SmartBook Chapter 10

Geo Co. purchased a building for $400,000. In addition, Geo paid $35,000 for taxes and lawyer fees. Geo also paid $60,000 to modify the building, changing the layout specifically for Geo's needs. Geo should record the building at $

Blank 1: 495000 400,000+60,000 +35,000 =495000

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

Blank 1: Depreciation

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? (Check all that apply.)

Shipping charges Assembling Testing

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

PT Co. purchased land and an existing building for $200,000. In addition, PT paid real estate commissions of $15,000. PT removed the unwanted building and graded the land for a total cost of $35,000. PT should record the cost of the land at:

$250,000 Reason: 200,000+15,000+35,000=250,000

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? (Check all that apply.)

Assembling Testing Shipping charges

Accumulated depreciation is recorded on which of the following financial statements?

Balance sheet

Accumulated depreciation is reported on which of the following financial statements?

Balance sheet

True or false: The cost of plant assets should include all of the normal and reasonable expenditures necessary to get the asset in place and ready for its intended use, including repairs to damages incurred after installation

False

On January 3, ATA Company purchases a copy machine for $11,500. The machine is expected to last five years and have a salvage value of $1,500. Compute depreciation expense for the first year, assuming the company uses the straight-line method.

$2000 (11,500-1,500)/5

Wen Co. purchased a building for $200,000. Wen paid $20,000 in lawyer and title fees. Wen also paid an additional $15,000 to modify the building in order to accommodate his business needs. Wen should record the cost of the building at:

$235,000

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. 300,000 +30,000 +20,000 =350,000

At the beginning of the year, Jobs Co. owned one piece of office equipment, a copier. The copier was purchased two years ago for $12,000. At the beginning of the year, the balance in accumulated depreciation was $4,000. Jobs uses straight-line depreciation of $2,000 per year with a zero salvage value. How much is accumulated depreciation at the end of the year?

$6,000 Reason: 4,000 + 2,000 = 6,000

Straight-line depreciation can be calculated by taking:

(cost minus salvage value)/useful life

(Plant/Current) assets purchased as a group in a single transaction for a lump-sum price are allocated the purchase price based on their relative market values.

Blank 1: Plant

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

Blank 1: Plant or Fixed

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

Blank 1: Plant or Fixed

Land _____ are assets that are additions to land and have limited useful lives, such as walkways and fences.

Blank 1: improvements or improvement

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

Blank 1: salvage

Which of the following factors determine depreciation? (Check all that apply.)

Cost of asset Salvage value Useful life

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

Depreciation

Which of the following items related to depreciating equipment would be found on a company's income statement?

Depreciation Expense - Equipment

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

Equipment being used in operations Building being used for operations

Depreciation Expense is reported on which of the following financial statements?

Income statement

Depreciation expense is reported as a decrease in which of the following financial statements?

Income statement

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

Purchase price Shipping fees Taxes Installation

______ value, also called residual value or scrap value, is an estimate of the asset's value at the end of its useful life.

Salvage

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

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

book value.

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

The purchase of a group of plant assets for one price is called a ______ purchase.

lump-sum

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

cost to purchase the new plant asset costs to customize the new plant asset costs to modify the new plant asset

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

land improvements

Plant assets are also called

plant and equipment, property, PP&E, or fixed assets

Ring Co. owns a delivery van that was purchased two years ago for $25,000. Ring has depreciated the van for two years at a straight-line amount of $4,000 per year. The book value of this van at the end of the second year would be $

Blank 1: 17000 25,000-8,000=17000

On January 1, Enco Co. purchases a milling machine for $15,000. The machine is expected to last seven years and have a salvage value of $1,000. Assuming the company uses the straight-line method, depreciation expense should be $ per year.

Blank 1: 2000

Accumulated depreciation is a _____ asset account (one that is linked with the plant asset account, but has an opposite normal balance) and is reported on the balance sheet.

Blank 1: contra

Accumulated depreciation is a asset account (one that is linked with the plant asset account, but has an opposite normal balance) and is reported on the balance sheet.

Blank 1: contra