Question 1

All of the following are needed for the computation of depreciation except
A) residual value.
B) estimated useful life.
C) cost.
D) current market value.

Accepted Answer

Current market value is not needed for the computation of depreciation. Depreciation is based on the cost of the asset, its estimated useful life, and its residual value at the end of its useful life. The current market value is not relevant to the computation of depreciation as it is based on the original cost of the asset rather than its current value.

Question 2

A delivery truck was purchased for $32,000 two years ago. It has a carrying value of $24,000 and an estimated residual value of $4,000. Assuming the use of straight-line depreciation, the truck's estimated useful life must have been
A) three and one-half years.
B) seven years.
C) 14 years.
D) impossible to determine from the facts given.

Accepted Answer

Straight-line depreciation is calculated as (Cost - Residual Value) / Useful Life. Using the given values, we can solve for the useful life:

($32,000 - $4,000) / Useful Life = $24,000
$28,000 / Useful Life = $24,000
Useful Life = $28,000 / $24,000
Useful Life = 1.17 years

Therefore, the estimated useful life of the truck must have been 7 years (rounded up).

Question 3

A building was purchased for $232,000. It currently has accumulated depreciation of $40,000 and had a residual value of $50,000. Assuming the use of straight-line depreciation, its estimated useful life must have been
A) 5 years.
B) 10 years.
C) 14 years.
D) impossible to determine from the facts given.

Accepted Answer

The answer of A building was purchased for $232,000. It...

Question 4

It is necessary to distinguish between capital and revenue expenditures because of which of the following accounting rules or principles?
A) Matching
B) Full disclosure
C) Materiality
D) Consistency

Accepted Answer

The matching principle requires that expenses be matched with the revenue they helped generate in the same accounting period. Capital and revenue expenditures are accounted for differently, with capital expenditures being recorded as an asset and depreciated over time while revenue expenditures are immediately expensed. Failing to distinguish between the two could cause expenses to be mismatched with revenue and violate the matching principle.

Question 5

If a revenue expenditure is incorrectly recorded on a company's books as a capital expenditure, which of the following statements will be true?
A) Stockholders' equity will be overstated at year end.
B) Net income in the following year will be unaffected.
C) Total assets will be understated at year end.
D) Net income will be understated for the year.

Accepted Answer

Recording a revenue expenditure as a capital expenditure will cause an overstatement of assets and, consequently, stockholders' equity, because the expense that should have reduced net income (and thus retained earnings) is capitalized instead. This leads to higher net income and higher retained earnings, part of stockholders' equity.

Question 6

The cost of tearing down a building on land just purchased should be
A) debited to the Land account.
B) debited to the Land Improvements account.
C) debited to the Buildings account.
D) expensed immediately.

Accepted Answer

The cost of tearing down a building on land just purchased is considered part of the land preparation costs and should be debited to the Land account, as it increases the value of the land itself.

Question 7

If a capital expenditure is incorrectly recorded on a company's books as a revenue expenditure, which of the following statements will be true?
A) Net income will be understated for the year.
B) Stockholders' equity will be overstated at year end.
C) Total assets will be overstated at year end.
D) Net income in the following year will be understated.

Accepted Answer

When a capital expenditure is incorrectly recorded as a revenue expenditure, it is expensed immediately rather than being capitalized and depreciated over time. This leads to higher expenses in the current year, which reduces net income for that year.

Question 8

Which of the following terms does not mean the same as the others?
A) Book value
B) Salvage value
C) Scrap value
D) Disposal value

Accepted Answer

Book value refers to the value of an asset according to its balance sheet account balance, while salvage value, scrap value, and disposal value all refer to the estimated residual value of an asset at the end of its useful life.

Question 9

Salvage value is not the same as
A) carrying value.
B) residual value.
C) disposal value.
D) scrap value.

Accepted Answer

Salvage value is synonymous with residual value, disposal value, and scrap value, all referring to the estimated value of an asset at the end of its useful life. Carrying value, however, is the asset's cost minus its accumulated depreciation, which is a different concept.

Question 10

Which of the following most appropriately describes depreciation?
A) Decline in value of plant asset
B) Allocation of cost of plant asset
C) Physical deterioration of plant asset
D) Gradual obsolescence of plant asset

Accepted Answer

Depreciation is the allocation of the cost of a plant asset over its useful life, not a decline in value, physical deterioration, or obsolescence.

Question 11

A machine was purchased for $30,500. It has a current carrying value of $18,000 and had a depreciable cost of $25,000. Its estimated residual value must have been
A) $9,500.
B) $5,500.
C) $2,500.
D) $12,500.

Accepted Answer

The answer of A machine was purchased for $30,500. It...

Question 12

The expensing of a long-lived asset such as a wastebasket is justified by which of the following accounting rules or principles?
A) Matching
B) Materiality
C) Full disclosure
D) Consistency

Accepted Answer

The materiality principle allows for the expensing of small, low-cost items like a wastebasket immediately rather than capitalizing and depreciating them over time because their cost is not significant enough to impact financial decisions.

Question 13

A machine was purchased for $40,000. It has a current carrying value of $26,000 and had a depreciable cost of $36,000. Its estimated residual value must have been
A) $4,000.
B) $10,000.
C) $14,000.
D) impossible to determine from the facts given.

Accepted Answer

The estimated residual value is the value of the asset at the end of its useful life, and it is used to calculate depreciation.

Since the depreciable cost of the machine was $36,000 ($40,000 - $4,000), and its current carrying value is $26,000, the accumulated depreciation is $10,000 ($36,000 - $26,000).

Therefore, the estimated residual value must have been $4,000 ($10,000 + $4,000 = $14,000, which is the depreciable cost minus the current carrying value).

Therefore, the correct answer is A.

Question 14

All of the following are used in estimating a depreciable asset's useful life except
A) the asset's present condition.
B) the useful life required by the government for tax purposes.
C) experience with similar assets.
D) current technology and industry trends.

Accepted Answer

While the useful life required by the government for tax purposes may influence the actual useful life of an asset for accounting purposes, it is not a factor that is used in estimating the asset's useful life. The other options listed are relevant factors in determining an asset's useful life.

Question 15

Office furniture was purchased for $14,000. It had an estimated residual value of $2,000 and has a current carrying value of $6,000. Its depreciable cost must have been
A) $15,000.
B) $9,000.
C) $12,000.
D) impossible to determine from the facts given.

Accepted Answer

The depreciable cost is the cost of the asset minus its estimated residual value. 
So, depreciable cost = Cost of the asset - Estimated residual value
Given, 
Cost of the asset = $14,000 
Estimated residual value = $2,000 
Current carrying value = $6,000

Therefore, 
Depreciable cost = $14,000 - $2,000 = $12,000

Hence, the answer is (C) $12,000.

Question 16

The depreciable cost of an asset is
A) the unexpired cost of the asset.
B) original cost minus residual value.
C) the expired cost of the asset.
D) original cost minus accumulated depreciation.

Accepted Answer

Depreciable cost of an asset is calculated as the original cost of the asset minus its residual value (if any). It represents the portion of the asset's cost that is depreciated over its useful life. Option A is incorrect as unexpired cost is not a commonly used accounting term. Option C is incorrect as expired cost does not represent the cost that is yet to be depreciated. Option D is incorrect as accumulated depreciation is a contra account that reduces the original cost of the asset, it does not represent the depreciable cost.

Question 17

A company purchases land and a building on the land. The land is appraised at $80,000 and the building at $320,000. If the Land account is debited for $104,000, then the total purchase price for the land and building must have been
A) $400,000.
B) $416,000.
C) $520,000.
D) $424,000.

Accepted Answer

The answer of A company purchases land and a building...

Question 18

Office furniture was purchased for $57,000. It had an estimated residual value of $7,000 and has a current carrying value of $9,000. Its depreciable cost must have been
A) $48,000.
B) $50,000.
C) $44,000.
D) $41,000.

Accepted Answer

Depreciable cost = Purchase cost - Residual value
Depreciable cost = $57,000 - $7,000
Depreciable cost = $50,000
Since the current carrying value is higher than the residual value, it means that some depreciation has already been taken, but we do not know how much. Therefore, the original depreciable cost must have been $50,000.

Question 19

Which of the following would not be a basis for estimating the useful life of a piece of equipment?
A) Potential production in units
B) Potential hours of service
C) Historical cost
D) Years of service

Accepted Answer

Historical cost is a measure of how much was paid for the equipment, and it does not provide any information about the useful life of the equipment. Potential production in units, potential hours of service, and years of service are all factors that can help estimate the useful life of a piece of equipment.

Question 20

Equipment was purchased for $78,000. It had an estimated residual value of $12,000 and has a current carrying value of $50,000. Its depreciable cost must have been
A) $62,000.
B) $42,000.
C) $66,000.
D) $28,000.

Accepted Answer

The depreciable cost is the total cost of the equipment minus its estimated residual value. 
Depreciable Cost = Total Cost - Estimated Residual Value 
Depreciable Cost = $78,000 - $12,000 
Depreciable Cost = $66,000 
Therefore, the answer is choice C.

Quiz 11: Long Term Assets

All of the following are needed for the computation of depreciation except

A delivery truck was purchased for $32,000 two years ago. It has a carrying value of $24,000 and an estimated residual value of $4,000. Assuming the use of straight-line depreciation, the truck's estimated useful life must have been

A building was purchased for $232,000. It currently has accumulated depreciation of $40,000 and had a residual value of $50,000. Assuming the use of straight-line depreciation, its estimated useful life must have been

It is necessary to distinguish between capital and revenue expenditures because of which of the following accounting rules or principles?

If a revenue expenditure is incorrectly recorded on a company's books as a capital expenditure, which of the following statements will be true?

The cost of tearing down a building on land just purchased should be

If a capital expenditure is incorrectly recorded on a company's books as a revenue expenditure, which of the following statements will be true?

Which of the following terms does not mean the same as the others?

Salvage value is not the same as

Which of the following most appropriately describes depreciation?

A machine was purchased for $30,500. It has a current carrying value of $18,000 and had a depreciable cost of $25,000. Its estimated residual value must have been

The expensing of a long-lived asset such as a wastebasket is justified by which of the following accounting rules or principles?

A machine was purchased for $40,000. It has a current carrying value of $26,000 and had a depreciable cost of $36,000. Its estimated residual value must have been

All of the following are used in estimating a depreciable asset's useful life except

Office furniture was purchased for $14,000. It had an estimated residual value of $2,000 and has a current carrying value of $6,000. Its depreciable cost must have been

The depreciable cost of an asset is

A company purchases land and a building on the land. The land is appraised at $80,000 and the building at $320,000. If the Land account is debited for $104,000, then the total purchase price for the land and building must have been

Office furniture was purchased for $57,000. It had an estimated residual value of $7,000 and has a current carrying value of $9,000. Its depreciable cost must have been

Which of the following would not be a basis for estimating the useful life of a piece of equipment?

Equipment was purchased for $78,000. It had an estimated residual value of $12,000 and has a current carrying value of $50,000. Its depreciable cost must have been