Q&A Hero

Q: Explain the impact, if any, on depreciation when depreciation estimates change.

Q: Explain the purpose and method of depreciation for partial years.

Q: Why is the useful life of a plant asset so difficult to predict?

Q: What is depreciation of plant assets? What are the factors to consider in computing depreciation?

Q: Define plant assets and identify the four primary issues in accounting for them.

Q: A $78,633 B. $76,833 C. $66,589 D. $74,125 Answer: B

Q: On December 31, 2013, Stable Company sold a piece of equipment that was purchased on January 1, 2009. The equipment originally cost $820,000 and has an estimated useful life of eight years. Stable uses the doubledeclining-balance method of depreciation. What is the gain/loss on the sale of equipment that Stable will recognize if the equipment was sold for $230,000? A $35,409.50 gain B. $25,000.00 loss C. $25,000.00 gain D. $35,408.00 loss E. $0; no gain or loss

Q: On December 31, 2013, Stable Company sold a piece of equipment that was purchased on January 1, 2008. The equipment originally cost $820,000 and has an estimated useful life of eight years. Stable uses the straight-line method of depreciation. What is the gain/loss on the sale of equipment that Stable will recognize if the equipment was sold for $230,000? A $230,000 gain B. $25,000 loss C. $25,000 gain D. $73,750 gain E. $0; no gain or loss

Q: Ace Company purchased a machine valued at $320,000 on August 1. The equipment has an estimated useful life of five years or 2.5 million units. The equipment is estimated to have a salvage value of $8,200. Assuming the straight-line method of depreciation, what is the amount of depreciation expense that needs to be recorded at the end of the first year? A $64,000 B. $76,800 C. $62,360 D. $25,983 E. $106,667

Q: Ace Company purchased a machine valued at $320,000 on August 1. The equipment has an estimated useful life of five years or 2.5 million units. The equipment is estimated to have a salvage value of $8,200. Assuming the double-declining-balance method of depreciation, what is the amount of depreciation expense that needs to be recorded at the end of the second year? A $128,000 B. $62,360 C. $90,880 D. $88,750 E. $106,667

Q: On September 1, 2010, Drill Far Company purchased a tract of land for $2,300,000. The land is estimated to have a salvage value or $50,000, a useful life of four years, and contain an estimated 4,234,000 tons of iron ore. The company also purchased equipment to use in the extraction process that cost $220,450. The company plans to abandon the equipment when the ore is completely mined. During 2010, the company extracted and sold 1.25 million tons of ore. What is the depletion expense recorded for 2010? A. $575,000 B. $679,027 C. $664,265 D. $562,500 E. $600,000

Q: 2346 x $3,000,000=$ 703,800

Q: January 2010, Giant Green Company pays $3,000,000 for a tract of land with two buildings on it. It plans to demolish Building 1 and build a new store in its place. Building 2 will be a company office; it is appraised at $742,000, with a useful life of 25 years and a $75,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $400,500 that are expected to last another 18 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $2,020,600. Giant Green also incurs the following additional costs: Cost to demolish Building 1 $ 400,200 Cost of additional land grading 200,000 Cost to construct new building (Building 3), having a useful life of 25 years and a $322,000 salvage value 3,851,000 Cost of new land improvements (Land Improvements 2) near Building 2 having a 20-year useful life and no salvage value 122,000 What is the amount that should be recorded for Building #1? A $600,200 B. $742,000 C. $667,000 D. $703,800 E. $487,921

Q: January 2010, Giant Green Company pays $3,000,000 for a tract of land with two buildings on it. It plans to demolish Building 1 and build a new store in its place. Building 2 will be a company office; it is appraised at $742,000, with a useful life of 25 years and a $75,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $400,500 that are expected to last another 18 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $2,020,600. Giant Green also incurs the following additional costs: Cost to demolish Building 1 $ 400,200 Cost of additional land grading 200,000 Cost to construct new building (Building 3), having a useful life of 25 years and a $322,000 salvage value 3,851,000 Cost of new land improvements (Land Improvements 2) near Building 2 having a 20-year useful life and no salvage value 122,000 What is the amount that should be recorded for land? A $2,516,600 B. $2,020,600 C. $3,851,000 D. $1,916,400 E. $3,000,000

Q: Cobb Corn Company purchases a large lot on which a building is located. The negotiated purchase price is $2,500,000 for the lot and the building. The company pays $71,500 in commissions and taxes. The appraisal values of each item is as follows: land $650,000, building $1,750,000, land improvements $120,000. What is the appropriate amount to be recorded in the general journal for the building? A $1,750,000 B. $1,785,650 C. $1,735,000 D. $1,685,379 E. $1,730,000

Q: A company purchased equipment valued at $200,000 on January 1. The equipment has an estimated useful life of six years or 5 million units. The equipment is estimated to have a salvage value of $13,400. Assuming the double declining balance method of depreciation, what is the book value at the end of the second year? A $166,667.00 B. $88,897.78 C. $96,416.25 D. $168,900.00 E. $137,800.00

Q: A company purchased equipment valued at $200,000 on January 1. The equipment has an estimated useful life of six years or 5 million units. The equipment is estimated to have a salvage value of $13,400. Assuming the straight-line method of depreciation, what is the book value at the end of the second year? A $166,667.00 B. $88,977.80 C. $96,416.25 D. $168,900.00 E. $137,800.00

Q: A company purchased equipment valued at $200,000 on January 1. The equipment has an estimated useful life of six years or 5 million units. The equipment is estimated to have a salvage value of $13,400. Assuming the units of production method of depreciation, what is the annual depreciation for the second year if 1.5 million units were produced? A $41,445.91 B. $62,137.80 C. $31,100.00 D. $55,980.00 E. $33,333.00

Q: A company purchased equipment valued at $200,000 on January 1. The equipment has an estimated useful life of six years or 5 million units. The equipment is estimated to have a salvage value of $13,400. Assuming the double declining balance method of depreciation, what is the depreciation for the second year? A $41,445.91 B. $62,137.80 C. $31,100.00 D. $55,980.00 E. $44,442.22

Q: A company purchased equipment valued at $200,000 on January 1. The equipment has an estimated useful life of six years or 5 million units. The equipment is estimated to have a salvage value of $13,400. Assuming the straight-line method of depreciation, what is the depreciation for the second year? A $41,445.91 B. $62,137.80 C. $31,100.00 D. $55,980.00 E. $33,333.00

Q: A company purchased a machine valued at $66,000. It traded in an old (similar) machine for a $9,000 trade-in allowance, meaning the company paid $57,000 cash with the trade-in. The old machine cost $44,000 and had accumulated depreciation of $36,000. What is the recorded value of the new machine? A. $8,000 B. $9,000 C. $57,000 D. $65,000 E. $66,000

Q: A company bought a new display case for $42,000 and was given a trade-in of $2,000 on an old display case, so the company paid $40,000 cash with the trade-in. The old case had an original cost of $37,000 and accumulated depreciation of $34,000. The company should record the value of new display case at: A. $2,000 B. $3,000 C. $40,000 D. $42,000 E. $43,000

Q: Huffington Company traded in an old delivery truck for a new one. The old truck had a cost of $75,000 and accumulated depreciation of $60,000. The new truck had an invoice price of $125,000. Huffington was given a $12,000 trade-in allowance on the old truck, which meant they paid $113,000 in addition to the old truck to acquire the new truck. What is the recorded value of the new truck? A. $15,000 B. $75,000 C. $113,000 D. $125,000 E. $128,000

Q: Endor Fishing Company exchanged an old boat for a new one. The old boat had a cost of $260,000 and accumulated depreciation of $200,000. The new boat had an invoice price of $400,000. Endor received a trade in allowance of $100,000 on the old boat, which meant they paid $300,000 in addition to the old boat to acquire the new boat. What amount of gain or loss should be recorded on this exchange? (The exchange lacks commercial substance.) A. $0 gain or loss B. $40,000 gain C. $40,000 loss D. $60,000 loss E. $100,000 loss

Q: A company's old machine, which cost $40,000 and had accumulated depreciation of $30,000, was traded in on a new machine of like purpose having an estimated 20-year life with an invoice price of $50,000. The company also paid $43,000 cash, along with its old machine to acquire the new machine. The value of new machine should be recorded at: A. $40,000 B. $47,000 C. $50,000 D. $53,000 E. $10,000

Q: A leasehold: A. Is a short-term rental agreement. B. Is the same as a patent. C. Are the rights granted to the lessee by the lessor of a lease. D. Is recorded as rent expense. E. Is an investment asset.

Q: A patent: A. Gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 70 years. B. Is an exclusive right granted to its owner to manufacture and sell a device or to use a process for 20 years. C. Is an exclusive right granted to its owner to manufacture and sell a device or to use a process for 50 years. D. Is the amount by which the value of a company exceeds the fair market value of a company's net assets if purchased separately. E. Gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 17 years.

Q: Amortization: A. Is the systematic allocation of the cost of an intangible asset to expense over its estimated useful life. B. Is the process of allocating to expense the cost of a plant asset to the accounting periods benefiting from its use. C. Is the process of allocating the cost of natural resources to periods when they are consumed. D. Is an accelerated form of expensing an asset's cost. E. Is the same as depletion.

Q: A company purchased a mineral deposit for $800,000. It expects this property to produce 1,200,000 tons of ore and to have a salvage value of $50,000. In the current year, the company mined and sold 90,000 tons of ore. Its depletion expense for the current period is equal to: A. $15,000 B. $60,000 C. $150,000 D. $56,250 E. $139,500

Q: A company purchased a tract of land for its natural resources at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected to be $250,000. The depletion expense per ton of ore is: A. $0.75 B. $0.625 C. $0.875 D. $6.00 E. $8.00

Q: Depletion: A. Is the process of allocating the cost of natural resources to periods in which they are consumed. B. Is also called depreciation. C. Is also called amortization. D. Is an unrealized expense reported in equity. E. Is the process of allocating the cost of intangibles to periods in which they are used.

Q: A company sold equipment for $50,000. Total accumulated depreciation at the time of the sale was $20,000 and a loss of $10,000 was recognized on the sale. What was the original cost of the asset? A. $60,000 B. $80,000 C. $70,000 D. $40,000 E. $30,000

Q: Assume BizChair.com sold a used conveyor belt for $172,000 cash. If accumulated depreciation on the sale date was $58,311 and a gain of $6,721 was recognized on the sale, what was the original cost of the asset? A. $223,590 B. $216,869 C. $165,279 D. $65,032 E. $113,689

Q: Blanket Corporation sold equipment for cash of $40,500. Accumulated depreciation on the sale date amounted to $34,000 and a loss of $1,800 was recognized on the sale. What was the original cost of the asset? A. $72,300 B. $75,900 C. $4,700 D. $76,300 E. $42,300

Q: A company had a bulldozer destroyed by fire. The bulldozer originally cost $125,000. The accumulated depreciation on it was $60,000. The proceeds from the insurance company were $90,000. The company should recognize: A. A loss of $25,000. B. A gain of $25,000. C. A loss of $65,000. D. A gain of $65,000. E. A gain of $90,000.

Q: A company discarded a display case that it had originally purchased for $8,000. The case had $7,200 worth of accumulated depreciation. The company should recognize a(n): A. $0 gain or loss B. $800 loss C. $800 gain D. $8,000 loss E. $7,200 loss

Q: A company sold a machine that originally cost $100,000 for $60,000 cash. The accumulated depreciation on the machine was $40,000. The company should recognize a: A. $0 gain or loss B. $20,000 gain C. $20,000 loss D. $40,000 loss E. $60,000 gain

Q: Extraordinary repairs: A. Are revenue expenditures. B. Extend an asset's useful life beyond its original estimate. C. Are credited to accumulated depreciation. D. Are additional costs of plant assets that do not materially increase the asset's life. E. Are expensed as incurred.

Q: Another name for a capital expenditure is: A. Revenue expenditure B. Asset expenditure C. Long-term expenditure D. Contributed capital expenditure E. Balance sheet expenditure

Q: Revenue expenditures: A. Are additional costs of plant assets that do not materially increase the asset's life or its productive capabilities. B. Are known as balance sheet expenditures. C. Extend the asset's useful life. D. Substantially benefit future periods. E. Are debited to asset accounts.

Q: A depreciable asset currently has a $24,500 book value. The company owning the asset uses straight-line depreciation. They paid $37,000 for this asset and consider it to have a $2,000 salvage value with a seven-year useful life. How long has the company owned this asset? A. 2.5 years B. 2.36 years C. 2.1 years D. 7 years E. Cannot be determined from the given information.

Q: A depreciable asset currently has a $40,100 book value. The company owning the asset uses straight-line depreciation. They paid $70,000 for this asset and consider it to have a $1,000 salvage value with a 12-year useful life. How long has the company owned this asset? A. 5.2 years B. 7 years C. 10.2 years D. 12 years E. Cannot be determined from the given information.

Q: A company purchased a machine for $970,000. The machine has a useful life of 12 years and a residual value of $4,500. It is estimated that the machine could produce 1,000,000 units over its useful life. In the first year, 200,000 units were produced. In the second year, production increased to 300,000 units. Using the units-of-production method, what is the book value of this asset at the end of the second year of operations? A. $482,750 B. $487,250 C. $485,000 D. $291,000 E. $289,650

Q: A company purchased a rope-braiding machine for $190,000. The machine has a useful life of eight years and a residual value of $10,000. It is estimated that the machine could produce 750,000 units of climbing rope over its useful life. In the first year, 105,000 units were produced. In the second year, production increased to 109,000 units. Using the units-of-production method, what is the amount of depreciation that should be recorded for the second year? A. $25,200 B. $26,160 C. $26,660 D. $27,613 E. $53,160

Q: A company purchased a POS cash register on January 1 for $5,400. This register has a useful life of 10 years and a salvage value of $400. What would be the depreciation expense for the second-year of its useful life using the double-declining-balance method? A. $500 B. $800 C. $864 D. $1,000 E. $1,080

Q: A company purchased a delivery van for $23,000 with a salvage value of $3,000 on September 1, 2010. It has an estimated useful life of five years. Using the straight-line method, how much depreciation expense should the company recognize on December 31, 2010? A. $1,000 B. $1,333 C. $1,533 D. $4,000 E. $4,600

Q: A depreciation method that produces larger depreciation expense during the early years of an asset's life and smaller expense in the later years is a(n): A. Accelerated depreciation method B. Book value depreciation method C. Straight-line depreciation method D. Units-of-production depreciation method E. Unrealized depreciation method

Q: A depreciation method in which a plant asset's depreciation expense for a period is determined by applying a constant depreciation rate each period to the asset's beginning book value is called: A. Book value depreciation. B. Declining-balance depreciation. C. Straight-line depreciation. D. Units-of-production depreciation. E. Modified accelerated cost recovery system (MACRS) depreciation.

Q: A method that allocates an equal portion of the total depreciable cost for a plant asset to each unit produced is called: A. Accelerated depreciation. B. Declining-balance depreciation. C. Straight-line depreciation. D. Units-of-production depreciation. E. Modified accelerated cost recovery system (MACRS) depreciation.

Q: A method that charges the same amount of expense over each period of the asset's useful life is called: A. Accelerated depreciation. B. Declining-balance depreciation. C. Straight-line depreciation. D. Units-of-production depreciation. E. Modified accelerated cost recovery system (MACRS) depreciation.

Q: The total cost of an asset less its accumulated depreciation is called: A. Historical cost B. Book value C. Present value D. Current (market) value E. Replacement cost

Q: The formula for computing annual straight-line depreciation is: A. Depreciable cost divided by useful life in units. B. Cost plus salvage value divided by the useful life in years C. Cost less salvage value divided by the useful life in years. D. Cost divided by useful life in years. E. Cost divided by useful life in units.

Q: A company purchased property for $100,000. The property included a building, a parking lot and land. The building was appraised at $62,000; the land at $45,000 and the parking lot at $18,000. The value of the land that will be included in the accounting record is: A. $0 B. $36,000 C. $42,000 D. $45,000 E. $100,000

Q: A company purchased property for a building site. The costs associated with the property were: Purchase price $175,000 Real estate commissions 15,000 Legal fees 800 Expenses of clearing the land 2,000 Expenses to remove old building 1,000 What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building? A. $175,800 to Land; $18,800 to Building B. $190,000 to Land; $3,800 to Building C. $190,800 to Land; $1,000 to Building D. $192,800 to Land; $0 to Building E. $193,800 to Land; $0 to Building

Q: A company paid $150,000, plus a 6% commission, and $4,000 in closing costs for a property. The property included land appraised at $87,500, land improvements appraised at $35,000, and a building appraised at $52,500. What should be the allocation of this property's costs in the company's accounting records? A. Land $75,000; Land Improvements, $30,000; Building, $45,000 B. Land $75,000; Land Improvements, $30,800; Building, $46,200 C. Land $81,500; Land Improvements, $32,600; Building, $48,900 D. Land $79,500; Land Improvements, $32,600; Building, $47,700 E. Land $87,500; Land Improvements; $35,000; Building; $52,500

Q: Land improvements are: A. Assets that increase the usefulness of land and, like land, are not depreciated. B. Assets that increase the usefulness of land but that have a limited useful life and are subject to depreciation. C. Included in the cost of the land account. D. Expensed in the period incurred. E. Also called basket purchases.

Q: 25 = net sales/$40,000

Q: Acme Company has a total asset turnover of 1.25 for the current period. What are net sales given that average total assets are $40,000? A. Net sales cannot be computed from the given information B. $50,000 C. $32,000 D. $1.25 million E. $90,000

Q: Dell had net sales of $35,404 million. Its average total assets for the period were $14,502 million. Dell's total asset turnover is equal to: A. 0.40 B. 0.35 C. 1.45 D. 2.44 E. 3.50

Q: A company had average total assets of $897,000. Its gross sales were $1,090,000 and its net sales were $1,000,000. The company's total asset turnover is equal to: A. 0.82 B. 0.90 C. 1.09 D. 1.11 E. 1.26

Q: Total asset turnover is calculated by dividing: A. Gross profit by average total assets. B. Average total assets by gross profit. C. Net sales by average total assets. D. Average total assets by net sales. E. Net assets by total assets.

Q: Total asset turnover is used to evaluate: A. The efficiency of management's use of assets to generate sales. B. The need for asset replacement. C. The number of times operating assets were sold during the year. D. The cash flows used to acquire assets. E. The relation between asset cost and book value.

Q: Both the straight-line depreciation method and the double-declining-balance depreciation method: A. Produce the same total depreciation over an asset's useful life. B. Produce the same depreciation expense each year. C. Produce the same book value each year. D. Are acceptable for tax purposes only. E. Are the only acceptable methods of depreciation for financial reporting.

Q: Many companies use accelerated depreciation in computing taxable income because: A. It is required by the tax rules. B. It is required by financial reporting rules. C. It postpones tax payments until later years and the company can use the resources now to earn additional income before payment is due. D. Using it causes a company to use higher income in the early years of the asset's useful life. E. The results are identical to straight-line depreciation.

Q: A company's annual accounting period ends on September 30. During the current year, a depreciable asset that cost $16,000 was purchased on January 1. The asset has a $2,000 estimated salvage value. The company uses straight-line depreciation and expects the asset to have a four-year life. What is the total depreciation expense for the current year? A. $4,000 B. $3,000 C. $3,500 D. $2,625 E. $875

Q: A company's annual accounting period ends on December 31. During the current year, a depreciable asset that cost $24,000 was purchased on October 1. The asset has a $1,000 estimated salvage value. The company uses straight-line depreciation and expects the asset to have a six-year life. What is the total depreciation expense for the current year? A. $3,833.33 B. $958.33 C. $4,000.00 D. $1,000.00 E. $1,041.67

Q: Cardco Inc. has an annual accounting period that ends on December 31. During the current year a depreciable asset that cost $42,000 was purchased on September 2. The asset has a $4,000 estimated salvage value. The company uses straight-line depreciation and expects the asset to have a five-year life. What is the total depreciation expense for the current year? A. $1,900.00 B. $7,600.00 C. $2,533.33 D. $2,800.00 E. $3,166.67

Q: A company used straight-line depreciation for an item of equipment that cost $12,000, had a salvage value of $2,000, and had a five-year useful life. After depreciating the asset for three complete years, the salvage value was reduced to $1,200 and its total useful life was increased from five years to six years. Determine the amount of depreciation to be charged against the machine during each of the remaining years of its useful life: A. $1,000 B. $1,800 C. $1,467 D. $1,600 E. $2,160

Q: When originally purchased, a vehicle had an estimated useful life of eight years. The vehicle cost $23,000 and its estimated salvage value is $1,500. After four years of straight-line depreciation, the asset's total estimated useful life was revised from eight years to six years and there was no change in the estimated salvage value. The depreciation expense in year 5 equals: A. $5,375.00 B. $2,687.50 C. $5,543.75 D. $10,750.00 E. $2,856.25

Q: A change in an accounting estimate is: A. Reflected in past financial statements. B. Reflected in future financial statements and also requires modification of past statements. C. A change in a calculated amount that is part of current and future financial statements that results from new information or subsequent developments and from better insight or improved judgment. D. Not allowed under current accounting rules. E. Considered an error in the financial statements.

Q: A machine originally had an estimated useful life of 5 years, but after 3 complete years it was decided that the original estimate of useful life should have been 10 years. At that point the remaining cost to be depreciated should be allocated over the remaining: A. 2 years B. 5 years C. 7 years D. 8 years E. 10 years

Q: Once the estimated depreciation expense for an asset is calculated: A. It cannot be changed due to the historical cost principle. B. It may be revised based on new information. C. Any changes are accumulated and recognized when the asset is sold. D. The estimate itself cannot be changed; however, new information should be disclosed in financial statement footnotes. E. It cannot be changed due to the consistency principle.

Q: Obsolescence: A. Occurs when an asset is at the end of its useful life. B. Refers to a plant asset that is no longer useful in producing goods and services. C. Refers to the insufficient capacity of a company's plant assets to meet the company's productive demands. D. Occurs when an asset's salvage value is less than its replacement cost. E. Does not affect plant assets.

Q: Inadequacy refers to: A. The insufficient capacity of a company's plant assets to meet the company's growing production demands. B. An asset that is worn out. C. An asset that is no longer useful in producing goods and services. D. The condition where the salvage value is too small to replace the asset. E. The condition where the asset's salvage value is less than its cost.

Q: The useful life of a plant asset is: A. The length of time it is used productively in a company's operations. B. Never related to its physical life. C. Its productive life, but not to exceed one year. D. Determined by the FASB. E. Determined by law.

Q: Depreciation: A. Measures the decline in market value of an asset. B. Measures physical deterioration of an asset. C. Is the process of allocating to expense the cost of a plant asset. D. Is an outflow of cash from the use of a plant asset. E. Is applied to land.

Q: Plant assets are: A. Current assets B. Used in operations C. Natural resources D. Long-term investments E. Intangible

Q: Plant assets are: A. Tangible assets used in the operation of a business that have a useful life of more than one accounting period. B. Current assets. C. Held for sale. D. Intangible assets used in the operations of a business that have a useful life of more than one accounting period. E. Tangible assets used in the operation of business that have a useful life of less than one accounting period.

Q: When the value of plant assets decline after acquisition, but before disposition, both GAAP and IFRS require companies to record those decreases as impairment losses.

Q: Since goodwill is intangible, it is amortized each year using the straight-line method, the same as other intangibles are amortized.