Accounting Quiz Plant Assets

If a machine purchased on July 1 will be depreciated at the rate of $3,200 per year, how much depreciation will be recorded on December 31 of the first year

$1,600

Net Book Value formula

Cost - A/D = NBV

The units-of-production method of computing depreciation is not one of the accelerated depreciation methods

TRUE

General rule

all costs necessary to get the asset in place and ready to use for intended purpose = initial cost

Initial cost

amount to record asset on the balance sheet may include: sales tax, freight, insurance, set up 5

Expenditures resulting from errors and vandalism

are not part of initial cost but are expensed as incurred

Plant assets should be recorded in the accounts at

cost

The normal balance in the accumulated depreciation account is a

credit

The original cost of an asset less the expected salvage value is the

depreciation base

Plant Asset

- Also known as fixed asset - Also known as property, plant, and equipment (PPE) - Non-capital intensive businesses - Capital intensive businesses - Benefit more than one period, not for resale

Land costs

- everything necessary to get the land ready to use - razing (tearing down) blogs, selling mtls, leveling land - this is important because land is NOT depreciable

Useful life of plant assets

1. physical factors- weather, wear and tear (clothes) 2. Functional factors- technology/obsolescence (phones) * cars are both

When the adjusting entry for depreciation is made at the end of the period, the account credited is

A/D

Depreciation Base formula

Cost - Salvage Value = DB

Original cost of an asset less accumulated depreciation is known as depreciable cost of the asset

FALSE

Original cost of an asset less residual value is known as the trade in value of the asset

FALSE

Plant assets are shown on the balance sheet as inventory

FALSE

The fraction to be used for the first year of an asset with a four year life under sum of the years digits depreciation is 4/15

FALSE

The sum of the years digits method of depreciation ignores salvage value when computing the periodic depreciation

FALSE

The units-of-production method of computing depreciation normally assigns an equal amount of depreciation cost to each accounting period

FALSE

The cost of the asset less accumulated depreciation is called the

NBV

The depreciation method that provides equal periodic charges to expense over the life of the asset is

S/L

MACRS depreciation was devised primarily for income tax purposes

TRUE

Plant assets are relatively long-lived tangible assets that are used in the operations of the business

TRUE

The exact operating life of most plant assets cannot be readily determined

TRUE

The amount expected to be realized for a plant asset upon its disposal is called

salvage value

When the adjusting entry for depreciation is made at the end of the period, the account debited is

depreciation expense

Second hand assets

include new parts, painting, repairs, etc as part of initial cost Net income (up) Assets (up) Expenses (down) *higher taxes

The plant asset that is not subject to depreciation is

land

Land improvements

sidewalks, fences, lighting, shrubs, pavement, trees * these have a useful life and are depreciable