Question 1

A truck that cost $27,000 has been owned for 3 years and is traded for another truck for the same purpose. Total accumulated depreciation at the time of trade is $17,600. The trade-in value of the old truck is $9,000 and the new truck has a fair market value of $34,000, the new truck would be recorded at:

Accepted Answer

The answer of A truck that cost $27,000 has been...

Question 2

Equipment that originally cost $1,500 with no salvage value has accumulated depreciation of $1,300. The equipment is discarded. The transaction to record the discarding of the equipment would result in a:

Accepted Answer

The book value of the equipment is the original cost ($1,500) minus accumulated depreciation ($1,300), which equals $200. Discarding the equipment with a book value of $200 and no salvage value results in a loss of $200.

Question 3

Expenditures for changing oil in a machine or repainting a car would be:

Accepted Answer

Expenditures for changing oil in a machine or repainting a car are considered maintenance expenses. These costs are charged to an expense account in the period they are incurred because they are necessary for the upkeep of the asset but do not extend its useful life or improve its productive capacity significantly.

Question 4

A task station that originally cost $8,000 has no estimated salvage value and was depreciated at the rate of 20% per year (straight-line depreciation). At the end of the second year, it was sold for $4,000 cash. The transaction would result in a:

Accepted Answer

The answer of A task station that originally cost $8,000...

Question 5

Myers Corporation exchanged an old machine costing $18,000, with an accumulated depreciation of $15,000, and cash of $5,000 for a new machine cash price of $22,000. What is the journal entry?

Accepted Answer

The correct answer is A because it correctly records the exchange of the old machine and cash for the new machine. The debit to Machinery is for the cost of the new machine, the debit to Accumulated Depreciation is for the accumulated depreciation on the old machine, the credit to Machinery is for the cost of the old machine, the credit to Cash is for the cash paid, and the credit to Gain on Disposal of Plant Asset is for the gain on the disposal of the old machine.

Question 6

If an asset is being sold or exchanged, the gain or loss is always computed by comparing the:

Accepted Answer

The gain or loss on the sale or exchange of an asset is computed by comparing the asset's market value (or selling price) with its book value. The book value is the asset's original cost minus any accumulated depreciation. This comparison determines whether the company made a profit (gain) or suffered a loss on the sale of the asset.

Question 7

The Loss on Disposal account is classified as another revenue account.

Accepted Answer

The Loss on Disposal account is an expense account that records the loss when an asset is sold for less than its carrying amount.

Question 8

If a plant asset is fully depreciated and discarded, no ________ or ________ will be realized.

Accepted Answer

The answer of If a plant asset is fully depreciated...

Question 9

The difference between the item's cost and accumulated depreciation is the ________.

Accepted Answer

The answer of The difference between the item's cost and...

Question 10

The entry to record the disposal of a laptop computer with a cost of $3,000 and an accumulated depreciation of $2,500 would be:

Accepted Answer

The correct entry to record the disposal involves removing the asset's cost from the books by debiting Accumulated Depreciation for the amount of depreciation taken over the asset's life ($2,500) and recognizing any loss on disposal by debiting Loss on Disposal of an Asset for the difference between the asset's net book value and its disposal value (in this case, $500, since the asset is fully disposed of with no cash received). The Equipment account is credited for the original cost of the asset ($3,000) to remove it from the books.

Question 11

If an asset is exchanged for a similar asset, a gain results:

Accepted Answer

A gain on the exchange of an asset for a similar asset occurs when the book value (original cost minus accumulated depreciation) of the old asset is less than the trade-in allowance or the fair value of what is received in exchange. This means the company effectively receives more value than the book value of the asset it gives up, resulting in a gain.

Question 12

Some of the past depreciation is canceled in recording an extraordinary repair.

Accepted Answer

Extraordinary repairs extend the useful life of an asset, so the accumulated depreciation is adjusted to reflect the new estimated life and value of the asset.

Question 13

When an asset is exchanged for a similar asset and a gain results, under accounting rules the gain is:

Accepted Answer

When an asset is exchanged for a similar asset and a gain results, the gain is absorbed into the cost of the new asset. This treatment prevents the recognition of the gain in the income statement, reflecting the continuation of the investment in a similar asset rather than a realization of gain.

Question 14

Gains incurred in selling or trading assets are always recognized.

Accepted Answer

Gains incurred in selling or trading assets are not always recognized immediately due to accounting principles like the realization principle, which requires that revenue is recognized only when it is earned and realizable.

Question 15

Hello Online disposed of a van that cost $26,000 with accumulated depreciation of $19,000. The journal entry would include a:

Accepted Answer

The correct journal entry for disposing of a van includes crediting the Van account for its original cost ($26,000), debiting Accumulated Depreciation for the amount accumulated over time ($19,000), and recognizing any loss on disposal (the difference between the van's book value and its disposal value, in this case, $7,000 as a loss since the van's book value is $7,000 [$26,000 cost - $19,000 accumulated depreciation] and it appears to have been disposed of for $0).

Question 16

Corbin Corporation has a plant asset with a cost of $44,000 that is traded for a similar asset priced at $74,000. Assuming accumulated depreciation of $19,000 and a trade-in allowance of $14,000, what is the cost basis for the new asset?

Accepted Answer

The answer of Corbin Corporation has a plant asset with...

Question 17

Pace Works traded a plant asset with a cost of $29,000 and accumulated depreciation of $26,000 for a similar asset priced at $69,000. Assuming a trade-in of $3,100, the cost basis of the new asset under income tax rules is:

Accepted Answer

The answer of Pace Works traded a plant asset with...

Question 18

A budgeted item such as a building is listed as a ________.

Accepted Answer

The answer of A budgeted item such as a building...

Question 19

For tax purposes, the gain or loss on a traded asset is ignored when calculating the value of the new asset.

Accepted Answer

For tax purposes, the gain or loss on a traded asset is considered when calculating the value of the new asset, as it affects the cost basis and potentially the amount of tax owed.

Question 20

A capital expenditure is recorded in an equity account.

Accepted Answer

A capital expenditure is recorded as an asset on the balance sheet, not in an equity account. Equity accounts represent the owner's interest in the company, while capital expenditures are investments in long-term assets.

Quiz 16: Accounting for Property, Plant, Equipment, and Intangible Assets