Question 1

The total cost of an asset less its accumulated depreciation is called:

Accepted Answer

The carrying amount of an asset is its total cost less its accumulated depreciation. Historical cost refers to the original cost of acquiring the asset, present value refers to the current value of future cash flows, current (market) value refers to the market price of the asset and replacement cost refers to the cost of replacing the asset with a similar one.

Question 2

A depreciable asset costing $75,000 is purchased on September 1, Year 1. The asset is estimated to have a residual value of $10,000 and an estimated useful life of 4 years. Double-declining-balance depreciation is used. If the asset is sold on December 31, Year 3 for $13,000, the journal entry to record the sale will include:

Accepted Answer

The answer of A depreciable asset costing $75,000 is purchased...

Question 3

A depreciation method that produces larger depreciation expense during the early years of an asset's life and smaller expense in the later years is a(an):

Accepted Answer

An accelerated depreciation method produces larger depreciation expenses during the earlier years of an asset's life and smaller expenses in the later years. This method recognizes that assets typically experience more wear and tear in the early years, and their productivity or usefulness decreases over time. Examples of accelerated depreciation methods include the double-declining balance method and the sum-of-years-digits method.

Question 4

Capital expenditures:

Accepted Answer

Capital expenditures are additional costs incurred to extend the useful life and increase the efficiency of an asset beyond its original estimate. These expenditures are not expensed as incurred but are capitalized and depreciated over the useful life of the asset.

Question 5

An asset's carrying amount is $36,000 on January 1, Year 6. The asset is being depreciated $500 per month using the straight-line method. Assuming the asset is sold on July 1, Year 7 for $25,000, the company should record:

Accepted Answer

To determine if a gain or loss is recognized on the sale of an asset, we need to compare the book value (carrying amount) of the asset to the proceeds from the sale.

The book value of the asset on July 1, Year 7 (the date of sale) can be calculated as follows:

Book value on January 1, Year 7 = $36,000 - 18 months x $500/month = $27,000

Book value on July 1, Year 7 = $27,000 - 6 months x $500/month = $24,000

Since the asset was sold for $25,000, the company should record a loss on sale of $1,000 ($24,000 - $25,000 = -$1,000). Therefore, the correct answer is E.

Question 6

A company purchased property for a building site. The costs associated with the property were: What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building?

Accepted Answer

All costs associated with preparing the land for its intended use, such as purchase price, legal fees, and site preparation, should be allocated to the land. Since the costs are not specified, the assumption is that all costs are related to land preparation, hence $193,800 to Land and $0 to Building.

Question 7

A company purchased a cash register on January 1 for $5,400. This register has a useful life of 10 years and a residual value of $400. What would be the depreciation expense for the second year of its useful life using the double-declining-balance method?

Accepted Answer

Using the double-declining-balance method, we first calculate the depreciation rate by dividing 1 by the useful life of the asset, and then multiplying it by 2.

Depreciation rate = (1/10) x 2 = 0.2 or 20%

For the second year, we start with the beginning book value, which is the cost of the asset minus the accumulated depreciation from the previous year.

Beginning book value = $5,400 - ($5,400 x 0.2) = $4,320

Depreciation expense for the second year = $4,320 x 0.2 = $864

Therefore, the correct answer is C, $864.

Question 8

The formula for computing annual straight-line depreciation is:

Accepted Answer

The formula for annual straight-line depreciation is Cost less residual value divided by the useful life in years. This formula calculates the annual expense for depreciating an asset in a straight-line over its useful life.

Question 9

A company purchased a rope braiding machine for $190,000. The machine has a useful life of 8 years and a residual value of $10,000. It is estimated that the machine could produce 750,000 units of climbing rope over its useful life. In the first year, 105,000 units were produced. In the second year, production increased to 109,000 units. Using the units-of-production method, what is the amount of depreciation that should be recorded for the second year?

Accepted Answer

The units-of-production method calculates depreciation based on the units produced in a year. The total depreciable cost is $190,000 - $10,000 = $180,000. The depreciation per unit is $180,000 / 750,000 units = $0.24 per unit. For the second year, with 109,000 units produced, the depreciation is 109,000 units * $0.24 = $26,160.

Question 10

An asset's carrying amount is $18,000 on June 30, Year 6. The asset is being depreciated at an annual rate of $3,000 on the straight-line method. Assuming the asset is sold on December 31, Year 7 for $15,000, the company should record:

Accepted Answer

The answer of An asset's carrying amount is $18,000 on...

Question 11

An asset can be disposed of by:

Accepted Answer

An asset can be disposed of by discarding it, selling it, exchanging it for another asset, or donating it to charity. Therefore, the best choice is E, which includes all of these options. The choice of which disposal method to use would depend on factors such as the value of the asset, the reason for disposal, and any legal or ethical considerations.

Question 12

A company purchased property for $100,000. The property included a building, a parking lot, and land. The building was appraised at $62,000; the land at $45,000, and the parking lot at $18,000. Land should be recorded in the accounting records with an allocated cost of:

Accepted Answer

The total appraised value is $125,000 ($62,000 + $45,000 + $18,000). The land's appraised value is $45,000. The allocation is based on the proportion of the appraised value: ($45,000 / $125,000) * $100,000 = $36,000.

Question 13

Another name for a capital expenditure is:

Accepted Answer

The answer of Another name for a capital expenditure is:
...

Question 14

Wilson Engineering purchased a depreciable asset costing $45,000 on January 1, Year 1. The asset is estimated to have a residual value of $5,000 and an estimated useful life of 8 years. Straight-line depreciation is used. If the asset is sold on July 1, Year 5 for $20,000, the journal entry to record the sale will include:

Accepted Answer

The accumulated depreciation by July 1, Year 5 is calculated as follows: Annual depreciation = ($45,000 - $5,000) / 8 = $5,000. Depreciation for 4.5 years = $5,000 * 4.5 = $22,500. Therefore, the journal entry will include a debit to accumulated depreciation for $22,500.

Question 15

A method that allocates an equal portion of the total depreciable cost for an item of property, plant and equipment to each unit produced is called:

Accepted Answer

Units-of-production depreciation is a method that allocates an equal portion of the total depreciable cost to each unit produced. This method is ideal for assets that are used in production activities, and the cost is allocated based on the actual usage of the asset.

Question 16

A method that charges the same amount of expense to each period of the asset's useful life is called:

Accepted Answer

Straight-line depreciation charges the same amount of expense to each period of the asset's useful life.

Question 17

A depreciation method in which an item of property, plant and equipment's depreciation expense for a period is determined by applying a constant depreciation rate to the asset's beginning-of-period carrying amount is called:

Accepted Answer

The declining-balance depreciation method applies a constant rate to the asset's beginning-of-period carrying amount, resulting in decreasing depreciation expenses over time.

Question 18

Revenue expenditures:

Accepted Answer

Revenue expenditures are expenses incurred in the normal operations of a business that are meant to maintain or generate revenue, rather than increase the value of an asset or extend its useful life. Option A accurately describes revenue expenditures as costs of property, plant and equipment that do not materially increase the asset's life or its productive capabilities.

Question 19

Ordinary repairs:

Accepted Answer

Ordinary repairs refer to routine or regular maintenance expenses incurred to keep an asset in normal operating condition. These repairs are necessary to ensure that an asset performs to expectations over its useful life and are treated as expenses. Examples of ordinary repairs include cleaning, lubricating, and normal adjusting. Therefore, all of the choices listed are correct.

Question 20

A company purchased a delivery van for $23,000 with a residual value of $3,000 on September 1, Year 1. It has an estimated useful life of 5 years. Using the straight-line method, how much depreciation expense should the company recognize on December 31, Year 1?

Accepted Answer

Using the straight-line method, we need to calculate the annual depreciation expense first:

Depreciation Expense = (Cost - Residual Value) / Useful Life
Depreciation Expense = ($23,000 - $3,000) / 5
Depreciation Expense = $4,000

Since we need to calculate depreciation expense for only 4 months (from September 1 to December 31), we need to calculate the depreciation for 4/12 or 1/3rd of the year:

Depreciation Expense for 4 months = Depreciation Expense * (4/12)
Depreciation Expense for 4 months = $4,000 * (4/12)
Depreciation Expense for 4 months = $1,333

Therefore, the company should recognize $1,333 in depreciation expense on December 31, Year 1. The best choice is B.

Quiz 10: Long-Term Assets