Deck 9: Long-Lived Assets

Question 1

Cost includes all expenditures that are necessary in order to acquire the asset and make it ready for its intended use, including the wages of employees who get the asset ready for its intended use.

Answer 1

False

Question 2

Interest costs incurred to finance construction of a building are not included as part of the cost of the building.

Answer 2

False

Question 3

The carrying amount of an asset equals its cost less accumulated depreciation.

Answer 3

True

Question 4

Under the diminishing-balance method of depreciation, an asset may not be depreciated below its estimated residual value.

Question 5

Ordinary repairs are expenditures to increase the operating efficiency, productive capacity, or expected useful life of the asset.

Question 6

The cost of an addition is debited to the appropriate asset account.

Question 7

When the proceeds exceed the carrying amount of a piece of equipment being sold, the excess is debited to Loss on Disposal.

Question 8

The units-of-production method is generally used to calculate the depreciation of wasting assets.

Question 9

Only intangible assets with indefinite lives are amortized.

Question 10

The cost of a factory machine includes all of the following costs except:

A) invoice price.
B) shipping costs paid by the buyer.
C) one-year insurance policy on the machine.
D) testing and installation cost.

Question 11

On January 1, Year 1, a machine with a useful life of 5 years and a residual value of $1,000 was purchased for $20,000. What is the depreciation expense in Year 2 under the double diminishing-balance method?

A) $4,800
B) $4,560
C) $3,200
D) $3,040

Question 12

On June 1, Year 1, a machine costing $45,000 was acquired. The machine is expected to produce 90,000 units over a 5-year period, after which it will be scrapped. The machine produced 20,000 units during Year 1. The company's fiscal year end is December 31. Which statement is true?

A) Using the units-of production method, depreciation expense for Year 1 is $5,000.
B) Using the units-of production method, depreciation expense for Year 1 is $10,000.
C) Using the units-of production method, depreciation expense for Year 1 is $5,833.
D) Using the straight-line method, depreciation expense for Year 1 is $4,500.

Question 13

An asset that cost $20,000 and has accumulated depreciation of $15,000 is sold for $2,000. The journal entry would include a:

A) debit to Loss on Disposal of $5,000.
B) debit to Loss on Disposal of $3,000.
C) credit to Gain on Disposal of $3,000.
D) credit to Accumulated Depreciation for $15,000.

Question 14

The exclusive right to publish and sell artistic or published work is called a:

A) patent.
B) trademark.
C) license.
D) copyright.

Question 15

On October 1, 2012, Bartow Company purchased a delivery truck for $45,000. It is estimated that the truck will be driven 320,000 km during a five-year period, after which it will be sold for $5,000. The truck was driven 30,000 km in 2012.
Calculate:
a) Depreciation for 2012 using the straight-line method.
b) Depreciation for 2012 using the double-diminishing balance method.
c) Depreciation for 2013 using the double-diminishing balance method.
d) Depreciation for 2012 using the units-of-production method.

Question 16

On April 30, 2013, Wilson Company sold a used piece of manufacturing equipment for $6,500. The equipment had been purchased on January 1, 2010 for $50,000. The equipment was estimated to have a useful life of 4 years, with a residual value of $2,000. The equipment had been depreciated using the straight-line method. Depreciation was last recorded for the year ended December 31, 2012.
a) Calculate the carrying amount of the asset on December 31, 2012.
b) Record the depreciation for 2013.
c) Calculate the gain or loss on disposal.
d) Record the sale of the equipment on Apr 30, 2013.

Question 17

What are the three depreciation methods discussed in the chapter?