Question 1

Aggie, Inc. 
Aggie, Inc. purchased a truck at a cost of $12,000. The truck has an estimated salvage value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2011, and was used 27,000 hours in 2011 and 26,000 hours in 2012.
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Refer to Aggie, Inc.'s information presented above, what method of depreciation will maximize depreciation expense in 2011?
A) Straight-line
B) Double-declining-balance
C) Units-of-activity
D) All methods produce the same expense in 2011.

Accepted Answer

The double-declining-balance method accelerates depreciation, resulting in higher depreciation expense in the earlier years compared to other methods.

Question 2

Able Company purchased land and incurred the following costs: Purchase price $~~~~~~~~~~~~~~~\$1,000,000$
Excavation cost$~~~~~~~~~~~~~~~~~~100,000$
Rarzing wild building$~~~~~~~~~~25,000$
Broker fees$~~~~~~~~~~~~~~~~~~~~~~~~20,000$
Cost off property taxas$~~~~~~~~~~50,000$

What is the cost of the land?
A) $1,100,000
B) $1,195,000
C) $1,145,000
D) $1,125,000

Accepted Answer

The cost of the land is the purchase price plus the excavation cost, the cost of razing the wild building, the broker fees, and the cost of property taxes. So, the cost of the land is $1,000,000 + $100,000 + $25,000 + $20,000 + $50,000 = $1,195,000.

Question 3

Aggie, Inc. 
Aggie, Inc. purchased a truck at a cost of $12,000. The truck has an estimated salvage value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2011, and was used 27,000 hours in 2011 and 26,000 hours in 2012.
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Refer to Aggie, Inc.'s information presented above, if Aggie uses the double-declining-balance depreciation method, what amount is the depreciation expense for 2012?
A) $4,800
B) $2,880
C) $1,728
D) $2,000

Accepted Answer

The double-declining-balance method calculates depreciation by doubling the straight-line rate. The straight-line rate is 1/5 or 20%, so the double rate is 40%. For 2011, depreciation is 40% of $12,000 = $4,800. For 2012, it's 40% of ($12,000 - $4,800) = $2,880.

Question 4

Which of the following costs related to the purchase of production equipment incurred by ABC Company during 2011 would be considered a revenue expenditure?
A) Installation costs for equipment
B) Purchase price of the equipment less the cash discount
C) Repair and maintenance costs during the equipment's first year of service
D) Transportation charges to deliver the equipment to ABC Company

Accepted Answer

Repair and maintenance costs incurred during the equipment's first year of service are considered revenue expenditures because they are expenses necessary to keep the equipment running efficiently and do not increase the equipment's useful life. Installation costs, purchase price (less cash discount), and transportation charges are all capital expenditures because they are costs necessary to acquire the equipment and increase its useful life.

Question 5

Depreciation is a process by which:
A) replacement funds are accumulated for plant and equipment.
B) the decline in market value of plant and equipment is determined and recorded.
C) the cost of plant and equipment is allocated to expense over its useful life.
D) the difference between current market value and historical cost of plant and equipment is recorded.

Accepted Answer

Depreciation is the process of allocating the cost of plant and equipment to expense over its useful life. This recognises that the asset gradually loses value over time as it is used and becomes obsolete. Choice A is incorrect as it refers to a funding process, not accounting treatment. Choice B is also incorrect as it refers to changes in market value, which is not necessarily related to the asset's useful life. Choice D is incorrect as it only records the difference in value, not explaining how the cost of the asset is allocated.

Question 6

Which of the following accounts would not be reported in the property, plant, and equipment section of a balance sheet?
A) Accumulated depreciation--buildings
B) Buildings
C) Depreciation Expense--buildings
D) Land

Accepted Answer

Depreciation Expense is an expense account and not an asset account.

Question 7

Aggie, Inc. 
Aggie, Inc. purchased a truck at a cost of $12,000. The truck has an estimated salvage value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2011, and was used 27,000 hours in 2011 and 26,000 hours in 2012.
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Refer to Aggie, Inc.'s information presented above, if Aggie uses the straight-line method, what is the book value at December 31, 2013?
A) $ 8,000
B) $ 6,000
C) $10,000
D) $ 4,000

Accepted Answer

Under the straight-line method, annual depreciation is calculated as (Cost - Salvage Value) / Useful Life. For the truck, this is ($12,000 - $2,000) / 5 = $2,000 per year. By December 31, 2013, three years of depreciation have occurred, totaling $6,000. The book value is the original cost minus accumulated depreciation: $12,000 - $6,000 = $6,000.

Question 8

On the balance sheet, the cumulative amount of depreciation expense recognized to date on a fixed asset is called:
A) accumulated amortization.
B) accumulated depreciation.
C) amortization expense.
D) depreciation expense.

Accepted Answer

Accumulated depreciation is the cumulative amount of depreciation expense recognized to date on a fixed asset. It is recorded on the balance sheet as a contra asset account, which reduces the value of the corresponding fixed asset. Option A (accumulated amortization) is used for intangible assets, not fixed assets. Option C (amortization expense) and D (depreciation expense) refer to the current period's expense, not the accumulated amount.

Question 9

Clear Window Cleaners 
Clear Window Cleaners purchased new cleaning equipment at the beginning of 2011. The equipment has a cost of $53,000, an estimated life of 5 years, and an estimated residual value of $3,000. A full year's depreciation expense is to be recorded in 2011. The equipment was used 20,000 hours during 2011 and 24,000 hours during 2012. The number of expected hours over five years is 125,000.
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Refer to the information provided for Clear Window Cleaners. Clear Window is comparing the straight-line and double-declining-balance depreciation methods. Of these two methods, which method creates the larger expense and larger tax savings in 2011?
A) Straight-line depreciation creates the larger expense, while double-declining-balance depreciation creates the larger tax savings.
B) Straight-line depreciation creates both the larger expense and the larger tax savings.
C) Double-declining-balance depreciation creates both the larger expense and the larger tax savings.
D) Double-declining-balance depreciation creates the larger expense, while straight-line depreciation creates the larger tax savings.

Accepted Answer

The double-declining-balance method results in a larger depreciation expense in the early years compared to the straight-line method, leading to larger tax savings in 2011.

Question 10

Plant assets are depreciated because:
A) the accrual basis of accounting requires matching of costs to revenues.
B) cash basis of accounting requires depreciation.
C) the book values equal market values.
D) the replacement cost of plant assets may fluctuate over time.

Accepted Answer

Depreciation is necessary for the matching principle of accrual accounting, which requires that expenses be recognized in the same period as the revenue they help generate. Plant assets are used in generating revenue, so their cost should be expensed over the useful life of the asset.

Question 11

Land is not depreciated because:
A) it appreciates in value.
B) its revenue generating potential is limited by wear and tear.
C) it has a useful life that is limited to the period of time a company is in business.
D) it will provide future benefits for the company for an unlimited period of time.

Accepted Answer

Land is not depreciated because it is considered to have an unlimited useful life and will provide future benefits for the company indefinitely.

Question 12

Aggie, Inc. 
Aggie, Inc. purchased a truck at a cost of $12,000. The truck has an estimated salvage value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2011, and was used 27,000 hours in 2011 and 26,000 hours in 2012.
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Refer to Aggie, Inc.'s information presented above, if Aggie uses the units-of-activity method, what is the depreciation rate per hour for the equipment?
A) $1.00
B) $1.10
C) $ .10
D) $ .12

Accepted Answer

The answer of Aggie, Inc. 
Aggie, Inc. purchased a truck...

Question 13

Clear Window Cleaners 
Clear Window Cleaners purchased new cleaning equipment at the beginning of 2011. The equipment has a cost of $53,000, an estimated life of 5 years, and an estimated residual value of $3,000. A full year's depreciation expense is to be recorded in 2011. The equipment was used 20,000 hours during 2011 and 24,000 hours during 2012. The number of expected hours over five years is 125,000.
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Refer to the information provided for Clear Window Cleaners. What is the amount by which double-declining-balance depreciation exceeds straight-line depreciation in the first year of the equipment?
A) $11,200
B) $13,200
C) $21,200
D) $12,720

Accepted Answer

Double-declining-balance depreciation is twice the straight-line depreciation rate multiplied by the book value of the asset. The straight-line depreciation rate is calculated by dividing the depreciable cost of the asset by its estimated life. The depreciable cost of the asset is the cost of the asset minus its residual value.The depreciable cost of the asset is $53,000 - $3,000 = $50,000. The straight-line depreciation rate is $50,000 / 5 = $10,000. The double-declining-balance depreciation rate is 2 * $10,000 = $20,000.The book value of the asset at the beginning of 2011 is $53,000. The double-declining-balance depreciation expense for 2011 is $20,000 * $53,000 = $10,600. The straight-line depreciation expense for 2011 is $10,000 * $53,000 = $5,300.The amount by which double-declining-balance depreciation exceeds straight-line depreciation in the first year of the equipment is $10,600 - $5,300 = $5,300.

Question 14

Depreciation is:
A) the process of systematically and rationally allocating the cost of a fixed asset over its useful life.
B) an accumulation of funds to replace the related plant asset.
C) the difference between the replacement cost and salvage value of an asset.
D) the cash allocated each period to maintain a plant asset.

Accepted Answer

Depreciation is the systematic and rational allocation of the cost of a fixed asset over its useful life, reflecting the consumption or expiration of its economic benefits. It is a non-cash expense that reduces the carrying value of the asset on the balance sheet over time.

Question 15

Assets classified as property, plant, and equipment are reported at:
A) each asset's estimated market value less depreciation on the balance sheet date.
B) each asset's estimated market value on the balance sheet date.
C) the estimated salvage value on the balance sheet date.
D) each asset's original cost less depreciation since acquisition.

Accepted Answer

Property, plant, and equipment are reported on the balance sheet at their original cost less depreciation since acquisition. This is because they are considered long-term assets that are used over a period of time and therefore need to be depreciated to reflect their decreasing value over time. The estimated salvage value or market value may be used to determine depreciation, but they are not the basis for reporting these assets on the balance sheet.

Question 16

Which of the following is included in the cost of constructing a building?
A) Insurance costs during construction
B) Cost of property taxes
C) Cost of repairing vandalism damage during construction
D) Cost of removing the demolished building existing on the land when it was purchased

Accepted Answer

Insurance costs during construction are considered part of the construction costs as they are necessary to protect the project during its development phase.

Question 17

The effect of recording depreciation for the year is a(n):
A) decrease in assets and a decrease in net income.
B) decrease in assets but no change in owners' equity.
C) increase in assets and an increase in net income.
D) decrease in net income and no change to assets.

Accepted Answer

Recording depreciation for the year reduces the value of the assets, which decreases owners' equity and net income. Therefore, the best choice is A.

Question 18

Fisher Apartments purchased an apartment building to rent to university students on December 15, 2011. The tenants moved in on January 1, 2012. On Super Bowl Sunday, a student punched a hole in the wall when his favorite team fumbled the ball. It cost the landlord $400 to repair the hole. How should this cost be recorded?
A) It should be recorded as part of the asset account.
B) It should be recorded as repair and maintenance expense.
C) It should not be recorded as the tenants will be charged for the damage.
D) It should not be recorded since this is an immaterial amount to the landlord.

Accepted Answer

The cost of repairing the hole in the wall should be recorded as a repair and maintenance expense, as it is an expense incurred to maintain the rental property in good condition. It should not be recorded as part of the asset account, as the repair does not add any value to the property. While the tenants may be charged for the damage, the cost still needs to be recorded as an expense. Additionally, even though $400 may be considered a relatively small amount, it is still material to the landlord and needs to be recorded.

Question 19

Clear Window Cleaners 
Clear Window Cleaners purchased new cleaning equipment at the beginning of 2011. The equipment has a cost of $53,000, an estimated life of 5 years, and an estimated residual value of $3,000. A full year's depreciation expense is to be recorded in 2011. The equipment was used 20,000 hours during 2011 and 24,000 hours during 2012. The number of expected hours over five years is 125,000.
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Refer to the information provided for Clear Window Cleaners. By what amount would double-declining-balance depreciation exceed straight-line depreciation over the 5-year life of the equipment?
A) The salvage value of $3,000.
B) Cost less total depreciation.
C) Cost plus total depreciation.
D) Total depreciation expenses under double-declining-balance and straight-line depreciation are equal.

Accepted Answer

Over the 5-year life of the equipment, total depreciation expenses under both double-declining-balance and straight-line methods will equal the cost minus the residual value, so they are equal.

Question 20

Which of the following should be included in the acquisition cost of a piece of equipment?
A) Transportation costs
B) Installation costs
C) Testing costs prior to placing the equipment into production
D) All of the above

Accepted Answer

All costs associated with acquiring and making the equipment operational should be included in the acquisition cost. This includes transportation, installation, and testing costs.

Quiz 8: Fixed Assets and Intangible Assets

Able Company purchased land and incurred the following costs: Purchase price $~\$1,000,000$ Excavation cost $100,000$ Rarzing wild building $25,000$ Broker fees $~~~~20,000$ Cost off property taxas $50,000$ What is the cost of the land?

Which of the following costs related to the purchase of production equipment incurred by ABC Company during 2011 would be considered a revenue expenditure?

Depreciation is a process by which:

Which of the following accounts would not be reported in the property, plant, and equipment section of a balance sheet?

On the balance sheet, the cumulative amount of depreciation expense recognized to date on a fixed asset is called:

Plant assets are depreciated because:

Land is not depreciated because:

Depreciation is:

Assets classified as property, plant, and equipment are reported at:

Which of the following is included in the cost of constructing a building?

The effect of recording depreciation for the year is a(n) :

Which of the following should be included in the acquisition cost of a piece of equipment?