Chapter 7

estimated useful life.

The length of service that a business expects to get from an asset as expressed in years, units of output, miles or other measures is the

land.

The only plant asset that does not depreciate is:

expenses.

Costs that do not extend the asset's capacity or its useful life, but merely maintain the asset or restore it to working order are recorded as:

the sum of all of the costs incurred to bring the asset to its intended use

Costs that would be included with the purchase of a plant asset are

less taxes in early years of the asset's use as compared to later years

Using an accelerated depreciation method will cause a profitable company to incur

capital expenditure

An expenditure that increases an asset's capacity or efficiency or extends its useful life is a(n):

furniture

An example of a long-term tangible asset would be

All of the above

Double-declining balance depreciation

debited to an asset account

A capital expenditure is

Building

A company recently purchased a building that it plans to renovate to get ready for use in its operations. All expenditures to repair and renovate the existing building for its intended use are charged to:

straight-line method

A depreciation method in which an equal amount of depreciation expense is assigned to each year of the asset's use is the

accelerated depreciation method.

A depreciation method that writes off a relatively larger amount of the asset's cost nearer the start of its useful life than the straight-line method is the:

asset's book value is greater than the amount of cash received from the sale

A loss is recorded on the sale of a plant asset when the

$75,700

A machine is purchased for $70,000. The transportation costs were $4,000, installation costs were $1,000 and taxes on the purchase price were $700. The cost basis of the machine is:

$14,100

A plant asset is acquired by a business on January 1, 2010, for $30,000. The asset's estimated residual value is $8,000 and its estimated life is 5 years. Management chooses to use straight-line depreciation. On January 1, 2012, management revises the total useful life to 6 years and the residual value to be zero. Compute the balance in Accumulated Depreciation on December 31, 2012

Estimate

A revision of an estimate which will extend the asset's useful life is called a change in accounting:

modified accelerated cost recovery system

A special depreciation method used only for income-tax purposes is:

contra-asset account

Accumulated Depletion is a(n):

the cost of an asset

All amounts paid to acquire a plant asset and to get it ready for its intended use are referred to as:

Land

All of the following are classified as natural resources and are depleted EXCEPT for

land improvement

Although located on the land, they are subject to decay and their cost is depreciated. This is the definition of

intangible asset.

An asset with no physical form, but that has special rights to current and expected future benefits is a(n):

$21,000

Art Modell Company reported $61,000 in depreciation expense for the current year using the double- declining-balance method. The company estimates that it saved net cash of $12,000 in income taxes by using the double-declining-balance instead of the straight-line method. The company has a 30% tax rate. What would depreciation expense have been using the straight-line method?

total depreciation expense over its useful life.

At the end of an asset's useful life, the balance in Accumulated Depreciation will be the same as the

$149,520

Bay Back Company acquired equipment on June 30, 2011, for $210,000. The residual value is $35,000 and the estimated life is 5 years or 40,000 hours. Compute the balance in Accumulated Depreciation as of December 31, 2013, if Bay Back Company uses the double-declining-balance method of depreciation.

Building for $444,444.

Bixby Corporation purchased land and a building for $800,000. An appraisal indicates that the land's value is $400,000 and the building's value is $500,000. When recording this transaction Galaxy should debit

increase the asset's capacity.

Capital expenditures are not immediately expensed because these items

$178,100

Carl's Cigar Corporation's net income before depreciation and taxes is $310,000. Using straight-line depreciation, the current year's depreciation expense would be $24,000. Using double-declining-balance depreciation, the current year's depreciation expense would be $36,000. Assuming a tax rate of 35%, what is Carl's Cigar Corporation's net income if the double-declining-balance depreciation method is used?

$21,666

Deland Company purchased equipment on March 1, 2010, for $130,000. The residual value is $40,000 and the estimated life is 10 years or 60,000 hours. Compute depreciation expense for the year ending December 31, 20111, if the company uses the double-declining-balance method of depreciation.

$7,500

Deland Company purchased equipment on March 1, 2011, for $130,000. The residual value is $40,000 and the estimated life is 10 years or 60,000 hours. Compute depreciation expense for the year ending December 31, 2011, if the company uses the straight-line method of depreciation.

$13,500

Deland Company purchased equipment on March 1, 2011, for $130,000. The residual value is $40,000 and the estimated life is 10 years or 60,000 hours. Compute depreciation expense for the year ending December 31, 2011, if the company uses the units-of-production method of depreciation and uses the equipment for 9,000 hours

the allocation of a plant asset's cost to expense over its life

Depreciation is:

$2,000

Equipment acquired on January 1, 2010, is sold on June 30, 2013, for $11,200. The equipment cost $26,800, had an estimated residual value of $6,800, and an estimated useful life of 5 years. The company prepared financial statements on December 31, and the equipment has been depreciated using the straight- line method. Prior to determining the gain or loss on the sale of this equipment, the company should record depreciation of:

debit of $25,000

Equipment costing $47,500 with a book value of $22,500 is sold for $26,000. The journal entry will involve a ___________ to Accumulated Depreciation.

$59,500

Equipment purchased for $85,000 on January 1, 2010, was sold on July 1, 2013. The company uses the straight-line method of computing depreciation and recognizes $17,000 of depreciation expense annually. When recording the sale, the company should record a debit to Accumulated Depreciation for:

straight-line depreciation

For financial reporting purposes, most companies use:

it will decrease Retained Earnings by $1,500

Great Farms Company sold some fully depreciated equipment for $4,100 cash. The equipment had been purchased for $49,600, and the company had estimated the useful life at 8 years and a residual value at $5,600. How will this sale affect Retained Earnings?

neither a gain nor a loss

Hawthorne Company sold an old computer for $3,000 cash. The computer cost $45,000 and had accumulated depreciation through the date of sale totaling $42,000. The company will recognize:

depreciation expense should be recorded through the date of sale

If Valtrex Inc. sells a major plant asset

there will be no gain or loss on the disposal

If a machine has been fully depreciated and has no residual value

the company will incur a loss on the disposal, the equipment account will be credited, the accumulated depreciation account will be debited

If an asset is scrapped before being fully depreciated

ratio of each asset's market value to the total market value.

In a lump-sum purchase of assets, the relative-sales-value is defined as the:

$3,000

Income before depreciation and taxes amounts to $167,200. Using straight-line depreciation, the current year's depreciation expense will be $31,200. Using double-declining-balance depreciation, the current year's depreciation expense will be $41,200. Assuming a tax rate of 30%, what is the net cash saved in income taxes by using double-declining-balance depreciation over straight-line depreciation?

$161,000

Jackson Corporation acquired equipment on January 1, 2010, for $320,000. The equipment had an estimated useful life of 10 years and an estimated salvage value of $25,000. On January 1, 2013, Jackson Corporation revised the total useful life of the equipment to 6 years and the estimated salvage value to be $20,000. What is the book value as of December 31, 2013?

$42,300

Jackson Corporation acquired equipment on January 1, 2010, for $320,000. The equipment had an estimated useful life of 10 years and an estimated salvage value of $25,000. On January 1, 2013, Jackson Corporation revised the total useful life of the equipment to 8 years and the estimated salvage value to be $20,000. Compute depreciation expense for the year ending December 31, 2013, if Jackson Corporation uses straight-line depreciation.

$81,000

Land is purchased for $62,500. Back taxes paid by the purchaser were $7,500; total costs to demolish an existing building were $11,000; fencing costs were $12,500; and lighting costs were $1,500. What is the cost of the land?

$262,500

Land, buildings and equipment are acquired for a lump sum of $875,000. The market values of the three assets are, respectively, $200,000, $500,000 and $300,000. What is the cost assigned to the equipment?

plant assets

Long-lived tangible assets that are used in the operation of the business are called:

provides the fastest tax deductions, decreases immediate tax payments, and allows the company to reinvest the tax savings back in the business

Managers prefer accelerated depreciation over straight-line depreciation for income tax purposes because accelerated depreciation

Land $360,000; Building $640,000.

Maxco Company acquired land and buildings for $1,000,000. The land is appraised at $450,000 and the buildings are appraised at $800,000. The debits to the Land and Buildings accounts will be

$20,000

Mindy's Turtle Rescue Store has a beginning balance in the equipment account of $70,000. During the year, they purchased $30,000 worth of equipment. At the end of the year, the balance in the equipment account was $80,000. The cost of the equipment that Mindy's Turtle Rescue Store sold was:

$48,050

Morton Corporation purchased equipment for $46,000. Morton also paid $1,200 for freight and insurance while the equipment was in transit. Sales tax amounted to $850. Insurance, taxes and maintenance for the first year of use was $1,000. How much should Morton Corporation capitalize as the cost of the equipment?

$47,500

On January 10, 2010, Maxim Corporation acquired equipment for $124,000. The estimated life of the equipment is 3 years or 24,000 hours. The estimated residual value is $10,000. What is the balance of Accumulated Depreciation on December 31, 2011, if Baldwin Corporation uses the asset 5,500 hours in 2010 and 4,500 hours in 2011?

$43,225

On January 10, 2010, Maxim Corporation acquired equipment for $124,000. The estimated life of the equipment is 3 years or 24,000 hours. The estimated residual value is $10,000. What is the depreciation for 2010, if Baldwin Corporation uses the asset 9,100 hours and uses the units-of-production method of depreciation?

$49,500

On January 2, 2010, KJ Corporation acquired equipment for $260,000. The estimated life of the equipment is 5 years or 40,000 hours. The estimated residual value is $20,000. If KJ Corporation uses the units of production method of depreciation, what will be the debit to Depreciation Expense for the year ended December 31, 2011—assuming that during this period, the asset was used 8,250 hours?

$104,000

On January 2, 2010, KJ Corporation acquired equipment for $260,000. The estimated life of the equipment is 5 years or 40,000 hours. The estimated residual value is $20,000. What is the balance in Accumulated Depreciation on December 31, 2010, if KJ Corporation uses the double-declining-balance method of depreciation?

$166,400

On January 2, 2010, KJ Corporation acquired equipment for $260,000. The estimated life of the equipment is 5 years or 40,000 hours. The estimated residual value is $20,000. What is the balance in Accumulated Depreciation on December 31, 2011, if KJ Corporation uses the double-declining-balance method of depreciation?

$96,000

On January 2, 2010, KJ Corporation acquired equipment for $260,000. The estimated life of the equipment is 5 years or 40,000 hours. The estimated residual value is $20,000. What is the balance in Accumulated Depreciation on December 31, 2011, if KJ Corporation uses the straight-line method of depreciation?

$164,000

On January 2, 2010, KJ Corporation acquired equipment for $260,000. The estimated life of the equipment is 5 years or 40,000 hours. The estimated residual value is $20,000. What is the book value of the asset on December 31, 2011, if KJ Corporation uses the straight-line method of depreciation?

$1,920

On January 2, 2011, Heidi's Pet Boutique purchased a television for the dog sitting area which cost $8,000. It had an estimated useful life of 5 years and a residual value of $1,000. What is the amount of depreciation expense for 2012, the second year of the asset's life using the double declining-balance method?

$50,000

On January 2, 2011, Mosby Corporation acquired equipment for $200,000. The estimated life of the equipment is 8 years or 35,000 hours. The estimated residual value is $40,000. What is the amount of depreciation expense for 2011, if the company uses the double-declining-balance method of depreciation?

$150,000

On January 2, 2011, Mosby Corporation acquired equipment for $200,000. The estimated life of the equipment is 8 years or 35,000 hours. The estimated residual value is $40,000. What is the book value of the equipment on December 31, 2011, if Mosby Corporation uses the double-declining-balance method of depreciation?

capital expenditure

Pat's Pets recently paid to have the engine in its delivery van overhauled. The estimated useful life of the van was originally estimated to be 7 years. The overhaul is expected to extend the useful life of the van to 9 years. The overhaul is regarded as a(n):

credit to Gain on Sale of Furniture for $2,600

Patch Company sold some office furniture for $4,800 cash. The furniture cost $31,500 and had accumulated depreciation through the date of sale totaling $29,300. The journal entry to record the sale of the furniture will include a

$14,000

Paul's Lodging Corporation purchased equipment on January 1, 2010 for $180,000. The equipment had an estimated useful life of 10 years and an estimated salvage value of $30,000. After using the equipment for 3 years, the company determined that the equipment could be used for an additional 9 years and have a salvage value of $9,000. Assuming Paul's Lodging Corporation uses straight-line depreciation, compute depreciation expense for the year ending December 31, 2013

Repair Expense

Repairs made to equipment as part of a yearly maintenance project would be recorded in the journal by debiting:

debit to Gain on Sale of Equipment for $5,000.

Smucker's Company sold equipment costing $65,000 with $60,000 of accumulated depreciation for $10,000 cash. The company's journal entry to record this sale will NOT include a:

$480,000

The Augusta Health Company purchased land, buildings and equipment for $2,400,000. The land has been appraised at $915,000, the buildings at $1,125,000 and the equipment at $510,000. The equipment account will be debited for:

$19,000

The Fall River Corporation bought a plant asset on January 1, 2010, at a cost of $45,000. Estimated residual value is $5,000 and the estimated useful life is 8 years. The company uses straight-line depreciation. On January 1, 2013, Fall River's management revises the total estimated life to be 10 years, with estimated residual value of $2,000. The balance in Accumulated Depreciation on December 31, 2013, is:

double-declining-balance method.

Under the MACRS depreciation method, automobiles and equipment are depreciated using the:

cost less accumulated depreciation

The book value of a plant asset is the

cost minus accumulated depreciation

The book value of an asset is defined as:

Units-of-production

The computation of depletion expense is most closely related to which method for computing depreciation?

a debit to Depletion Expense, Oil Well

The correct journal entry to record depletion for an oil well would include

Relative-sales-value-method

The cost of assets acquired in a lump-sum purchase must be allocated using which method?

land improvements

The cost of installing shrubbery should be recorded as

cost minus salvage value

The depreciable cost of an asset using straight line depreciation is defined as:

double-declining balance method.

The depreciation method that does NOT use residual value in calculating depreciation expense until the last year is the:

revenues earned by the asset and the cost of the asset.

The depreciation process attempts to match the:

Scrap, salvage, or residual value

The expected cash value of a plant asset at the end of its useful life is known as

debit to Equipment

The journal entry to record a major expenditure to upgrade equipment that extends its useful life beyond the original estimate would include a:

a debit to Depletion Expense and a credit to Accumulated Depletion

The journal entry to record depletion would include

depletion expense

The portion of the cost of natural resources that is consumed in a particular period is called

depreciation

The process of allocating a plant asset's cost to expense over the period in which the asset is used is called:

depreciation.

The process of allocating the cost of a plant asset to expense over its life is

$102,700

Tomas Company trades in a printing press for a newer model. The cost of the old printing press was $61,500, and accumulated depreciation up to the date of the trade-in amounts to $38,000. The company also pays $41,200 cash for the newer printing press. The journal entry to acquire the new printing press will require a debit to Equipment for:

overstates expenses and understates net income

Treating a capital expenditure as an immediate expense:

the book value is equal to the salvage value, and the asset has reached the end of its estimated useful life.

When an asset is fully depreciated

more in the earlier periods

When compared to the other methods of depreciation, the double-declining-balance method of depreciation gives depreciation expense that is:

Useful life and residual value

When computing depreciation for a plant asset, which of the following must be estimated?

there is no gain or loss on the exchange.

When plant assets are exchanged:

Matching

Which accounting principle directs the depreciation process?

II and III

Which of the following costs associated with a delivery van should be capitalized? I. The van is repainted. II. The van's transmission is completely overhauled to extend useful life for two years. III. The van is modified for a specific use

Double-declining-balance method

Which of the following depreciation methods best applies to those assets that generate greater revenue earlier in their useful lives?

Units-of-production method

Which of the following depreciation methods best fits those assets that tend to wear out before they become obsolete?

Mineral Rights

Which of the following is NOT an intangible asset?

The cost of transporting the machinery to its setup location

Which of the following should be included in the Machinery account?

All of the above

Which of the following should be included in the cost of equipment?

Costs of grading and clearing the land and Costs of removing an unwanted building

Which of the following should be included in the cost of land?

Real estate brokerage commission

Which of the following should be included in the cost of land?