Accounting Chapter 10 Smartbook

A delivery van that cost $45,000 with accumulated depreciation of $15,000 is sold for $20,000. How much gain or loss will be recognized on this sale?

$10,000 loss

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

-Cost of asset -Salvage value -Useful life

Determine which of the following expenses related to a building would be classified as a capital expenditure. (Check all that apply.)

-New air conditioning system -Room addition

(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.

-Plant

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

-Plant or Fixed

The cost of a plant asset includes the following: (Check all that apply.)

-Purchase Price -Cost to prepare it for use

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

-Salvage

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

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

Cen Co. purchases land and a building for $130,000. The land is appraised at $100,000 and the building at $150,000. Allocating the cost based on market values, the land should be recorded at what amount?

52,000

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

Ella Co. owns a mineral deposit and recognizes $15,000 of depletion expense during the period. This entry will be recorded with a credit to:

Accumulated Depletion - Mineral Deposit

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

Balance Sheet

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

Book Value

The process of allocating the cost of a plant asset to expense while it is in use is called (depreciation/salvage) ___________

Depreciation

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

Depreciation Expense - Equipment

Quick Catering Co. paid for a refrigeration system to be added to their delivery van to keep the food cooled during deliveries. To record this expense, Quick would debit the ______ account.

Equipment

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

Sangmoon Co. sells equipment for $1,000 cash. The equipment cost Sangmoon $6,500 and is fully depreciated at the time of sale and has no salvage value. Sangmoon will record the sale with a credit to which account and for how much?

Gain on Sale of Equipment for $1,000.

The asset's acquisition costs less its accumulated depreciation is called:

book value

Privo Co. purchases a machine that cost $15,000. Privo estimates a 5-year life with no salvage value. The first three years of depreciation expense are $6,000; $3,600; and $2,160, respectively. Based on this information, Privo is using the

declining-balance

A company owns an asset that is fully depreciated. The asset is no longer being used in operations and has no market value. The company has decided to ______ the asset by recording an entry to remove it from the balance sheet.

discard

A plant asset is (depreciated/discarded/obsolete) _______when it is no longer useful to the company, and it has no market value.

discarded

Tops Co. purchases equipment for $12,000 and has been using straight-line depreciation, estimating a 5-year life and $500 salvage value. At the beginning of the third year, Tops decides to use the equipment for a total of 6-years with no salvage value. Compute the revised depreciation for the third year.

$1,850

Ordinary repairs, such as normal repairs and maintenance to a vehicle, would be recorded with a debit to which of the following accounts?

Repairs expense

Which of the following expenses would not be considered an ordinary repair?

Replacing an engine

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

Salvage

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

Salvage

Martinez Co. sells a machine that cost $10,000 with accumulated depreciation of $8,000 for $2,000 cash. The entry to record this transaction will recognize a gain or loss of how much?

There is no gain or loss.

The book value of an asset when using straight-line depreciation is always greater than the book value from using double-declining-balance, except at the beginning and end of the asset's useful life, when it is the same.

True

The cost of a plant asset consists of all necessary and reasonable expenditures to acquire it and prepare it for its intended use.

True

The _________ life (also called service life) is the length of time the asset is productively used in a company's operations.

Usefull

Straight-line depreciation can be calculated by taking:

(cost minus salvage value)/useful life

Determine which of the following expenses are considered revenue expenditures related to a company vehicle.

-Car Wash -Dent Repair -Oil Change

Trio Co. reported that maintenance and normal repair costs are expensed as incurred. If Trio's current year machinery and equipment repair costs are $8,200, which accounts would be impacted to complete the journal entry? (Check all that apply.)

-Credit Cash -Debit Repairs expense

Zion Co. paid cash for an upgrade to an existing machine that would reduce the amount of waste produced by the machine and, therefore, increase efficiency. The journal entry to record this upgrade would include which of the following entries? (Check all that apply.)

-Credit to Cash -Debit to Machinery

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

-Installation -Purchase Price -Shipping Fees -Purchase Price

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

-Land Improvements

On October 30, Cleo Co. purchased a machine for $26,000 and estimates it will use the machine for four-years with a $2,000 salvage value. Using the straight-line depreciation method, compute the machine's first year partial depreciation expense for October 30 through December 31.

1,000

On June 1, Harding Co. purchased a machine for $14,000 and estimates it will use the machine for five-years with a $2,000 salvage value. Using the straight-line depreciation method, compute the machine's first year (partial) depreciation expense for June 1st through December 31st.

1,400

Teshin Co. purchases a piece of land with several land improvements for $180,000. The land appraises at $120,000 and the land improvements appraise at $80,000. The land should be recorded at what cost?

108,000

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 $___________

17000

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

Juno Co. purchased a machine for $10,000 and estimates it will use the machine for four years with a $2,000 salvage value. Using the double declining-balance depreciation method, compute the machine's first year depreciation expense.

2,000

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.

2,000

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

2000

Bina Co. purchased a vehicle on January 1st for $15,000 and estimates it will use the vehicle for eight years with a $3,000 salvage value. Using the double declining-balance depreciation method, compute the vehicle's second year depreciation expense.

2812.50

Juno Co. purchased a machine for $10,000 and estimates it will use the machine for three years with a $2,000 salvage value. It expects to produce a total of 8,000 units as follows: 3,000 during year one; 2,500 during year two; and 2,500 during year three. Using the units-of-production depreciation method, compute the machine's first year depreciation expense.

3,000

Bina Co. purchased a machine on January 1st for $15,000 and estimates it will use the machine for three years with a $3,000 salvage value. Bina estimates that they will produce 1,500 units during year one, 1,000 units during year two, and 1,250 units during year three. Using the units-of-production method, compute the machine's second year depreciation expense.

3,200

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

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 $___________

495000 or 495,000

Which of the following situations will result in recognizing a gain on sale of a plant asset?

A fully depreciated asset is sold for $1,000.

Book value can be calculated by taking an asset's acquisition costs less its ____________ ____________

Accumulated Depreciation

Ironworks Co. sells a machine that cost $5,000 with a current book value of $1,500 for $2,000 cash. Ironworks will record a debit to which account and for how much?

Accumulated Depreciation - Equipment for $3,500

Which depreciation method will compute the most depreciation expense over the life of the asset?

All methods will produce equal depreciation expense over the life of the asset.

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

Balance Sheet

______ are expenditures that make a plant asset more efficient or productive, but do not always increase an asset's useful life.

Betterments

When considering the sale of a plant asset, match the following outcomes to the appropriate situations.

Book value is greater than the selling price - Loss on sale of asset Book value is less than the selling price -Gain on sale of asset Book value is equal to the selling price -No gain or loss recognized

(Capital/ Revenue) ____________ expenditures are additional costs of plant assets that provide benefits extending beyond the current period, such as a plant expansion, or major machine overhaul.

Capital

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.

Contra

A company sells a machine that cost $7,000 for $500 cash. The machine had $6,500 accumulated depreciation. The entry to record this transaction will include which of the following entries? (Check all that apply.)

Debit to Accumulated Depreciation - Machinery for $6,500. Debit to Cash for $500. Credit to Machinery for $7,000.

Rojo's Roses Co. received an invoice for replacement of the engine on its main delivery van. The replacement will extend the life of the van an additional three years. The entry to record receipt of the invoice would include which of the following entries? (Check all that apply.)

Debit to Equipment. Credit to Accounts Payable.

Zen Co. sells a copier machine for $2,000. The copier cost Zen $6,000 and at the time of sale, accumulated depreciation was $2,500. Zen will record this sale with which of the following entries?

Debit to Loss on Disposal of Machinery for $1,500.

The process of allocating the cost of a natural resource to a period when it is consumed requires a debit entry to the ___________ ___________ account

Depletion expense

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

Depreciation

Diamond Co. paid cash to overhaul a forklift, which extended the life of the forklift for an additional four years. The entry to record this purchase would include a debit to the ______ account.

Equipment

Sangmoon Co. sells equipment for $1,000 cash. The equipment cost Sangmoon $6,500 and has accumulated depreciation of $2,000 at the time of sale. Sangmoon will record the sale with a credit to which account and for how much?

Equipment for $6,500.

______ are expenditures that extend the asset's useful life beyond its original estimate.

Extraordinary repairs

Modified Accelerated Cost Recovery System (MACRS) is a depreciation method that allows companies to delay depreciation expense for tax purposes.

False

Niren Co. made modifications to a manufacturing machine that increased its productivity by 40%. Niren would classify this expense as a(n):

betterment.

When a company revises an estimate used to record depreciation expense, the company should revise depreciation by using the formula (______ - revised salvage value)/revised remaining useful life.

book value

Land (improvements/additions) __________ are assets that are additions to land and have limited useful lives, such as walkways and fences.

Improvements

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

Income Statement

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

Income statement

On December 31, Briar Co. disposed of a piece of equipment that cost $6,000 with accumulated depreciation of $4,500. The entry to record this disposal would include a debit to which account and for how much?

Loss on Disposal of Equipment for $1,500

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 depreciation method that determines the depreciation for the period by multiplying a depreciation rate (often twice the straight-line rate) by the asset's beginning-period book value is known as the _________ method

declining-balance

Sioux Co. replaced the roof on its existing building, therefore increasing the building's life by 10 years. The cost of the roof is considered a(n):

extraordinary repair

The inability of a company's plant assets to meet its demands is called:

inadequacy

The term ______ refers to a plant asset that is in the process of becoming outdated and no longer used.

obsolescence

(Revenue/Capital) ___________ expenditures are additional costs of plant assets that do not materially increase the asset's life or capabilities.

revenue

To calculate depletion expense in a period, a company should multiply the depletion per unit by:

units extracted and sold in the period

Grand Co. owns one copier that was purchased for $10,000 three years ago. The depreciation expense taken on the copier each year has been $2,700; $1,800; and $2,200, based on the number of copies that have been made on the copier. Based on this information, the company uses the

units-of-production

The method of depreciation that charges a varying amount to depreciation expense for each period depending on its usage is called the

units-of-production

The ______ life of a plant asset is the length of time it is productively used in a company's operations

useful

Sanson Co. sells equipment for $1,000 cash. The equipment cost Sanson $6,500 and has accumulated depreciation of $2,000 at the time of sale. Sanson will record the sale with a debit to which account and for how much?

Loss on Sale of Equipment for $3,500.

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

Lump-sum

Forward Co. discarded a machine that cost $5,000 and was fully depreciated. The entry to record this transaction would include a credit to the

Machinery

To calculate depletion expense, first determine the depletion per unit. Depletion per unit can be calculated by taking (cost______)/total units of capacity.

Minus salvage value

Modified Accelerated Cost Recovery System is _________ acceptable for financial reporting purposes.

Not

______ are expenditures that keep an asset in good operating condition. They are necessary if an asset is to perform to expectations over its useful life.

Ordinary repairs