Question 1

An asset was purchased for $12,000. The asset's estimated useful life was 3 years and its residual value was $2,000. How much gain or loss is reported if the asset is sold for $1,000 at the beginning for the fourth year?

Accepted Answer

The asset was sold for $1,000, which is less than its book value of $2,000 ($12,000 cost - $11,000 accumulated depreciation). Therefore, a loss of $1,000 is reported.

Question 2

An asset was purchased for $12,000. The asset's estimated useful life was 3 years and its residual value was $2,000. How much gain or loss is reported if the asset is sold for $5,333 at the beginning for the third year if the straight line method of depreciation was used?

Accepted Answer

The asset's annual depreciation is ($12,000 - $2,000) / 3 = $3,333. After 2 years, accumulated depreciation is $6,666. The book value at the beginning of the third year is $12,000 - $6,666 = $5,334. Selling for $5,333 results in no significant gain or loss.

Question 3

Kelly Petroleum Products owns furniture that was purchased for $19,600. Accumulated depreciation is $17,300. The furniture was sold for $3,800. Which of the following is the correct entry to record the transaction?

Accepted Answer

The correct entry removes the furniture asset at its original cost ($19,600), recognizes the accumulated depreciation ($17,300), records the cash received ($3,800), and calculates the gain by comparing the net book value of the furniture ($2,300) to the sale price ($3,800), resulting in a gain of $1,500.

Question 4

Kelly Petroleum Products owns fully depreciated equipment that was purchased for $26,500. The equipment had an estimated useful life of 8 years and an estimated residual value of $2,500. The equipment was sold for $2,700. Which of the following is the correct entry to record the transaction?

Accepted Answer

The correct accumulated depreciation is $24,000, calculated as the purchase price ($26,500) minus the residual value ($2,500). The equipment was sold for $2,700, which is $200 more than its residual value, resulting in a gain of $200. This makes option B the correct entry.

Question 5

Lowery Food Market owns refrigeration equipment that cost $10,000 and has accumulated depreciation of $8,500. The company exchanges the equipment for new equipment worth $12,000. In addition to the old equipment, the company pays $10,000 for the new equipment. Which of the following is the correct entry to record the transaction?

Accepted Answer

The answer of Lowery Food Market owns refrigeration equipment that...

Question 6

Kelly Petroleum Products owns furniture that was purchased for $25,000. Accumulated depreciation is $22,000. The furniture was sold for $3,900. Which of the following is the correct entry to record the transaction?

Accepted Answer

The correct entry involves debiting Accumulated Depreciation for $22,000, debiting Cash for $3,900, crediting Furniture for $25,000, and crediting Gain on Sale of Furniture for $900. This reflects the sale of the furniture and the gain realized.

Question 7

Lowery Food Market owns refrigeration equipment that cost $10,000 and has accumulated depreciation of $7,400. The company exchanges the equipment for new equipment worth $12,000. In addition to the old equipment, the company pays $10,000 for the new equipment. Which of the following is the correct entry to record the transaction?

Accepted Answer

The answer of Lowery Food Market owns refrigeration equipment that...

Question 8

To determine if there is a gain or loss on a disposal of an asset, you must compare:

Accepted Answer

The gain or loss on the disposal of an asset is determined by comparing the asset's market value (what it sells for) with its book value (its original cost minus accumulated depreciation). This comparison shows whether the asset sold for more (gain) or less (loss) than its recorded value on the books.

Question 9

Accumulated depletion is a contra-liability account.

Accepted Answer

Accumulated depletion is a contra-asset account, not a contra-liability account. It is used to account for the reduction in value of natural resources as they are extracted.

Question 10

would not be written-off by the depletion method?

Accepted Answer

Land is not a depletable resource and does not lose value through extraction or usage, so it is not written off using the depletion method.

Question 11

patent is an exclusive right to reproduce and sell a book, musical composition, film, other work of art, or computer program, and must be amortized over the useful life of the patent.

Accepted Answer

A patent is an exclusive right granted for an invention, which is a product or a process that provides a new way of doing something, or offers a new technical solution to a problem. It does not cover books, musical compositions, films, or other works of art, which are protected by copyright, nor does it necessarily need to be amortized over its useful life; amortization policies can vary depending on the jurisdiction and specific circumstances.

Question 12

Goodwill of $20,000 was recorded upon the purchase of Smith Repair Parts. The company has been very successful and has increased in value during its first year of operation under its new management. How much amortization should be recorded for the first year?

Accepted Answer

Goodwill is not amortized under U.S. GAAP. Instead, it is tested annually for impairment. Since the question does not mention any impairment, no amortization expense should be recorded.

Question 13

To write-off the cost of a copyright is an example of:

Accepted Answer

Amortization is the process of gradually writing off the initial cost of an intangible asset, such as a copyright, over its useful life.

Question 14

A _________ bars other manufacturers from using the same name for a product.

Accepted Answer

A trademark is a symbol, word, or words legally registered or established by use as representing a company or product, preventing others from using the same name or mark.

Quiz 9: Plant Assets and Intangibles