Acc Unit 8

Yanik Company's delivery truck, which originally cost $84,000, was destroyed by fire. At the time of the fire, the balance of the Accumulated Depreciation account amounted to $57,000. The company received $48,000 reimbursement from its insurance company. The gain or loss as a result of the fire was $21,000 gain $36,000 gain $21,000 loss $36,000 loss

$21,000 gain $48,000- (84,000-57,000)= $21,000

Sargent Corporation bought equipment on January 1, 2015. The equipment cost $360,000 and had an expected salvage value of $60,000. The life of the equipment was estimated to be 6 years. Assuming straight line depreciation, the book value of the equipment at the beginning of the third year would be $150,000 $260,000 $360,000 $100,000

$260,000 (360,000-60,000)/6=50,000 360,000-(50,000*2)= 260,000

Engler Company purchases a new delivery truck for $55,000. The sales taxes are $4,000. The logo of the company is painted on the side of the truck for $1,600. The truck license is $160. The truck undergoes safety testing for $290. What does Engler record as the cost of the new truck? a) 60,890 b) $59,000 c) $61,050 d) $60,600

$60,890 add everything but truck license

The cost of land includes what

(1) the cash purchase price, (2) closing costs such as title and attorney's fees, (3) real estate brokers' commissions, and (4) accrued property taxes and other liens assumed by the purchaser.

Equipment with a cost of $400,000 has an estimated salvage value of $25,000 and an estimated life of 4 years or 15,000 hours. It is to be depreciated by the units of activity method. What is the amount of depreciation for the first full year, during which the equipment was used 3,300 hours? $113,800 $100,000 $82,500 $93,750

$82,500 (400,000-25,000)/15,000= $25 $3,300*25=82,500

What are the three methods for depreciation

1. straight line 2. units of activity 3. declining balace

On May 1, 2015, Pinkley Company sells office furniture for $300,000 cash. The office furniture originally cost $750,000 when purchased on January 1, 2008. Depreciation is recorded by the straight-line method over 10 years with a salvage value of $30,000. What depreciation expense should be recorded on this asset in 2015? $24,000 $22,550 $33,750 $67,500 $25,000

24,000 (750000-30000)/10 (4/12) = 24,000

A plant asset was purchased on January 1 for $100,000 with an estimated salvage value of $20,000 at the end of its useful life. The current year's depreciation expense is $10,000 calculated on the straight-line basis and the balance in the Accumulated Depreciation account at the end of the year is $50,000. The remaining useful life of the plant asset is 8 years 10 years 5 years 3 years

3 years. (100,000-20,000)/10,000=8 8-(50,000/10,000)=3

a company purchased office equipment for $40,000 and estimated a salvage value of $8,000 at the end of its 5 year useful life. The constant percentage to be applied against a book value each year if the double declining method is used is: 20% 5% 40% 25%

40% (1/5)*2

Hilbert Inc. purchased a company vehicle. Which of the following is not included in the cost of this asset? A. annual accident insurance B. insurance during transit paid by Hilbert Inc C. sales taxes on the vehicle D. cash purchase price of company vehicles

A. annual accident insurance

Which of the following statements is true? A. recording depreciation on plant assets affects the balance sheet and the income statement B. none are correct C. when purchasing delivery equipment, sales taxes and motor vehicle licenses should be charged to delivery equipment D. in calculating depreciation, both plant asset cost and useful life are based on estimates E. Land improvements are generally charged to the land account

A. recording depreciation on plant assets affects the balance sheet and the income statement

Equipment was purchased for $150,000. Freight charges amounted to $7,000 and there was a cost of $20,000 for building a foundation and installing equipment. It is estimated that the equipment will have a $30,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be A 24,000 B 29,400 C 24,600 D 35,400

B 29,400 150,000 + 7,000 + 20,000 = 177,000 (177,000-30,000)/5 = 29,400

On September 1st 2017, Shelley borrowed $400,000 from National Bank on a one-year $400,000, 6% note. Which answer has the correct debit entry to accrue for interest for the year ending in 2017? A interest payable 24,000 B interest expense 8,000 C interest payable 8,000 D interest expense 24,000

B interest expense 8,000 400,000*4/12*0.6% = 8,000 Interest expense of 8,000 would be debited, and interest payable of 8,000 would be credited

Carey Company buys land for $50,000 on 12/31/14. As of 3/31/15, the land has appreciated in value to $50,700. On 12/31/15, the land has an appraised value of $51,800. By what amount should the Land account be increased in 2015? A. 1100 B. 0 C. 700 D. 1800

B. 0

A factory machine was purchased for $375,000 on January 1, 2015. It was estimated that it would have a $75,000 salvage value at the end of its 5-year useful life. It was also estimated that the machine would be run 40,000 hours in the 5 years. the company ran the machine for 4000 actual hours in 2015. if the company uses the units of activity method of depreciation, the amount of depreciation expense for 2015 would be A. 37500 B. 30000 C. 60000 D. 75000

B. 30000 [(375000 - 75000)/40000] * 4000

Tomko Company purchased machinery with a list price of $96,000. They were given a 10% discount by the manufacturer. They paid $600 for shipping and sales tax of $4,500. Tomko estimates that the machinery will have a useful life of 10 years and a residual value of $30,000. If Tomko uses straight-line depreciation, annual depreciation will be A. 5640 B. 6150 C. 9150 D. 6108

B. 6150 (96000*.9) + 600 + 4500 - 30000) / 10

A company sells a plant asset which originally cost 360,000 for 120,000 on Dec 31, 2015. The accumulated depreciation account had a balance of 144,000 after the current year's depreciation of 36000 had been recorded. The company should recognize a A. 240,000 loss on disposal B. 96,000 loss on disposal C. 96000 gain on disposal D. 60,000 loss on disposal

B. 96,000 loss on disposal 120000 - (360000-144000) = 96000

Connor Lamps Inc. purchased factory equipment in Jan 2015 for 575000. In March 2018, this equipment was sold for 105,000 cash. At the date of sale, the accumulated depreciation account totaled 325,000. The journal entry to record this sale includes: A. a credit to cash for 105000 B. a debit to loss on disposal of plant assets for 145000 C. a debit to equipment for 575000 D. a credit to accumulated depreciation - equipment for 325000 E. a credit to gain on disposal of plant assets for 145000

B. a debit to loss on disposal of plant assets for 145,000

Which of the following assets does not decline in service potential over the course of its useful life? A. equipment B. land C. fixtures D. furnishings

B. land

A machine with a cost of $480,000 has an estimated salvage value of $30,000 and an estimated useful life of 5 years or 15,000 hours. It is to be depreciated using the units-of-activity method of depreciation. What is the amount of depreciation for the second full year, during which the machine was used 5,000 hours? A 90,000 B 160,000 C 150,000 D 130,000

C 150,000 (480,000 - 30,000) / 15,000 = 30 30 x 5,000 = 150,000

Sargent Corporation bought equipment on January 1, 2015. The equipment cost $360,000 and had an expected salvage value of $60,000. The life of the equipment was estimated to be 6 years. The annual depreciation expense using the straight-line method of depreciation is A none of these answer choices are correct B 70,000 C 50,000 D 72,000

C 50,000 (360,000-60,000)/6 = 50,000

On January 1st 2017, AC company bought a machine at 35000. It has a useful life of 5 years and a salvage value of 5000 at the end of the fifth year. It is expected to operate 9000 hours. During 2017, the machine was used for 3000 hours. among the three different depreciation method, straight-line, units of activity, and double declining balance, which one will produce the lowest asset account balance at the end of 2017> A. Straight line method B. units of activity C. double declining balance method D. all of them will produce the same

C. double declining balance method Straight: (35000-5000) / 5 = 6000 units: (35000-5000) * (3000/9000) = 10,000 double: 35000(1/5)(2) = 14000

Expenditures that maintain the operating efficiency and expected productive life of a plant asset are generally A. debited to the accumulated depreciation account B. not recorded until they become material in amount C. expensed when incurred D. expensed at the end of the useful life E. capitalized as a part of the cost of the asset

C. expensed when incurred

A company purchased land for $90,000 cash. Real estate brokers' commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the historical cost principle, the cost of land would be recorded at A 90,000 B 70,000 C 107,000 D 102,000

D 102,000 90,000+5,000+7,000= 102,000

Eckman Company purchased equipment for $120,000 on January 1, 2014, and will use the double-declining-balance method of depreciation. It is estimated that the equipment will have a 5-year life and a $6,000 salvage value at the end of its useful life. The amount of depreciation expense recognized in the year 2016 will be A 28,800 B none of them is correct C 27,360 D 17,280 E 16,416

D 17,280 (120,000-0)x0.4 = 48,000 (120,000-48,000)x0.4 = 28,800 (120,000-76,800)x0.4 = 17,280

On January 1, 2018, HTC Inc. signs a 15 year mortgage note payable. The loan principal is $250,000, interest is 8%, and the annual cash payments are $27,044. On December 31, 2018, HTC Inc. record its first annual cash payment. the journal entry to record this payment includes A a credit to mortgage payable for 250,000 B a credit to cash for 20,000 C a debit to cash for 250,000 D a debit to interest expense for 27,044 E a debit to mortgage payable for 7,044

E a debit to mortgage payable for 7,044 Interest Expense 20,000 (principal balance of 250,000 x 8%) Mortgage payable 7,044 (annual payment - interest expense) Cash 27,044 (fixed annual payment)

If a plant asset is retired and is fully depreciated and no salvage value is received, A. none of choices is correct B. a gain on disposal occurs C. either a gain or loss can occur D. neither a gain nor a loss occurs E. a loss on disposal occurs

E. a loss on disposal occurs

T/F depreciation is a process of asset evaluation

F it is a process of cost allocation

Land improvements

Land improvements are structural additions made to land EX: driveways, parking lots, fences, landscaping, and underground sprinklers.

T/F companies expense (depreciate) the cost of land improvements over their useful lives

T

What are plant assets?

Tangible resources that are used in the operations of the business and are not intended for sale to customers

Mott Company uses the units-of-activity method in computing depreciation. A new plant asset is purchased for $48,000 that will produce an estimated 100,000 units over its useful life. Estimated salvage value at the end of its useful life is $4,000. What is the depreciation cost per unit? a) $.44 b) $4.80 c) $.48 d) $4.40

a) $.44 (48,000-4,000)/100,000

On January 1, 2018, H.B. Cat Corp. signs a 25-year mortgage note payable. The loan principal is $750,000, interest is 8%, and the annual cash payments are $70,000. On December 31, 2018, H.B. Cat Corp. records its first annual cash payment. The journal entry to record this payment includes: a. A debit to Mortgage Note Payable for $10,000 b. A debit to Cash for $750,000A debit to Cash for $70,000 c. A debit to Interest Expense for $70,000 d. A credit to Mortgage Note Payable for $10,000`

a. A debit to Mortgage Note Payable for $10,000 Dr Interest expense 740000(8%) = 60000 Dr Mortgage payable 10000 (annual payment - interest expense) Cr Cash 70000

On January 1st 2017, Klen Company signed a 10-year note payable. The loan principal is $20,000 with an interest rate of 5%. Klen Company will make $2,500 cash payment per year. Which of the following will be part of the journal entry to record its installment payment at the end of 2018? a. Debit Note Payable $1,575 b. Debit Interest Expense $1,500 c. Debit Note Payable $925 d. Debit Interest Expense $1,000

a. Debit Note Payable $1,575 2017 Dr. Interest expense 1000 (20000*0.05) Dr. Note payable 1500 Cr. Cash 2500 20000-1500 = 18500 2018 Dr Interest Expense 925 (18500*0.05) Dr note payable 1575 Cr Cash 2500

On January 1st 2017, AC Company bought a machine at $30,000. It has a useful life of 5 years and a salvage value of $5,000 at the end of the fifth year. It is expected to operate 8,000 hours. During 2017, the machine was used for 3,000 hours. Among the three different depreciation method, straight-line, units-of-activity and double declining-balance, which one will produce the lowest Asset Account Balance at the end of 2017? a. Double Declining-balance Method b. All of them will produce the same result. c. Units-of-Activity Method d. Straight-line Method

a. Double Declining-balance Method

On September 1st 2017, Shelley borrowed $400,000 from National Bank on a one-year $400,000, 9% note. Which answer has the correct debit entry to accrue for interest for the year ending in 2017? a. Interest Expense 12,000 b. Interest Payable 36,000 c. Interest Payable 12,000 d. Interest Expense 36,000

a. Interest Expense 12,000 400000 (4months/ 12 months) (9%) = 12,000

what is cost?

all expenditures necessary to acquire the asset and make it ready for intended use

Jubilee Corp purchased a new van for food deliveries on january 1, 2016. The van cost $75,000 with an estimated life of 5 years and $8,000 salvage value at the end of its useful life. The double declining balance method of depreciation will be used. What is the balance of the Accumulated Depreciation account at the end of 2017? a) $46,080 b) $48,000 c) $18,000 d) $19,280

b) $48,000 Depreciation 2016= (75,000)*2/5=30,000 dep 2017= (75,000-30,000)*2/5= 18,000 accumulated dep= 30,000+18,000

Declining balance method how to find the annual depreciation expense?

book value at beginning of year * declining balance rate = annual depreciation expense

formula for book value

cost - accumulated depreciation

Straight line method How to find the annual depreciation expense?

cost - salvage value = depreciable cost depreciable cost / useful life = annual depreciation expense

What are the three factors that affect the computation of depreciation?

cost, useful life, salvage value

On may 1, 2015, Pinkley Company sells office furniture for $300,000cash. The office furniture originally cost $750,000 when purchased on January 1, 2008. Depreciation is recorded by the straight line method over 10 years with a salvage value of $75,000. What depreciation expense should be recorded on this asset in 2015? a) 67,500 b) $25,000 c) $33,750 d) 22,550 e) 22,500

d) 22,500 ((750,000-75,000)/10)*(4/12)=22,500

The book value of an asset is equal to the a. assets fair value less its historical cost b. replacement cost of the asset c. blue book value relied on by secondary markets d. assets cost less accumulated depreciation

d. asset's cost less accumulated depreciation

to illustrate a gain on sale, _____ depreciation expense and _____ accumulated depreciation

debit, credit

companies record as ______ to the land account all necessary costs incurred to make land ready for its intended use

debits

Unit of activity method how to find the annual depreciation expense?

depreciable cost / units of activity = depreciable cost per unit depreciable cost per unit * units of activity during the year = annual depreciation expense

what is the straight line method

depreciation method in which periodic depreciation is the same for each year os the useful life

Which of the expenditures below should be classified as land? parking lots electricity used by a machine excavation cost interest on building construction loan cost of trials for machinery drainage costs costs to install a machine fences unpaid (past) property taxes assumed cost of tearing down a building when land and a building on it are purchased.

drainage costs, unpaid property taxes assumed, cost of tearing down.

What is salvage value?

estimate of the asset's value at the end of its useful life

what is useful life?

estimate of the expected life based on need for repair, service life, and vulnerability to obsolescence

what is a capital expenditure?

expenditures that increase the company's investment in productive facilities

what are ordinary repairs?

expenditures to maintain the operating efficiency and productive life of the unit

depreciation applies to what three classes of plant assets?

land improvements, buildings, equipment

if a company retires a plant asset before it is fully depreciated and no cash is received for scrap or salvage value, a _____ on disposal occurs

loss

what are the three types of disposal methods

sale retirement exchange

What does the cost of land include?

the cash purchase price, closing costs such as title and attorney's fees, real estate brokers' commissions, and accrued property taxes

what is depreciation?

the process of allocating the cost of an asset to expense over its useful life