Question 1

Which of the following is not a characteristic of property, plant and equipment (PPE)?

Accepted Answer

A) PPE are held for sale in the ordinary course of business. 
B) PPE are held for administrative purposes of the business. 
C) PPE are held for use in the ordinary course of business. 
D) PPE are held for rental to others by the business. 
A) PPE are held for sale in the ordinary course of business. 
B) PPE are held for administrative purposes of the business. 
C) PPE are held for use in the ordinary course of business. 
D) PPE are held for rental to others by the business.

Question 2

Billu Limited purchased equipment on January 1, 2019 for $275,000. It was estimated that the equipment would have a residual value of $25,000 at the end of its useful life. The asset's useful life was estimated at 5 years or 10,000 units of output. The company has a December 31 year end. Additional Information
$$\begin{array} {| l | l| } 
\hline \text { Year } & \text { Units of Output } \
\hline 2019 & 2,100 \
\hline 2020 & 2,000 \
\hline 2021 & 1,700 \
\hline 022 & 2,300 \
\hline 2023 & 1,900 \
\hline
\end{array}$$ Assuming the company uses the units-of-production depreciation method, calculate the accumulated depreciation at the end of 2022.

Accepted Answer

A) $57,500 
B) $63,250 
C) $202,500 
D) $222,750 
A) $57,500 
B) $63,250 
C) $202,500 
D) $222,750

Question 3

What does a "gain on disposal of property, plant and equipment" mean? Does a gain suggest good or excellent management and a loss on disposal indicate poor management? Explain your conclusion.

Accepted Answer

A gain on disposal tells us that prior y

Question 4

What is the meaning of "straight-line method"?

Accepted Answer

A) The systematic allocation of an asset's depreciable amount allocated in proportion to the productive capacity used. 
B) The systematic allocation of an asset's depreciable amount allocated evenly over the asset's estimated useful life. 
C) The systematic allocation of an asset's depreciable amount over its estimated useful life. 
D) The systematic allocation of an asset's depreciable amount whereby a period's depreciation equals the asset's net carrying amount multiplied by a fixed percentage. 
A) The systematic allocation of an asset's depreciable amount allocated in proportion to the productive capacity used. 
B) The systematic allocation of an asset's depreciable amount allocated evenly over the asset's estimated useful life. 
C) The systematic allocation of an asset's depreciable amount over its estimated useful life. 
D) The systematic allocation of an asset's depreciable amount whereby a period's depreciation equals the asset's net carrying amount multiplied by a fixed percentage.

Question 5

Seally Corp. owns a machine that it purchased on Jan 1, 2019 for $600,000. The machine had an estimated useful life of 10 years and an estimated residual value of $100,000. The company uses the declining balance method with a rate of 20%. The machine was sold on December 31, 2021 for $140,000. What was the depreciation expense for 2020?

Accepted Answer

A) $50,000 
B) $60,000 
C) $80,000 
D) $96,000 
A) $50,000 
B) $60,000 
C) $80,000 
D) $96,000

Question 6

Peter exchanged similar assets with Sunshine Company in a transaction without commercial substance. Peter gave up equipment that had a net book value of $47,000 (fair value $49,000)and Sunshine exchanged equipment with a net book value of $36,000 (fair value $35,000). What is the correct value at which Sunshine should record the new equipment?

Accepted Answer

A) $35,000 
B) $36,000 
C) $47,000 
D) $49,000 
A) $35,000 
B) $36,000 
C) $47,000 
D) $49,000

Question 7

Castle Rock owns a machine that it purchased on Jan 1, 2019 for $400,000. The machine had an estimated useful life of 10 years with a production capacity for 80,000 units and was expected to have no residual value. The company uses the units-of-production method to record depreciation. The machine produced 15,000 units in 2019, 18,000 units in 2020 and 25,000 units in 2021. The machine was sold on December 31, 2021 for $350,000. What was the depreciation expense for 2021?

Accepted Answer

A) $39,000 
B) $40,000 
C) $90,000 
D) $125,000 
A) $39,000 
B) $40,000 
C) $90,000 
D) $125,000

Question 8

What is the meaning of "entry value"?

Accepted Answer

A) The cost required to replace the productive capacity of an asset. 
B) The value of an asset in an input market or output market on the date of measurement. 
C) The value expected from the sale of an asset, net of any costs of disposal. 
D) The actual cost of an asset at the time it was purchased. 
A) The cost required to replace the productive capacity of an asset. 
B) The value of an asset in an input market or output market on the date of measurement. 
C) The value expected from the sale of an asset, net of any costs of disposal. 
D) The actual cost of an asset at the time it was purchased.

Question 9

Office Plus Company bought an office building for $9,000,000 so it could consolidate its entire senior management staff in one location. An independent appraiser valued these items individually as follows:
 $$\begin{array} { | l | r | } 
\hline \text { LPE category } & \text { Appraised value } \
\hline \text { Land } & \$ 3,000,000 \
\hline \text { Building } & 4,000,000 \
\hline \text { Computer network system } & 1,200,000 \
\hline \text { Elevator system } & 1,800,000 \
\hline \text { Landscaping and site improvements } & 800,000 \
\hline \text { Total } & \$ 10,800,000 \
\hline
\end{array}$$ Prior to completing the purchase, Office Plus' management decided that it will remove the computer network system and replace it with fiber-optic cables and related technologies.
Required:
Allocate the purchase price among the assets acquired.

Accepted Answer

Since the company has no intention of us

Question 10

Discuss how inappropriate capitalization of costs during the acquisition of PPE can manipulate earnings.

Accepted Answer

The general principle is that companies

Question 11

Oregona Ltd. owns a machine that it purchased on Jan 1, 2019 for $750,000. The machine had an estimated useful life of 5 years and an estimated residual value of $50,000. The company uses straight-line depreciation and records monthly depreciation. The machine was sold on December 31, 2022 for $200,000. What is the accumulated depreciation at December 31, 2022?

Accepted Answer

A) $600,000 
B) $560,000 
C) $150,000 
D) $140,000 
A) $600,000 
B) $560,000 
C) $150,000 
D) $140,000

Question 12

On March 31, 2019, a machine costing $3,000,000 was acquired. The company estimates that the asset will have an estimated useful life of five years and a residual value of $450,000. On April 1, 2024, the asset is sold for $550,000. The company uses the declining balance method at a rate of 40%. The company has a December 31 year-end. The company records partial depreciation in the year of acquisition or disposal based on the number of months the asset is available for use in the year.
Prepare the entries to record depreciation expense for 2019 and 2020, and all entries required for 2024 as they relate to this asset.

Accepted Answer

Declining

Question 13

In December 2021, Ami, the owner of Elm, paid for a parcel of land along with a warehouse on behalf of Elm, the registered owner of the property, for a total cost of $700,000. Ami also paid a real estate commission of $35,000 and legal fees of $5,000 in connection with this purchase, plus $25,000 for the demolition of the warehouse. Elm will reimburse Ami for these costs in January 2021 and will begin construction of an office building on this land. Prior to the purchase, the land and warehouse were appraised at $500,000 and $200,000, respectively. How much should be capitalized to the value of the land in 2021?

Accepted Answer

A) $0 
B) $505,000 
C) $730,000 
D) $765,000 
A) $0 
B) $505,000 
C) $730,000 
D) $765,000

Question 14

Fantasmic Moulds purchased equipment on January 1, 2019 for $275,000. It was estimated that the equipment would have a residual value of $25,000 at the end of its useful life. The asset's useful life was estimated at 5 years or 10,000 units of output. The company has a December 31 year end. Additional Information
$$\begin{array} {| l | l| } 
\hline \text { Year } & \text { Units of Output } \
\hline 2019 & 2,100 \
\hline 2020 & 2,000 \
\hline 2021 & 1,700 \
\hline 022 & 2,300 \
\hline 2023 & 1,900 \
\hline
\end{array}$$ Assuming the company uses the units-of-production depreciation method, what is the depreciation expense for 2019?

Accepted Answer

A) $25.00 
B) $27.50 
C) $52,500 
D) $57,750 
A) $25.00 
B) $27.50 
C) $52,500 
D) $57,750

Question 15

What accounting issue arises for recognizing non-monetary transactions?

Accepted Answer

A) Determining when the substantial risks and rewards of ownership are transferred. 
B) Determining the amount to be allocated to each performance obligation. 
C) Determining the costs incurred or still to be incurred to fulfill the performance obligation. 
D) Determining the amount at which to record the transaction. 
A) Determining when the substantial risks and rewards of ownership are transferred. 
B) Determining the amount to be allocated to each performance obligation. 
C) Determining the costs incurred or still to be incurred to fulfill the performance obligation. 
D) Determining the amount at which to record the transaction.

Question 16

Ontario Ltd. purchased a machine on Jan 1, 2019 for $750,000. The machine had an estimated useful life of 5 years and an estimated residual value of $50,000. The company uses straight-line depreciation and records monthly depreciation. The machine was sold on December 31, 2022 for $200,000. What was the gain/loss on disposal of the machine?

Accepted Answer

A) $10,000 loss. 
B) $10,000 gain. 
C) $50,000 loss. 
D) $50,000 gain. 
A) $10,000 loss. 
B) $10,000 gain. 
C) $50,000 loss. 
D) $50,000 gain.

Question 17

What is the effect of overstating 2021 depreciation expense?

Accepted Answer

A) Accumulated depreciation will be understated for 2021. 
B) Net income for 2021 will be overstated. 
C) Ending retained earnings for 2021 will be understated. 
D) Ending retained earnings for 2021 will be overstated. 
A) Accumulated depreciation will be understated for 2021. 
B) Net income for 2021 will be overstated. 
C) Ending retained earnings for 2021 will be understated. 
D) Ending retained earnings for 2021 will be overstated.

Question 18

What issue does NOT relate to the subsequent measurement of property, plant and equipment?

Accepted Answer

A) Which model to use to record depreciation. 
B) How impairment should be recorded. 
C) How to classify the expenditure. 
D) Whether to use the fair value model. 
A) Which model to use to record depreciation. 
B) How impairment should be recorded. 
C) How to classify the expenditure. 
D) Whether to use the fair value model.

Question 19

Which of the following is not a characteristic of a property, plant and equipment (PPE)?

Accepted Answer

A) No physical substance. 
B) Identifiable. 
C) Non-monetary. 
D) Provides future cash flows. 
A) No physical substance. 
B) Identifiable. 
C) Non-monetary. 
D) Provides future cash flows.

Question 20

How should $45,000 spent to obtain greater productive efficiency for a machine with a carrying value of $80,000 be accounted for?

Accepted Answer

A) Capitalized, then depreciated during current and subsequent periods. 
B) Expensed in the period in which the cost occurs. 
C) Charged to accumulated depreciation with no change in the depreciation rate. 
D) Charged to retained earnings. 
A) Capitalized, then depreciated during current and subsequent periods. 
B) Expensed in the period in which the cost occurs. 
C) Charged to accumulated depreciation with no change in the depreciation rate. 
D) Charged to retained earnings.

Which of the following is not a characteristic of property, plant and equipment (PPE)?

What does a "gain on disposal of property, plant and equipment" mean? Does a gain suggest good or excellent management and a loss on disposal indicate poor management? Explain your conclusion.

What is the meaning of "straight-line method"?

What is the meaning of "entry value"?

Discuss how inappropriate capitalization of costs during the acquisition of PPE can manipulate earnings.

What accounting issue arises for recognizing non-monetary transactions?

What is the effect of overstating 2021 depreciation expense?

What issue does NOT relate to the subsequent measurement of property, plant and equipment?

Which of the following is not a characteristic of a property, plant and equipment (PPE)?

How should $45,000 spent to obtain greater productive efficiency for a machine with a carrying value of $80,000 be accounted for?

Fundamentals of Financial Accounting Theory

Conceptual Frameworks for Financial Reporting

Accrual Accounting

Revenue and Recognition

Cash and Receivables

Inventories

Financial Assets

Intangible Assets, Goodwill, Mineral Resources, and Government Grants

Applications of Fair Value to Non-Current Assets

Filters

Exam 8: Property, Plant and Equipment

Which of the following is not a characteristic of property, plant and equipment (PPE)?

What does a "gain on disposal of property, plant and equipment" mean? Does a gain suggest good or excellent management and a loss on disposal indicate poor management? Explain your conclusion.

What is the meaning of "straight-line method"?

What is the meaning of "entry value"?

Discuss how inappropriate capitalization of costs during the acquisition of PPE can manipulate earnings.

What accounting issue arises for recognizing non-monetary transactions?

What is the effect of overstating 2021 depreciation expense?

What issue does NOT relate to the subsequent measurement of property, plant and equipment?

Which of the following is not a characteristic of a property, plant and equipment (PPE)?

How should $45,000 spent to obtain greater productive efficiency for a machine with a carrying value of $80,000 be accounted for?

Fundamentals of Financial Accounting Theory

Conceptual Frameworks for Financial Reporting

Accrual Accounting

Revenue and Recognition

Cash and Receivables

Inventories

Financial Assets

Intangible Assets, Goodwill, Mineral Resources, and Government Grants

Applications of Fair Value to Non-Current Assets

Filters