CH 9 Quiz

Clark Imports sold a depreciable plant asset for cash of $28,000. The accumulated depreciation amounted to $72,000, and a loss of $2,500 was recognized on the sale. Under these circumstances, the original cost of the asset must have been: $74,500. $102,500. $69,500. $97,500.

$102,500 Explanation: Loss on sale of ($2,500) = Sales proceeds of $28,000 − Book value Book value = $28,000 + $2,500 = $30,500 Book value of $30,500 = Cost − Accumulated depreciation of $72,000 Cost = $30,500 + $72,000 = $102,500

Harvard Company purchased equipment having an invoice price of $11,500. The terms of sale were 2/10, n/30, and Harvard paid within the discount period. In addition, Harvard paid a $160 delivery charge, $185 installation charge, and $931 sales tax. The amount recorded as the cost of this equipment is: $11,615. $11,845. $12,546. $12,776.

$12,546 Explanation: ($11,500 × 0.98) + $160 + $185 + $931 = $12,546

Machinery acquired new on January 1 at a cost of $140,000 was estimated to have a useful life of 11 years and a residual salvage value of $8,000. Straight-line depreciation was used. On January 1, following six full years of use of the machinery, management decided that the estimate of useful life had been too long and that the machinery would have to be retired after four years, that is, at the end of the tenth year of service. Under this revised estimate, the depreciation expense for the seventh year of use would be: $12,000. $60,000. $22,000. $15,000.

$15,000 Explanation: Annual depreciation for Years 1 through 6 = ($140,000 − $8,000) ÷ 11 years = $12,000 Accumulated depreciation at end of Year 6 = $12,000 × 6 = $72,000 Depreciation for Year 7 = ($132,000 − $72,000) × 1/4 = $60,000 × 1/4 = $15,000

Gloucester 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: $280,000. $156,000. $262,000. $260,000.

$262,000. Explanation: Gain on sale of $18,000 = Sales proceeds of $142,000 − Book value Book value = $142,000 − $18,000 = $124,000 Book value of $124,000 = Cost − Accumulated depreciation of $138,000 Cost = $124,000 + $138,000 = $262,000

On April 2, Year 1, Victor, Incorporated acquired a new piece of filtering equipment. The cost of the equipment was $360,000 with a residual value of $20,000 at the end of its estimated useful lifetime of 8 years. Victor uses a calendar year-end for financial reporting. If Victor uses straight-line depreciation with the half-year convention, the book value of the equipment at December 31, Year 2 will be: $297,500. $275,000. $296,250. $225,000.

$296,250. Explanation: Depreciation for Year 1 = [($360,000 − $20,000) ÷ 8 years] × ½ = $42,500 × ½ = $21,250 Depreciation for Year 2 = [($360,000 − $20,000) ÷ 8 years] = $42,500 Book value at end of Year 2 = $360,000 − ($21,250 + $42,500) = $296,250

Land and a warehouse were acquired for $860,000. What amounts should be recorded in the accounting records for the land and for the warehouse if an appraisal showed the estimated values to be $520,000 for the land and $850,000 for the warehouse? (Round intermediate percentage calculations to 1 decimal place.) $326,800 for land; $533,200 for warehouse $520,000 for land; $850,000 for warehouse $10,000 for land; $850,000 for warehouse $520,000 for land; $860,000 for warehouse

$326,800 for land; $533,200 for warehouse Explanation: Total estimated values: $520,000 + $850,000 = $1,370,000 $520,000 ÷ $1,370,000 = 38.0% Amount allocated to land: 0.380 × $860,000 = $326,800 Amount allocated to building: $850,000 ÷ $1,370,000 = 62.0% 0.620 × $860,000 = $533,200

On April 8, Year 1, Jupiter Corporation acquired equipment at a cost of $480,000. The equipment is to be depreciated by the straight-line method over six years with no provision for salvage value. Depreciation for fractional years is computed by rounding the ownership period to the nearest month. Depreciation expense recognized in Year 1 will be: $66,667. $60,000. $53,333. $80,000.

$60,000. Explanation: $480,000 ÷ 6 years × 9/12 = $60,000

Mayer Instrumentation sold a depreciable asset for cash of $320,000. The original cost of the asset was $1,240,000. Mayer recognized a gain of $27,000 on the sale. What was the amount of accumulated depreciation on the asset at the time of its sale? $1,213,000. $947,000. $293,000. $974,000

$947,000 Explanation: Gain on sale of $27,000 = Sales proceeds of $320,000 − Book value Book value = $320,000 − $27,000 = $293,000 Book value of $293,000 = Cost of $1,240,000 − Accumulated depreciation Accumulated depreciation = $1,240,000 − $293,000 = $947,000

The legal life of most patents is: 40 years. 20 years. 50 years. 5 years.

20 years

An asset that 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? A loss of $7,200. A gain of $7,200. A gain of $1,200. A loss of $1,200.

A loss of $1,200. Explanation: Loss on sale = $11,600 − ($18,800 − $6,000) = ($1,200)

Which of the following is not a capital expenditure? Advertising expenditures to introduce a new product line An amount paid to acquire a patent with a remaining life of only three years Sales tax paid in conjunction with the purchase of new machinery Installation of elevators to replace escalators

Advertising expenditures to introduce a new product line

The term net identifiable assets means: All assets except intangibles, minus all liabilities. All fixed assets less liabilities. All assets except goodwill, minus all liabilities. All assets except goodwill, plus all liabilities.

All assets except goodwill, minus all liabilities.

International standards require that goodwill: Be capitalized and amortized over 20 years or less. Be capitalized and amortized over 40 years or less. Be capitalized and reviewed annually and its value should be adjusted if subject to impairment. Be expensed immediately.

Be capitalized and reviewed annually and its value should be adjusted if subject to impairment.

Which of the following situations is impossible? Book value is less than residual value. Book value is less than the original cost. Book value is equal to the residual value. Book value is greater than residual value.

Book value is less than residual value.

Which of the following would not be amortized? Copyright. Goodwill. Franchise fee. Patent.

Goodwill

Which of the following statements is not correct with respect to an asset with a five-year life owned by a company that uses straight-line depreciation and the half-year convention? It will have the same depreciation expense in the first and last years. It will have a smaller depreciation expense in Year 4 than it does in Year 2. It will be depreciated over six accounting years. It will have a book value that exceeds its salvage value at the end of its economic life.

It will have a smaller depreciation expense in Year 4 than it does in Year 2.

Which of the following assets is not subject to depreciation and does not decline in usefulness over time? Copyrights Patents Coal mine Land

Land

Which of the following is a capital expenditure? Monthly rent of a delivery truck Small expenditures to acquire long-lived assets, such as $13 to purchase a wastebasket Monthly fuel costs for a truck owned by the company Sales tax paid in conjunction with the purchase of office equipment

Sales tax paid in conjunction with the purchase of office equipment

Which depreciation method is most commonly used among publicly owned corporations? All of the various depreciation methods are used equally Double-declining balance Units-of-output Straight-line

Straight-line

The inclusion of the intangible asset goodwill in the financial statements of a company indicates: That the company has a favorable reputation with its customers. That the company has purchased a going business at a price in excess of the fair market value of the net identifiable assets. An unbroken record of annual earnings and dividends. A monopoly position in the industry or superior management.

That the company has purchased a going business at a price in excess of the fair market value of the net identifiable assets.

The gain on the disposal of equipment is recognized when: The book value of the equipment is less than the value received. A gain should not be recognized on the disposal of an asset. The book value of the equipment is greater than the value received. A salvage value exists.

The book value of the equipment is less than the value received.

The term "accumulated depreciation" as used in accounting is best defined as: The portion of a plant asset recognized as expense since the asset was acquired. Funds (or cash) set aside to replace the asset being depreciated. Earnings retained in the business that will be used to purchase another asset when the present asset is depreciated. An expense of doing business.

The portion of a plant asset recognized as expense since the asset was acquired.

A gain is recognized on the disposal of plant assets when: The sales price is less than both the book value and the residual value. The sales price is greater than the book value and greater than the residual value. The sales price is greater than the residual value but less than the book value. The sales price is greater than the book value and less than the residual value.

The sales price is greater than the book value and greater than the residual value.

Wanda Company sold an asset for $10,000 on September 6, Year 1. The historical cost of the asset was $22,000, and the asset's accumulated depreciation at the date of sale was $14,500. Which of the following statements is correct? Wanda will record a cash inflow from operating activities of $10,000 in its Year 1 financial statements. Wanda will record a cash inflow from investing activities of $2,500 in its Year 1 financial statements. Wanda will record no cash flows related to this asset on its Year 1 statement of cash flows. Wanda will record a cash inflow from investing activities of $10,000 in its Year 1 financial statements.

Wanda will record a cash inflow from investing activities of $10,000 in its Year 1 financial statements.

If an asset is determined to be impaired, it should be: Written down to its fair market value. Written up to its historical cost. Reclassified as a liability. Depreciated only using the straight-line method.

Written down to its fair market value.