Question 1

Lewis Imports sold a depreciable plant asset for cash of $135,000.The accumulated depreciation amounted to $170,000,and a loss of $15,000 was recognized on the sale.Under these circumstances,the original cost of the asset must have been:

Accepted Answer

The answer of Lewis Imports sold a depreciable plant asset...

Question 2

A gain is recognized on the disposal of plant assets when:

Accepted Answer

A gain on the disposal of plant assets is recognized when the sales price is greater than the book value. Additionally, if the sales price exceeds the residual value (i.e. the estimated salvage value at the end of the asset's useful life), the gain should be recorded as the difference between the sales price and the book value. Therefore, C is the correct choice as it satisfies both conditions.

Question 3

Suffolk Associates sold office furniture for cash of $42,000.The accumulated depreciation at the date of sale amounted to $38,000,and a gain of $18,000 was recognized on the sale.The original cost of the asset must have been:

Accepted Answer

The formula for calculating gain on sale of an asset is:

Gain on Sale = Proceeds from Sale – Book Value of Asset

Book Value = Original Cost – Accumulated Depreciation

From the given information:

Proceeds from Sale = $42,000

Accumulated Depreciation = $38,000

Gain on Sale = $18,000

Substituting the given values in the formula:

$18,000 = $42,000 – Book Value

Book Value = $24,000

Book Value = Original Cost – Accumulated Depreciation

$24,000 = Original Cost – $38,000

Original Cost = $62,000

Therefore, the original cost of the asset must have been $62,000. Option B is the correct answer.

Question 4

An asset which costs $97,600 and has accumulated depreciation of $82,000 is sold for $18,000.What amount of gain or loss will be recognized when the asset is sold?

Accepted Answer

The book value of the asset is $97,600 - $82,000 = $15,600. The asset is sold for $18,000, resulting in a gain of $18,000 - $15,600 = $2,400.

Question 5

For depreciable property other than real estate,MACRS is based upon:

Accepted Answer

MACRS, or the Modified Accelerated Cost Recovery System, is based on the declining-balance method of depreciation for depreciable property other than real estate. This method allows for higher depreciation deductions in the earlier years of the asset's useful life, with the amount of depreciation declining over time.

Question 6

The gain or loss on the disposal of a depreciable asset reported in financial statements often differs from that reported for income tax purposes.The principal reason for the difference is:

Accepted Answer

The main reason for the difference in gain or loss on disposal of depreciable asset reported in financial statements and income tax returns is the use of different depreciation methods. Different methods can result in different accumulated depreciation amounts and thus different book values, causing variations in the gain or loss amount. Choices A and B are incorrect because the cost and sales price of the asset are typically the same for financial reporting and income tax purposes. Choice D is incorrect because it is not necessarily an error, as the differences can arise from legitimate factors such as the use of different depreciation methods.

Question 7

Mayer Instrumentation sold a depreciable asset for cash of $300,000.The original cost of the asset was $1,200,000.Mayer recognized a gain of $45,000 on the sale.What was the amount of accumulated depreciation on the asset at the time of its sale?

Accepted Answer

The amount of accumulated depreciation is found by subtracting the gain and the cash received from the original cost of the asset. So, $1,200,000 - $45,000 - $300,000 = $855,000. However, there was a mistake in my calculation. The correct calculation should be: Original cost ($1,200,000) - Sale price ($300,000) + Gain ($45,000) = Accumulated Depreciation. Therefore, $1,200,000 - $300,000 - $45,000 = $855,000, which does not match any of the provided options, indicating a mistake in my initial explanation. The correct approach to find the accumulated depreciation is to subtract the cash received and the gain from the original cost: $1,200,000 (original cost) - $300,000 (cash received) - $45,000 (gain) = $855,000. However, this calculation was incorrect. The correct calculation is: Original cost - (Cash received - Gain) = Accumulated Depreciation. Therefore, the correct accumulated depreciation should actually be calculated as follows: Original cost ($1,200,000) - (Sale price ($300,000) - Gain ($45,000)) = Accumulated Depreciation. This means the correct formula and answer were not properly identified in my response. The correct answer, based on the proper calculation, is: $1,200,000 - $300,000 + $45,000 = $945,000, which matches option A.

Question 8

Clark Imports sold a depreciable plant asset for cash of $35,000.The accumulated depreciation amounted to $70,000,and a loss of $5,000 was recognized on the sale.Under these circumstances,the original cost of the asset must have been:

Accepted Answer

The answer of Clark Imports sold a depreciable plant asset...

Question 9

When a depreciable asset is sold at a price equal to its book value,a journal entry would include:

Accepted Answer

The answer of When a depreciable asset is sold at...

Question 10

An accelerated depreciation method:

Accepted Answer

An accelerated depreciation method recognizes more depreciation expense in the early years of an asset's useful life and less in the later years. This method is used when an asset is expected to be more productive in the early years of its life compared to later years. It is not used to report higher earnings every year, to depreciate an asset over a shorter life than does the straight-line method, or to account for assets that become technologically obsolete before they physically wear out.

Question 11

Glouchester Associates sold office equipment for cash of $142,000.The accumulated depreciation at date of sale amounted to $138,000,and a gain of $18,000 was recognized on the sale.The original cost of the asset must have been:

Accepted Answer

The original cost of the asset can be calculated by adding the accumulated depreciation and the book value at the time of sale. The book value is the cash received minus the gain on sale. So, $142,000 (cash) - $18,000 (gain) = $124,000 (book value). Adding the accumulated depreciation: $124,000 + $138,000 = $262,000.

Question 12

An asset which costs $14,400 and has accumulated depreciation of $8,000 is sold for $5,600.What amount of gain or loss will be recognized when the asset is sold?

Accepted Answer

The answer of An asset which costs $14,400 and has...

Question 13

An asset which costs $28,800 and has accumulated depreciation of $6,000 is sold for $21,600.What amount of gain or loss will be recognized when the asset is sold?

Accepted Answer

The answer of An asset which costs $28,800 and has...

Question 14

For the financial statements of publicly traded companies,MACRS:

Accepted Answer

MACRS (Modified Accelerated Cost Recovery System) is a method of depreciation that is not considered to be in conformity with Generally Accepted Accounting Principles (GAAP) for financial reporting by publicly traded companies. GAAP requires companies to use a depreciation method that reflects the economic usefulness of the asset over its useful life, whereas MACRS does not take into account the actual useful life of an asset. Therefore, publicly traded companies must use a GAAP-compliant depreciation method in their financial statements.

Question 15

The gain on the disposal of equipment is recognized when:

Accepted Answer

A gain on disposal of equipment is recognized when the book value of the equipment is less than the value received. This indicates that the company received more money for the equipment than they expected, resulting in a gain. It is important to recognize this gain to properly reflect the company's financial statements. If the book value is greater than the value received, it would indicate a loss, and if there is no gain or loss, it indicates that the company received exactly what they expected for the equipment. A salvage value existing does not necessarily mean there is a gain, as it could just offset the cost of disposal.

Question 16

Which of the following statements about MACRS is not correct?

Accepted Answer

While MACRS is a popular method for accelerated depreciation for income tax purposes, it is not required to be used in financial statements. The financial statements can use any depreciation method that is considered to be a reasonable estimate of an asset's useful life and salvage value.

Question 17

Accelerated depreciation methods are used primarily in:

Accepted Answer

Accelerated depreciation methods are primarily used in income tax returns to provide tax benefits by allowing businesses to deduct a larger portion of the asset's cost in the earlier years of the asset's useful life. This reduces the taxable income in the earlier years, which in turn reduces the taxes owed.

Question 18

Cranston Instrumentation sold a depreciable asset for cash of $150,000.The original cost of the asset was $600,000.Cranston recognized a gain of $22,500 on the sale.What was the amount of accumulated depreciation on the asset at the time of its sale?

Accepted Answer

The amount of accumulated depreciation is found by subtracting the gain and the sale price from the original cost: $600,000 - $22,500 - $150,000 = $427,500. However, this calculation was incorrect. The correct calculation should be: Original Cost ($600,000) - Sale Price ($150,000) + Gain ($22,500) = Accumulated Depreciation. Therefore, the correct accumulated depreciation should be $600,000 - $150,000 - $22,500 = $427,500. My initial explanation contained a calculation error. The correct answer, based on the proper calculation, is not listed among the options provided, indicating a mistake in my response.

Question 19

An asset which costs $18,800 and has accumulated depreciation of $6,000 is sold for $11,600.What amount of gain or loss will be recognized when the asset is sold?

Accepted Answer

To calculate the gain or loss, we need to compare the book value (cost - accumulated depreciation) with the amount for which it is sold. 
Book value = $18,800 - $6,000 = $12,800 
Amount sold for = $11,600

Since the amount sold for is less than the book value, there is a loss. 
Loss = Book value - Amount sold for 
Loss = $12,800 - $11,600 
Loss = $1,200 
Therefore, the answer is B, a loss of $1,200.

Question 20

For financial reporting purposes,the gain or loss on the sale of a plant asset is determined by comparing the asset's:

Accepted Answer

When calculating gain or loss on the sale of a plant asset, the sales price needs to be compared with the book value of the asset. Book value is the original cost of the asset minus any accumulated depreciation. If the sales price is higher than the book value, it results in a gain, and if the sales price is lower than the book value, it results in a loss. The tax basis (the value of the asset for tax purposes) is not used in determining gain or loss for financial reporting purposes.

Quiz 9: Plant and Intangible Assets