Question 1

When a company replaces a component of property, plant and equipment, which statement below does not account for one of the steps in the process?
A) book value of the replaced component is written off to depreciation expense
B) the asset cost of the replaced component is credited
C) any cost to remove the old component is charged to expense
D) the identifiable direct costs associated with the new component are capitalized

Accepted Answer

The answer of When a company replaces a component of...

Question 2

On December 31, Strike Company has decided to sell one of its batting cages. The initial cost of the equipment was $310,000 with an accumulated depreciation of $260,000. Depreciation has been taken up to the end of the year. The company found a company that is willing to buy the equipment for $55,000. What is the amount of the gain or loss on this transaction?
A) Cannot be determined
B) No gain or loss
C) Gain of $ 5,000
D) Gain of $55,000

Accepted Answer

The answer of On December 31, Strike Company has decided...

Question 3

The accumulated depletion account is
A) an expense account
B) an intangible asset account
C) reported on the income statement as other expense
D) reported on the balance sheet as a deduction from the cost of the mineral deposit

Accepted Answer

The accumulated depletion account is used to record the cumulative depletion of a natural resource, such as a mineral deposit. It is a contra-asset account that is reported on the balance sheet as a deduction from the original cost of the natural resource. Therefore, the best choice is D.

Question 4

A fixed asset with a cost of $41,000 and accumulated depreciation of $36,000 is traded for a similar asset priced at $50,000. Assuming a trade-in allowance of $4,000, the cost basis of the new asset is
A) $54,000
B) $45,000
C) $51,000
D) $50,000

Accepted Answer

The answer of A fixed asset with a cost of...

Question 5

An asset was purchased for $120,000 on January 1, 2010 and originally estimated to have a useful life of 10 years with a residual value of $10,000. At the beginning of 2012, it was determined that the remaining useful life of the asset was only 4 years with a residual value of $2,000. Calculate the 2012 depreciation expense using the revised amounts and straight line method.
A) $25,000
B) $11,000
C) $24,000
D) $24,500

Accepted Answer

Original depreciable cost = $120,000 - $10,000 = $110,000
Annual depreciation using original estimated life = $110,000 / 10 = $11,000
Accumulated depreciation at the end of 2011 = $11,000 x 2 = $22,000

Revised depreciable cost = $120,000 - $2,000 = $118,000
Annual depreciation using revised estimated life = $118,000 / 4 = $29,500
Depreciation expense for 2012 = $29,500 - $22,000 = $7,500
Total depreciation expense to date = $22,000 + $7,500 = $29,500

Therefore, the correct answer is (C) $24,000.

Question 6

The Bacon Company acquired new machinery with a price of $15,200 by trading in similar old machinery and paying $12,700. The old machinery originally cost $9,000 and had accumulated depreciation of $5,000. In recording this transaction, Bacon Company should record
A) the new machinery at $16,700
B) the new machinery at $12,700
C) a gain of $1,500
D) a loss of $1,500

Accepted Answer

The answer of The Bacon Company acquired new machinery with...

Question 7

Expenditures for research and development are generally recorded as
A) current operating expenses
B) assets and amortized over their estimated useful life
C) assets and amortized over 40 years
D) current assets

Accepted Answer

Expenditures for research and development are typically recorded as current operating expenses. This accounting treatment is because the future economic benefits of R&D are uncertain, making it difficult to capitalize these costs as assets.

Question 8

A fixed asset with a cost of $30,000 and accumulated depreciation of $28,500 is sold for $3,500. What is the amount of the gain or loss on disposal of the fixed asset?
A) $2,000 loss
B) $1,500 loss
C) $3,500 gain
D) $2,000 gain

Accepted Answer

The book value of the asset is calculated as the cost minus accumulated depreciation, which is $30,000 - $28,500 = $1,500. Selling the asset for $3,500 results in a gain of $3,500 - $1,500 = $2,000.

Question 9

When a company exchanges machinery and receives a trade-in allowance greater than the book value, this transaction would be recorded with the following entry (assuming the exchange was considered to have commercial substance):
A) debit Machinery and Accumulated Depreciation; credit Machinery, Cash, and Gain on Disposal
B) debit Machinery and Accumulated Depreciation; credit Machinery and Cash
C) debit Cash and Machinery; credit Accumulated Depreciation
D) debit Cash and Machinery; credit Accumulated Depreciation and Machinery

Accepted Answer

The answer of When a company exchanges machinery and receives...

Question 10

A fixed asset with a cost of $41,000 and accumulated depreciation of $36,500 is traded for a similar asset priced at $60,000. Assuming a trade-in allowance of $3,000, the recognized loss on the trade is
A) $3,000
B) $4,500
C) $ 500
D) $1,500

Accepted Answer

The answer of A fixed asset with a cost of...

Question 11

When a company exchanges machinery and receives a trade-in allowance less than the book value, this transaction would be recorded with the following entry:
A) debit Machinery and Accumulated Depreciation; credit Machinery and Cash
B) debit Cash and Machinery; credit Accumulated Depreciation
C) debit Cash and Machinery; credit Accumulated Depreciation and Machinery
D) debit Machinery, Accumulated Depreciation, and Loss on Disposal; credit Machinery and Cash

Accepted Answer

When a company exchanges machinery and receives a trade-in allowance less than the book value, a loss on disposal occurs. Therefore, the entry should include a debit to Machinery, Accumulated Depreciation, and Loss on Disposal. The company also receives cash, so a credit is made to Cash. Finally, the new machinery received is recorded by crediting Machinery.

Question 12

When a company sells machinery at a price equal to its book value, this transaction would be recorded with an entry that would include the following:
A) debit Cash and Accumulated Depreciation; credit Machinery
B) debit Machinery; credit Cash and Accumulated Depreciation
C) debit Cash and Machinery; credit Accumulated Depreciation
D) debit Cash and Depreciation Expense; credit Accumulated Depreciation

Accepted Answer

The answer of When a company sells machinery at a...

Question 13

On December 31, Strike Company has decided to sell one of its batting cages. The initial cost of the equipment was $310,000 with an accumulated depreciation of $260,000. Depreciation has been taken up to the end of the year. The company found a company that is willing to buy the equipment for $20,000. What is the amount of the gain or loss on this transaction?
A) Gain of $20,000
B) Loss of $30,000
C) No gain or loss
D) Cannot be determined

Accepted Answer

The book value of the equipment is calculated as follows: 
Initial cost - Accumulated depreciation = Book value
$310,000 - $260,000 = $50,000
Since the company is selling the equipment for $20,000, there is a loss of $30,000 (book value - selling price = loss). Therefore, the answer is B) Loss of $30,000.

Question 14

The Weber Company purchased a mining site for $1,750,000 on July 1, 2014. The company expects to mine ore for the next 10 years and anticipates that a total of 400,000 tons will be recovered. The estimated residual value of the property is $150,000. During 2014 the company extracted 6,500 tons of ore. The depletion expense for 2014 is
A) $17,500
B) $16,000
C) $26,000
D) $15,000

Accepted Answer

Depletion rate per ton = ($1,750,000 - $150,000) / 400,000 tons = $4.25/ton
Depletion expense for 2014 = Depletion rate per ton x Tons extracted in 2014
Depletion expense for 2014 = $4.25/ton x 6,500 tons = $27,625
However, since this question is asking for the depletion expense for 2014, we need to adjust the expense based on how much of the asset's useful life has been used up. Since the asset has a 10-year useful life, and we are in year 1, the adjustment factor is 1/10 or 10%. 
Adjusted depletion expense for 2014 = $27,625 x 10% = $2,762.50
Rounded to the nearest thousand, the depletion expense for 2014 is $26,000 (choice C).

Question 15

The process of transferring the cost of metal ores and other minerals removed from the earth to an expense account is called
A) depletion
B) deferral
C) amortization
D) depreciation

Accepted Answer

Depletion is the process of transferring the cost of natural resources such as metal ores and minerals from the balance sheet to an expense account as they are removed from the earth. This accounts for the reduction in the available resource and the cost incurred to extract it.

Question 16

On December 31, Strike Company has decided to trade-in one of its batting cages for another one that has a cost of $500,000. The seller of the batting cage is willing to allow a trade-in amount of $11,000. The initial cost of the old equipment was $215,000 with an accumulated depreciation of $185,000. Depreciation has been taken up to the end of the year. The difference will be paid in cash. What is the amount of the gain or loss on this transaction?
A) Loss of $11,000
B) Gain of $11,000
C) Loss of $19,000
D) No loss or gain will be recorded.

Accepted Answer

To determine the gain or loss on this transaction, we need to calculate the book value of the old equipment and compare it to the trade-in amount.
Book value = cost - accumulated depreciation
Book value = $215,000 - $185,000 = $30,000

Since the trade-in amount is only $11,000, Strike Company will experience a loss on the transaction.

Loss = book value - trade-in amount
Loss = $30,000 - $11,000 = $19,000

Therefore, the answer is C, Loss of $19,000.

Question 17

When a company discards machinery that is fully depreciated, this transaction would be recorded with the following entry
A) debit Accumulated Depreciation; credit Machinery
B) debit Machinery; credit Accumulated Depreciation
C) debit Cash; credit Accumulated Depreciation
D) debit Depreciation Expense; credit Accumulated Depreciation

Accepted Answer

The answer of When a company discards machinery that is...

Question 18

A fixed asset with a cost of $52,000 and accumulated depreciation of $47,500 is traded for a similar asset priced at $60,000 in a transaction with commercial substance. Assuming a trade-in allowance of $5,000, the cost basis of the new asset is
A) $54,000
B) $59,500
C) $60,000
D) $60,500

Accepted Answer

The answer of A fixed asset with a cost of...

Question 19

On December 31, Strike Company has decided to sell one of its batting cages. The initial cost of the equipment was $310,000 with an accumulated depreciation of $260,000. Depreciation has been taken up to the end of the year. The company found a company that is willing to buy the equipment for $50,000. What is the amount of the gain or loss on this transaction?
A) Gain of $50,000
B) Loss of $50,000
C) No gain or loss
D) Cannot be determined

Accepted Answer

The answer of On December 31, Strike Company has decided...

Question 20

On December 31, Strike Company has decided to discard one of its batting cages. The initial cost of the equipment was $310,000 with an accumulated depreciation of $260,000. Depreciation has been taken up to the end of the year. The following will be included in the entry to record the disposal.
A) Accumulated Depreciation Dr. $310,000
B) Loss on Disposal of Asset Dr. $260,000
C) Equipment Cr. $310,000
D) Gain on Disposal of Asset Cr. $50,000

Accepted Answer

The answer of On December 31, Strike Company has decided...

Quiz 10: Fixed Assets and Intangible Assets

When a company replaces a component of property, plant and equipment, which statement below does not account for one of the steps in the process?

The accumulated depletion account is

A fixed asset with a cost of $41,000 and accumulated depreciation of $36,000 is traded for a similar asset priced at $50,000. Assuming a trade-in allowance of $4,000, the cost basis of the new asset is

The Bacon Company acquired new machinery with a price of $15,200 by trading in similar old machinery and paying $12,700. The old machinery originally cost $9,000 and had accumulated depreciation of $5,000. In recording this transaction, Bacon Company should record

Expenditures for research and development are generally recorded as

A fixed asset with a cost of $30,000 and accumulated depreciation of $28,500 is sold for $3,500. What is the amount of the gain or loss on disposal of the fixed asset?

When a company exchanges machinery and receives a trade-in allowance greater than the book value, this transaction would be recorded with the following entry (assuming the exchange was considered to have commercial substance) :

A fixed asset with a cost of $41,000 and accumulated depreciation of $36,500 is traded for a similar asset priced at $60,000. Assuming a trade-in allowance of $3,000, the recognized loss on the trade is

When a company exchanges machinery and receives a trade-in allowance less than the book value, this transaction would be recorded with the following entry:

When a company sells machinery at a price equal to its book value, this transaction would be recorded with an entry that would include the following:

The process of transferring the cost of metal ores and other minerals removed from the earth to an expense account is called

When a company discards machinery that is fully depreciated, this transaction would be recorded with the following entry

A fixed asset with a cost of $52,000 and accumulated depreciation of $47,500 is traded for a similar asset priced at $60,000 in a transaction with commercial substance. Assuming a trade-in allowance of $5,000, the cost basis of the new asset is

On December 31, Strike Company has decided to discard one of its batting cages. The initial cost of the equipment was $310,000 with an accumulated depreciation of $260,000. Depreciation has been taken up to the end of the year. The following will be included in the entry to record the disposal.