Q&A Hero

Q: An asset is purchased on January 1 for $40,000. It is expected to have a useful life of five years after which it will have an expected residual value of $5,000. The company uses the straight-line method. If it is sold for $30,000 exactly two years after it is purchased, the company will record a: A) gain of $6,000. B) gain of $4,000. C) loss of $4,000. D) loss of $6,000.

Q: A company sells a long-lived asset that originally cost $200,000 for $50,000 on December 31, 2016. The Accumulated Depreciation account had a balance of $110,000 after the current year's depreciation of $45,000 had been recorded. The company should recognize a: A) $100,000 loss on sale. B) $40,000 gain on sale. C) $40,000 loss on sale. D) $25,000 loss on sale.

Q: A company sells equipment for $450,000 when the book value of the equipment is $400,000. The company would record the extra $50,000 as: A) a gain, increasing net income and stockholders' equity. B) revenue, increasing net income and stockholders' equity. C) expenses, decreasing net income and stockholders' equity. D) a loss, decreasing net income and stockholders' equity.

Q: A trucking company sold its fleet of trucks for $55,000. The trucks originally cost $1,410,000 and had Accumulated Depreciation of $1,269,000 recorded through the date of disposal. What gain or loss did the trucking company record when it sold the fleet of trucks? A) Gain of $86,000 B) Gain of $55,000 C) Loss of $55,000 D) Loss of $86,000

Q: If a fully depreciated asset with no residual value is retired to a junk yard without receiving any cash: A) a gain on disposal will be recorded. B) depreciation must be recorded as though the asset were still on the books. C) a loss on disposal will be recorded. D) no gain or loss on disposal will be recorded.

Q: When a company sells a long-lived asset, stockholders' equity will change by the: A) amount of the sale. B) amount of the asset's book value. C) amount of the asset's Accumulated Depreciation. D) difference between the sales price and the asset's book value.

Q: A loss on disposal of an asset would be reported: A) in the Operating Revenues section of the income statement. B) in the Operating Expenses section of the income statement. C) as a direct increase to the asset account on the balance sheet. D) as a direct decrease to the asset account on the balance sheet.

Q: When a company sells equipment for cash on a date other than the last day of the accounting period, it must: A) record Depreciation Expense for the entire accounting period during which the equipment is sold. B) record the disposal by reducing the Equipment account and increasing a revenue account; a gain or loss is reported if the decrease and increase are not equal. C) first record Depreciation Expense for the period up to the date of sale, and then record the disposal by increasing Cash and decreasing both Equipment and Accumulated Depreciation; a gain or loss is reported if the proceeds from the sale do not equal the assets book value. D) record Accumulated Depreciation for the entire current accounting period.

Q: A company sells a piece of equipment half-way through the accounting period. The straight-line rate of depreciation on the equipment is $40,000 per year. Before preparing the entry to record the sale of the equipment, the company should first debit: A) Depreciation Expense for $40,000 and credit Accumulated Depreciation for $40,000. B) Accumulated Depreciation for $40,000 and credit Cash for $40,000. C) Depreciation Expense for $20,000 and credit Accumulated Depreciation for $20,000. D) Cash for $20,000 and credit Depreciation Expense for $20,000.

Q: Flynn Company purchased a building for $400,000. At the end of the current year, the book value of the building is $220,000 and its fair value is $180,000. Assuming the building is rented to a tenant, the sum of future cash flows from the rental of the building is expected to be $160,000. What is the amount of impairment loss? A) $0 B) $20,000 C) $40,000 D) $120,000

Q: Your company rents computers to local businesses and schools. You have 1,000 computers with a book value of $160,000. As a result of changing technology, your computers are more difficult to rent so you must drastically reduce your rental price, which causes a decrease in estimated future cash flows. The fair value of the computers is estimated to be $125,000 because of their outdated technology. Your company should report an asset impairment loss of: A) $160,000. B) $125,000. C) $35,000. D) $0.

Q: Which of the following statements about asset impairment is correct? A) Asset impairment losses appear on a companys income statement every year. B) When a company records an asset impairment loss, it will increase net income for that period. C) Impairment occurs when an assets book value is less than its current value. D) Asset impairment losses are reported on the income statement as an operating expense.

Q: How does an asset impairment loss impact a company's financial statements? A) It increases expenses and decreases both revenue and net income B) It decreases assets, stockholders' equity, and net income C) It increases expenses and decreases net income with no effect on any other items D) It increases liabilities and decreases stockholders' equity

Q: Under what circumstances should a company record an asset impairment loss? A) When residual value is greater than the repairs and maintenance expenses needed to keep up the asset B) When book value is less than the residual value of the asset C) When Accumulated Depreciation equals the purchase cost of the asset D) When book value is greater than the fair value of the asset

Q: Which of the following depreciation methods is used by most corporations to calculate depreciation expense for their tax returns? A) MACRS B) Straight-line C) Units-of-production D) Double-declining balance

Q: Many companies use accelerated depreciation in computing taxable income because: A) it reports higher net income in the early years as compared to other methods. B) it is required by IFRS. C) it is easier than straight-line deprecation. D) it postpones tax payments until later years because it lowers taxable income in the early years.

Q: On September 1, a company purchased a vehicle for $23,000 with a residual value of $3,000. The estimated useful life is 5 years and the company uses the straight-line method. What is the depreciation expense for the year ended December 31? A) $1,333 B) $1,000 C) $4,000 D) $1,533

Q: Which of the following statements about depreciation methods is not correct? A) The amount of depreciation expense recorded in each year of an assets life depends on the method that is used. B) Different depreciation methods can be used for different classes of assets provided the methods are used consistently over time so that financial statement users can compare results across periods. C) At the end of an assets life, after it has been fully depreciated, the total amount of depreciation will equal the assets depreciable cost. D) The amount of net income reported each year will be the same regardless of the depreciation method used.

Q: The straight-line depreciation method and the double-declining-balance depreciation method: A) produce the same total depreciation over the assets useful life B) produce the same amount of depreciation expense each year. C) produce the same book value each year. D) are the only acceptable methods of depreciation for financial reporting.

Q: A company bought a piece of equipment for $40,000 and expects to use it for eight years. The company then plans to sell it for $3,500. The company has already recorded depreciation of $35,995. Using the double-declining-balance method, what is the company's annual depreciation expense for the upcoming year? A) $1,001 B) $9,125 C) $505 D) $10,000

Q: Use the information above to answer the following question. What is the adjusted balance in the Accumulated Depreciation account at the end of 2017? A) $3,200 B) $4,800 C) $9,600 D) $12,800

Q: Use the information above to answer the following question. What is the depreciation expense for 2016? A) $4,000 B) $3,000 C) $6,000 D) $8,000

Q: A piece of equipment was acquired on January 1, 2015, at a cost of $22,000, with an estimated residual value of $2,000 and an estimated useful life of four years. The company uses the double-declining-balance method. What is its book value at December 31, 2016? A) $5,500 B) $10,000 C) $11,000 D) $12,000

Q: A machine is purchased on January 1, 2016, for $90,000. It is expected to have a useful life of five years and a residual value of $5,000. The company closes its books on December 31. Under the double-declining balance method, what is the total amount of depreciation to be expensed during the 2017? A) $21,600 B) $22,000 C) $22,400 D) $34,000

Q: A company buys a piece of equipment for $48,000. The equipment has a useful life of ten years. No residual value is expected at the end of the useful life. Using the double-declining-balance method, what is the company's depreciation expense in the first year of the equipments useful life? A) $9,600 B) $12,000 C) $4,800 D) $24,000

Q: A building has a 10-year useful life and a residual value equal to 10% of the building's original cost. If the double-declining balance method is used, what depreciation rate would be used? A) 9% B) 10% C) 18% D) 20%

Q: One difference between the double-declining-balance method and the straight-line method is that the double-declining-balance method: A) reduces book value below residual value. B) does not consider the useful life of the asset in the calculation of depreciation. C) cannot be used for tax purposes. D) uses book value instead of depreciable cost in the calculation of depreciation.

Q: A company would most likely choose the double-declining balance depreciation method for which of the following long-lived tangible assets? A) Vehicles B) Office buildings C) Warehouses D) Land improvements

Q: At the end of the first year of an assets life, the declining-balance depreciation: A) causes an asset to be carried at a higher book value than that computed using the straight-line method. B) causes an asset to be carried at a lower book value than that computed using the straight-line method. C) causes an asset to be carried at the same book value as that computed using the straight-line method. D) cannot be used if the resulting book value will be significantly different from that which would result from using the straight-line method.

Q: A company paid $500,000 to purchase equipment and $15,000 to have the equipment delivered to and installed in the company's production facilities. The equipment is expected to be used a total of 28,000 hours throughout its estimated useful life of six years. The estimated residual value of the equipment is $5,000. The company began using the equipment on May 1, 2016. The company has an October 31, 2016 year-end. It used the equipment for a total of 11,200 hours between May 1 and October 31, 2016. Using the units-of- production method, what amount of depreciation expense would the company report in the income statement prepared for the year-ended October 31, 2016? A) $102,000 B) $198,000 C) $204,000 D) $206,000

Q: Transport Inc. has a fleet of 10 large trucks that cost a total of $1,410,000. The fleet is expected to be driven a total of 1,000,000 miles during its estimated 10-year life and be sold for $141,000 at the end of its useful life. If the fleet was driven 125,000 miles during the current year, what is the amount of depreciation that would be calculated using the straight-line and units-of-production methods, respectively? A) $158,625 and $141,000 B) $141,000 and $158,625 C) $126,900 and $176,250 D) $126,900 and $158,625

Q: Use the information above to answer the following question. If the units-of-production method is used, the depreciation expense for this period is: A) $80,000. B) $400,000. C) $76,000. D) $380,000.

Q: Use the information above to answer the following question. If the units-of-production method is used, the depreciation rate is: A) $0.95 per unit. B) $0.19 per unit. C) $0.05 per unit. D) $1.00 per unit.

Q: Spangle Corporation uses the unit-of-production method to estimate depreciation. The company purchased a new machine for $18,000 that will produce an estimated 100,000 units over its useful life. The estimated residual value of the machine is $2,000. What is the depreciation rate per unit? A) $1.60 B) $1.80 C) $0.16 D) $0.18

Q: Which of the following statements is correct when the straight-line method is used to compute depreciation? A) The carrying value of an asset is a constant amount during the asset's useful life B) Accumulated depreciation is a constant amount during the asset's estimated useful life C) Depreciation Expense is a constant amount each year D) The book value of an asset is an increasing amount during the assets useful life

Q: A company buys equipment for $48,000, expects to use it for ten years, and then sell it for $6,000. Using the straight-line method, the company should report annual depreciation for the equipment of: A) $4,200. B) $8,400. C) $4,800. D) $9,600.

Q: Which of the following statements about straight-line depreciation is correct? A) Straight-line depreciation is the most common method of depreciation used in the U.S. for financial reporting, but is not commonly used for taxes. B) When the straight-line method is used to compute depreciation, an asset's carrying value remains constant over the life of the asset. C) Straight-line depreciation is an approved method to allocate the cost of an asset to expense and it serves as a measure of the physical decline in the asset. D) The straight line method of depreciation results in a straight-line increase of depreciation expense over the life of an asset.

Q: Which of the following is not an amount that is needed to calculate straight-line depreciation? A) The cost of the asset B) An estimate of the assets useful economic life to the company C) The estimated amount that the company will receive when it disposes of the asset D) The cost the company will be required to incur to replace the asset

Q: Which of the following statements about the end of an assets life is not correct? A) At the end of an assets life, its book value should equal its residual value. B) At the end of an assets life, the Accumulated Depreciation should equal the depreciable cost. C) At the end of an assets life, the book value would equal zero if there is no residual value. D) Assets are not to be depreciated below residual value unless the double-declining balance method is used.

Q: Urban Outsiders has a building that originally cost $375,000. The company expects to be able to sell the facility for $107,000 at the end of its useful life. The balance of the related Accumulated Depreciation account is $258,000. The depreciable cost of the facility is: A) $117,000. B) $151,000. C) $268,000. D) $107,000.

Q: The book value of a depreciable asset can never be less than its: A) historical cost. B) market value. C) capitalized cost. D) residual value.

Q: Urban Outsiders has a building that originally cost $375,000. The company expects to be able to sell the facility for $107,000 at the end of its useful life. The balance of the related Accumulated Depreciation account is $258,000. The residual value of the facility is: A) $117,000. B) $151,000. C) $268,000. D) $107,000.

Q: Your company buys a computer server that it expects to use for eight years and then sell when it upgrades to a more powerful model. The server would probably be used by the business that buys it at that time for another three years. The useful life of the server for your company is: A) eight years. B) eleven years. C) five years. D) three years.

Q: A company has long-lived tangible assets with a cost of $3.5 million; its Accumulated Depreciation account has a balance of $1.1 million. Which of the following statements is correct? A) The book value of long-lived assets is $2.4 million. B) The market value of long-lived assets is $3.5 million. C) The carrying value of long-lived assets is $3.5 million. D) The resale value of long-lived assets is $2.4 million.

Q: Which of the following is not the same as book value? A) Carrying value B) Cost less accumulated depreciation C) Unused cost D) Market value

Q: The book value of a long-lived tangible asset is equal to: A) its acquisition cost less the accumulated depreciation from the acquisition date to the balance sheet date. B) its acquisition cost plus accumulated depreciation from the acquisition date to the balance sheet date. C) the amount that could be obtained for the asset on the balance sheet date if it were sold. D) the annual cost of carrying the asset in inventory.

Q: The carrying value of a long-lived asset is referred to as its: A) residual value. B) book value. C) market value. D) sales value.

Q: When a company records depreciation it debits: A) a liability account and credits Depreciation Expense. B) Depreciation Expense and credits Cash. C) Depreciation Expense and credits a contra-asset account. D) a long-lived tangible asset account and credits Depreciation Expense.

Q: Accumulated Depreciation is classified as a(n): A) expense account. B) contra-asset account. C) liability account. D) stockholders equity account.

Q: Which of the following statements most appropriately describes the purpose of depreciating a long-lived tangible asset? A) To indicate how the asset has physically deteriorated B) To show that the asset will eventually and gradually become obsolete C) To record that the asset's market value declines over time D) To match the cost of the asset to the period in which it generates revenue

Q: The primary difference between ordinary repairs and extraordinary repairs is: A) ordinary repairs cost less. B) ordinary repairs are expenditures for routine maintenance and upkeep, whereas extraordinary repairs increase an assets economic usefulness in the future through increased efficiency, capacity, or longer life. C) extraordinary repairs only maintain the asset for a short time, whereas ordinary repairs increase the usefulness of assets beyond their original condition. D) extraordinary repairs are expenditures, not expenses.

Q: If a trucks engine is overhauled for $8,000, the journal entry would normally include a debit to: A) Vehicles. B) Accounts Payable. C) Depreciation Expense. D) Cash.

Q: Extraordinary repairs: A) are revenue expenditures. B) extend an assets life beyond the original estimate. C) are expensed as incurred. D) are credited to Accumulated Depreciation.

Q: Ordinary repairs and maintenance: A) are part of the asset cost of equipment and facilities. B) are recorded as expenses. C) are always recorded as liabilities. D) improve the asset beyond the current accounting period.

Q: A company purchased office equipment for $24,500 and paid $1,470 in sales tax, $550 for installation, $3,200 for a needed adjustment to the equipment, and $2,600 for supplies that will be used for periodic routine maintenance. How should the company record this transaction? A) Debit Equipment $24,500, debit Repairs and Maintenance Expense for $5,220, debit Supplies for $2,600, and credit Cash for $32,320 B) Debit Equipment for $29,720, debit Supplies for $2,600, and credit Cash for $32,320 C) Debit Equipment for $25,970, debit Repairs and Maintenance Expense $3,750, debit Supplies for $2,600, and credit Cash for $32,320 D) Debit Equipment and credit Cash for $32,320

Q: The Gulp convenience store chain buys new soda machines for $450,000 and pays $50,000 for installation costs. One-half of the total cost or $250,000 is paid in cash; a note in the amount of $250,000 is signed. How should the company record this transaction? A) Debit Cash for $250,000, debit Notes Payable for $250,000, and credit Equipment for $500,000 B) Debit Equipment for $500,000, credit Cash for $250,000, and credit Notes Payable for $250,000 C) Debit cash for $250,000, debit Notes Payable for $250,000, credit Equipment for $450,000, and credit Operating Expenses for $50,000 D) Debit Equipment for $450,000, debit Operating Expenses for $50,000, credit cash for $250,000, and credit Notes Payable for $250,000

Q: A company acquired property that included land, building and equipment for a total cost of $163,000. The land was appraised at $87,500, the building at $35,000, and the equipment at $52,500. What should be the allocation of the total cost in the accounting records? A) Land $75,000; Building $30,000; Equipment $45,000 B) Land $75,000; Building $30,800; Equipment $46,200 C) Land $87,500; Building $35,000; Equipment $52,500 D) Land $81,500; Building $32,600; Equipment $48,900

Q: A company purchased property for $100,000. The property included a building, equipment and land. The building was appraised at $62,000, the land at $45,000, and the equipment at $18,000 for a total appraised value of $125,000. What is the amount of cost to be allocated to the building in the accounting records? A) $0 B) $49,600 C) $62,000 D) $100,000

Q: The costs assigned to the individual assets acquired in a basket purchase are based on their relative: A) historical costs. B) market values. C) book values. D) depreciable costs.

Q: Generally, freight costs incurred when a long-lived asset is purchased should be: A) expensed in the period incurred. B) deducted from the Accumulated Depreciation account. C) added to the cost of the asset. D) not recorded in the accounts.

Q: Your company buys a computer system for $3 million and pays the vendor $200,000 to install the computer system. Your company should record: A) $3 million as equipment and $200,000 as expenses. B) $3.2 million as expenses. C) $2.8 million as equipment and the rest as expenses. D) $3.2 million as equipment.

Q: A real estate management company buys land that contains an abandoned apartment building for $4.5 million. It pays a construction company $500,000 to demolish the apartment building. Which of the following is correct? A) The company would record $5 million as the cost of the land. B) The company would record $4.5 million as the cost of the land. C) The company would record $4 million as the cost of the land. D) The company would record $500,000 as demolition expense.

Q: Under the cost principle, a company capitalizes: A) all ordinary repair expenditures incurred in the use of an asset. B) any interest incurred in borrowing money to help pay for asset acquisitions. C) all reasonable and necessary costs of acquiring an asset and preparing it for use. D) the total market value of individual assets acquired in a basket purchase.

Q: If a company capitalizes costs that should be expensed, how is its income statement for the current period impacted? A) Net income is understated. B) Revenues are understated. C) Expenses are understated. D) Assets are understated.

Q: B. Darin Company purchased a truck and trailer for $54,000. The appraised values of the truck and trailer are $38,000 and $19,000, respectively. What is the amount of the cost that should be assigned to the trailer? A) $19,000 B) $18,000 C) $16,000 D) $22,000

Q: Which of the following statements about capitalizing costs is correct? A) Capitalizing costs refers to the process of converting assets to expenses. B) All costs incurred to acquire an asset may be capitalized. C) Capitalizing a cost means to record it as an asset. D) Capitalizing costs results in an immediate decrease in net income.

Q: The MegaHit Film Studio owns a production lot and related equipment. How would MegaHit Company categorize these assets? A) Tangible assets B) Natural resources C) Intangible assets D) Goodwill

Q: Which of the following terms does not mean the same as the others? A) Tangible assets B) Fixed assets C) Property, plant, and equipment D) Long-lived assets

Q: Which of the following is not a characteristic of tangible long-lived assets? A) Productive B) Used over one or more years C) Not intended for resale D) Amortized over their useful lives

Q: When the amount of annual depreciation is revised because of a change in the estimated useful life of an asset, prior years financial statements should be restated.

Q: The calculation for depletion of natural resources is similar to the calculation for depreciation when the units-of-production method is used.

Q: Some analysts compare companies by focusing on earnings before interest, taxes, depreciation, and amortization (EBITDA), rather than net income.

Q: Companies within the same industry do not always use the same depreciation method, but will use the same expected useful life for the same piece of equipment.

Q: A declining fixed asset turnover ratio can be caused by acquiring additional assets in the current period in anticipation of increased revenue in the future.

Q: Assuming nothing else changes, a decrease in average net fixed assets will cause the fixed asset turnover ratio to increase.

Q: There are no significant differences between GAAP and IFRS with regards to the accounting for tangible and intangible assets.

Q: Trademarks and goodwill are intangible assets that are not amortized.

Q: Intangible assets with limited lives are usually amortized using the straight-line method with no residual value.

Q: When an asset is sold and its book value exceeds its selling price, net income will increase.

Q: Impairment occurs when the estimated future cash flows from a long-lived asset are less than its book value.