accounting chapter 10
straight line depreciation can be calculated by taking
(cost minus salvage value)/useful life
which of the following factors determine depreciation?
-cost of asset -salvage value -useful life
which of the following items are plant assets?
-equipment being used in operations -building being used for operations
the cost of a plant asset includes the following
-purchase price -cost to prepare it for use
the cost at which a company records purchases of machinery and equipment should include which of the following?
-shipping fees -purchase price -taxes -installation
Wen Co. purchased a building for $200,000. Wen paid $20,000 in lawyer and title fees. Wen also paid an additional $15,000 to modify the building in order to accommodate his business needs. Wen should record the cost of the building at:
235,000
accumulated depreciation is recorded on which of the following financial statements?
balance sheet
Niren Co. made modifications to a manufacturing machine that increased its productivity by 40%. Niren would classify this expense as a(n):
betterment
When a company revises an estimate used to record depreciation expense, the company should revise depreciation by using the formula (_______________-revised salvage value)/revised remaining useful life
book value
the asset's acquisition costs less its accumulated depreciation is called:
book value
the factors necessary to compute depreciation include all of the following, EXCEPT
book value
Sioux Co. replaced the roof on its existing building, therefore increasing the building's life by 10 years. The cost of the roof is considered a(n):
extraordinary repair
____________ are expenditures that extend the asset's useful life beyond its original estimate
extraordinary repairs
true or false: modified accelerated cost recovery system (MARCRS) is a depreciation method that allows companies to delay depreciation expense for tax purposes
false -MACRS is a depreciation method that allows companies to accelerate depreciation for tax purposes
land _________ are assets that are additions to land and have limited useful lives, such as walkways and fences
improvements
the inability of a company's plant assets to meet its demands is called
inadequacy
depreciation expense is reported on which of the following financial statements?
income statement
assets that increase the benefits of land, have a limited useful life, such as parking lots and lighting systems, are called:
land improvements
Determine which of the following expenses related to a building would be classified as a capital expenditure. (Check all that apply.)
new air conditioning system room addition
modified accelerated cost recovery system is ______________ acceptable for financial reporting purposes
not
the term ________ refers to a plant asset that is in the process of becoming outdated and no longer used
obsolescence
________ are expenditures that keep an asset in good operating condition. they are necessary if an asset is to perform to expectations over its useful life
ordinary
________ assets are assets used in a company's operations that have a useful life of more than one accounting period
plant
_____________ are assets purchased as a group in a single transaction for a lump-sum price are allocated the purchase price based on their relative market values
plant
Ordinary repairs, such as normal repairs and maintenance to a vehicle, would be recorded with a debit to which of the following accounts?
repairs expense
true or false: the book value of an asset when using straight-line depreciation is always greater than the book value from using double-declining-balance, except at the beginning and end of the asset's useful life, when it is the same
true -declining balance will always produce more depreciation expense in earlier years which will result in a lower book value
the method of depreciation that charges a varying amount to depreciation expense for each period depending on its usage is called the ____________ method
units-of-production
On October 30, Cleo Co. purchased a machine for $26,000 and estimates it will use the machine for four-years with a $2,000 salvage value. Using the straight-line depreciation method, compute the machine's first year partial depreciation expense for October 30 through December 31.
1000 this is a partial year depreciation 26000-2000=24000/4=6000per year 6000 x 2/12=1000
True or false: The cost of plant assets should include all of the normal and reasonable expenditures necessary to get the asset in place and ready for its intended use, including repairs to damages incurred after installation
FALSE
___________ expenditures are additional costs of plant assets that provide benefits extending beyond the current period, such as a plant expansion, or major machine overhaul
capital
plant assets are recorded at cost, which includes all expenditures necessary to get the asset in place and ready for use. All of the following would be included as part of the cost of a plant assets except:
damage done when unpacking the plant asset
Rojo's Roses Co. received an invoice for replacement of the engine on its main delivery van. The replacement will extend the life of the van an additional three years. The entry to record receipt of the invoice would include which of the following entries? (Check all that apply.)
debit equipment credit to accounts payable
determine which of the following expenses are considered revenue expenditures related to a company vehicle
dent repair car wash oil change
Diamond Co. paid cash to overhaul a forklift, which extended the life of the forklift for an additional four years. The entry to record this purchase would include a debit to the _______________ account
equipment
Quick Catering Co. paid for a refrigeration system to be added to their delivery van to keep the food cooled during deliveries. To record this expense, Quick would debit the ____________ account
equipment
quick catering co paid for a refrigeration system to be added to their delivery van to keep the food cooled during deliveries. to record this expense, quick would debit the ___________ account
equipment
____________ value, also called residual value or scrap value, is an estimate of the asset's value at the end of its useful life
salvage
straight-line depreciation is calculated by taking cost minus _________ value divided by useful life
salvage
true of false: the cost of a plant asset consists of all necessary and reasonable expenditures to acquire it and prepare it for its intended use
true
Grand Co. owns one copier that was purchased for $10,000 three years ago. The depreciation expense taken on the copier each year has been $2,700; $1,800; and $2,200, based on the number of copies that have been made on the copier. Based on this information, the company uses the _____________ depreciation method
units-of-production
the _________ life (also called service life) is the length of time the asset is productively used in a company's operations
useful
the ___________ life of a plant asset is the length of time it is productively used in a company's operations
useful
Teshin Co. purchases a piece of land with several land improvements for $180,000. The land appraises at $120,000 and the land improvements appraise at $80,000. The land should be recorded at what cost?
108,000 (120000/(120000+80000) x 180,000
Arc Co. purchased a piece of equipment for $25,000. At the end of the year, the book value of the equipment is $12,000. The salvage value is 0. How much is accumulated depreciation, using the straight-line method, at the end of the period?
13000
On June 1, Harding Co. purchased a machine for $14,000 and estimates it will use the machine for five-years with a $2,000 salvage value. Using the straight-line depreciation method, compute the machine's first year (partial) depreciation expense for June 1st through December 31st.
1400 14000-2000/5 x 7/12= 1400 the partial year depreciation should be recorded for seven months (June 1- December 31)
Ring Co. owns a delivery van that was purchased two years ago for $25,000. Ring has depreciated the van for two years at a straight-line amount of $4,000 per year. The book value of this van at the end of the second year would be $
17000
Tops Co. purchases equipment for $12,000 and has been using straight-line depreciation, estimating a 5-year life and $500 salvage value. At the beginning of the third year, Tops decides to use the equipment for a total of 6-years with no salvage value. Compute the revised depreciation for the third year.
1850 (12000-500)/5=2300per year 2300 x 2 years=4600 depreciation taken book value at beginning of year 3=12000=4600=7400/4=1850
Ion Co. purchased land for $190,000. Ion also paid $5,000 in real estate commissions, $1,000 in legal fees, and $500 in title insurance fees. Ion should record the cost of this land at:
196500
PT Co. purchased land and an existing building for $200,000. In addition, PT paid real estate commissions of $15,000. PT removed the unwanted building and graded the land for a total cost of $35,000. PT should record the cost of the land at:
250000
Bina Co. purchased a vehicle on January 1st for $15,000 and estimates it will use the vehicle for eight years with a $3,000 salvage value. Using the double declining-balance depreciation method, compute the vehicle's second year depreciation expense.
2812.50 salvage value is not subtracted up front with the double declining balance method (100%/8=.125) x 2=25% 15000 x 25%=3750 for first year second year (15000-3750) x 25%=2812.50
Juno Co. purchased a machine for $10,000 and estimates it will use the machine for three years with a $2,000 salvage value. It expects to produce a total of 8,000 units as follows: 3,000 during year one; 2,500 during year two; and 2,500 during year three. Using the units-of-production depreciation method, compute the machine's first year depreciation expense.
3000 10000-2000=8000 8000/8000 units=1.00per unit year one 3000 x 1.00=3000
Bina Co. purchased a machine on January 1st for $15,000 and estimates it will use the machine for three years with a $3,000 salvage value. Bina estimates that they will produce 1,500 units during year one, 1,000 units during year two, and 1,250 units during year three. Using the units-of-production method, compute the machine's second year depreciation expense.
3200 15000-3000=12000 total units=1500+1000+1250=3750 12000/3750=3.20perunit year two 1000 x 3.20=3200
Alin Co. purchases a building for $300,000 and pays an additional $30,000 for title fees and lawyer fees. Alin also pays $20,000 in renovations, including painting, carpet, lighting, etc. Alin should record the cost of the building at:
350,000
Geo Co. purchased a building for $400,000. In addition, Geo paid $35,000 for taxes and lawyer fees. Geo also paid $60,000 to modify the building, changing the layout specifically for Geo's needs. Geo should record the building at $_____________
495000
On January 2, Dice Co. purchases a mixing machine for $25,500. The machine is expected to last four years and have a salvage value of $5,500. Assuming the company uses the straight-line method, depreciation expense should be $____________ per year
5000 (cost-salvage value) / useful life
Juno Co. purchased a machine for $10,000 and estimates it will use the machine for four years with a $2,000 salvage value. Using the double declining-balance depreciation method, compute the machine's first year depreciation expense.
5000 10000 x (0.25 x 2)= 5000
Cen Co. purchases land and a building for $130,000. The land is appraised at $100,000 and the building at $150,000. Allocating the cost based on market values, the land should be recorded at what amount?
52000 (100000/(100000+150000)) x 130000
At the beginning of the year, Jobs Co. owned one piece of office equipment, a copier. The copier was purchased two years ago for $12,000. At the beginning of the year, the balance in accumulated depreciation was $4,000. Jobs uses straight-line depreciation of $2,000 per year with a zero salvage value. How much is accumulated depreciation at the end of the year?
6000 4000+2000
book value can be calculated by taking an asset's acquisition costs less it __________ ___________
accumulated depreciation
Which depreciation method will compute the most depreciation expense over the life of the asset?
all methods will produce equal depreciation expense over the life of the asset
accumulated depreciation is a ___________ asset account (one that is linked with the plant asset account, but has an opposite normal balance) and is reported on the balance sheet
contra
Zion Co. paid cash for an upgrade to an existing machine that would reduce the amount of waste produced by the machine and, therefore, increase efficiency. The journal entry to record this upgrade would include which of the following entries? (Check all that apply.)
debit machinery credit cash
Trio Co. reported that maintenance and normal repair costs are expensed as incurred. If Trio's current year machinery and equipment repair costs are $8,200, which accounts would be impacted to complete the journal entry? (Check all that apply.)
debit repair expense credit cash
Privo Co. purchases a machine that cost $15,000. Privo estimates a 5-year life with no salvage value. The first three years of depreciation expense are $6,000; $3,600; and $2,160, respectively. Based on this information, Privo is using the ______________ depreciation method
declining balance
The depreciation method that determines the depreciation for the period by multiplying a depreciation rate (often twice the straight-line rate) by the asset's beginning-period book value is known as the ___________ method
declining balance
The depreciation method that determines the depreciation for the period by multiplying a depreciation rate (often twice the straight-line rate) by the asset's beginning-period book value is known as the ____________ method
declining balance
_______ is the process of allocating the cost of a plant asset to expense while it is in use
depreciation
____________ is the process of allocating the cost of a plant asset to expense while it is in use
depreciation
Which of the following items related to depreciating equipment would be found on a company's income statement?
depreciation expense-equipment
which of the following items related to depreciating equipment would be found on a company's income statement?
depreciation expense-equipment
the purchase of a group of plant assets for one price is called a __________ purchase
lump-sum
which of the following expenses would not be considered an ordinary repair?
replacing an engine
___________ expenditures are additional costs of plant assets that do not materially increase the asset's life or capabilities
revenue
