Question 1

Which of the following is not true of ordinary repairs? A)They primarily benefit the current accounting period. B)They can be referred to as revenue expenditures. C)They maintain the expected productive life of the asset. D)They increase the productive capacity of the asset.

Accepted Answer

Ordinary repairs are meant to maintain the expected productive life of the asset and keep it in good working condition. They are classified as revenue expenditures because they benefit only the current accounting period. However, they do not increase the productive capacity of the asset as that would require capital expenditures.

Question 2

Expenditures that add to the utility of plant assets for more than one accounting period are
A)committed expenditures.
B)revenue expenditures.
C)current expenditures.
D)capital expenditures.

Accepted Answer

Capital expenditures are expenditures that add to the utility of plant assets for more than one accounting period. These expenditures are considered investments in the company's long-term assets and are typically depreciated over their useful lives.

Question 3

An expenditure for which of the following items would be considered a revenue expenditure?
A)Plant asset.
B)Ordinary repair.
C)Addition.
D)Improvements.

Accepted Answer

An ordinary repair is a revenue expenditure because it is made to maintain or restore an asset to its original condition, rather than to increase its productive capacity or extend its useful life.

Question 4

An asset was purchased for $140000.It had an estimated salvage value of $35000 and an estimated useful life of 10 years.After 5 years of use the estimated salvage value is revised to $28000 but the estimated useful life is unchanged.Assuming straight-line depreciation depreciation expense in Year 6 would be
A)$21000.
B)$14875.
C)$11900.
D)$17500.

Accepted Answer

The answer of An asset was purchased for $140000.It had...

Question 5

A machine that was purchased on January 1 for $60000 has an estimated salvage value of $12000.If the machine's depreciation rate is 20% its annual depreciation is
A)$12000.
B)$48000.
C)$9600.
D)$14400.

Accepted Answer

The depreciation rate is 20% of the original cost, which is $60000. So, the annual depreciation is 20% of $60000, which is $12000. However, we also need to subtract the salvage value from the original cost, giving us a depreciable base of $48000. 
Therefore, the annual depreciation is ($48000 * 0.20) = $9600. 
So, the answer is C.

Question 6

An asset was purchased for $400000.It had an estimated salvage value of $80000 and an estimated useful life of 10 years.After 5 years of use the estimated salvage value is revised to $64000 but the estimated useful life is unchanged.Assuming straight-line depreciation depreciation expense in Year 6 would be
A)$48000.
B)$35200.
C)$24000.
D)$33600.

Accepted Answer

The answer of An asset was purchased for $400000.It had...

Question 7

Jack's Copy Shop bought equipment for $240000 on January 1 2021.Jack estimated the useful life to be 3 years with no salvage value and the straight-line method of depreciation will be used.On January 1 2022 Jack decides that the business will use the equipment for a total of 5 years.What is the revised depreciation expense for 2022?
A)$80000.
B)$32000.
C)$40000.
D)$60000.

Accepted Answer

Since Jack decided to use the equipment for a total of 5 years, we need to adjust the remaining life for the equipment by subtracting the already used 1 year from the estimated life of 3 years. 
Revised Remaining Life of Equipment = 3 years (Estimated life) - 1 year (Already used) = 2 years 
Thus, the revised depreciation expense for 2022 is: 
Depreciation Expense = (Cost of Equipment - Salvage Value) / Useful Life 
Depreciation Expense = ($240,000 - $0) / 2 years = $120,000 / 2 years = $60,000 per year 
Therefore, the correct answer is C) $40,000 because the depreciation expense for 2022 would be for the revised remaining life of 2 years, which would be $60,000 x 2 years = $120,000. But since $60,000 was already expensed in the first year of ownership, the additional depreciation expense in 2022 would be only $120,000 - $60,000 = $40,000.

Question 8

Ron's Quik Shop bought equipment for $140000 on January 1 2021.Ron estimated the useful life to be 5 years with no salvage value and the straight-line method of depreciation will be used.On January 1 2022 Ron decides that the business will use the equipment for a total of 6 years.What is the revised depreciation expense for 2022?
A)$22400.
B)$11200.
C)$18666. d $28000.

Accepted Answer

The answer of Ron's Quik Shop bought equipment for $140000...

Question 9

Grant Company has decided to change the estimate of the useful life of an asset that has been in service for 2 years.Which of the following statements describes the proper way to revise a useful life estimate?
A)Revisions in useful life are permitted if approved by the IRS.
B)Retroactive changes must be made to correct previously recorded depreciation.
C)Only future years will be affected by the revision.
D)Both current and future years will be affected by the revision.

Accepted Answer

Revising the useful life estimate will affect both current and future years. The company must make retroactive changes to correct previously recorded depreciation in order to reflect the new estimate accurately. There is no requirement for IRS approval to change the estimate, but the company should have a valid reason and supporting documentation for the change.

Question 10

A change in the estimated useful life of equipment requires
A)a retroactive change in the amount of periodic depreciation recognized in previous years.
B)that no change be made in the periodic depreciation so that depreciation amounts are comparable over the life of the asset.
C)that the amount of periodic depreciation be changed in the current year and in future years.
D)that income for the current year be increased.

Accepted Answer

A change in estimated useful life of equipment requires that the amount of periodic depreciation be changed in the current year and in future years. This is because the change affects the expected pattern of the asset's consumption of its usefulness, and therefore should be reflected in the depreciation expense recognized going forward. Option A is incorrect because a retroactive change would not only affect previous years but also the current year and future years. Option B is incorrect because, as explained earlier, a change in estimated useful life requires that the periodic depreciation be changed. Option D is incorrect because a change in estimated useful life does not necessarily affect income for the current year.

Question 11

Expenditures that maintain the operating efficiency and expected productive life of a plant asset are generally
A)expensed when incurred.
B)capitalized as a part of the cost of the asset.
C)added to the Accumulated Depreciation account.
D)not recorded until they become material in amount.

Accepted Answer

Expenditures that maintain the operating efficiency and expected productive life of a plant asset are considered routine maintenance and repairs, and are therefore expensed when incurred.

Question 12

Machinery was purchased for $340000.Freight charges amounted to $14000 and there was a cost of $40000 for building a foundation and installing the machinery.It is estimated that the machinery will have a $60000 salvage value at the end of its 5-year useful life.Depreciation expense each year using the straight-line method will be
A)$78800.
B)$66800.
C)$57200.
D)$56000.

Accepted Answer

The total cost of the machinery, including the additional expenses, is: 
$340000 + $14000 + $40000 = $394000

Depreciation expense per year can be calculated as: 
($394000 - $60000) / 5 = $66800

Therefore, the answer is B) $66800.

Question 13

Additions and improvements
A)occur frequently during the ownership of a plant asset.
B)normally involve immaterial expenditures.
C)increase the company's investment in productive facilities.
D)typically only benefit the current accounting period.

Accepted Answer

Additions and improvements to plant assets increase the company's investment in productive facilities, which is a long-term benefit rather than just a current period benefit. While these additions and improvements may occur frequently, they are not necessarily immaterial expenditures, as they can greatly impact the value and functionality of the asset.

Question 14

Equipment costing $105000 with a salvage value of $21000 and an estimated life of 8 years has been depreciated using the straight-line method for 2 years.Assuming a revised estimated total life of 6 years and no change in the salvage value the depreciation expense for Year 3 would be
A)$15750.
B)$14000.
C)$21000.
D)$10500.

Accepted Answer

The answer of Equipment costing $105000 with a salvage value...

Question 15

Compton Inc.made a $500 ordinary repair to a piece of equipment.Compton's accountant added this amount to the asset account Equipment and decreased Cash.Was this action correct and if not why not?
A)Yes this action was correct.
B)No the correct action would be to increase Maintenance and Repairs Expense and decrease Cash.
C)No the correct action would be to increase Cash and decrease Maintenance and Repairs Expense.
D)No the correct action would be to decrease Service Revenue and decrease Cash.

Accepted Answer

Ordinary repairs should be recorded as an expense in the period they occur, not added to the asset account. Therefore, the correct action would be to increase Maintenance and Repairs Expense and decrease Cash.

Question 16

Machinery was purchased for $340000 on January 1 2022.Freight charges amounted to $14000 and there was a cost of $40000 for building a foundation and installing the machinery.It is estimated that the machinery will have a $60000 salvage value at the end of its 5-year useful life.What is the amount of accumulated depreciation at December 31 2023 if the straight-line method of depreciation is used?
A)$133600.
B)$66800.
C)$57200.
D)$114400.

Accepted Answer

The answer of Machinery was purchased for $340000 on January...

Question 17

Jamison Inc.is a regional air cargo carrier.Jamison made a $4500 improvement to one of its airplanes.If Jamison's accountant expensed this amount which of the following statements is true?
A)This will improperly understate net income for the year.
B)This will improperly overstate net income for the year.
C)This is the correct treatment.
D)This will overstate the balance sheet for the year.

Accepted Answer

Expensing the $4500 improvement would improperly understate the company's net income for the year because the improvement should be capitalized as a long-term asset and depreciated over its useful life. This would spread the cost of the improvement over multiple years rather than expensing it all in the current year, which would provide a more accurate representation of the company's financial position.

Question 18

All of the following are factors that a company should consider before an impairment write-down of an asset is recorded except A)an appraisal of the asset. B)market trends. C)company profits. D)obsolescence of the asset.

Accepted Answer

Company profits are not relevant when considering an impairment write-down of an asset. The factors that a company should consider include an appraisal of the asset, market trends, and the obsolescence of the asset. These factors help the company determine if the asset's value has decreased and if it needs to be written down to its fair value.

Question 19

All of the following statements regarding impairments are true except A)an impairment is a permanent decline in an asset's market value. B)after an impairment write-down depreciation is generally lower in a subsequent periods. C)immediate recognition of impairment write-downs is now required. D)impairments are generally recorded when the book value falls below the market value.

Accepted Answer

The answer of All of the following statements regarding impairments...

Question 20

Equipment costing $60000 with a salvage value of $12000 and an estimated life of 8 years has been depreciated using the straight-line method for 2 years.Assuming a revised estimated total life of 5 years and no change in the salvage value the depreciation expense for Year 3 would be
A)$7200.
B)$16000.
C)$12000.
D)$9600.

Accepted Answer

The answer of Equipment costing $60000 with a salvage value...

Quiz 7: Reporting and Analyzing Liabilities and Stockholders Equity

Which of the following is not true of ordinary repairs?

Expenditures that add to the utility of plant assets for more than one accounting period are

An expenditure for which of the following items would be considered a revenue expenditure?

A machine that was purchased on January 1 for $60000 has an estimated salvage value of $12000.If the machine's depreciation rate is 20% its annual depreciation is

Grant Company has decided to change the estimate of the useful life of an asset that has been in service for 2 years.Which of the following statements describes the proper way to revise a useful life estimate?

A change in the estimated useful life of equipment requires

Expenditures that maintain the operating efficiency and expected productive life of a plant asset are generally

Additions and improvements

Equipment costing $105000 with a salvage value of $21000 and an estimated life of 8 years has been depreciated using the straight-line method for 2 years.Assuming a revised estimated total life of 6 years and no change in the salvage value the depreciation expense for Year 3 would be

Compton Inc.made a $500 ordinary repair to a piece of equipment.Compton's accountant added this amount to the asset account Equipment and decreased Cash.Was this action correct and if not why not?

Jamison Inc.is a regional air cargo carrier.Jamison made a $4500 improvement to one of its airplanes.If Jamison's accountant expensed this amount which of the following statements is true?

All of the following are factors that a company should consider before an impairment write-down of an asset is recorded except

All of the following statements regarding impairments are true except

Equipment costing $60000 with a salvage value of $12000 and an estimated life of 8 years has been depreciated using the straight-line method for 2 years.Assuming a revised estimated total life of 5 years and no change in the salvage value the depreciation expense for Year 3 would be