Question 1

Machinery is purchased on May 15,2018 for $50,000 with a $5,000 salvage value and a five-year life.The half-year convention is followed.What method of depreciation will give the highest amount of depreciation expense in Year 2?

Accepted Answer

A) Straight line 
B) Double-declining balance 
C) 150% declining balance 
D) Amount cannot be determined

Question 2

On April 8,2018,Jupiter Corp.acquired equipment at a cost of $480,000.The equipment is to be depreciated by the straight-line method over six years with no provision for salvage value.Depreciation for fractional years is computed by rounding the ownership period to the nearest month.Depreciation expense recognized in 2018 will be:

Accepted Answer

A) $53,333. 
B) $66,667. 
C) $60,000. 
D) $80,000.

Question 3

With respect to depreciation policies,the principle of consistency means:

Accepted Answer

A) A company should use the same depreciation methods in its financial statements that it uses in its income tax returns. 
B) A company should use the same depreciation methods as other companies in the same industry. 
C) A company should use the same depreciation method from year to year for a given plant asset. 
D) A company should use the same depreciation method in computing depreciation expense on all its assets.

Question 4

The book value of equipment:

Accepted Answer

A) Increases with the passage of time. 
B) Decreases with the passage of time. 
C) Remains the same with the passage of time. 
D) May increase or decrease depending upon the economy.

Question 5

[The following information applies to the questions displayed below.]
On April 2,2017,Victor,Inc.acquired a new piece of filtering equipment.The cost of the equipment was $160,000 with a residual value of $20,000 at the end of its estimated useful lifetime of 4 years.
-If Victor uses straight-line depreciation with the half-year convention,the book value of the equipment at December 31,2018 will be:

Accepted Answer

A) $90,000. 
B) $107,500. 
C) $106,667. 
D) $105,000.

Question 6

The erroneous recording of a revenue expenditure as a capital expenditure will cause an overstatement of net income for the period.

Accepted Answer

A) True 
 B)False

Question 7

If the 150% declining balance method is being used and an asset has a useful life of 20 years.What is the depreciation rate?

Accepted Answer

A) 7.5%. 
B) 10%. 
C) 15%. 
D) 150%.

Question 8

The book value of an asset is equal to its cost plus accumulated depreciation.

Accepted Answer

A) True 
 B)False

Question 9

The gain on the disposal of equipment is recognized when:

Accepted Answer

A) The book value of the equipment is greater than the value received. 
B) The book value of the equipment is less than the value received. 
C) A salvage value exists. 
D) A gain should not be recognized on the disposal of an asset.

Question 10

To "capitalize" an expenditure means to charge it to an asset account.

Accepted Answer

A) True 
 B)False

Question 11

On March 2,2017,Glen Industries purchased a fleet of automobiles at a cost of $550,000.The cars are to be depreciated by the straight-line method over five years with no salvage value.Glen uses the half-year convention to compute depreciation for fractional periods.The book value of the fleet of automobiles at December 31,2018,will be:

Accepted Answer

A) $165,000. 
B) $330,000. 
C) $495,000. 
D) $385,000.

Question 12

Any rational,systematic method of depreciation is acceptable,as long as costs are allocated to expense in a reasonable manner.

Accepted Answer

A) True 
 B)False

Question 13

If a piece of equipment is dropped and damaged during installation,the cost of repairing the damage should be added to the cost of the equipment.

Accepted Answer

A) True 
 B)False

Question 14

Early in the current year,Amazon Co.purchased the Rio Silver Mine at a cost of $30,000,000.The mine was estimated to contain 400,000 tons of ore and to have a residual value of $7,500,000 after mining operations are completed.During the year,115,000 tons of ore were removed from the mine.At year-end,the book value of the mine is:

Accepted Answer

A) $22,500,000. 
B) $6,468,750. 
C) $23,531,250. 
D) $30,000,000.

Question 15

Revenue expenditures are recorded as:

Accepted Answer

A) An expense. 
B) An asset. 
C) A liability. 
D) Income.

Question 16

Sales tax on equipment is not part of the acquisition cost and should not be capitalized.

Accepted Answer

A) True 
 B)False

Question 17

Wilbur Company purchased $10,000 of equipment on January 20,2017.Wilbur uses the straight-line method to depreciate the equipment.The equipment has a 5-year useful life with no salvage value.Which of the following statements is correct?

Accepted Answer

A) Wilbur will record a cash inflow from operating activities of $2,000 in its 2018 financial statements. 
B) Wilbur will record a cash outflow from operating activities of $2,000 in its 2018 financial statements. 
C) Wilbur will record a cash outflow from investing activities of $2,000 in its 2018 financial statements. 
D) Wilbur will record no cash flows related to this asset on its 2018 statement of cash flows.

Question 18

An asset that costs $97,600 and has accumulated depreciation of $82,000 is sold for $18,000.What amount of gain or loss will be recognized when the asset is sold?

Accepted Answer

A) A gain of $15,600. 
B) A loss of $15,600. 
C) A loss of $2,400. 
D) A gain of $2,400.

Question 19

When straight-line depreciation is in use,the depreciation rate of an asset is equal to:

Accepted Answer

A) 1 divided by the life of the asset. 
B) 1 divided by the cost of the asset. 
C) The cost of the asset divided by the life of the asset. 
D) The cost of the asset less its salvage value divided by the life of the asset.

Question 20

A revenue expenditure is deducted from revenues in determining the net income for the period.

Accepted Answer

A) True 
 B)False

Exam 9: Plant and Intangible Assets

Machinery is purchased on May 15,2018 for $50,000 with a $5,000 salvage value and a five-year life.The half-year convention is followed.What method of depreciation will give the highest amount of depreciation expense in Year 2?

With respect to depreciation policies,the principle of consistency means:

The book value of equipment:

The erroneous recording of a revenue expenditure as a capital expenditure will cause an overstatement of net income for the period.

If the 150% declining balance method is being used and an asset has a useful life of 20 years.What is the depreciation rate?

The book value of an asset is equal to its cost plus accumulated depreciation.

The gain on the disposal of equipment is recognized when:

To "capitalize" an expenditure means to charge it to an asset account.

Any rational,systematic method of depreciation is acceptable,as long as costs are allocated to expense in a reasonable manner.

If a piece of equipment is dropped and damaged during installation,the cost of repairing the damage should be added to the cost of the equipment.

Revenue expenditures are recorded as:

Sales tax on equipment is not part of the acquisition cost and should not be capitalized.

Wilbur Company purchased $10,000 of equipment on January 20,2017.Wilbur uses the straight-line method to depreciate the equipment.The equipment has a 5-year useful life with no salvage value.Which of the following statements is correct?

An asset that costs $97,600 and has accumulated depreciation of $82,000 is sold for $18,000.What amount of gain or loss will be recognized when the asset is sold?

When straight-line depreciation is in use,the depreciation rate of an asset is equal to:

A revenue expenditure is deducted from revenues in determining the net income for the period.