Question 1

The depreciable amount of an asset is defined as the
A) original cost less residual value.
B) original cost less depreciation.
C) original cost less accumulated depreciation.
D) original cost.

Accepted Answer

The depreciable amount of an asset is defined as the original cost less residual value. This is the total amount that will be depreciated over the asset's useful life.

Question 2

When capitalizing the cost of a purchased asset, all of the following cost should be included in capitalization except for
A) the full purchase price plus any discounts.
B) set up costs.
C) legal costs.
D) shipping costs.

Accepted Answer

The full purchase price should be capitalized, but any discounts received should actually reduce the capitalized cost, not increase it.

Question 3

Assets acquired in a basket purchase are to be allocated a portion of the total price based on their respective
A) fair market values.
B) book values.
C) present values.
D) assessed values.

Accepted Answer

Assets acquired in a basket purchase are allocated based on their respective fair market values. This method provides a more accurate allocation of the total purchase price among the acquired assets. Book values may not reflect current market values, present values may not be relevant, and assessed values may not reflect market values either.

Question 4

Which of the following statements is true with respect to capitalizing asset costs?
A) All additional costs related to acquiring an asset should be expensed.
B) Land cannot be depreciated so it should just be expensed when acquired.
C) When costs are capitalized, the company gets the tax deduction immediately.
D) Some small expenses related to the purchase of an asset can be expensed for simplicity.

Accepted Answer

When capitalizing asset costs, certain additional expenses related to the purchase and preparation of an asset can be expensed as a means of simplification. These small costs are known as incidental expenses and are typically incurred in conjunction with a larger asset purchase.

Question 5

The unexpensed portion of a depreciable asset is called
A) accumulated depreciation.
B) net realizable value.
C) estimated residual value.
D) net present value.

Accepted Answer

The estimated residual value is the amount that the company estimates it will be able to sell or dispose of the asset for at the end of its useful life. This value is used in calculating depreciation expense and represents the unexpensed portion of the asset. Option A, accumulated depreciation, represents the total amount of depreciation expense that has been recognized to date. Option B, net realizable value, refers to the amount a company can sell an asset for, after deducting any selling expenses, and is not necessarily related to the unexpensed portion of a depreciable asset. Option D, net present value, refers to the present value of an investment's future cash inflows and outflows and is not related to the unexpensed portion of a depreciable asset.

Question 6

When deciding whether to expense or capitalize the costs incurred after acquiring a capital asset, which one of the following is not relevant to the decision?
A) Will these costs extend useful life?
B) Will these costs reduce asset operating costs?
C) Will these costs improve output?
D) Will these costs be incurred for more than one year?

Accepted Answer

Whether the costs will be incurred for more than one year is not relevant to the decision of whether to expense or capitalize the costs. The relevant factors are whether the costs extend useful life, reduce operating costs, and/or improve output.

Question 7

The depreciation method that most closely resembles what is allowable for tax purposes under CRA is
A) the straight-line method.
B) units-of-activity method.
C) the declining-balance method.
D) depletion method.

Accepted Answer

The declining-balance method most closely resembles what is allowable for tax purposes under the Canada Revenue Agency (CRA), as it allows for a faster depreciation rate in the earlier years of an asset's life, similar to the Capital Cost Allowance (CCA) system used by the CRA.

Question 8

The residual value is not directly used for the calculation of depreciation expense under which method?
A) units-of-activity method
B) straight-line method
C) interest capitalization method
D) declining-balance method

Accepted Answer

The answer of The residual value is not directly used...

Question 9

A plot of land was purchased for $120,000 and had $10,000 of past due property taxes on it. Non-refundable taxes on the purchase were $1,400 and the title search cost $500. The capitalized cost of the land was
A) $120,000.
B) $121,900.
C) $130,000.
D) $131,900.

Accepted Answer

The capitalized cost of the land is the total cost incurred to acquire it. This includes the purchase price, past due property taxes, non-refundable taxes on the purchase, and title search cost. 
Capitalized cost = $120,000 (purchase price) + $10,000 (past due property taxes) + $1,400 (non-refundable taxes) + $500 (title search cost) 
= $131,900. 
Therefore, the best choice is D.

Question 10

The ultimate sales value of a long-term asset is referred to as its
A) residual value.
B) value in use.
C) net book value.
D) historical value.

Accepted Answer

The ultimate sales value of a long-term asset is referred to as its residual value. This is the estimated amount that the company can receive from selling the asset at the end of its useful life. The residual value is used in calculating depreciation and determining the book value of the asset over its useful life.

Question 11

The most commonly used method of depreciation is
A) straight-line.
B) capital cost allowance.
C) declining-balance.
D) units-of-activity.

Accepted Answer

Straight-line is the most commonly used method of depreciation because it is simple to understand and calculate. This method allocates an equal amount of depreciation expense each year over the useful life of the asset, which results in a steady decrease in the book value of the asset over time.

Question 12

Which of the following depreciation methods calculates annual depreciation expense based on an asset's cost minus its residual value?
A) deferred depreciation
B) straight-line
C) capital cost allowance
D) declining-balance

Accepted Answer

The straight-line depreciation method calculates annual depreciation expense by subtracting the asset's estimated residual value from its original cost and then dividing by the asset's estimated useful life. This method is commonly used by businesses because it provides a simple and predictable way to allocate an asset's cost over its estimated useful life.

Question 13

To apply the units-of-activity method, all of the following information is needed except the
A) original cost.
B) estimated residual value.
C) estimated useful life.
D) estimated usage.

Accepted Answer

The units-of-activity method of depreciation requires the original cost, estimated residual value, and estimated usage to calculate depreciation. It does not require the estimated useful life in years, as it is based on the actual usage of the asset.

Question 14

AFM Holdings Co. purchased 15 acres of land with an office building and warehouse on it for $2,000,000. The assets were appraised at: land $1,000,000, building $600,000, and warehouse $900,000. The assets were carried on the seller's books at: land $800,000, building $500,000, and warehouse $700,000. At what cost should the purchasing company record each of the assets?

Accepted Answer

The answer of AFM Holdings Co. purchased 15 acres of...

Question 15

If an asset generates revenues evenly over its useful life, which depreciation method should be used?
A) capital cost allowance
B) declining-balance
C) units-of-activity
D) straight-line

Accepted Answer

The straight-line method is the best choice when an asset generates revenues evenly over its useful life. This method allocates the cost of the asset evenly over the useful life, resulting in a constant amount of depreciation expense each year.

Question 16

A key reason that there are various acceptable depreciation methods is
A) different assets have different expected usage patterns.
B) some methods are too complicated to calculate.
C) to make it easier to calculate corporate income taxes.
D) to account for assets with indefinite lives.

Accepted Answer

Each asset has a different expected usage pattern, and there are various acceptable depreciation methods that allow for this variability. A business can choose a method that best matches the specific pattern of usage for each asset. For example, some assets may have a predictable pattern of usage and wear, while others may require more unpredictable maintenance and repairs. By having a variety of depreciation methods available, businesses can choose the method that best reflects the actual usage and wear of an asset.

Question 17

A machine was purchased for $125,500 during August; the cost included $750 in supplies that would be used with the new machine. The company had to pay $6,000 for to have the machine shipped. The capitalized cost of the equipment is
A) $125,500.
B) $126,250.
C) $131,500.
D) $132,250.

Accepted Answer

The answer of A machine was purchased for $125,500 during...

Question 18

A company is depreciating a $1,000,000 building using a straight-line rate of 5%. The building has an estimated residual value of $200,000. What would the amount of depreciation be in the first year using the straight-line method and the double-declining-balance method?

Accepted Answer

The answer of A company is depreciating a $1,000,000 building...

Question 19

According to accounting standards, the method of depreciation chosen should
A) measure the change in an asset's value.
B) be systematic and rational.
C) allocate the most of the asset's cost to the early periods benefiting from its use.
D) recognize the reduced usefulness of an asset.

Accepted Answer

According to accounting standards, the method of depreciation chosen should be systematic and rational. While measuring the change in an asset's value, recognizing the reduced usefulness of an asset, and allocating the most of the asset's cost to the early periods benefiting from its use are important considerations, they are not the primary criteria for choosing a depreciation method.

Question 20

Assets that produce their greatest benefits to a firm early in their useful life should be depreciated using the
A) straight-line method.
B) declining-balance method.
C) compound interest method.
D) units-of-activity method.

Accepted Answer

The declining-balance method of depreciation accelerates the depreciation expense in the early years of an asset's life, making it suitable for assets that deliver more benefits early on.

Quiz 8: Long-Term Assets

The depreciable amount of an asset is defined as the

When capitalizing the cost of a purchased asset, all of the following cost should be included in capitalization except for

Assets acquired in a basket purchase are to be allocated a portion of the total price based on their respective

Which of the following statements is true with respect to capitalizing asset costs?

The unexpensed portion of a depreciable asset is called

When deciding whether to expense or capitalize the costs incurred after acquiring a capital asset, which one of the following is not relevant to the decision?

The depreciation method that most closely resembles what is allowable for tax purposes under CRA is

The residual value is not directly used for the calculation of depreciation expense under which method?

A plot of land was purchased for $120,000 and had $10,000 of past due property taxes on it. Non-refundable taxes on the purchase were $1,400 and the title search cost $500. The capitalized cost of the land was

The ultimate sales value of a long-term asset is referred to as its

The most commonly used method of depreciation is

Which of the following depreciation methods calculates annual depreciation expense based on an asset's cost minus its residual value?

To apply the units-of-activity method, all of the following information is needed except the

If an asset generates revenues evenly over its useful life, which depreciation method should be used?

A key reason that there are various acceptable depreciation methods is

A machine was purchased for $125,500 during August; the cost included $750 in supplies that would be used with the new machine. The company had to pay $6,000 for to have the machine shipped. The capitalized cost of the equipment is

A company is depreciating a $1,000,000 building using a straight-line rate of 5%. The building has an estimated residual value of $200,000. What would the amount of depreciation be in the first year using the straight-line method and the double-declining-balance method?

According to accounting standards, the method of depreciation chosen should

Assets that produce their greatest benefits to a firm early in their useful life should be depreciated using the