Question 1

Which of the following describes "depreciable cost"?

Accepted Answer

Depreciable cost is the portion of an asset's cost that can be depreciated over its useful life. It is calculated by subtracting the salvage value of the asset from its original cost. Therefore, option C is the correct answer. Option A describes the carrying value of the asset, while option B is the formula for calculating tax depreciation, and option D only describes the total amount of depreciation that has been taken on the asset so far.

Question 2

Abernethy Corporation is depreciating an asset using the double declining balance method and a 40 percent depreciation rate.What is the estimated economic life of the asset?

Accepted Answer

The answer of Abernethy Corporation is depreciating an asset using...

Question 3

Mallory Technical Services obtained a new machine.Which of the following would not be included in the cost of the machine?

Accepted Answer

Penalty for failure to obtain transport permit is not a direct cost associated with the acquisition of the machine. It is a result of not complying with legal requirements and therefore should not be included in the cost of the machine. The other options, including installation, testing, and invoice price, are all direct costs associated with acquiring and putting the machine into operation.

Question 4

Which of the following is different for straight-line depreciation and declining balance depreciation?

Accepted Answer

The amount of depreciation per year is different for straight-line depreciation and declining balance depreciation. In straight-line depreciation, the same amount of depreciation is charged to the asset every year, while in declining balance depreciation, the amount of depreciation charged decreases each year. The cost of asset, salvage value and economic life remain the same for both methods.

Question 5

Manhattan Corporation owns a jet airplane with an original cost of $958,500 and accumulated depreciation of $644,800.The company exchanged the airplane for 50,000 shares of stock held by another company as an investment.The stock is valued at $5 per share.The gain or loss recognized on the exchange would be:

Accepted Answer

The answer of Manhattan Corporation owns a jet airplane with...

Question 6

Use the following to answer questions
Oceanside Enterprises is trading in its old fishing vessel for a new model. The old fishing vessel is on the books at a cost of $364,000 with accumulated depreciation of $314,600. The new fishing vessel has a list price of $538,000 but the manufacturer has agreed to reduce this by $75,000 in return for Oceanside's old fishing vessel.
-The new fishing vessel should be recorded on the books at a cost of:

Accepted Answer

The cost of the new fishing vessel will be the list price of $538,000 minus the trade-in value of $75,000, which equals $463,000. However, since the old fishing vessel has accumulated depreciation, we need to adjust the cost basis of the new vessel by the same amount. The accumulated depreciation on the old vessel is $314,600, so we subtract this from the cost of the new vessel ($463,000 - $314,600), which gives us a cost basis for the new vessel of $148,400. Therefore, the new fishing vessel should be recorded on the books at a cost of $512,400 ($148,400 + $364,000).

Question 7

Which of the following would be classified as a plant asset?

Accepted Answer

Plant assets are long-term tangible assets used in the production of goods or services. Machinery is an example of a plant asset as it is used in production activities. Land held for future use is not yet being used in production activities and is classified as a long-term investment. Trademarks are intangible assets, and inventory is a current asset.

Question 8

Which of the following would be classified as an intangible asset?

Accepted Answer

A trademark is an intangible asset because it represents intellectual property, which cannot be physically touched or seen. Land, machinery, and inventory are all tangible assets because they have a physical existence.

Question 9

Operational investments in non-renewable assets are referred to as:

Accepted Answer

Natural resources are considered non-renewable assets that companies invest in operationally, such as oil, natural gas, coal, and minerals. These assets are extracted and sold, often involving significant operational investments.

Question 10

O'Conner Corporation purchased land with a building on it.It removed the old building and constructed a new one.Which of the following costs would not be included in the cost of the building?

Accepted Answer

All the listed costs (constructing the new building, removing the old building, building permits, and foundation) are directly associated with the preparation and construction of the new building, and therefore, would be included in the cost of the building.

Question 11

Safeco,Inc.owns a jet airplane with an original cost of $958,500 and accumulated depreciation of $644,800.The company exchanged the airplane for 50,000 shares of stock held by another company as an investment.The stock is valued at $7 per share.The gain or loss recognized on the exchange would be:

Accepted Answer

The book value of the airplane is $313,700 ($958,500 - $644,800). The value of the stock received is $350,000 (50,000 shares x $7). The gain recognized is $36,300 ($350,000 - $313,700).

Question 12

At December 31,2010,Edgar Enterprises had equipment with a book value of $40,000.On December 31,2009,the book value was $55,000.The original cost of the equipment was $75,000.Assuming straight-line depreciation and no salvage value,what is the estimated economic life of the asset?

Accepted Answer

The equipment depreciated by $15,000 over one year ($55,000 - $40,000). The total depreciation needed is $75,000 (original cost) - $0 (salvage value) = $75,000. Dividing the total depreciation by the annual depreciation ($75,000 / $15,000) gives an estimated economic life of 5 years.

Question 13

Use the following to answer questions
Oceanside Enterprises is trading in its old fishing vessel for a new model. The old fishing vessel is on the books at a cost of $364,000 with accumulated depreciation of $314,600. The new fishing vessel has a list price of $538,000 but the manufacturer has agreed to reduce this by $75,000 in return for Oceanside's old fishing vessel.
-The gain or loss recognized on the exchange would be:

Accepted Answer

The answer of Use the following to answer questions
Oceanside Enterprises...

Question 14

The legal life of a patent is:

Accepted Answer

The legal life of a patent is 17 years from the date of issue. This means that for 17 years from the date the patent is issued, the patent owner has the exclusive right to make, use, and sell the invention covered by the patent without interference from others. After 17 years, the patent enters the public domain and can be used by anyone without permission or payment of royalties.

Question 15

Offshore Oil Company owns oil reserves estimated to contain 6,500,000 barrels of oil.The oil reserves originally cost $75,000,000 with an estimated salvage value of $3,500,000.During the current period,1,200,000 barrels of oil were extracted.The depletion rate per barrel was:

Accepted Answer

The answer of Offshore Oil Company owns oil reserves estimated...

Question 16

Laguna Enterprises is trading in its old schooner for a new model.The old schooner is on the books at a cost of $535,000 with accumulated depreciation of $384,300.The new schooner has a list price of $765,000 but the manufacturer has agreed to reduce this by $125,000 in return for Laguna's old schooner.The new schooner should be recorded on the books at a cost of:

Accepted Answer

The answer of Laguna Enterprises is trading in its old...

Question 17

When an exchange is deemed to have no economic substance,the gain is not recognized and is subtracted from which of the following to determine the cost of the new asset.

Accepted Answer

The answer of When an exchange is deemed to have...

Question 18

B&V Enterprises exchanged a used crane with an original cost of $200,000 and accumulated depreciation of $140,000 for a truck with a fair market value of $100,000.B&V also paid cash of $25,000.What amount of gain should B&V report on this transaction?

Accepted Answer

The answer of B&V Enterprises exchanged a used crane with...

Question 19

The intangible asset representing the difference between the purchase price paid for a going concern and the fair market value of the purchased company's identifiable net assets is referred to as:

Accepted Answer

The answer of The intangible asset representing the difference between...

Question 20

Orkney Company has 2-year-old machinery with a book value of $300,000,based on straight-line depreciation.The machinery has a 5 year economic life and $30,000 salvage value.What was the original cost?

Accepted Answer

The answer of Orkney Company has 2-year-old machinery with a...

Quiz 16: Recording and Evaluating Capital Resource Process Activities: Investing