Question 1

A gain on the sale of an asset occurs when:

Accepted Answer

A gain on the sale of an asset occurs when the cash received is greater than the book value of the asset. This means that the asset was sold for more than its recorded value on the books, resulting in a profit or gain.

Question 2

Greetings Online disposed of a van that cost $22,000 with accumulated depreciation of $15,000.The journal entry would be to:

Accepted Answer

When disposing of a plant asset for an amount less than its book value (in this case, $22,000 - $15,000 = $7,000), a loss is recognized for the difference between the book value and the amount received. Therefore, the journal entry should be to debit Loss Disposal of Plant Asset $7,000, debit Accumulated Depreciation $15,000, and credit Van $22,000. Option A is incorrect because it only removes the accumulated depreciation but does not account for the loss. Option B is incorrect because it incorrectly records additional depreciation expense. Option D is not applicable.

Question 3

Myers Corporation exchanged an old machine costing $20,000,with an accumulated depreciation of $17,000,and trade-in value of $5,000 for a new machine cash price of $24,000.What is the journal entry?

Accepted Answer

The correct journal entry is:Debit Machinery $22,000Debit Accumulated Depreciation $17,000Credit Machinery $20,000Credit Cash $19,000

Question 4

When equipment that is fully depreciated is discarded:

Accepted Answer

When equipment that is fully depreciated is discarded, it should be removed from the books by debiting Accumulated Depreciation and crediting Equipment. This reflects the fact that the asset is no longer in use and has been fully depreciated over its useful life. There is no need to debit the original cost of the asset or credit the balance of Accumulated Depreciation since the asset is no longer being used and has already been fully depreciated.

Question 5

A task station that originally cost $2,500 has no estimated salvage value and was depreciated at the rate of 20% per year (straight-line depreciation).At the end of the third year,it was sold for $1,500 cash.The transaction would result in a:

Accepted Answer

The answer of A task station that originally cost $2,500...

Question 6

A loss on the sale of an asset would occur when:

Accepted Answer

A loss on the sale of an asset occurs when the cash received from the sale is less than the book value of the asset. This means that the asset was sold for less than its recorded value in the company's accounting records, resulting in a loss for the company.

Question 7

A truck that cost $26,000 has been owned for 3 years and is traded for another truck for the same purpose.Total accumulated depreciation at the time of trade is $15,600.The trade-in value of the old truck is $12,000 and the new truck has a fair market value of $30,000,the new truck would be recorded at:

Accepted Answer

The answer of A truck that cost $26,000 has been...

Question 8

A gain on the sale of a plant asset is listed as:

Accepted Answer

A gain on the sale of a plant asset is treated as other income on the income statement as it represents a positive impact on the company's overall financial position. It is not a liability or an asset and does not fall under the category of other expenses as it is a one-time event.

Question 9

When selling a plant asset,the gain was not recorded,but pocketed.This error would cause:

Accepted Answer

By not recording the gain from the sale of a plant asset, the company's net income for the period would be understated because the gain that should have increased net income was omitted.

Question 10

If an asset is being sold or exchanged,the gain or loss is always computed by comparing the:

Accepted Answer

The gain or loss on the sale or exchange of an asset is computed by comparing its market value (the amount it could be sold for on the open market) and its book value (the amount it is currently valued at on the company's financial statements). The salvage value is the expected value of the asset at the end of its useful life, and is not relevant when calculating gain or loss on sale or exchange.

Question 11

The entry to record the disposal of a laptop computer with a cost of $2,500 and an accumulated depreciation of $1,500 would be:

Accepted Answer

When disposing of an asset, the cost and accumulated depreciation must be removed from the books. The cost of the asset is debited and the accumulated depreciation is credited, leaving a loss on disposal of the asset. Therefore, we would debit Accumulated Depreciation $1,500, debit Loss on Disposal of an Asset $1,000, and credit Equipment $2,500.

Question 12

For tax purposes,the gain or loss on a traded asset is absorbed in the value of the new asset.

Accepted Answer

This is known as "tax deferral" and is a common feature of many investment and retirement accounts. When an asset is sold for a gain or loss, the tax liability is not incurred until the investor sells the new asset or makes a withdrawal from the account.

Question 13

Expenditures for changing oil in a machine or repainting a car would be:

Accepted Answer

Expenditures for changing oil in a machine or repainting a car are considered regular maintenance expenses and should be charged to an expense account rather than added to the cost of the asset or classified as capital expenditures or betterments.

Question 14

Equipment that originally cost $775 with no salvage value has accumulated depreciation of $700.The equipment is discarded.The transaction to record the discarding of the equipment would result in a:

Accepted Answer

The book value of the equipment is calculated as the original cost ($775) minus accumulated depreciation ($700), which equals $75. When the equipment with a book value of $75 is discarded with no salvage value, it results in a loss of $75 because the company is losing an asset valued at $75 on its books.

Question 15

If an asset is exchanged for a similar asset,a loss results:

Accepted Answer

When an asset is exchanged for a similar asset, a loss results if the book value of the old asset is greater than what is received for the trade-in allowance. This is because the book value represents the remaining value of the asset on the company's books, and if the trade-in allowance is less than this amount, it results in a loss.

Question 16

Corbin Corporation has a plant asset with a cost of $30,000 that is traded for a similar asset priced at $60,000.Assuming accumulated depreciation of $25,000 and a trade-in allowance of $7,500,what is the cost basis for the new asset?

Accepted Answer

The cost basis for the new asset is calculated by taking the price of the new asset ($60,000) and subtracting the trade-in allowance ($7,500), then adding the difference between the plant asset's cost ($30,000) and its accumulated depreciation ($25,000), which is $5,000. So, $60,000 - $7,500 + $5,000 = $57,500.

Question 17

The Gain on Disposal account is classified as another revenue account.

Accepted Answer

The Gain on Disposal account is a revenue account used to record the difference between the proceeds from the sale of an asset and its carrying amount on the balance sheet.

Question 18

Gains incurred in selling or trading assets are always recognized.

Accepted Answer

Gains incurred in selling or trading assets are not always recognized immediately due to accounting principles like the realization principle, which requires that revenue is recognized when it is earned, regardless of when the cash is received.

Question 19

When an asset is exchanged for a similar asset and a gain results,under accounting rules the gain is:

Accepted Answer

When an asset is exchanged for a similar asset and a gain results, under accounting rules, the gain is absorbed into the cost of the new asset. This treatment prevents the recognition of the gain in the income statement, reflecting the continuation of the investment in a similar asset rather than a realization of gain.

Question 20

A loss on disposal of an asset is listed as:

Accepted Answer

A loss on disposal of an asset is considered an expense and therefore listed as "other expense" on the income statement. It is not a liability or an asset on the balance sheet, and it is not considered income.

Quiz 16: Accounting for Property, plant, equipment, and Intangible Assets