Question 1

Which of the following costs should NOT be included in the capitalized cost of land when purchased for use in a business?

Accepted Answer

Cost of fencing installed after purchase

Question 2

A company purchases land and a building together for $$500,000. The appraised values are 150$$,000 for the land and $$450,000 for the building. What amount should be allocated to the land using the relative-market-value method?

$$	ext{Allocated cost of land} = \frac{	ext{Appraised value of land}}{	ext{Total appraised value}} 	imes 	ext{Total purchase price}$

Accepted Answer

$$\125$$,000$

Question 3

Which of the following expenditures should be classified as a capital expenditure?

Accepted Answer

Rebuilding the engine of a five-year-old truck to extend its useful life

Question 4

A company purchases equipment for $$50,000. Additional costs include 2$$,000 for transportation, $$1,000 for installation, and 500 $$for testing. What is the total capitalized cost of the equipment?

Accepted Answer

$$\53$$,500$

Question 5

Which depreciation method allocates an equal amount of depreciation to each year of an asset’s useful life?

Accepted Answer

Straight-line method

Question 6

A truck was purchased for $$41,000 with a 1$$,000 residual value and a 5-year useful life. Using the straight-line method, what is the annual depreciation expense?

$$	ext{Depreciation expense} = \frac{	ext{Cost} - 	ext{Residual value}}{	ext{Useful life}}$$

Accepted Answer

$$\8$$,000$

Question 7

A company uses the units-of-production method to depreciate a machine costing $$41,000 with a 1$$,000 residual value and a total expected output of 100,000 units. If the machine produces 20,000 units in the first year, what is the depreciation expense for that year?

$$	ext{Depreciation per unit} = \frac{\41$$,000 - \$$1,000}{100,000} = \0.40$ per unit$$ 
$$	ext{Depreciation expense} = 20,000 	imes \0.40$

Accepted Answer

$$\8$$,000$

Question 8

Which depreciation method results in the highest depreciation expense in the first year of an asset’s life?

Accepted Answer

Double-declining-balance method

Question 9

A company purchased equipment on July 1 for $$24,000. The equipment has a 4-year useful life and a 2$$,000 residual value. Using the straight-line method, what is the depreciation expense for the first year? (Assume the company uses the half-year convention.)

$$	ext{Annual depreciation} = \frac{\24$$,000 - \$$2,000}{4} = \5$$,500$$ 
$$	ext{First year depreciation} = \$$5,500 	imes 0.5$$

Accepted Answer

$$\2$$,750$

Question 10

A company changes the estimated useful life of a truck from 5 years to 8 years at the start of year 3. The truck originally cost $$41,000, has a 1$$,000 residual value, and accumulated depreciation of $$16,000 after 2 years. What is the revised annual depreciation expense for years 3–8?

$$	ext{Book value at start of year 3} = \$$41,000 - \16$$,000 = \$$25,000$$ 
$$	ext{Revised depreciation} = \frac{\25$$,000 - \$$1,000}{6}$$

Accepted Answer

$$\4$$,000$

Question 11

When a company discards equipment that is fully depreciated, what is the correct journal entry?

Accepted Answer

Debit Accumulated Depreciation; Credit Equipment

Question 12

A company sells equipment with a cost of $$10,000 and accumulated depreciation of 9$$,000 for $$2,000 cash. What is the gain or loss on the sale?

$$	ext{Book value} = \$$10,000 - \9$$,000 = \$$1,000$$ 
$$	ext{Gain/Loss} = \2$$,000 - \$$1,000$$

Accepted Answer

$$\1$$,000$ gain

Question 13

Which of the following statements about natural resources is TRUE?

Accepted Answer

Depletion is calculated using the units-of-production method.

Question 14

A company acquires a patent for $$200,000 with a useful life of 5 years. What is the annual amortization expense?

$$	ext{Amortization expense} = \frac{\$$200,000}{5}$$

Accepted Answer

$$\40$$,000$

Question 15

Which of the following intangible assets is NOT amortized?

Accepted Answer

Goodwill

Question 16

A company’s net sales are $$1,200,000 and its average total assets are 400$$,000. What is the asset turnover ratio?

$$	ext{Asset turnover ratio} = \frac{	ext{Net sales}}{	ext{Average total assets}}$$

Accepted Answer

3.0

Question 17

Which of the following is a requirement for recognizing a gain or loss on the exchange of plant assets?

Accepted Answer

The exchange has commercial substance

Question 18

A company exchanges old equipment (cost $$10,000, accumulated depreciation 9$$,000) and $$2,000 cash for new equipment valued at 8$$,000. What is the gain or loss on the exchange?

$$	ext{Book value of old equipment} = \10$$,000 - \$$9,000 = \1$$,000$$ 
$$	ext{Total cost given up} = \$$1,000 + \2$$,000 = \$$3,000$$ 
$$	ext{Gain} = \8$$,000 - \$$3,000$$

Accepted Answer

$$\5$$,000$ gain

Plant Assets, Natural Resources, and Intangibles – Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards