acct5312 - ch 6
Which of the following require educated guesses on the part of accountants in order to determine depreciation? (Select all) A. Salvage value B. Loan Interest C. Useful Life D. Original Cost
A & C A. Salvage value C. Useful Life
Select All. Which of the following factors are normally considered in determining whether to capitalize or to expense an expenditure? A. Whether the purchased item will provide economic benefits to the entity that extend beyond the current year B. Whether the expenditure helps to fulfill the company's social responsibilities C. Whether the purchased item represents a material expenditure to the company D. The potential income tax reduction in the current year that results from expensing the item
A, C & D A. Whether the purchased item will provide economic benefits to the entity that extend beyond the current year C. Whether the purchased item represents a material expenditure to the company D. The potential income tax reduction in the current year that results from expensing the item
Which of the following best characterizes how a long-term operating lease expense is recognized on a balance sheet? A. As a straight-line representing total annual rental payments B. As an increasing line representing the aggregate total of all payments made C. As a decreasing line representing asset depreciation over time D. As a single line item recorded at the termination of the lease
A. As a straight-line representing total annual rental payments
A truck that cost $43,000 was sold for $25,000 at a time when its net book value was $14,000. As a result of this transaction, the company would have recorded a: A. gain on sale of truck for $11K B. gain on sale of truck for $19K C. gain on sale of truck for $18K D. loss on sale of truck for $11K
A. gain on sale of truck for $11K
How often is a depreciation expense recorded? A. Once, when a noncurrent asset is sold or disposed of B. In each fiscal accounting period C. When an asset loses more than 50 percent of its value D. When preparing for an external audit
B. In each fiscal accounting period
The Modified Accelerated Cost Recovery System (MACRS) specifies which of the following depreciation methods for buildings? A. 150% declining-balance B. Straight line C. Buildings are not depreciable assets D. Double-declining-balance
B. Straight line
Leasehold improvements made with respect to leased assets are recorded as: A. assets by the lessor for the cost of expenditures properly capitalized. B. assets by the lessee for the cost of expenditures properly capitalized. C. liabilities by the lessor for the cost of expenditures properly capitalized. D. liabilities by the lessee for the cost of expenditures properly capitalized.
B. assets by the lessee for the cost of expenditures properly capitalized.
Goodwill results from the purchase of one firm by another: A. for a price that is less than the fair value of the net assets acquired. B. for a price that is greater than the fair value of the net assets acquired. C. for a price that is greater than the fair value of the total assets acquired. D. for a price that is greater than the fair value of the tangible assets acquired.
B. for a price that is greater than the fair value of the net assets acquired.
The entry to record depreciation expense: A. decreases a contra asset and decreases net income. B. increases a contra asset and decreases net income. C. decreases working capital and decreases net income. D. decreases an asset and increases a contra asset.
B. increases a contra asset and decreases net income.
Which are considered general categories of methods used to calculate depreciation? (select all) A. Salvage methods B. Estimated-cost methods C. Accelerated methods D. Straight-line methods
C & D C. Accelerated methods D. Straight-line methods
Over the life of a financing lease, which of the following effects occur on the income statement of the lessee? (Select all) A. Accumulated depreciation is credited (increased) on an annual basis. B. Interest income is credited (increased) on an annual basis. C. Interest expense is debited (increased) on an annual basis. D. Rent expense is debited (increased) on an annual basis. E. Depreciation expense is debited (increased) on an annual basis.
C & E C. Interest expense is debited (increased) on an annual basis. E. Depreciation expense is debited (increased) on an annual basis.
In practice, most accountants decide in favor of expensing rather than capitalizing for several reasons, including: (select all) A. capitalizing an expenditure increases reported asset values. B. capitalizing an expenditure increases reported net income C. expensing an item yields an immediate deduction for income tax purposes. D. capitalizing requires a revision of estimates for useful life and salvage value. E. expensing an item avoids the need of keeping depreciation records.
C, D, & E C. expensing an item yields an immediate deduction for income tax purposes. D. capitalizing requires a revision of estimates for useful life and salvage value. E. expensing an item avoids the need of keeping depreciation records.
With regard to a financial lease, when is the greatest amount of total expense recognized on a balance sheet? A. At the midpoint of the lease term B. Near the end of the lease term C. In the early part of the lease term D. Equally throughout the lease term
C. In the early part of the lease term
Land that is owned and used in the operations of a firm is shown on the balance sheet at its: A. Replacement cost B. Original cost less accumulated depreciation C. Original cost D. Current Market Value
C. Original cost
Which of the following aspect of depreciation is ignored for the purposes of income tax preparation? A. Useful Life B. Original Cost C. Salvage Value D. Loan Interest
C. Salvage Value
The primary difference between U.S. GAAP and IFRS with respect to noncurrent assets is that noncurrent assets are recorded at: A. original cost under U.S. GAAP and on a fair value basis less accumulated depreciation under IFRS. B. original cost less accumulated depreciation under U.S. GAAP and on an inflation indexed basis under IFRS. C. original cost less accumulated depreciation under IFRS and on a fair value basis with regular revaluations under U.S. GAAP. D. original cost less accumulated depreciation under U.S. GAAP and on a fair value basis with regular revaluations under IFRS.
D. original cost less accumulated depreciation under U.S. GAAP and on a fair value basis with regular revaluations under IFRS.
The principal challenge to calculating depletion is estimating: A. the demand for the product. B. the cost of the asset. C. the salvage value of the exploration equipment. D. the quantity of material to be recovered.
D. the quantity of material to be recovered.
True or False: Because depreciation involves estimates of useful life and salvage value to begin with, revising those estimates without overwhelming evidence that they are significantly in error is an exercise of questionable value.
True
Which of the following accounts are examples of intangible assets? (Select all) A. Accounts Receivable B. Trademarks C. Franchises D. Prepaid insurance E. Patents F. Brand Names
B, C, E & F B. Trademarks C. Franchises E. Patents F. Brand Names
Depletion is usually recognized: A. on a straight-line basis. B. on a FIFO basis. C. using the MACRS rates. D. using the double-declining-balance method.
A. on a straight-line basis.
Which of the following are correct statements about accounting for depletion of natural resources? (Select all) A. Depletion expense allowed for federal income tax purposes frequently differs from that recognized for financial accounting purposes. B. Depletion expense is recorded in the income statement for the related natural resources. C. Depletion expense is very easy to estimate in practice. D. Depletion expense is recorded in the statement of cash flows along with the related natural resources.
A & B A. Depletion expense allowed for federal income tax purposes frequently differs from that recognized for financial accounting purposes. B. Depletion expense is recorded in the income statement for the related natural resources.
Without considering the other factors, a maintenance expenditure should be capitalized if the expenditure does which of the following? (Select all) A. extends the useful life of the asset. B. increases the salvage value of the asset. C. is material in amount. D. is required by law or regulation.
A & B A. extends the useful life of the asset. B. increases the salvage value of the asset.
Which of the following are true of intangible assets? (select all) A. Intangible assets are amortized over their remaining useful life or their statutory life, whichever is shorter. B. Intangible assets are amortized over their remaining useful life or their statutory life, whichever is longer. C. The cost of obtaining intangible assets should be capitalized.
A & C A. Intangible assets are amortized over their remaining useful life or their statutory life, whichever is shorter. C. The cost of obtaining intangible assets should be capitalized.
Intangible assets include: A. patents, trademarks, copyrights, and customer lists. B. notes receivables, dividends, accounts receivables, and unearned revenues. C. accounts payables, notes receivables, unearned revenue, and prepaid rent. D. merchandise inventory, prepaid expenses, bills payables, and prepaid insurance.
A. patents, trademarks, copyrights, and customer lists.
Select All. Buildings and equipment are recorded at their original cost, which includes the purchase price plus: A. interest costs incurred during the construction phase of a building. B. material, labor, and overhead costs for equipment made by a firm's own employees. C. the cost of paving a parking lot next to the building and lighting for the parking lot. D. the cost of the land that is being used for the building's construction site. E. installation and shakedown costs.
A, B & E A. interest costs incurred during the construction phase of a building. B. material, labor, and overhead costs for equipment made by a firm's own employees. E. installation and shakedown costs.
Which of the following items are capitalized as part of the cost of land acquired? (select all) A. Cost of razing an old building on the land, net of salvage proceeds B. Purchase price of land C. Depreciation of the land D. Title Fees E. Legal Fees F. Cost of architectural drawings for the construction of a building on the land
A, B, D & E A. Cost of razing an old building on the land, net of salvage proceeds B. Purchase price of land D. Title Fees E. Legal Fees
Over the life of a financing lease, which of the following occur on the balance sheet of the lessee? (select all) A. Cash is credited (decreased) as lease payments are made. B. Depreciation expense is debited (increased) on an annual basis. C. Financing Lease Liability is debited (decreased) as lease payments are made. D. The net book value of the leased asset is reduced as Accumulated Depreciation is credited (increased).
A, C & D A. Cash is credited (decreased) as lease payments are made. C. Financing Lease Liability is debited (decreased) as lease payments are made. D. The net book value of the leased asset is reduced as Accumulated Depreciation is credited (increased).
When calculating depreciation expense for the first year of an asset's use, under which of the following methods would the asset's estimated salvage value be subtracted from the cost of the asset? (Select all) A. Straight-line B. LIFO C. Sum-of-the-years'-digits D. Units-of-production E. Double-declining-balance
A, C & D A. Straight-line C. Sum-of-the-years'-digits D. Units-of-production
Regarding the MACRS rules of calculating depreciation for income tax purposes, which of the following statements are true? (Select all) A. The MACRS rules provide accelerated deductions relative to the straight-line alternative. B. The MACRS rules are based on the units-of-production method. C. The MACRS rules simplify the calculation of the useful life of assets relative to the straight-line alternative. D. The MACRS rules must also be used for financial statement purposes if they are used for income tax purposes. E. The MACRS rules eliminate the need to estimate an asset's salvage value.
A, C & E A. The MACRS rules provide accelerated deductions relative to the straight-line alternative. C. The MACRS rules simplify the calculation of the useful life of assets relative to the straight-line alternative. E. The MACRS rules eliminate the need to estimate an asset's salvage value.
Which of the following accounts are examples of intangible assets? (Select all) A. Copyrights B. Current maturities of longterm debt C. Goodwill D. Customer lists E. Merchandise Inventory F. Leaseholds
A, C, D & F A. Copyrights C. Goodwill D. Customer lists F. Leaseholds
Velco purchased a delivery truck at the beginning of Year 1 at a cost of $60,000. The truck is estimated to have a useful life to Velco of 5 years and an estimated salvage value of $10,000. It is estimated that the truck will be driven 100,000 miles during Velco's ownership period. The balance of the Accumulated Depreciation account at the end of Year 3 (the third year of the asset's life) under the straight-line method would be: A. $30K B. ($0.50 per mile × total miles driven from Year 1 to Year 3) C. ($0.60 per mile × total miles driven from Year 1 to Year 3) D. ($0.50 per mile × total miles driven during Year 1)
A. $30K ($60,000 - $10,000) / 5 = $10,000 × 3 = $30,000
Velco purchased a delivery truck at the beginning of Year 1 at a cost of $60,000. The truck is estimated to have a useful life of 5 years to Velco and an estimated salvage value of $10,000. It is estimated that the truck will be driven 100,000 miles during Velco's ownership period. The balance of the Accumulated Depreciation account at the end of Year 3 (the third year of the asset's life) under the units-of-production method would be: A. ($0.50 per mile × total miles driven from Year 1 to Year 3) B. $36,000 C. ($0.60 per mile × total miles driven from Year 1 to Year 3) D. $30,000
A. ($0.50 per mile × total miles driven from Year 1 to Year 3) Reason: ($60,000 - $10,000) / 100,000 = $0.50 per mile × total miles driven from Year 1 to Year 3
Which of the following statements best describes the process of accounting for depreciation? A. A process for recognizing the cost of an asset that should be matched against revenue earned as a result of using the asset. B. A process for setting aside cash so funds will be available to replace the asset. C. A process for recognizing all of the cost associated with using an asset in a revenue generating activity. D. A process that attempts to recognize loss in economic value over a period of time.
A. A process for recognizing the cost of an asset that should be matched against revenue earned as a result of using the asset.
The entry made to record the impairment of goodwill is: A. Dr. Goodwill Impairment Loss Cr. Goodwill B. Dr. Goodwill Impairment Loss Cr. Accumulated Amortization C. Dr. Goodwill Cr. Goodwill Impairment Loss D. Dr. Accumulated Amortization Cr. Goodwill
A. Dr. Goodwill Impairment Loss Cr. Goodwill
Where is the expense for a short-term operating lease recorded? On the... A. Income statement. B. Capital Lease Sheet C. Residual Value Statement D. Balance Sheet
A. Income statement.
Which of the following statements concerning repair and maintenance expenditures is true? A. Maintenance expenditures that extend the useful life and ∕or increase the salvage value of an asset should be capitalized and depreciated over the asset's remaining useful life. B. All repair and maintenance expenditures are accounted for as expenses in the year in which they are incurred. C. Routine repair costs and preventive maintenance expenditures are capitalized as assets in the period in which they are incurred. D. For income tax purposes, most taxpayers would prefer to capitalize an expenditure and depreciate the asset over time rather than expensing the expenditure and deducting the entire amount in the year it is incurred.
A. Maintenance expenditures that extend the useful life and ∕or increase the salvage value of an asset should be capitalized and depreciated over the asset's remaining useful life.
What kind of lease does not involve any significant aspects of ownership? A. Operating B. Long-term C. Financing D. Balance-Sheet
A. Operating
In the depreciation process, when is the cost of an asset allocated? A. Over the span of years in which the benefits of an asset are expected to be received B. Any time an asset incurs additional expenses associated with ownership C. In the fiscal year in which an asset is purchased D. The moment an asset is sold or loses all of its practical value
A. Over the span of years in which the benefits of an asset are expected to be received
Identify a true statement about goodwill that is considered to be impaired and has been written down to its impaired fair value. A. The impaired fair value would become the new book value that would be used as the reference to determine further impairment in future years. B. Any subsequent impairment of goodwill should not bring the book value of goodwill below the total stockholders' equity. C. There will be no further impairment testing permitted in the future unless the concerned company's annual profit exceeds $5 million. D. The impaired fair value is required to be fully written off over three years following the year of impairment.
A. The impaired fair value would become the new book value that would be used as the reference to determine further impairment in future years.
What do alternative methods of calculating depreciation have in common? A. They spread the depreciation amount across an asset's estimated useful life. B. They have the same patterns of depreciation expense by fiscal period. C. They add the purchase price of an asset to its estimated salvage value to determine depreciation. D. They have a direct effect on the total depreciation expense to be recognized.
A. They spread the depreciation amount across an asset's estimated useful life.
When are noncurrent assets moved to the current asset section of the balance sheet? A. When they become receivable within one year B. When they become liabilities C. When they become intangible assets D. When their value drops below zero
A. When they become receivable within one year
Under IFRS, noncurrent assets must be revalued on a regular basis. This often results in: A. an increase (debit) to the noncurrent asset's carrying value B. an increase (credit) to the noncurrent asset's carrying value C. an increase (credit) in "Accumulated other comprehensive income (loss)" on the income statement. D. an increase (debit) in "Accumulated other comprehensive income (loss)" within stockholders' equity.
A. an increase (debit) to the noncurrent asset's carrying value
Towns Co. purchased Timber Inc. for $4,200,000 in cash. The fair value of the net acquired assets were as follows: Inventory = $700,000; Land = $1,000,000; Buildings = $2,000,000; and Notes Payable = $400,000 (Towns Co. assumed the note in full). As a result of this transaction, Towns Co. would: A. debit Goodwill for $900,000 B. debit Goodwill for $100,000 C. debit Goodwill for $500,000 D. credit Goodwill for $900,000
A. debit Goodwill for $900,000 Reason: debit Goodwill for $900,000. $4.2 million - ($0.7 + $1.0 + $2.0 - $0.4) = $4.2 - $3.3 million = $900,000
If there is a loss on the disposal of a depreciable asset: A. in retrospect, the depreciation expense recognized over the asset's life was too low. B. no cash was received in the disposal transaction. C. the net book value of the asset was negative. D. in retrospect, the life over which the asset was depreciated was too short.
A. in retrospect, the depreciation expense recognized over the asset's life was too low.
A basket purchase transaction results when two or more noncurrent assets are purchased for a lump-sum purchase price that is: A. less than the total appraised fair value of the individual assets acquired. B. greater than the total appraisal fair value of the individual assets acquired. C. less than the total book value of the individual assets acquired. D. greater than the total book value of the individual assets acquired.
A. less than the total appraised fair value of the individual assets acquired.
Under U.S. GAAP, goodwill is: A. not amortized, but tested annually for impairment. B. amortized over a period of 20 years or less on the straight-line method. C. amortized over a period of 40 years or less on the straight-line method. D. amortized over a period of 5 years or less on the straight-line method.
A. not amortized, but tested annually for impairment.
Intangible assets are amortized over their: A. remaining useful life or their statutory life, whichever is shorter. B. remaining useful life or their statutory life, whichever is longer. C. remaining useful life D. their statutory life
A. remaining useful life or their statutory life, whichever is shorter.
For income tax purposes, most firms use the MACRS rates for determining depreciation deductions because: A. the MACRS rates provide accelerated deductions relative to the straight-line alternative. B. the MACRS rates are easier to calculate than the straight-line alternative. C. sum-of-the-years'-digits rates are not as accelerated as the MACRS rates. D. units-of-production rates are not as accelerated as the MACRS rates.
A. the MACRS rates provide accelerated deductions relative to the straight-line alternative.
The net book value of a depreciable asset is: A. the difference between the asset's cost and accumulated depreciation. B. the fair value of the asset. C. the amount for which the asset should be insured. D. the difference between the asset's cost and depreciation expense.
A. the difference between the asset's cost and accumulated depreciation.
Which of the following appear under the noncurrent asset category? (Select all) A. Short-term receivables B. Income tax assets deferred more than a year C. Long-term investments D. Operational leases
B & C B. Income tax assets deferred more than a year C. Long-term investments
Velco purchased a delivery truck at the beginning of Year 1 at a cost of $60,000. The truck is estimated to have a useful life of 5 years to Velco and an estimated salvage value of $10,000. The balance of the Accumulated Depreciation account at the end of Year 1 (the first year of the asset's life) under the double-declining-balance method would be: A. $1oK B. $24K C. $12K D. $20K
B. $24K Reason: 5-year life = 20% per year × 2 = 40% rate × $60,000 = $24,000
Crosby Co. leases a machine and agrees to make annual lease payments of $11,000 for 5 years. The present value of all of the lease payments is $40,000. The entry to record this transaction is: A. Dr. Equipment 55,000 Cr. Notes Payable 55,000 B. Dr. Equipment 40,000 Cr. Lease Liability 40,000 C. Dr. Equipment 40,000 Cr. Notes Payable 40,000 D. Dr. Equipment 55,000 Cr. Lease Liability 55,000
B. Dr. Equipment 40,000 Cr. Lease Liability 40,000
Which of the following statements is true about goodwill once it is considered to be partially impaired and has been written down to its partially impaired value? A. This becomes the new fair value of goodwill, and no further impairment testing is done in subsequent years. B. No subsequent upward adjustments are permitted for recoveries of fair value. C. Subsequent upward adjustments for recoveries of fair value can increase goodwill up to the originally reported amount. D. This becomes the new market value of goodwill and is amortized on a straight-line basis for five years or less.
B. No subsequent upward adjustments are permitted for recoveries of fair value.
The gain or loss on the sale of a depreciable asset is, in effect, a ______. A. correction of the difference between the book depreciation (expense) and tax depreciation (deductions) recorded over the life of the asset. B. correction of the total depreciation expense that has been recorded over the life of the asset. C. measure of the asset's worth to the entity during its period of ownership. D. reward (gain) or punishment (loss) to the entity for selling an overperforming (gain) or an underperforming (loss) asset.
B. correction of the total depreciation expense that has been recorded over the life of the asset.
A building was sold for $510,000, which resulted in a gain of $30,000. Accumulated depreciation on the building (updated to the date of sale) was $140,000. The journal entry to record this transaction would include all of the following except a: A. credit to Gain on the Sale of Buildings for $30,000. B. credit to Cash for $510,000. C. credit to Buildings for $620,000. D. debit to Accumulated Depreciation for $140,000.
B. credit to Cash for $510,000.
Furniture that cost $10,000 when new and had $4,000 of accumulated depreciation was sold at a gain of $1,200. The journal entry to record the sale of the furniture would include all of the following except: A. credit to Furniture for $10,000. B. debit to Gain on Sale of Furniture for $1,200. C. debit to Accumulated Depreciation for $4,000. D. debit to Cash for $7,200.
B. debit to Gain on Sale of Furniture for $1,200.
The net book value (carrying value) of a noncurrent asset: A. is the difference between the cost of the asset and the fair value of the asset. B. is the difference between the cost of the asset and the accumulated depreciation on that asset. C. is the difference between the fair value of the asset and the accumulated depreciation on that asset. D. is the sum of the cost of the asset and the accumulated depreciation on that asset.
B. is the difference between the cost of the asset and the accumulated depreciation on that asset.
Assume that land, buildings, and equipment were acquired for a lump-sum purchase price of $100,000. Appraised values were as follows: land, $40,000; buildings, $100,000; and equipment, $20,000. Buildings would be recorded for: A. $60K B. $50K C. $62.5K D. $100K
C. $62.5K $62,500 = ($100,000 / ($40,000 + $100,000 + $20,000)) = 62.5% × $100,000
Which of the following is not a term that describes part of the accounting for noncurrent assets? A. Depletion B. Depreciation C. Accumulation D. Amortization
C. Accumulation
Under which depreciation method is the estimated salvage value ignored when making the depreciation expense calculation for the first year of an asset's use? A. Sum-of-the-years'-digits B. Straight-line C. Double-declining-balance D. Units-of-production
C. Double-declining-balance
Identify a reason for a firm being ready to pay more for a business than the fair value of its net assets. A. The book value of the business being purchased is equal to its market value. B. The business being purchased has been able to earn a less than average rate of return on its invested net assets. C. The business being purchased has been able to earn a greater than average rate of return on its invested net assets. D. The business being purchased has been able to earn an average rate of return on its invested net assets.
C. The business being purchased has been able to earn a greater than average rate of return on its invested net assets.
A truck that cost $14,000 when new and had a net book value of $3,000 was sold for $4,400. The journal entry to record the sale of the truck would include a: A. debit to Cash for $3,000. B. credit to Truck for $11,000. C. debit to Accumulated Depreciation for $11,000. D. credit to Loss on Sale of Truck for $1,400.
C. debit to Accumulated Depreciation for $11,000.
Equipment that cost $16,000 when new and had $12,000 of accumulated depreciation was sold at a loss of $300. The journal entry to record the sale of the equipment would include all of the following except: A. debit to Loss on Sale of Equipment for $300. B. credit to Equipment for $16,000. C. debit to Accumulated Depreciation for $4,000. D. debit to Cash for $3,700.
C. debit to Accumulated Depreciation for $4,000.
Maintenance expenditures should be capitalized if they: A. form the part of routine expenses for the concerned firm. B. are required by the regularity authority to do so. C. extend the useful life and/or increase the salvage value of an asset. D. are recorded as an expense rather than as an asset.
C. extend the useful life and/or increase the salvage value of an asset.
Relative to the straight-line method, the effects of using an accelerated depreciation method during inflationary times are: A. greater amounts reported as depreciation expense and higher amounts reported as net income. B. lower amounts reported as depreciation expense and higher amounts reported as net income. C. greater amounts reported as depreciation expense and lower amounts reported as net income. D. lower amounts reported as depreciation expense and lower amounts reported as net income.
C. greater amounts reported as depreciation expense and lower amounts reported as net income.
If the book value of goodwill does not exceed its fair value, goodwill ________. A. is tested for impairment losses B. is recorded in the income statement instead of the balance sheet C. is not considered impaired D. is amortized on a double-declining balance basis for 10 years or more
C. is not considered impaired
An expenditure should be capitalized if the acquired item will have an economic benefit to the entity that extends beyond the current fiscal year. An example of this is: A. rent of an office building B. preventative maintenance costs C. purchase of machinery D. research and development costs
C. purchase of machinery
The gain or loss on the disposal of a depreciable asset is, in effect, a correction of the missed depreciation estimates because if the salvage value and useful life estimates had been correct, ______. A. the impaired value of the asset would be less than the proceeds received from its sale or disposal B. the net book value of the asset would be less than the proceeds received from its sale or disposal C. the net book value of the asset would be equal to the proceeds received from its sale or disposal D. the impaired value of the asset would be more than the proceeds received from its sale or disposal
C. the net book value of the asset would be equal to the proceeds received from its sale or disposal
When a company buys land on which there is a building, and the building is torn down so that an appropriate new building can be constructed on the land: A. any of the purchase cost allocated to the old building is reported as a loss. B. the cost assigned to the land excludes the cost of the old building. C. the total cost of the land and old building are capitalized as land cost. D. any of the purchase cost allocated to the old building is capitalized as part of the cost of the new building.
C. the total cost of the land and old building are capitalized as land cost.
Velco purchased a delivery truck at the beginning of Year 1 at a cost of $60,000. The truck is estimated to have a useful life to Velco of 5 years and an estimated salvage value of $10,000. It is estimated that the truck will be driven 100,000 miles during Velco's ownership period. The balance of the Accumulated Depreciation account at the end of Year 1 (the first year of the asset's life) under the straight-line method would be: A. ($0.60 per mile * total miles driven year 1) B. $12K C. ($0.50 per mile * total miles driven year 1) D. $10K
D. $10K ($60,000 - $10,000) / 5 = $10,000
If a parcel of land was acquired for $50,000 in Year 1 and sold for $120,000 in Year 10, a ______. A. gain on the sale of land would be recognized in Year 10 for $120,000 less the most recent appraisal value of the land. B. gain on the sale of land would be recognized in Year 10 for $70,000 less any depreciation recorded between Year 1 and Year 10. C. $70,000 gain would be recognized gradually between Year 1 and Year 10 as the land appreciated, based on appraisal values. D. $70,000 gain on the sale of land would be recognized in Year 10.
D. $70,000 gain on the sale of land would be recognized in Year 10.
Velco purchased a delivery truck at the beginning of Year 1 at a cost of $60,000. The truck is estimated to have a useful life of 5 years to Velco and an estimated salvage value of $10,000. It is estimated that the truck will be driven 100,000 miles during Velco's ownership period. The balance of the Accumulated Depreciation account at the end of Year 1 (the first year of the asset's life) under the units-of-production method would be: A. $12K B. $10K C. ($0.60 per mile × total miles driven during Year 1) D. ($0.50 per mile × total miles driven during Year 1)
D. ($0.50 per mile × total miles driven during Year 1) ($60,000 - $10,000) / $100,000 = $0.50 per mile × total miles driven during Year 1.
At the inception of a financing lease, the financial statements effects are: A. Dr. Noncurrent asset Cr. Current liability B. Dr. Current asset Cr. Noncurrent liability C. Dr. Current asset Cr. Current liability D. Dr. Noncurrent asset Cr. Noncurrent liability
D. Dr. Noncurrent asset Cr. Noncurrent liability
Accumulated depreciation is: A. a revenue account B. a liability account C. an expense account D. a contra asset account
D. a contra asset account
When a depreciable asset is sold: A. depreciation expense is adjusted so there is no gain or loss. B. any cash received results in a gain. C. a loss arises if the sales proceeds exceed the net book value. D. a gain arises if the sales proceeds exceed the net book value.
D. a gain arises if the sales proceeds exceed the net book value.
One of the effects of a goodwill impairment loss on the financial statements is that: A. a liability is recorded for the amount of the goodwill impairment. B. total assets increase as the fair value of goodwill appreciates. C. the net book value of intangible assets remains the same with offsetting debits and credits. D. a loss is recognized, which decreases net income.
D. a loss is recognized, which decreases net income.
Expenditures capitalized as long-lived assets generally include those expenditures that: A. are material in amount and that have an economic benefit to the company only in the current year. B. are for items that have a physical life of more than a year, regardless of their cost. C. are made for normal repairs to maintain the usefulness of the asset over a number of years. D. are material in amount and that have an economic benefit to the company that extends beyond the current year.
D. are material in amount and that have an economic benefit to the company that extends beyond the current year.
At the inception of a financing lease, the financial statements' effects are to: A. decrease noncurrent assets and noncurrent liabilities by equal amounts with no effect on stockholders' equity. B. increase noncurrent assets and decrease current liabilities by equal amounts with no effect on stockholders' equity. C. increase noncurrent assets, noncurrent liabilities, and stockholders' equity by equal amounts. D. increase noncurrent assets and noncurrent liabilities by equal amounts with no effect on stockholders' equity.
D. increase noncurrent assets and noncurrent liabilities by equal amounts with no effect on stockholders' equity.
Accounting for natural resources: A. involves a double-declining balance depletion calculation. B. involves an exception to the matching concept. C. involves using the accumulated depreciation account. D. involves estimating the quantity of the natural resource to be recovered.
D. involves estimating the quantity of the natural resource to be recovered.
When using an accelerated depreciation method during inflationary times, in the later years of an asset's life, depreciation expense will be ______. A. more than it would be using the straight-line depreciation method and net income would be higher. B. more than it would be using the straight-line depreciation method and net income would be lower. C. less than it would be using the straight-line depreciation method and net income would be lower. D. less than it would be using the straight-line depreciation method and net income would be higher.
D. less than it would be using the straight-line depreciation method and net income would be higher.
If a parcel of land that cost $130,000 last year was sold for $110,000 this year, a ______. A. gain on the sale of the land of $20,000 would be recognized this year. B. loss on the sale of the land of $20,000 would be recognized last year. C. loss on the sale of the land of $20,000 in total would be recognized, partially last year and partially this year. D. loss on the sale of the land of $20,000 would be recognized this year.
D. loss on the sale of the land of $20,000 would be recognized this year.
Buildings and equipment are recorded at their original cost, which includes the purchase price plus all ordinary and necessary costs incurred: A. to obtain legal title to the building or equipment. B. to use the building or equipment in a manner that will enhance the firm's profitability. C. to get the building or equipment ready for sale in the ordinary course of business. D. to get the building or equipment ready for its use in the operations of the firm.
D. to get the building or equipment ready for its use in the operations of the firm.
When the tenant of an office building makes modifications to the office space, the cost of these modifications is a capital expenditure to be amortized over their useful life _______. A. to the tenant or over the life of the lease, whichever is longer B. to the owner or over the life of the lease, whichever is longer C. to the owner or over the life of the lease, whichever is shorter D. to the tenant or over the life of the lease, whichever is shorter
D. to the tenant or over the life of the lease, whichever is shorter
Accelerated depreciation methods result in ________ (greater/lower) depreciation expense and __________(higher/lower) net income than the straight-line depreciation method during the early years of an asset's life.
Greater Lower
