Question 1

Smiley Corporation sold equipment costing $72,000 with $66,000 of accumulated depreciation for $10,000 cash. Which of the following journal entries should be prepared?

Accepted Answer

The correct entry involves debiting Cash for the amount received ($10,000), debiting Accumulated Depreciation for the amount accumulated ($66,000), crediting Equipment for its original cost ($72,000), and crediting Gain on Sale of Equipment for the difference ($4,000).

Question 2

On January 1, 2016, Williams Company, Inc. purchased machinery for $350,000 and depreciated it on a straight-line basis over 20 years. The estimated residual value was zero. On January 1, 2019, the company realized the machine will remain useful for only 5 more years and also revised the residual value to $12,000.
Required:
1. What is the depreciation expense per year before the change in estimate?
2. What is the revised depreciation expense per year?
3. Prepare the adjusting journal entry for the year ending December 31, 2019. Omit the explanation.

Accepted Answer

The answer of On January 1, 2016, Williams Company, Inc....

Question 3

Before accounting for the disposal of a plant asset, the business should bring depreciation up to date in order to determine the asset's original cost.

Accepted Answer

Depreciation is updated to determine the asset's book value (cost minus accumulated depreciation), not its original cost. The original cost remains unchanged.

Question 4

In respect to accounting for depreciation, IFRS uses a components approach for assets such as buildings, aircraft, and manufactured equipment.

Accepted Answer

Under IFRS, assets such as buildings, aircraft, and manufactured equipment are required to be depreciated using a components approach. This means that each significant part or component of the asset is separately depreciated based on its useful life and depreciation method.

Question 5

A plant asset is acquired by a business on January 1, 2016, for $100,000. The asset's estimated residual value is $10,000 and its estimated life is 5 years. Management chooses to use straight-line depreciation.
On January 1, 2018, management revises the total useful life to 8 years and the residual value to $5,000.
Required:
1. Compute the balance in Accumulated Depreciation on January 1, 2018.
2. Compute the Depreciation Expense for the year ending December 31, 2018.
3. Compute the balance in Accumulated Depreciation on December 31, 2018.
4. Prepare the adjusting journal entry on December 31, 2018 for the year. Omit the explanation.

Accepted Answer

The answer of A plant asset is acquired by a...

Question 6

When plant assets are exchanged, the gain or loss on the exchange equals:

Accepted Answer

The gain or loss on the exchange equals the difference between the fair value and the book value of the asset given up. This is because the fair value of the asset received is already incorporated into the accounting records as the cost of the new asset. Therefore, the only difference that needs to be accounted for is the difference between the book value of the old asset and its fair value.

Question 7

Martindale Motors purchased a machine that will help diagnose problems with engines that are used in its production department. The machine was purchased on January 1, 2017 at a cost of $210,000. A residual value of $10,000 was estimated. The expected useful life is 5 years. In 2017, Martindale Motors has a gross profit of $400,000 and operating expenses of $180,000. The tax rate is 35%.
Required:
1. Compute the depreciation expense for 2017 under both the straight-line and double-declining-balance depreciation methods.
2. What is the net cash saved if the accelerated depreciation method is used in 2017?

Accepted Answer

The answer of Martindale Motors purchased a machine that will...

Question 8

A company purchased a machine for $100,000. The accumulated depreciation on the machine is now $100,000. Which of the following statements is TRUE regarding the disposal of the machine for no cash proceeds?

Accepted Answer

When the accumulated depreciation equals the cost of the asset, disposing of it for no cash proceeds means there is no gain or loss, as the book value of the asset is zero.

Question 9

A Loss on Sale of Equipment will result when the book value of the equipment exceeds the cash received from the sale of the equipment.

Accepted Answer

When the cash received from the sale of equipment is less than the book value of the equipment, it means the equipment was sold for less than its recorded value, resulting in a loss on sale.

Question 10

A machine costing $40,000 was purchased on January 1, 2017. It has an estimated useful life of 5 years and a salvage value of $5,000.
Required:
1. Calculate depreciation expense for 2017 and 2018 using (a)straight-line rate, and (b)double-declining-balance method.
2. Determine the book value of the machine at December 31, 2018 under the (a)straight-line method and (b)double-declining-balance method.

Accepted Answer

The answer of A machine costing $40,000 was purchased on...

Question 11

Gains on the sale of equipment increase net income while losses on the sale of equipment decrease net income.

Accepted Answer

Gains on the sale of equipment represent a positive amount, which increases net income, while losses on the sale of equipment represent a negative amount, which decreases net income.

Question 12

U.S. Generally Accepted Accounting Principles require the reporting of plant assets at ________ on the balance sheet. International Financial Reporting Standards allow the reporting of plant assets at ________ on the balance sheet.

Accepted Answer

U.S. Generally Accepted Accounting Principles require reporting of plant assets at historical cost on the balance sheet. International Financial Reporting Standards allow reporting of plant assets at fair market value on the balance sheet.

Question 13

Katie's Garden Company purchased a machine on July 1, 2017. The machine cost $200,000 and has an estimated residual value of $20,000. The expected useful life is 8 years. The machine is to be used for 100,000 machine hours.
Required:
1. Calculate the depreciation expense for 2017 and 2018 using the straight-line method.
2. Calculate the depreciation expense for 2017 and 2018 using the units-of-production method. The machine was used for 8,000 machine hours in 2017 and 23,000 machine hours in 2018.
3. Calculate the depreciation expense for 2017 and 2018 using the double-declining-balance method.

Accepted Answer

The answer of Katie's Garden Company purchased a machine on...

Question 14

Equipment purchased for $80,000 on January 1, 2015, was sold on July 1, 2018. The company uses the straight-line method of computing depreciation and recognizes $15,000 of depreciation expense annually. When recording the sale, the company should record a debit to Accumulated Depreciation for:

Accepted Answer

The equipment was used for 3.5 years (from January 1, 2015, to July 1, 2018). At $15,000 per year, the accumulated depreciation would be $15,000 x 3.5 = $52,500.

Question 15

To account for the disposal of a plant asset, the cost of the asset and its related accumulated depreciation are removed from the books.

Accepted Answer

This is true. When a plant asset is disposed of, its cost and accumulated depreciation are removed from the books to reflect the fact that the asset is no longer in use and has been fully accounted for.

Question 16

Franco Company sold office furniture for $2400 cash. The furniture cost $70,000 and had accumulated depreciation through the date of sale totaling $32,000. The company will recognize:

Accepted Answer

The book value of the furniture is $70,000 - $32,000 = $38,000. The sale price is $2,400. The loss is $38,000 - $2,400 = $35,600.

Question 17

Equipment costing $50,000 with a book value of $16,000 is sold for $21,000. Which journal entry is used to record the sale?

Accepted Answer

The equipment's accumulated depreciation is $34,000 ($50,000 cost - $16,000 book value). The sale involves debiting Cash for $21,000, debiting Accumulated Depreciation for $34,000, crediting Equipment for $50,000, and crediting Gain on Sale of Equipment for $5,000 ($21,000 sale price - $16,000 book value).

Question 18

A company purchased a machine for $200,000. The accumulated depreciation on the machine is now $130,000. The machine is junked. Which journal entry is prepared to record the disposal?

Accepted Answer

The machine's book value is $70,000 ($200,000 cost - $130,000 accumulated depreciation). When junked, this amount is a loss. The entry debits the loss and accumulated depreciation, and credits the machine's original cost.

Question 19

The Loss on Disposal of Equipment account is reported as Other income (expense)on the income statement.

Accepted Answer

The Loss on Disposal of Equipment account is considered an expense and is reported as Other expense on the income statement.

Question 20

Equipment acquired on January 1, 2014, is sold on June 30, 2018, for $11,200. The equipment cost $46,500, had an estimated residual value of $6400, and an estimated useful life of 5 years. The company prepares financial statements on December 31, and the equipment has been depreciated using the straight-line method. On June 30, 2018, the company should record Depreciation Expense of:

Accepted Answer

The equipment was sold for $11,200, which is $4,800 more than its book value of $6,400 ($46,500 cost - $40,100 accumulated depreciation). This gain on sale of $4,800 is recognized in the income statement. The depreciation expense for the first six months of 2018 is $4,650 ($46,500 cost - $6,400 accumulated depreciation / 5 years * 6 months).

Quiz 7: Plant Assets, Natural Resources, Intangibles