Question 1

On January 2, 2006, KJ Corporation acquired equipment for $260,000. The estimated life of the equipment is 5 years or 40,000 hours. The estimated residual value is $20,000. What is the balance in Accumulated Depreciation on December 31, 2006, if KJ Corporation uses the double- declining- balance method of depreciation?

Accepted Answer

The answer of On January 2, 2006, KJ Corporation acquired...

Question 2

Land is purchased for $62,500. Back taxes paid by the purchaser were $7,500; total costs to demolish an existing building were $11,000; fencing costs were $12,500; and lighting costs were $1,500. What is the cost of the land?

Accepted Answer

The answer of Land is purchased for $62,500. Back taxes...

Question 3

Which of the following depreciation methods best fits those assets that tend to wear out before they become obsolete?

Accepted Answer

The units-of-production method is best for assets that wear out based on usage rather than time, as it allocates depreciation based on actual usage or output.

Question 4

The book value of an asset is defined as:

Accepted Answer

The book value of an asset is calculated as the original cost of the asset minus the accumulated depreciation.

Question 5

Equipment is sold for $20,000 cash that had a book value of $6,000 The statement of cash flows will report a:

Accepted Answer

The sale of equipment is reported as a cash inflow in the investing activities section of the statement of cash flows. The entire cash received from the sale, $20,000, is reported, not just the gain or loss.

Question 6

Tomas Company trades in a printing press for a newer model. The cost of the old printing press was $61,500, and accumulated depreciation up to the date of the trade- in amounts to $38,000. The company also pays $41,200 cash for the newer printing press. The journal entry to acquire the new printing press will require a debit to Equipment for:

Accepted Answer

The answer of Tomas Company trades in a printing press...

Question 7

Deland Company purchased equipment on March 1, 2009, for $130,000. The residual value is $40,000 and the estimated life is 10 years or 60,000 hours. Compute depreciation expense for the year ending December 31, 2009, if the company uses the straight- line method of depreciation.

Accepted Answer

The answer of Deland Company purchased equipment on March 1,...

Question 8

Equipment purchased for $85,000 on January 1, 2006, was sold on July 1, 2009. The company uses the straight- line method of computing depreciation and recognizes $17,000 of depreciation expense annually. When recording the sale, the company should record a debit to Accumulated Depreciation for:

Accepted Answer

The equipment was purchased for $85,000 and depreciated by $17,000 per year for 3.5 years (from January 1, 2006 to July 1, 2009). Therefore, the accumulated depreciation is $17,000 x 3.5 = $59,500. When the equipment is sold, the accumulated depreciation is debited for $59,500.

Question 9

Great Farms Company sold some fully depreciated equipment for $4,100 cash. The equipment had been purchased for $49,600, and the company had estimated the useful life at 8 years and a residual value at $5,600. How will this sale affect Retained Earnings?

Accepted Answer

The answer of Great Farms Company sold some fully depreciated...

Question 10

The main types of plant asset transactions that appear on the Statement of Cash Flows are:

Accepted Answer

Acquisitions, sales, and depreciation are the main types of plant asset transactions that appear on the Statement of Cash Flows.

Question 11

Deland Company purchased equipment on March 1, 2009, for $130,000. The residual value is $40,000 and the estimated life is 10 years or 60,000 hours. Compute depreciation expense for the year ending December 31, 2009, if the company uses the units- of- production method of depreciation and uses the equipment for 9,000 hours.

Accepted Answer

The units-of-production method calculates depreciation based on actual usage. The depreciation per hour is ($130,000 - $40,000) / 60,000 hours = $1.50 per hour. For 9,000 hours, the depreciation expense is 9,000 hours * $1.50/hour = $13,500.

Question 12

Under the MACRS depreciation method, automobiles and equipment are depreciated using the:

Accepted Answer

Under MACRS, automobiles and equipment are typically depreciated using the double-declining-balance method, which is a form of accelerated depreciation.

Question 13

The Augusta Health Company purchased land, buildings and equipment for $2,400,000. The land has been appraised at $915,000, the buildings at $1,125,000 and the equipment at $510,000. The equipment account will be debited for:

Accepted Answer

The answer of The Augusta Health Company purchased land, buildings...

Question 14

Morton Corporation purchased equipment for $46,000. Morton also paid $1,200 for freight and insurance while the equipment was in transit. Sales tax amounted to $850. Insurance, taxes and maintenance for the first year of use was $1,000. How much should Morton Corporation capitalize as the cost of the equipment?

Accepted Answer

Morton should capitalize the purchase price ($46,000), freight and insurance in transit ($1,200), and sales tax ($850), totaling $48,050. The first-year insurance, taxes, and maintenance are not capitalized.

Question 15

Smucker's Company sold equipment costing $65,000 with $60,000 of accumulated depreciation for $10,000 cash. The company's journal entry to record this sale will NOT include a:

Accepted Answer

The gain on sale of equipment is recorded as a credit, not a debit. The gain is calculated as the difference between the sale price ($10,000) and the book value of the equipment ($65,000 cost - $60,000 accumulated depreciation = $5,000 book value), resulting in a $5,000 gain.

Question 16

On January 2, 2007, Mosby Corporation acquired equipment for $200,000. The estimated life of the equipment is 8 years or 35,000 hours. The estimated residual value is $40,000. What is the book value of the equipment on December 31, 2007, if Mosby Corporation uses the double- declining- balance method of depreciation?

Accepted Answer

The answer of On January 2, 2007, Mosby Corporation acquired...

Question 17

All amounts paid to acquire a plant asset and to get it ready for its intended use are referred to as: set up costs.

Accepted Answer

The cost of an asset includes all expenditures necessary to acquire the asset and prepare it for its intended use.

Question 18

Paul's Lodging Corporation purchased equipment on January 1, 2006 for $180,000. The equipment had an estimated useful life of 10 years and an estimated salvage value of $30,000. After using the equipment for 3 years, the company determined that the equipment could be used for an additional 9 years and still have a salvage value. Assuming Paul's Lodging Corporation uses straight- line depreciation, compute depreciation expense for the year ending December 31, 2009.

Accepted Answer

Depreciation expense for the year ending December 31, 2009 is $15,000. The equipment was purchased on January 1, 2006 for $180,000 and has an estimated useful life of 10 years and an estimated salvage value of $30,000. After using the equipment for 3 years, the company determined that the equipment could be used for an additional 9 years and still have a salvage value. Therefore, the new estimated useful life of the equipment is 12 years. The annual depreciation expense is calculated as follows: ($180,000 - $30,000) / 12 = $15,000.

Question 19

On January 2, 2008, Bantam Oil Company purchased an oil well for $625,000. The well contains an estimated 150,000 barrels of oil, with an estimated residual value of $25,000. During 2008, 15,000 barrels of oil were removed from the well. To record depletion for 2008, Bantam Oil Company will debit Depletion Expense for:

Accepted Answer

The depletion expense is calculated using the formula: (Cost - Residual Value) / Estimated Total Barrels * Barrels Extracted. Thus, ($625,000 - $25,000) / 150,000 * 15,000 = $60,000.

Question 20

Repairs made to equipment as part of a yearly maintenance project would be recorded in the journal by debiting:

Accepted Answer

Repairs made to equipment as part of a yearly maintenance project are considered an expense and should be recorded by debiting the Repair Expense account.

Quiz 7: Plant Assets and Intangibles