Q&A Hero

Q: Betterments are: A.Expenditures making a plant asset more efficient or productive. B.Also called ordinary repairs. C.Always increase an asset's life. D.Revenue expenditures. E.Credited against the asset account when incurred.

Q: Ordinary repairs meet all of the following criteria except: A.Are expenditures to keep an asset in normal operating condition. B.Are necessary if an asset is to perform to expectations over its useful life. C. Extend the useful life of an asset beyond its original estimate D.Include cleaning, lubricating, and normal adjusting. E.Are treated as expenses.

Q: Which of the following is an example of an extraordinary repair? A.New tires for a truck. B.Replacement of all florescent light tubes in an office. C.Carpet cleaning and repair. D.Replacing the roof on a manufacturing warehouse. E.Routine machine maintenance.

Q: Extraordinary repairs: A.Are revenue expenditures. B.Extend the useful life of an asset beyond its original estimate. C.Are credited to accumulated depreciation. D.Are additional costs of plants assets that do not materially increase the asset's life. E.Are expensed when incurred.

Q: A company purchased a weaving 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 75,000 bolts of woven fabric over its useful life. In the first year, 15,000 bolts were produced. In the second year, production increased to 19,000 units. Using the units-of-production method, what is the book value of the machine at the end of the second year? A.$108,400. B.$144,400. C.$81,600. D.$190,000. E.$180,000.

Q: Marlow Company purchased a point of sale system on January 1 for $3,400. This system has a useful life of 10 years and a salvage value of $400. What would be the book value of the asset at the end of the first year of its useful life using the double-declining-balance method? A.$ 680. B.$2,320. C.$2,720. D.$600. E.$300.

Q: The 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): A.Accelerated depreciation method. B.Book value depreciation method. C.Straight-line depreciation method. D.Units-of-production depreciation method. E.Unrealized depreciation method.

Q: The depreciation method in which a plant asset's depreciation expense for a period is determined by applying a constant depreciation rate to the asset's beginning-of-period book value is called: A.Book value depreciation. B.Declining-balance depreciation. C.Straight-line depreciation. D.Units-of-production depreciation. E.Modified accelerated cost recovery system (MACRS) depreciation.

Q: The depreciation method that allocates an equal portion of the total depreciable cost for a plant asset to each unit produced is called: A.Accelerated depreciation. B.Declining-balance depreciation. C.Straight-line depreciation. D.Units-of-production depreciation. E.Modified accelerated cost recovery system (MACRS) depreciation.

Q: The depreciation method that charges the same amount of expense to each period of the asset's useful life is called: A.Accelerated depreciation. B.Declining-balance depreciation. C.Straight-line depreciation. D.Units-of-production depreciation. E.Modified accelerated cost recovery system (MACRS) depreciation.

Q: The formula to compute annual straight-line depreciation is: A.Depreciable cost divided by useful life in units. B.(Cost plus salvage value) divided by the useful life in years. C.(Cost minus salvage value) divided by the useful life in years. D.Cost multiplied by useful life in years. E.Cost divided by useful life in units.

Q: Merchant Company purchased property for a building site. The costs associated with the property were: Purchase price"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6 $185,000 Real estate commissions 15,000 Legal fees 700 Expenses of clearing the land 2,000 Expenses to remove old building 4,000 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? A.$187,700 to Land; $19,000 to Building. B.$200,700 to Land; $6,000 to Building. C.$200,000 to Land; $6,700 to Building. D.$185,000 to Land; $21,700 to Building. E.$206,700 to Land; $0 to Building.

Q: The cost of land would not include: A.Purchase price. B.Cost of parking lot lighting. C.Costs of removing existing structures. D.Fees for insuring the title. E.Government assessments.

Q: Which of the following are not classified as plant assets? A.Land. B.Land improvements. C.Buildings. D.Machinery and equipment. E.Patent.

Q: Spears Co. had net sales of $35,400 million. Its average total assets for the period were $14,700 million. Spears' total asset turnover equals: A.0.42. B.0.35. C.1.48. D.2.41. E.3.54.

Q: The calculation of total asset turnover is: A.Gross profit divided by average total assets. B.Average total assets divided by gross profit. C.Net sales divided by average total assets. D.Average total assets multiplied by net sales. E.Net assets multiplied by total assets.

Q: Total asset turnover is used to evaluate: A.The efficient use of assets to generate sales. B.The necessity for asset replacement. C.The number of times operating assets were sold during the year. D.The cash flows used to acquire assets. E.The relation between asset cost and book value.

Q: A benefit of using an accelerated depreciation method is that: A.It is preferred by the tax code. B.It is the simplest method to calculate. C.It yields larger depreciation expense in the early years of an asset's life. D.It yields a higher income in the early years of the asset's useful life. E.The results are identical to straight-line depreciation.

Q: The following information is available on a depreciable asset owned by Mutual Savings Bank: Purchase date June 1, Year 1 Purchase price $85,000 Salvage value $10,000 Useful life 10 years Depreciation method straight-line The asset's book value is $70,000 on June 1, Year 3. On that date, management determines that the asset's salvage value should be $5,000 rather than the original estimate of $10,000. Based on this information, the amount of depreciation expense the company should recognize during the last six months of Year 3 would be: A.$8,125.00 B.$7,375.00 C.$4,062.50 D.$3,750.00 E.$7,812.50

Q: Peavey Enterprises purchased a depreciable asset for $22,000 on April 1, Year 1. The asset will be depreciated using the straight-line method over its four-year useful life. Assuming the asset's salvage value is $2,000, Peavey Enterprises should recognize depreciation expense in Year 2 in the amount of: A.$10,000 B.$ 5,000 C.$ 5,500 D.$20,000 E.$ 9,250

Q: Beckman Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $100,000. The asset is expected to have a salvage value of $20,000 at the end of its five-year useful life. If the asset is depreciated on the double-declining-balance method, the asset's book value on December 31, Year 2 will be: A.$36,000 B.$42,000 C.$54,000 D.$16,000 E.$90,000

Q: When originally purchased, a vehicle costing $23,000 had an estimated useful life of 8 and an estimated salvage value of $1,500. After 4 years of straight-line depreciation, the asset's total estimated useful life was revised from 8 years to 6 years and there was no change in the estimated salvage value. The depreciation expense in year 5: equals: A.$ 5,375.00. B.$ 2,687.50. C.$ 5,543.75. D.$10,750.00. E.$ 2,856.25.

Q: The term, obsolescence, as it relates to the useful life of an asset, refers to: A.The end of an asset's useful life. B.A plant asset that is no longer useful in producing goods and services with a competitive advantage. C.The insufficient capacity of a company's plant assets to meet the company's productive demands. D.An asset's salvage value becoming less than its replacement cost. E.Intangible assets that have been fully amortized.

Q: The term inadequacy, as it relates to the useful life of an asset, refers to: A.The insufficient capacity of a company's plant assets to meet the company's growing production demands. B.An asset that is worn out. C.An asset that is no longer useful in producing goods and services. D.The condition where the salvage value is too small to replace the asset. E.The condition where the asset's salvage value is less than its cost.

Q: Salvage value is: A.Not a factor relevant to determining depletion. B.A factor relevant to amortizing an intangible asset with an indefinite life. C.An estimate of the asset's value at the end of its benefit period. D.A factor relevant to determining depreciation under MACRS. E.A factor relevant to determining depreciation that cannot be revised during an asset's useful life.

Q: The relevant factors in computing depreciation do not include: A.Cost. B.Salvage value. C.Useful life. D.Depreciation method. E.Market value.

Q: One characteristic of plant assets is that they are: A.Current assets. B.Used in operations. C.Natural resources. D.Long-term investments. E.Intangible.

Q: Plant assets are defined as: A.Tangible assets that have a useful life of more than one accounting period and are used in the operation of a business. B.Current assets. C.Held for sale. D.Intangible assets used in the operations of a business that have a useful life of more than one accounting period. E.Tangible assets used in the operation of business that have a useful life of less than one accounting period.

Q: A trademark is an exclusive right granted to its owner to publish and sell a musical, literary, or artistic work during the life of the creator plus 70 years.

Q: Natural resources may be reported under either plant assets or their own separate category on the balance sheet.

Q: Revenue expenditures are also called balance sheet expenditures.

Q: Capital expenditures are expenditures that keep assets in normal, good operating condition.

Q: Revenue expenditures are additional costs of plant assets that do not materially increase the assets' life or productive capabilities.

Q: An accelerated depreciation method yields larger depreciation expense in the early years of an asset's life and less depreciation expense in later years.

Q: Additions to land that increase the usefulness of the land such as parking lots, fences, and lighting are not depreciated.

Q: The purchase of a property that included land, building, and related improvements is called a lump-sum or basket purchase.

Q: Edmond reported average total assets of $9,965 million and net sales of $10,430 million. Its total asset turnover equals .96.

Q: Duncan reported net sales of $2,523 million and average total assets of $1,476 million. Its total asset turnover equals 1.71.

Q: Companies that have a relatively large amount invested in assets to generate a given level of sales are considered capital-intensive.

Q: Asset turnover is computed by dividing net sales by average total assets.

Q: Depreciation is higher in earlier years and income is lower in the later years when using straight-line versus accelerated methods.

Q: The going concern assumption supports the reporting of plant assets at undepreciated cost (book value) rather than market value.

Q: Depreciation expense is calculated using its cost, estimates of an asset's salvage value, and an estimated useful life.

Q: It is necessary to report both the cost and the accumulated depreciation of plant assets in the financial statements.

Q: A plant asset's useful life is the length of time it is productively used in a company's operations.

Q: Depreciation does not measure the decline in market value of an asset each period.

Q: Obsolescence refers to the insufficient capacity of a company's plant assets to meet the company's growing productive demands.

Q: The process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use is called depletion.

Q: Plant assets refer to nonphysical assets that are used in the operations of a business.

Q: # Copyright 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 10-51

Q: _________________________ are capital expenditures that make a plant asset more productive but do not always increase an asset's life; they often involve adding a component to an asset or replacing one of its old components with a better one.

Q: Revenue expenditures to keep an asset in normal, good operating condition; they are necessary if an asset is to perform to expectations over its useful life are called _____________________.

Q: Additional costs of plant assets that provide benefits extending beyond the current period; they increase or improve the type or amount of service an asset provides are treated as _________________________________.

Q: Additional costs of plant assets that do not materially increase the asset's life or productive capabilities are recorded as ______________________________.

Q: Capital expenditures that extend an asset's useful life beyond its original estimate are called _______________________.

Q: The depreciation method that uses a depreciation rate that is a multiple of the straight-line rate and applies it to an asset's beginning-of-period book value is ____________________.

Q: The depreciation method that charges a varying amount to expense for each period of an asset's useful life depending on its usage is ________________________________.

Q: The depreciation method that recognizes equal amounts of annual depreciation over the life of an asset is _______________________________.

Q: The federal income tax rules for depreciating assets are known as ___________________________.

Q: A ____________________________ results from revising estimates of the useful life or salvage value of a plant asset.

Q: _________________ refers to a plant asset that is no longer useful in producing goods or services with a competitive advantage because of new inventions and improvements.

Q: The insufficient capacity of a company's plant asset to meet the company's productive demands is called ______________________.

Q: __________________ is an estimate of an asset's value at the end of its benefit period (or useful life).

Q: Westport Company reports the following in millions: net sales of $25,300 for 2016 and $22,640 for 2015; end-of-year total assets of $14,875 for 2016 and $13,680 for 2015. Compute its total asset turnover for 2016 and assess its level if competitors average a total asset turnover of 2.0 times.

Q: On July 1 of the current year, Timberlake Company signed a contract to sublease space in a building for 7 years. Timberlake Company paid $56,000 for the right to sublease this space. After taking possession of the leased space, Timberlake pays $140,000 for improving the office portion of the lease space. The improvements are paid on July 6 of the current year, and are estimated to have a useful life equal to the 14 years remaining in the life of the building. Prepare entries for Timberlake to record (a) its payment for the right to sublease the building space, (b) its payment for the office improvements, (c) the December 31 year-end entry to amortize the cost of the sublease, (d) the December 31 year-end entry to amortize the office improvements.

Q: On July 1 of the current year, Glover Mining Co. pays $5,400,000 for land estimated to contain 7,200,000 tons of recoverable ore. It installs machinery on July 3 costing $864,000 that has an 8 year life and no salvage value and is capable of mining the ore deposit in six years. The company removes and sells 745,000 tons of ore during its first six months of operations ending on December 31. Depreciation of the machinery is in proportion to the mine's depletion as the machinery will be abandoned after the ore is mined. Prepare the entries Glover must record for (a) the purchase of the ore deposit, (b) the costs and installation of the machinery, (c) the depletion assuming the land has a zero salvage value, and (d) the depreciation on the machinery.

Q: A machine costing $450,000 with a 4-year life and an estimated salvage value of $30,000 is installed by Peters Company on January 1. The company estimates the machine will produce 1,050,000 units of product during its life. It actually produces the following units for the first 2 years: Year 1, 260,000; Year 2, 275,000. Enter the depreciation amounts for years 1 and 2 in the table below for each depreciation method. Show calculation of amounts below the table. Double"u2018 Units-of- Declining- Year Straight-Line Production Balance Year 1 Year 2

Q: Identify the balance sheet classification of each of the following assets by placing an X in the correct classification: Plant Assets, Natural Resources, or Intangibles. Plant assets Natural Resources Intangible Assets Trademark Oil field Gold mine Building Franchise Timberland Patent Land Copyright Leasehold

Q: A company purchased store equipment for $4,300 by trading in old equipment with a cost of $2,000 and that had accumulated depreciation of $1,900 as of the exchange date. The company received a $75 trade-in allowance for the old equipment with the balance of $4,225 paid in cash. Prepare the journal entry to record the exchange, assuming the transaction had commercial substance.

Q: During the current year, Beldon Co. acquired a new computer with a cash price of $12,800 by exchanging an old one on which the company received a $1,500 trade-in allowance (with the balance of $11,300 paid in cash). The old computer cost $9,000 and its accumulated depreciation was $5,500 as of the exchange date. Assuming the exchange transaction had commercial substance, prepare the journal entry to record the exchange.

Q: A company exchanged an old automobile for a newer model. The old automobile account had a cost of $36,000 and accumulated depreciation of $25,000 as of the exchange date. The new automobile had a cash price of $34,000, but the company was given a $15,000 trade-in allowance and the balance of $19,000 was paid in cash. Prepare the journal entry to record the exchange, if the transaction lacks commercial substance.

Q: A machine had an original cost of $60,000. After $45,000 of depreciation was recorded, the machine was traded in on a new machine priced at $75,000. A $10,500 trade-in allowance was received on the old machine and the balance of $64,500 was paid in cash. This transaction has commercial substance. Prepare the general journal entry to record this trade-in.

Q: Record the following events and transactions for Leonard Company for the current year. 1)On January 2, Leonard purchased a patent for $35,000 with a remaining useful life of 10 years. Prepare the journal entry to amortize the patent at the end of the first year. 2) On January 3, Leonard made an advance payment on a leasehold of $840,000. The leasehold expires in 15 years. Prepare the journal entry to amortize the leasehold at the end of the first year. 3) On January 4, Leonard purchased a music distributor's collection of lyrics and songs for $1,425,000. The copyrights have a remaining life of another 30 years. Prepare the journal entry to amortize the copyright at the end of the first year.

Q: A company purchased mining property for $1,837,500 containing an estimated 7,350,000 tons of ore. In Year 1, it mined and sold 857,000 tons of ore. Calculate the depletion expense for Year 1 and prepare the journal entry to record the depletion.

Q: Anderson Company sold a piece of equipment for $28,000 cash on December 31 after recording the annual depreciation on the asset. The equipment had an original cost of $97,500 and accumulated depreciation of $63,000. Prepare the general journal entry to record the sale of this asset.

Q: On April 1 of the current year, a company disposed of a truck that had cost $20,000. The truck had a salvage value of $2,000, and a useful life of 5 years. The accounting records showed accumulated depreciation for this truck of $8,100 as of April 1 of the current year. The asset was discarded after an accident, and $10,500 cash was received from an insurance claim. Prepare the journal entry to record the disposal of the truck.

Q: On April 1, 2015, due to obsolescence resulting from a new technology, a company discarded a computer that cost $5,000, had a useful life of 4 years, and a salvage value of $400. Based on straight-line depreciation, the accumulated depreciation as of December 31, 2014 was $3,450. a. Prepare the journal entry to record depreciation up to the date of disposal of the computer. b. Prepare the journal entry to record the disposal of the computer.

Q: Wallace Company had a building that was destroyed by fire. The building originally cost $650,000, and its accumulated depreciation as of the date of the fire was $300,000. The company received $320,000 cash from an insurance policy that covered the building and will use that money to help rebuild. Prepare the single journal entry to record the disposal of the building and the receipt of cash from the insurance company.

Q: On January 1, a company purchased machinery for $75,000 that had a 6-year useful life and a salvage value of $6,000. After three years of straight-line depreciation, the company paid $8,500 cash at the beginning of the year to improve the efficiency of the machinery. The productivity of the machinery was improved without increasing its remaining useful life or changing its salvage value. Straight-line depreciation is used throughout the machinery's life. 1) Prepare the journal entry to record the $8,500 expenditure. 2) Prepare the journal entry to record depreciation expense for the fourth year.

Q: A company paid $320,000 for equipment that was expected to last five years and to have a salvage value of $40,000. During the third year of the equipment's life, $39,000 cash was paid for replacement parts that were expected to increase productivity by 10% each year. Prepare the journal entry to record the $39,000 cost incurred in the third year.