreciable cost of an asset is calculated as the original cost of the asset minus its salvage value, which is the estimated residual value at the end of its useful life.

Question 2

On January 2, 2006, KJ Corporation acquired equipment for $260,000. The estimated life of the equipment is 5 years or 40,000 hours. The estimated residual value is $20,000. What is the balance in Accumulated Depreciation on December 31, 2007, if KJ Corporation uses the straight- line method of depreciation?

Accepted Answer

The straight-line depreciation method calculates annual depreciation by subtracting the residual value from the cost and dividing by the useful life. For KJ Corporation, this is ($260,000 - $20,000) / 5 = $48,000 per year. Over two years (2006 and 2007), the accumulated depreciation would be $48,000 * 2 = $96,000.

Question 3

Patents are amortized over a period:

Accepted Answer

Patents are typically amortized over their useful life, which is generally 20 years or less, as this is the maximum period for which a patent is granted.

Question 4

A loss is recorded on the sale of a plant asset when the:

Accepted Answer

A loss is recorded when the cash received from the sale of an asset is less than its book value, indicating that the asset was sold for less than its carrying amount on the books.

Question 5

On January 2, 2007, Mosby Corporation acquired equipment for $200,000. The estimated life of the equipment is 8 years or 35,000 hours. The estimated residual value is $40,000. What is the amount of depreciation expense for 2007, if the company uses the double- declining- balance method of depreciation?

Accepted Answer

The double-declining-balance method calculates depreciation by doubling the straight-line rate. The straight-line rate is 1/8 = 12.5%, so double is 25%. For 2007, depreciation is 25% of $200,000, which is $50,000.

Question 6

Which of the following is NOT an intangible asset?

Accepted Answer

Mineral rights are considered a tangible asset because they pertain to the ownership of physical resources beneath the earth's surface.

Question 7

Carl's Cigar Corporation's net income before depreciation and taxes is $310,000. Using straight- line depreciation, the current year's depreciation expense would be $24,000. Using double- declining- balance depreciation, the current year's depreciation expense would be $36,000.
Assuming a tax rate of 35%, what is Carl's Cigar Corporation's net income if the double- declining- balance depreciation method is
Used?

Accepted Answer

Net income = Net income before depreciation and taxes - Depreciation expense - TaxesNet income = $310,000 - $36,000 - (0.35 * $274,000)Net income = $178,100

Question 8

Capital expenditures are not immediately expensed because these items:

Accepted Answer

Capital expenditures are capitalized because they increase the asset's capacity, efficiency, or extend its useful life, rather than just maintaining it.

Question 9

Bay Back Company acquired equipment on June 30, 2007, for $210,000. The residual value is $35,000 and the estimated life is 5 years or 40,000 hours. Compute the balance in Accumulated Depreciation as of December 31, 2009, if Bay Back Company uses the double- declining- balance method of depreciation.

Accepted Answer

The answer of Bay Back Company acquired equipment on June...

Question 10

Valtrex Inc. sells a major plant asset.

Accepted Answer

Depreciation expense should be recorded up to the date of sale to accurately reflect the asset's usage and value before the sale.

Question 11

Patch Company sold some office furniture for $4,800 cash. The furniture cost $31,500 and had accumulated depreciation through the date of sale totaling $29,300. The journal entry to record the sale of the furniture will include a:

Accepted Answer

The gain or loss on the sale of an asset is calculated as the difference between the sale price and the book value of the asset. The book value is the cost minus accumulated depreciation. Here, the book value is $31,500 - $29,300 = $2,200. Since the furniture was sold for $4,800, there is a gain of $4,800 - $2,200 = $2,600. Therefore, the correct entry includes a credit to Gain on Sale of Furniture for $2,600.

Question 12

Jackson Corporation acquired equipment on January 1, 2007, for $320,000. The equipment had an estimated useful life of 10 years and an estimated salvage value of $25,000. On January 1, 2010, Jackson Corporation revised the total useful life of the equipment to 8 years and the estimated salvage value to be $20,000. Compute depreciation expense for the year ending December 31, 2010, if Jackson Corporation uses straight- line depreciation.

Accepted Answer

The original annual depreciation was ($320,000 - $25,000) / 10 = $29,500. By January 1, 2010, 3 years of depreciation have been recorded, totaling $88,500. The book value at the start of 2010 is $320,000 - $88,500 = $231,500. With the revised useful life of 8 years and salvage value of $20,000, the remaining life is 5 years (8 - 3). The new annual depreciation is ($231,500 - $20,000) / 5 = $42,300.

Question 13

The computation of depletion expense is most closely related to which method for computing depreciation?

Accepted Answer

Depletion expense is calculated using the units-of-production method, which is similar to the way depreciation is calculated for assets that are used based on output or usage.

Question 14

The Fall River Corporation bought a plant asset on January 1, 2006, at a cost of $45,000. Estimated residual value is $5,000 and the estimated useful life is 8 years. The company uses straight- line depreciation. On January 1, 2009, Fall River's management revises the total estimated life to be 10 years, with estimated residual value of $2,000. The balance in Accumulated Depreciation on December 31, 2009, is:

Accepted Answer

The original annual depreciation was ($45,000 - $5,000) / 8 = $5,000. By the end of 2008, accumulated depreciation was 3 years x $5,000 = $15,000. In 2009, the revised depreciation is calculated as ($45,000 - $2,000 - $15,000) / (10 - 3) = $4,000 per year. By the end of 2009, accumulated depreciation is $15,000 + $4,000 = $19,000.

Question 15

Deland Company purchased equipment on March 1, 2009, for $130,000. The residual value is $40,000 and the estimated life is 10 years or 60,000 hours. Compute depreciation expense for the year ending December 31, 2010, if the company uses the double- declining- balance method of depreciation.

Accepted Answer

The answer of Deland Company purchased equipment on March 1,...

Question 16

Which of the following statements is FALSE?

Accepted Answer

Accumulated depreciation is not a reserve of cash but rather a contra-asset account that reflects the total depreciation expense recorded against an asset over time.

Question 17

Using an accelerated depreciation method will cause a company to incur:

Accepted Answer

Accelerated depreciation results in higher depreciation expenses in the early years, reducing taxable income and thus taxes in those years.

Question 18

Jackson Corporation acquired equipment on January 1, 2007, for $320,000. The equipment had an estimated useful life of 10 years and an estimated salvage value of $25,000. On January 1, 2010, Jackson Corporation revised the total useful life of the equipment to 8 years and the estimated salvage value to be $20,000. Compute depreciation expense for the year ending December 31, 2010, if Jackson Corporation uses straight- line depreciation.

Accepted Answer

The answer of Jackson Corporation acquired equipment on January 1,...

Question 19

At the end of an asset's useful life, the balance in Accumulated Depreciation will be the same as:

Accepted Answer

Accumulated Depreciation equals the depreciable cost, which is the original cost minus the salvage value, at the end of an asset's useful life.

Question 20

The cost of assets acquired in a lump- sum purchase must be allocated using which method?

Accepted Answer

The relative-sales-value method allocates the total cost of a lump-sum purchase based on the proportion of each asset's sales value to the total sales value of all assets acquired.

Quiz 7: Plant Assets and Intangibles

The depreciable cost of an asset is defined as:

Patents are amortized over a period:

A loss is recorded on the sale of a plant asset when the:

Which of the following is NOT an intangible asset?

Capital expenditures are not immediately expensed because these items:

Valtrex Inc. sells a major plant asset.

Patch Company sold some office furniture for $4,800 cash. The furniture cost $31,500 and had accumulated depreciation through the date of sale totaling $29,300. The journal entry to record the sale of the furniture will include a:

The computation of depletion expense is most closely related to which method for computing depreciation?

Deland Company purchased equipment on March 1, 2009, for $130,000. The residual value is $40,000 and the estimated life is 10 years or 60,000 hours. Compute depreciation expense for the year ending December 31, 2010, if the company uses the double- declining- balance method of depreciation.

Which of the following statements is FALSE?

Using an accelerated depreciation method will cause a company to incur:

At the end of an asset's useful life, the balance in Accumulated Depreciation will be the same as:

The cost of assets acquired in a lump- sum purchase must be allocated using which method?