ACC chapter 8

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:

$196,500

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.

$26,000 - 2,000 = $24,000/4 = $6000 per year. $6000 x 2/12 = $1,000.

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.

(14,000-2000)/5 x 7/12=1,400 for a partial year depreciation.

Straight-line depreciation can be calculated by taking:

(cost minus salvage value)/useful life

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

Which of the following situations will result in recognizing a gain on sale of a plant asset?

A fully depreciated asset is sold for $1,000.

______ are expenditures that make a plant asset more efficient or productive, but do not always increase an asset's useful life.

Betterments

__ is the process of allocating the cost of a plant asset to expense while it is in use.

Depreciation

On December 31, Briar Co. disposed of a piece of equipment that cost $6,000 with accumulated depreciation of $4,500. The entry to record this disposal would include a debit to which account and for how much?

Loss on Disposal of Equipment for $1,500

Forward Co. discarded a machine that cost $5,000 and was fully depreciated. The entry to record this transaction would include a credit to the _____ account

Machinery

______ 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 repairs

The cost at which a company records purchases of machinery and equipment should include which of the following? (Check all that apply.)

Taxes Shipping fees Purchase price Installation

Which of the following factors determine depreciation?

Useful life Salvage value Cost of asset

Niren Co. made modifications to a manufacturing machine that increased its productivity by 40%. Niren would classify this expense as a(n):

betterment

The factors necessary to compute depreciation include all of the following, except:

book value

Compute the first-year depreciation using the straight-line method

cost - salvage value / estimated useful life (years) = depreciation expense

repair costs are not included in the cost of equipment

debit expense

The process of allocating the cost of a plant asset to expense while it is in use is called (depreciation/salvage)

depreciation

A company owns an asset that is fully depreciated. The asset is no longer being used in operations and has no market value. The company has decided to Blank______ the asset by recording an entry to remove it from the balance sheet.

discard

A plant asset is (depreciated/discarded/obsolete) when it is no longer useful to the company, and it has no market value.

discarded

______ assets are assets used in a company's operations that have a useful life of more than one accounting period.

fixed

Assets that increase the benefits of land, have a limited useful life, such as parking lots and lighting systems, are called:

land improvements

(Revenue/Capital) expenditures are additional costs of plant assets that do not materially increase the asset's life or capabilities.

revenue

Straight-line depreciation is calculated by taking cost minus (salvage/market) value divided by useful life.

salvage

Which of the following items are plant assets? (Check all that apply.)

-Building used for operations correct -Equipment used in operations

Plant assets should be recorded at cost, including all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use. This would include which of the following costs?

-Shipping charges -Assembling -Testing

Determine which of the following expenses are considered revenue expenditures related to a company vehicle.

-car wash -dent repair -oil change

Which of the following expenses would not be considered an ordinary repair?

Replacing an engine

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 asset except:

damage done when unpacking the plant asset