Question 1

A company purchases property that includes land,buildings,and equipment for $5.5 million.The company pays $180,000 in legal fees,$220,000 in commissions,and $100,000 in appraisal fees.The land is estimated at 25%,the buildings are at 40%,and the equipment at 35% of the property value.Prepare the journal entry that is required to record the purchase assuming that the company paid 50% of the amounts using cash and signed a note for the remainder.Explain how you derived your answer.

Accepted Answer

The answer of A company purchases property that includes land,buildings,and...

Question 2

A declining fixed asset turnover ratio suggests that a:
A)company is not as efficient in using its fixed assets as it was in previous periods.
B)company's net sales must be increasing.
C)company must have purchased some intangible assets.
D)company's beginning fixed asset balance must be greater than its ending fixed asset balance.

Accepted Answer

A declining fixed asset turnover ratio means that the company is generating fewer sales from its fixed assets, which suggests that it is not as efficient in using its fixed assets as it was in previous periods. It does not necessarily mean that the company's net sales are increasing or that it has purchased intangible assets, and it is not directly related to the beginning and ending fixed asset balances.

Question 3

Straight-line depreciation results in,
A)Depreciation expense being a constant amount each year.
B)Accumulated depreciation increasing by an equal amount each year.
C)Book value decreasing by the same equal amount each year.
D)All of the choices are correct.

Accepted Answer

Straight-line depreciation results in a constant amount of depreciation expense being recorded each year, which in turn causes accumulated depreciation to increase by an equal amount each year. As a result, the book value of the asset decreases by the same equal amount each year. Therefore, all of the choices are correct.

Question 4

Company A uses an accelerated depreciation method while Company B uses the straight-line method.All other things equal,during the first few years of the asset's use,Company B will show which of the following compared to Company A?
A)A smaller fixed asset turnover ratio and a smaller gain on asset disposal.
B)A larger fixed asset turnover ratio and a larger gain on asset disposal.
C)A smaller fixed asset turnover ratio and a larger gain on asset disposal.
D)A larger fixed asset turnover ratio and a smaller gain on asset disposal.

Accepted Answer

The answer of Company A uses an accelerated depreciation method...

Question 5

All of the following costs should be capitalized when land is acquired,except,
A)Purchase cost.
B)Sales taxes.
C)Survey fees.
D)Legal fees.

Accepted Answer

Sales taxes are not considered part of the cost of land acquisition and therefore should not be capitalized. The purchase cost, survey fees, and legal fees are all typical costs that would be capitalized.

Question 6

Company A uses an accelerated depreciation method while Company B uses the straight-line method for an asset of the same cost and useful life.Other things being equal,which of the following is true?
A)Company A will have higher net income in the early years but Company B will have higher net income towards the end of the asset's useful life.
B)Company A will consistently have the larger net income until residual value is reached.
C)Company B will have higher net income in the early years but Company A will have higher net income towards the end of the asset's useful life.
D)Company B will consistently have the larger net income until residual value is reached.

Accepted Answer

Accelerated depreciation method results in higher depreciation expense in the early years of an asset's life and lower depreciation expense towards the end. This leads to higher expenses and lower net income in the early years for Company A. On the other hand, straight-line depreciation method charges the same amount of depreciation expense each year, resulting in a consistent net income for Company B over the life of the asset. However, towards the end of the asset's useful life, the asset's book value will be low, resulting in lower depreciation expense for Company A and higher net income compared to Company B. Therefore, Company B will have higher net income in the early years but Company A will have higher net income towards the end of the asset's useful life.

Question 7

Decorama Corp.bought a delivery van for $65,000 with a estimated residual value of $6,000.The van is expected to be used for the next 10 years.The company estimates it will be used to drive a total of 225,000,000 km (30,000 km in the first year,25,000 in the second,third and fourth years and 20,000 in the next six years. What would be the amount of depreciation expense in year 2 using the units-of-production method?
A)$6,500.00
B)$5,900.00
C)$10,400.00
D)$6,555.55

Accepted Answer

(Cost - residual value)* (actual km this period/estimated total km)Year 2: ($65,000 - $6,000)* (25,000/225,000)= $6,555.55.

Question 8

All of the following costs should be capitalized when buildings are acquired,except,
A)Purchase cost.
B)Sales taxes.
C)Appraisal fees.
D)Legal fees.

Accepted Answer

The answer of All of the following costs should be...

Question 9

Which of the following methods would be a typical choice when asset use fluctuates significantly from period to period?
A)Straight line method
B)Double declining method
C)Units of production method
D)Depletion

Accepted Answer

The units of production method is the best choice when asset use fluctuates significantly from period to period because it matches the asset's depreciation to its actual usage. This method calculates the depreciation based on the number of units produced or hours used each period, rather than assuming a constant rate of use. This results in a more accurate reflection of the asset's value over time.

Question 10

Assuming two companies use the same accounting methods,other things being equal,the company with a higher fixed asset turnover ratio:
A)has a greater amount invested in fixed assets than a company with a lower fixed asset turnover ratio.
B)has less invested in fixed assets than a company with a lower fixed asset turnover ratio.
C)generates less sales revenue than a company with a lower fixed asset turnover ratio.
D)makes better use of its fixed assets to generate revenues than a company with a lower fixed asset turnover ratio.

Accepted Answer

A higher fixed asset turnover ratio means that a company generates more sales revenue per dollar invested in fixed assets. Therefore, the company with a higher fixed asset turnover ratio utilizes its fixed assets more efficiently to generate revenue compared to a company with a lower fixed asset turnover ratio.

Question 11

The fixed asset turnover ratio measures the:
A)useful life of long-lived assets.
B)the average difference between book value and disposal value of fixed assets.
C)useful life of intangible assets.
D)efficiency with which the investment in fixed assets produces revenue.

Accepted Answer

The fixed asset turnover ratio is a measure of how efficiently a company is using its fixed assets to generate revenue. It calculates the amount of revenue generated by each dollar of investment in fixed assets. Therefore, option D is the correct answer. Option A is incorrect because the useful life of long-lived assets is not directly related to the turnover ratio. Option B is incorrect because the average difference between book value and disposal value of fixed assets is not used to measure the turnover ratio. Option C is incorrect because the turnover ratio generally does not measure the useful life of intangible assets.

Question 12

Company A uses an accelerated depreciation method while Company B uses the straight-line method for an asset of the same cost and useful life.Which of the following statements is true?
A)Company A will have higher depreciation expense in the early years but Company B will have the higher expense towards the end of the asset's useful life.
B)Company A will consistently have higher depreciation expense until residual value is reached.
C)Company B will have higher depreciation expense in the early years but Company A will have the higher expense towards the end of the asset's useful life.
D)Company B will consistently have higher depreciation expense until residual value is reached.

Accepted Answer

Accelerated depreciation methods allow for higher depreciation expense in the earlier years of an asset's life, while straight-line depreciation methods allocate the same amount of depreciation expense over the entire useful life of the asset. Therefore, Company A will have higher depreciation expense in the early years, and Company B will have the same amount of depreciation expense every year until the end of the asset's useful life.

Question 13

At the beginning of 2019,your company buys a $30,000 piece of equipment that it expects to use for 4 years.The company expects to produce a total of 200,000 units.The equipment has an estimated residual value of $2,000.
a.Find the depreciable cost.
b.Find the depreciation expense per year under the straight-line method.
c.Prepare an depreciation schedule under the straight-line method.
d.Find the depreciation rate per unit under the units-of-production method.
e.Compare the annual depreciation expense using both methods assuming constant annual production.
f.Prepare an depreciation schedule under the units-of-production method if 44,000 units are produced in year one,53,000 units in year two,51,000 units in year three,and 52,000 units in year four.

Accepted Answer

The answer of At the beginning of 2019,your company buys...

Question 14

Decorama Corp.bought a delivery van for $65,000 with a estimated residual value of $6,000.The van is expected to be used for the next 10 years.The company estimates it will be used to drive a total of 225,000,000 km (30,000 km in the first year,25,000 in the second,third and fourth years and 20,000 in the next six years. What would be the amount of depreciation expense in year 2 using the double-declining-balance method of depreciation?
A)$6,500.00
B)$5,900.00
C)$10,400.00
D)$6,555.55

Accepted Answer

DDB depreciation rate = 2/10 = 20%.
Dep)Exp.per year = (cost - accumulated dep.)* (2/useful life)
Year 1: ($65,000 - 0)* (2/10)= $13,000
Year 2: ($65,000 - $13,000)* (2/10)= $10,400.

Question 15

The only asset that is assumed to have an indefinite useful life is:
A)Property,Plant and Equipment.
B)Contra assets.
C)Land.
D)None of the choices are correct.

Accepted Answer

Land is the only asset that is assumed to have an indefinite useful life. This is because land is considered to have an unlimited lifespan and is not subject to wear and tear or obsolescence, unlike other assets such as buildings or machinery.

Question 16

All of the following costs should be capitalized when equipment is acquired,except,
A)Purchase cost.
B)Sales taxes.
C)Transportation costs.
D)Legal fees.

Accepted Answer

Legal fees are typically expensed when incurred and do not form part of the cost of equipment. The other options - purchase cost, sales taxes, and transportation costs - are all directly related to the acquisition of equipment and should therefore be capitalized.

Question 17

Which of the following methods would be a typical choice for assets that are most productive when they are new but lose their utility quickly as they get older?
A)Straight line method
B)Double declining method
C)Units of production method
D)Depletion

Accepted Answer

The double declining method is a type of accelerated depreciation method suited for assets that are most productive when they are new but lose their utility quickly as they get older. This method involves higher depreciation charges in the earlier years of an asset's life and lower charges in the later years, reflecting the asset's declining utility.

Question 18

Company A uses an accelerated depreciation method while Company B uses the straight-line method.All other things equal,during the first few years of the asset's use,Company A will show which of the following compared to Company B?
A)Higher asset values and higher net income.
B)Lower asset values and higher net income.
C)Higher asset values and lower net income.
D)Lower asset values and lower net income.

Accepted Answer

Accelerated depreciation results in higher depreciation expenses in the early years of an asset's life, leading to lower net income and lower asset values on the balance sheet compared to the straight-line method.

Question 19

If net sales revenue and the average book value of fixed assets $\bold{\text{both rise}}$ 5%:
A)the fixed asset turnover ratio will rise.
B)the fixed asset turnover ratio will fall.
C)the fixed asset turnover ratio will stay the same.
D)the impact on the fixed asset turnover ratio cannot be determined since the beginning values are unknown.

Accepted Answer

The fixed asset turnover ratio, calculated as net sales revenue divided by the average book value of fixed assets, will stay the same if both the numerator (net sales revenue) and the denominator (average book value of fixed assets) increase by the same percentage.

Question 20

Decorama Corp.bought a delivery van for $65,000 with a estimated residual value of $6,000.The van is expected to be used for the next 10 years.The company estimates it will be used to drive a total of 225,000,000 km (30,000 km in the first year,25,000 in the second,third and fourth years and 20,000 in the next six years. What would be the amount of depreciation expense in year 2 using the straight line depreciation method?
A)$6,500.00
B)$5,900.00
C)$10,400.00
D)$6,555.55

Accepted Answer

(65,000 - 6,000)/10 = $5,900.

Quiz 9: Long-Lived Tangible and Intangible Assets

A declining fixed asset turnover ratio suggests that a:

Straight-line depreciation results in,

Company A uses an accelerated depreciation method while Company B uses the straight-line method.All other things equal,during the first few years of the asset's use,Company B will show which of the following compared to Company A?

All of the following costs should be capitalized when land is acquired,except,

Company A uses an accelerated depreciation method while Company B uses the straight-line method for an asset of the same cost and useful life.Other things being equal,which of the following is true?

All of the following costs should be capitalized when buildings are acquired,except,

Which of the following methods would be a typical choice when asset use fluctuates significantly from period to period?

Assuming two companies use the same accounting methods,other things being equal,the company with a higher fixed asset turnover ratio:

The fixed asset turnover ratio measures the:

Company A uses an accelerated depreciation method while Company B uses the straight-line method for an asset of the same cost and useful life.Which of the following statements is true?

The only asset that is assumed to have an indefinite useful life is:

All of the following costs should be capitalized when equipment is acquired,except,

Which of the following methods would be a typical choice for assets that are most productive when they are new but lose their utility quickly as they get older?

Company A uses an accelerated depreciation method while Company B uses the straight-line method.All other things equal,during the first few years of the asset's use,Company A will show which of the following compared to Company B?

If net sales revenue and the average book value of fixed assets both rise\bold{\text{both rise}}both rise 5%:

If net sales revenue and the average book value of fixed assets $\bold{\text{both rise}}$ 5%: