Question 1

As a recent graduate of State University you're aware that IFRS requires component depreciation for plant assets. A friend has asked you to succinctly explain what component depreciation means. Which of the following correctly describes component depreciation?

Accepted Answer

A)   The method used to ensure that the depreciation rate remains constant from year to year.
B)   The method that requires that significant parts of a plant asset with different useful lives be depreciated separately.
C)   The method used to prorate annual depreciation on a time basis.
D)   The method of depreciation recommended for an asset that is expected to be significantly more productive in the first half of its useful life.IFRS: B

Question 2

The declining-balance method of computing depreciation expense involves multiplying a _______________ book value by a _______________ percentage.

Accepted Answer

declining constant

Question 3

A change in the estimated useful life of equipment requires

Accepted Answer

A)   a retroactive change in the amount of periodic depreciation recognized in previous years.
B)   that no change be made in the periodic depreciation so that depreciation amounts are comparable over the life of the asset.
C)   that the amount of periodic depreciation be changed in the current year and in future years.
D)   that income for the current year be increased. C

Question 4

Additions and improvements are costs incurred to increase the operating efficiency, productive capacity, or expected useful life and are referred to as __________________.

Accepted Answer

The answer of Additions and improvements are costs incurred to...

Question 5

A plant asset cost $90,000 when it was purchased on January 1, 2011. It was depreciated by the straight-line method based on a 9-year life with no salvage value. On June 30, 2018, the asset was discarded with no cash proceeds. What gain or loss should be recognized on the retirement?

Accepted Answer

A)   No gain or loss.
B)   $20,000 loss.
C)   $15,000 loss.
D)   $10,000 gain.

Question 6

In the case of an exchange of plant assets resulting in a loss on disposal, the cost of the new asset acquired is equal to the ______________ of the asset given up plus any cash paid by the purchaser.

Accepted Answer

The answer of In the case of an exchange of...

Question 7

Karley Company sold equipment on July 1, 2018 for $75,000. The equipment had cost $210,000 and had $120,000 of accumulated depreciation as of January 1, 2018. Depreciation for the first 6 months of 2015 was $12,000.
Instructions
Prepare the journal entry to record the sale of the equipment.

Accepted Answer

The answer of Karley Company sold equipment on July 1,...

Question 8

The method most commonly used to compute depletion is the

Accepted Answer

A)   straight-line method.
B)   double-declining-balance method.
C)   units-of-activity method.
D)   effective interest method.

Question 9

Gagner Clinic purchases land for $175,000 cash. The clinic assumes $1,500 in property taxes due on the land. The title and attorney fees totaled $1,000. The clinic has the land graded for $2,200. What amount does Gagner Clinic record as the cost for the land?

Accepted Answer

A)   $157,200
B)   $175,000
C)   $179,700
D)   $157,500

Question 10

Foley Word Processing Service uses the straight-line method of depreciation. The company's fiscal year end is December 31. The following transactions and events occurred during the first three years.  Instructions
Prepare the necessary entries. (Show computations.)

Accepted Answer

The answer of Foley Word Processing Service uses the straight-line...

Question 11

Natural resources are

Accepted Answer

A)   depreciated using the units-of-activity method.
B)   physically extracted in operations and are replaceable only by an act of nature.
C)   reported at their market value.
D)   amortized over a period no longer than 40 years.

Question 12

A gain or loss on disposal of a plant asset is determined by comparing the

Accepted Answer

A)   replacement cost of the asset with the asset's original cost.
B)   book value of the asset with the asset's original cost.
C)   original cost of the asset with the proceeds received from its sale.
D)   book value of the asset with the proceeds received from its sale.

Question 13

Identify the following expenditures as capital expenditures or revenue expenditures.
(a) Replacement of worn out gears on factory machinery.
(b) Construction of a new wing on an office building.
(c) Painting the exterior of a building.
(d) Oil change on a company truck.
(e) Painting and lettering of a used truck upon acquisition of the truck.
(f) Overhaul of a truck motor. One year extension in useful life is expected.
(g) Purchased a wastebasket at a cost of $10.

Accepted Answer

The answer of Identify the following expenditures as capital expenditures...

Question 14

Fleming Company purchased a machine on January 1, 2018. In addition to the purchase price paid, the following additional costs were incurred: (a) sales tax paid on the purchase price, (b) transportation and insurance costs while the machinery was in transit from the seller, (c) personnel training costs for initial operation of the machinery, (d) annual city operating license, (e) major overhaul to extend the life of the machinery, (f) lubrication of the machinery gearing before the machinery was placed into service, (g) lubrication of the machinery gearing after the machinery was placed into service, and (h) installation costs necessary to secure the machinery to the building flooring.
Instructions
Indicate whether the items (a) through (h) are capital or revenue expenditures in the spaces provided: C = Capital, R = Revenue.

Accepted Answer

The answer of Fleming Company purchased a machine on January...

Question 15

The declining-balance method is an accelerated method of depreciation. Briefly explain what is meant by an accelerated method of depreciation and justify the choosing of an accelerated method.

Accepted Answer

The answer of The declining-balance method is an accelerated method...

Question 16

The IRS does not require the taxpayer to use the same depreciation method on the tax return that is used in preparing financial statements.

Accepted Answer

A) True 
 B)False

Question 17

Identify the item below where the terms are not related.

Accepted Answer

A)   Equipment-depreciation
B)   Franchise-depreciation
C)   Copyright-amortization
D)   Oil well-depletion

Question 18

Which of the following assets does not decline in service potential over the course of its useful life?

Accepted Answer

A)   Equipment
B)   Furnishings
C)   Land
D)   Fixtures

Question 19

Interest may be included in the acquisition cost of a plant asset

Accepted Answer

A)   during the construction period of a self-constructed asset.
B)   if the asset is purchased on credit.
C)   if the asset acquisition is financed by a long-term note payable.
D)   if it is a part of a lump-sum purchase.

Question 20

Presto Company purchased equipment and these costs were incurred:  Presto will record the acquisition cost of the equipment as

Accepted Answer

A)   $65,000.
B)   $68,600.
C)   $69,240.
D)   $70,100.

Exam 9: Plant Assets, Natural Resources, and Intangible Assets