Financial Accounting 15th Edition Warren Test Bank

Financial Accounting 15th Edition
Warren Test Bank

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Chapter 10 - Long-Term Assets: Fixed and Intangible
True / False
1. Long-lived assets that are intangible in nature, used in the operations of the business, and not held for sale in the
ordinary course of business are called fixed assets.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom's: Remembering
LEARNING OBJECTIVES: ACCT.WARD.18.10-01 - 10-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.13 - Long-term Assets Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
2. The acquisition costs of property, plant, and equipment should include all normal, reasonable and necessary costs to get
the asset in place and ready for use.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
3. When land is purchased to construct a new building, the cost of removing any structures on the land should be charged
to the building account.
a. True
b. False
ANSWER: False
BUSPROG: Analytic
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Page 1
4. Land acquired as a speculation is reported under Investments on the balance sheet.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
5. Standby equipment held for use in the event of a breakdown of regular equipment is reported as property, plant, and
equipment on the balance sheet.
a. True
b. False
ANSWER: True
BUSPROG: Analytic
6. The cost of repairing damage to a machine during installation is debited to a fixed asset account.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
7. During construction of a building, the cost of interest on a construction loan should be charged to an expense account.
a. True
b. False
ANSWER: False
BUSPROG: Analytic
8. The cost of computer equipment does not include the consultant's fee to supervise installation of the equipment.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
9. An asset leased under an operating lease will appear on the balance sheet as a long-term asset.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
10. Long-lived assets held for sale are classified as fixed assets.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
11. A tangible asset is one that lacks physical existence.

a. True
b. False
ANSWER: False
BUSPROG: Analytic
12. Capital expenditures are costs that improve a fixed asset or extend its useful life.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
13. The cost of new equipment is called a revenue expenditure because it will help generate revenues in the future.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
14. Expenditures that increase operating efficiency or capacity for the remaining useful life of a fixed asset are called
capital expenditures.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
15. The cost of replacing an engine in a truck is an example of ordinary maintenance.

a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom's: Understanding
BUSPROG: Analytic
16. Functional depreciation occurs when a fixed asset is no longer able to provide services at the level for which it was
intended.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
17. The normal balance of the accumulated depreciation account is a debit.

a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
18. As a company records depreciation expense for a period of time, cash is accumulated to replace fixed assets as they
wear out.
a. True
b. False
ANSWER: False
BUSPROG: Analytic
19. All property, plant, and equipment assets are depreciated over time.
a. True
b. False
ANSWER: False
BUSPROG: Analytic
20. The book value of a fixed asset reported on the balance sheet represents its market value on that date.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
21. The depreciable cost of a building is the same as its acquisition cost.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
22. It is necessary for a company to use the same depreciation method for all of its depreciable assets.
a. True
b. False
ANSWER: False
BUSPROG: Analytic
23. It is not necessary for a company to use the same depreciation method for all of its fixed assets.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
24. An estimate of the amount for which an asset can be sold at the end of its useful life is called residual value.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
25. The units-of-activity depreciation method provides a good match of expenses against revenue.
a. True
b. False
ANSWER: True
BUSPROG: Analytic
26. Once the useful life of a depreciable asset has been estimated and the amount to be depreciated each year has been
determined, the amounts cannot be changed.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
27. Residual value is not incorporated in the initial calculations for double-declining-balance depreciation.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
28. The double-declining-balance method is an accelerated depreciation method.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
29. The double-declining-balance depreciation method calculates depreciation each year by taking twice the straight-line
rate times the book value of the asset at the beginning of each year.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
30. The amount of depreciation expense for the first full year of use of a fixed asset costing $95,000, with an estimated
residual value of $5,000 and a useful life of five years, is $19,000 by the straight-line method.
a. True
b. False
ANSWER: False
RATIONALE: Annual Depreciation = (Cost – Residual Value)/Useful Life = ($95,000 – $5,000)/5 =
$18,000.
DIFFICULTY: Challenging
Bloom's: Applying
BUSPROG: Analytic
31. The amount of depreciation expense for a fixed asset costing $95,000, with an estimated residual value of $5,000 and
a useful life of five years or 20,000 operating hours, is $21,375 by the units-of-activity method during a period when the
asset was used for 4,500 hours.
a. True
b. False
ANSWER: False
RATIONALE: Depreciation per Operating Hour = (Cost – Residual Value)/Total Units of Output =
($95,000 – $5,000)/20,000 hours
Depreciation Expense = Depreciation per Operating Hour × Total Units of Output Used =
$4.5 × 4,500 hours = $20,250
Bloom's: Applying
BUSPROG: Analytic
32. The amount of the depreciation expense for the second full year of use of a fixed asset costing $100,000, with an
estimated residual value of $5,000 and a useful life of four years, is $25,000 by the double-declining-balance method.
a. True
b. False
ANSWER: True
RATIONALE: Double-Declining-Balance Rate = (1/4) × 2 = 50%
First-Year Depreciation = $100,000 × 50% = $50,000
Second-Year Depreciation = ($100,000 – $50,000) × 50% = $25,000
Bloom's: Applying
BUSPROG: Analytic
33. When depreciation estimates are revised, all years of the asset’s life are affected.
a. True
b. False
ANSWER: False
BUSPROG: Analytic
34. The double-declining-balance method of depreciation uses a declining percentage rate in determining the depreciation
amount.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
35. Regardless of the depreciation method, the amount that will be depreciated during the life of the asset will be the
same.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
36. Revising depreciation estimates affects the amounts of depreciation expense recorded in past periods.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
37. Capital expenditures are costs that are charged to stockholders' equity accounts.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
38. The difference between the balance in a fixed asset account and its related accumulated depreciation account is the
asset's book value.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
ACCT.WARD.18.10-06 - 10-06
BUSPROG: Analytic
39. Though a piece of equipment is still being used, the equipment should be removed from the accounts if it has been
fully depreciated.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
40. When selling a piece of equipment for cash, a loss will result when the proceeds of the sale are less than the book
value of the asset.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
41. Losses on the discarding of fixed assets are reported in the income statement.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
42. A gain can be realized when a fixed asset is discarded.

a. True
b. False
ANSWER: False
BUSPROG: Analytic
43. The entry to record the disposal of fixed assets will include a credit to Accumulated Depreciation.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
44. Both the initial cost of the asset and the accumulated depreciation will be taken off the books with the disposal of the
asset.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
45. Minerals removed from the earth are classified as intangible assets.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
46. The method used to calculate the depletion of a natural resource is the straight-line method.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
47. Intangible assets differ from property, plant, and equipment assets in that they lack physical substance.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
48. The cost of a patent with a remaining legal life of 10 years and an estimated useful life of seven years is amortized
over 10 years.
a. True
b. False
ANSWER: False
BUSPROG: Analytic
49. The transfer to expense of the cost of intangible assets attributed to the passage of time or decline in usefulness is
called amortization.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
50. Costs associated with normal research and development activities should be treated as intangible assets.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
51. Patents are exclusive rights to produce and sell goods with one or more unique features.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
52. When a company establishes an outstanding reputation and has a competitive advantage because of it, the company
should record goodwill on its financial statements.
a. True
b. False
ANSWER: False
BUSPROG: Analytic
53. When a property, plant, and equipment asset is sold for cash, any gain or loss on the asset sold should be recorded.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
LEARNING OBJECTIVES: ACCT.WARD.18.10-APP - 10-APP
BUSPROG: Analytic
54. When old equipment is traded in for a new equipment, the difference between the list price and the trade-in allowance
is called boot.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
55. When a plant asset is traded for another similar asset, losses on the asset traded are not recognized.
a. True
b. False
ANSWER: False
BUSPROG: Analytic
56. When exchanging equipment, if the trade-in allowance is greater than the book value a loss results.
a. True
b. False
ANSWER: False
BUSPROG: Analytic
57. If a fixed asset with a book value of $10,000 is traded for a similar fixed asset, a trade-in allowance of $15,000 is
granted by the seller, and the transaction is deemed to have commercial substance, the buyer would report a gain on
exchange of fixed assets of $5,000.
a. True
b. False
ANSWER: True
RATIONALE: Gain on Exchange = Trade-In Allowance – Book Value of Asset = $15,000 – $10,000 =
$5,000
Bloom's: Applying
BUSPROG: Analytic
58. When a seller allows a buyer an amount for old equipment that is traded in for new equipment of similar use, this
amount is known as boot.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
59. An exchange is said to have commercial substance if future cash flows remain the same as a result of the exchange.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
Multiple Choice
60. A characteristic of a fixed asset is that it is

a. intangible
b. used in the operations of a business
c. held for sale in the ordinary course of the business
d. a short-term investment
ANSWER: b
DIFFICULTY: Easy
BUSPROG: Analytic
61. Land acquired so it can be resold in the future is listed on the balance sheet as a(n)
a. fixed asset
b. current asset
c. investment
d. intangible asset
ANSWER: c
DIFFICULTY: Easy
BUSPROG: Analytic
62. Which of the following should be included in the acquisition cost of a piece of equipment?
a. transportation costs
b. installation costs
c. testing costs prior to placing the equipment into production
d. All of these choices
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
63. Which of the following is included in the cost of constructing a building?
a. insurance costs during construction
b. cost of paving the parking lot
c. cost of repairing vandalism damage during construction
d. cost of removing the demolished building existing on the land when it was purchased
ANSWER: a
DIFFICULTY: Easy
BUSPROG: Analytic
64. Which of the following is included in the cost of land?

a. cost of paving a parking lot
b. brokerage commission
c. outdoor parking lot lighting attached to the land
d. fences on the land
ANSWER: b
DIFFICULTY: Easy
BUSPROG: Analytic
65. The proper journal entry to purchase a computer costing $975 on account to be utilized within the business would be
a. Office Supplies 975
Accounts Payable 975
b. Office Equipment 975
Accounts Payable 975
c. Office Supplies 975
Accounts Receivable 975
d. Office Equipment 975
Accounts Receivable 975
ANSWER: b
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
66. A building with an appraisal value of $154,000 is made available at an offer price of $172,000. The purchaser
acquires the property for $40,000 in cash, a 90-day note payable for $45,000, and a mortgage amounting to $75,000. The
cost basis recorded in the buyer's accounting records to recognize this purchase is
a. $154,000
b. $172,000
c. $160,000
d. $120,000
ANSWER: c
RATIONALE: The cost basis recorded in the buyer's accounting records to recognize this purchase is
calculated as $40,000 + $45,000 + $75,000 = $160,000.
Bloom's: Applying
BUSPROG: Analytic
67. A used machine with a purchase price of $77,000, requiring an overhaul costing $8,000, installation costs of $5,000,
and special acquisition fees of $3,000, would have a cost basis of
a. $93,000
b. $90,000
c. $82,000
d. $85,000
ANSWER: a
RATIONALE: Cost Basis of Machine = Purchase Price + Overhaul Cost + Installation Cost + Special
Acquisition Fees = $77,000 + $8,000 + $5,000 + $3,000 = $93,000
Bloom's: Applying
BUSPROG: Analytic
68. A new machine with a purchase price of $109,000, with transportation costs of $12,000, installation costs of $5,000,
and special acquisition fees of $6,000, would have a cost basis of
a. $114,000
b. $126,000
c. $121,000
d. $132,000
ANSWER: d
RATIONALE: Cost Basis of Machine = Purchase Price + Transportation Cost + Installation Cost +
Special Acquisition Fees = $109,000 + $12,000 + $5,000 + $6,000 = $132,000
Bloom's: Applying
BUSPROG: Analytic
69. In a lease contract, the party who legally owns the asset is the
a. lessee
b. lessor
c. operator
d. banker
ANSWER: b
DIFFICULTY: Easy
BUSPROG: Analytic
70. The journal entry for recording payment for the short-term lease of a fixed asset would
a. be a memo entry only
b. debit the fixed asset and credit Cash
c. debit Rent Expense and credit Cash
d. debit a liability and credit Cash
ANSWER: c
DIFFICULTY: Easy
BUSPROG: Analytic
71. Which of the following are criteria for determining whether to record an asset as a fixed asset?
a. must be an investment and long-lived
b. must be long-lived and used by the company in its normal operations
c. must be short-lived and tangible
d. must be tangible and an investment
ANSWER: b
BUSPROG: Analytic
72. Expenditures that add to the utility of fixed assets for more than one accounting period are
a. committed expenditures
b. revenue expenditures
c. utility expenditures
d. capital expenditures
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
73. A capital expenditure results in a debit to a(n)

a. expense account
b. capital account
c. liability account
d. asset account
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
74. Which of the following is an example of a capital expenditure?
a. cleaning the carpet in the front room
b. tune-up for a company truck
c. replacing an engine in a company car
d. replacing all burned-out light bulbs in the factory
ANSWER: c
DIFFICULTY: Easy
BUSPROG: Analytic
75. Factors contributing to a decline in the usefulness of a fixed asset may be divided into which of the following two
categories?
a. salvage and functional
b. physical and functional
c. residual and salvage
d. functional and residual
ANSWER: b
DIFFICULTY: Easy
BUSPROG: Analytic
76. A fixed asset's estimated value at the time it is to be retired from service is called
a. book value
b. residual value
c. market value
d. carrying value
ANSWER: b
DIFFICULTY: Easy
BUSPROG: Analytic
77. All of the following are needed for the calculation of straight-line depreciation except
a. cost
b. residual value
c. estimated life
d. units produced
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
78. The method of determining depreciation that yields successive reductions in the periodic depreciation charge over the
estimated life of the asset is the
a. units-of-production method
b. double-declining-balance method
c. straight-line method
d. time-valuation method
ANSWER: b
BUSPROG: Analytic
79. When the amount of use of a fixed asset varies from year to year, the method of determining depreciation expense that
best matches allocation of cost with revenue is
a. the double-declining-balance method
b. the straight-line method
c. the units-of-activity method
d. MACRS
ANSWER: c
BUSPROG: Analytic
80. A machine with a cost of $120,000 has an estimated residual value of $15,000 and an estimated life of five years or
15,000 hours. It is to be depreciated by the units-of-activity method. What is the amount of depreciation for the second
full year, during which the machine was used 5,000 hours?
a. $5,000
b. $35,000
c. $21,000
d. $45,000
ANSWER: b
RATIONALE: Depreciation per Operating Hour = (Cost – Residual Value)/Total Units of Output =
($120,000 – $15,000)/15,000 hours = $7
Depreciation Expense = Depreciation per Operating Hour × Total Units of Output Used =
$7 × 5,000 hours = $35,000
Bloom's: Applying
BUSPROG: Analytic
81. Equipment with a cost of $220,000 has an estimated residual value of $30,000 and an estimated life of 10 years or
19,000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year,
during which the equipment was used 2,100 hours?
a. $19,000
b. $21,000
c. $22,000
d. $30,000
ANSWER: a
$19,000
Bloom's: Applying
BUSPROG: Analytic
82. A machine with a cost of $75,000 has an estimated residual value of $5,000 and an estimated life of four years or
18,000 hours. What is the amount of depreciation for the second full year, using the double-declining-balance method?
a. $17,500
b. $37,500
c. $18,750
d. $16,667
ANSWER: c
RATIONALE: Double-Declining-Balance Rate = (1/4) × 2 = 50%
First-Year Depreciation = $75,000 × 50% = $37,500
Second-Year Depreciation = ($75,000 – $37,500) × 50% = $18,750
Bloom's: Applying
BUSPROG: Analytic
83. Equipment with a cost of $160,000, an estimated residual value of $40,000, and an estimated life of 15 years was
depreciated by the straight-line method for four years. Due to obsolescence, it was determined that the remaining useful
life should be shortened by three years and the residual value changed to zero. The depreciation expense for the current
and future years is
a. $11,636
b. $16,000
c. $11,000
d. $8,000
ANSWER: b
RATIONALE: Depreciation for First 4 Years = [(Initial Cost – Residual Value)/Estimated Life] × 4
Depreciation for First 4 Years = [($160,000 – $40,000) ÷ 15] × 4 = $32,000
Book Value at End of 4th Year = $160,000 – $32,000 = $128,000
Depreciation Expense for Current and Future Years = $128,000/(15 – 4 – 3) = $16,000
Bloom's: Applying
BUSPROG: Analytic
84. The depreciation method that does not use residual value in calculating the first year's depreciation expense is
a. straight-line
b. units-of-activity
c. double-declining-balance
d. sum-of-the-years-digits
ANSWER: c
DIFFICULTY: Easy
BUSPROG: Analytic
85. If a fixed asset, such as a computer, were purchased on January 1 for $3,750 with an estimated life of three years and a
salvage or residual value of $150, the journal entry for monthly expense under straight-line depreciation is
a. Depreciation Expense 100
Accumulated Depreciation 100
b. Depreciation Expense 1,200
Accumulated Depreciation 1,200
c. Accumulated Depreciation 1,200
Depreciation Expense 1,200
d. Accumulated Depreciation 100
Depreciation Expense 100
ANSWER: a
RATIONALE: Monthly Depreciation Expense = (Cost – Residual Value)/Useful Life = [($3,750 –
$150)/3]/12 = $100
Depreciation Expense 100
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
86. Accumulated Depreciation
a. is used to show the amount of cost expiration of intangibles
b. is the same as Depreciation Expense
c. is a contra asset account
d. is used to show the amount of cost expiration of natural resources
ANSWER: c
DIFFICULTY: Easy
BUSPROG: Analytic
87. Residual value is also known as all of the following except

a. scrap value
b. trade-in value
c. salvage value
d. net book value
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
88. The formula for depreciable cost is

a. Initial Cost + Residual Value
b. Initial Cost – Residual Value
c. Initial Cost – Accumulated Depreciation
d. Depreciable Cost = Initial Cost
ANSWER: b
DIFFICULTY: Easy
BUSPROG: Analytic
89. Expected useful life is
a. calculated when the asset is sold
b. estimated at the time that the asset is placed in service
c. determined each year that the depreciation calculation is made
d. None of these choices
ANSWER: b
BUSPROG: Analytic
90. The calculation for annual depreciation using the straight-line depreciation method is
a. Initial Cost/Estimated Useful Life
b. Depreciable Cost/Estimated Useful Life
c. Depreciable Cost × Estimated Useful Life
d. Initial Cost × Estimated Useful Life
ANSWER: b
DIFFICULTY: Easy
BUSPROG: Analytic
91. The calculation for annual depreciation using the units-of-activity method is
a. (Initial Cost/Estimated Output) × Actual Yearly Output
b. (Depreciable Cost/Yearly Output) × Estimated Output
c. Depreciable Cost/Yearly Output
d. (Depreciable Cost/Estimated Output) × Actual Yearly Output
ANSWER: d
BUSPROG: Analytic
92. On June 1, Aaron Company purchased equipment at a cost of $120,000 that has a depreciable cost of $90,000 and an
estimated useful life of three years and 30,000 hours, which ends on December 31.
Using straight-line depreciation, calculate depreciation expense for the final (partial) year of service.
a. $17,500
b. $30,000
c. $12,500
d. $40,000
ANSWER: c
RATIONALE: Annual Depreciation = Depreciable Cost/Useful Life = $90,000/3 = $30,000
Depreciation Expense for Final (partial) Year of Service = ($30,000/12) × 5 = $12,500
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
93. On June 1, Michael Company purchased equipment at a cost of $120,000 that has a depreciable cost of $90,000 and an
estimated useful life of three years or 30,000 hours.
Using straight-line depreciation, calculate depreciation expense for the second year.
a. $17,500
b. $30,000
c. $12,500
d. $40,000
ANSWER: b
Depreciation Expense for the Second Year = $30,000
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
94. On June 1, Scotter Company purchased equipment at a cost of $120,000 that has a depreciable cost of $90,000 and an
estimated useful life of three years or 30,000 hours.
Using straight-line depreciation, calculate depreciation expense for the first year, which ends on December 31.
a. $17,500
b. $30,000
c. $12,500
d. $40,000
ANSWER: a
Depreciation Expense for Second Year = ($30,000/12) × 7 = $17,500
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
95. Computer equipment was acquired at the beginning of the year at a cost of $57,000 that has an estimated residual
value of $9,000 and an estimated useful life of five years. Determine the second-year depreciation using the straight-line
method.
a. $13,200
b. $19,200
c. $9,600
d. $9,000
ANSWER: c
$9,600
Depreciation Expense for the Second Year = $9,600
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
96. Which of the following is true?
a. If using the double-declining-balance method, the total amount of depreciation expense during the life of the
asset will be the highest.
b. If using the units-of-activity method, it is possible to depreciate more than the depreciable cost.
c. If using the straight-line method, the amount of depreciation expense during the first year is higher than that of
the double-declining-balance.
d. Regardless of the depreciation method, the amount of total depreciation expense during the life of the asset
will be the same.
ANSWER: d
BUSPROG: Analytic
97. An asset was purchased for $120,000 on January 1, Year 1 and originally estimated to have a useful life of 10 years
with a residual value of $10,000. At the beginning of the third year, it was determined that the remaining useful life of the
asset was only four years with a residual value of $2,000. Calculate the third-year depreciation expense using the revised
amounts and straight-line method.
a. $25,000
b. $11,000
c. $24,000
d. $24,500
ANSWER: c
RATIONALE: Depreciation for First 2 years = [($120,000 – $10,000) ÷ 10] × 2 = $22,000
Book Value at End of 4th Year = $120,000 – $22,000 = $98,000
Depreciation Expense for Third Year = ($98,000 – $2,000)/4 = $24,000
Bloom's: Applying
BUSPROG: Analytic
98. Machinery was purchased on January 1 for $51,000. The machinery has an estimated life of seven years and an
estimated salvage value of $9,000. Double-declining-balance depreciation for the second year would be (round
calculations to the nearest dollar):
a. $10,929
b. $6,000
c. $10,500
d. $10,408
ANSWER: d
RATIONALE: Double-Declining-Balance Rate = (1/7) × 2 = 28.57%
First-Year Depreciation = $51,000 × 28.57% = $14,571
Second-Year Depreciation = ($51,000 – $14,571) × 28.57% = $10,408
Bloom's: Applying
BUSPROG: Analytic
99. A fixed asset with a cost of $30,000 and accumulated depreciation of $28,500 is sold for $3,500. What is the amount
of the gain or loss on disposal of the fixed asset?
a. $2,000 loss
b. $1,500 loss
c. $3,500 gain
d. $2,000 gain
ANSWER: d
RATIONALE: Gain on Sale = Selling Price – Book Value of Asset = $3,500 – ($30,000 – $28,500) =
$2,000
Bloom's: Applying
BUSPROG: Analytic
100. When a company discards machinery that is fully depreciated, this transaction would be recorded as a
a. debit to Accumulated Depreciation and credit to Machinery
b. debit to Machinery and a credit to Accumulated Depreciation
c. debit to Cash and a credit to Accumulated Depreciation
d. debit to Depreciation Expense and a credit Accumulated Depreciation
ANSWER: a
BUSPROG: Analytic
101. When a company sells machinery at a price equal to its book value, this transaction would be recorded as a
a. debit to Cash and Accumulated Depreciation and a credit to Machinery
b. debit to Machinery and a credit to Cash and Accumulated Depreciation
c. debit to Cash and Machinery and a credit to Accumulated Depreciation
d. debit to Cash and Depreciation Expense and a credit to Accumulated Depreciation
ANSWER: a
BUSPROG: Analytic
102. On December 31, Strike Company has decided to discard one of its batting cages. The equipment had an initial cost
of $310,000 and has accumulated depreciation of $260,000. Depreciation has been recorded up to the end of the
year. Which of the following will be included in the entry to record the disposal?
a. Accumulated Depreciation, debit, $310,000
b. Loss on Disposal of Asset, debit, $260,000
c. Equipment, credit, $310,000
d. Gain on Disposal of Asset, credit, $50,000
ANSWER: c
Bloom's: Applying
BUSPROG: Analytic
103. On December 31, Strike Company sold one of its batting cages for $50,000. The equipment had an original cost of
$310,000 and has accumulated depreciation of $260,000. Depreciation has been recorded up to the end of the year. What
is the amount of the gain or loss on this transaction?
a. gain of $50,000
b. loss of $50,000
c. no gain or loss
d. cannot be determined
ANSWER: c
RATIONALE: Gain on Sale = Selling Price – Book Value of Asset = $50,000 – ($310,000 – $260,000)
= $0
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
104. On December 31, Strike Company sold one of its batting cages for $20,000. The equipment had an initial cost of
$310,000 and has accumulated depreciation of $260,000. Depreciation has been recorded up to the end of the year. What
is the amount of the gain or loss on this transaction?
a. gain of $20,000
b. gain of $30,000
c. loss of $20,000
d. loss of $30,000
ANSWER: d
RATIONALE: Loss on Sale = Selling Price – Book Value of Asset = $20,000 – ($310,000 – $260,000) =
$(30,000)
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
105. On December 31, Strike Company sold one of its batting cages for $55,000. The equipment had an initial cost of
$310,000 and has accumulated depreciation of $260,000. Depreciation has been taken up to the end of the year. What is
the amount of the gain or loss on this transaction?
a. loss of $55,000
b. loss of $5,000
c. gain of $5,000
d. gain of $55,000
ANSWER: c
RATIONALE: Gain on Sale = Selling Price – Book Value of Asset = $55,000 – ($310,000 – $260,000)
= $5,000
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
106. The accumulated depletion account is

a. an expense account
b. an intangible asset account
c. reported on the income statement as other expense
d. reported on the balance sheet as a deduction from the cost of the mineral deposit
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
107. The accumulated depletion of a natural resource is reported on the

a. balance sheet as depreciation from the cost of the resource
b. income statement as an increase in revenue
c. balance sheet as a deduction from the cost of the resource
d. income statement as a deduction from revenues
ANSWER: c
DIFFICULTY: Easy
BUSPROG: Analytic
108. The process of transferring the cost of metal ores and other minerals removed from the earth to an expense account is
called
a. depletion
b. deferral
c. amortization
d. depreciation
ANSWER: a
DIFFICULTY: Easy
BUSPROG: Analytic
109. Sands Company purchased mining rights for $500,000. It expects to harvest 1 million tons of ore over the next five
years. During the current year, Sands mined 350,000 tons of ore. The entry to record the depletion would include a
a. debit to Depletion Expense for $175,000
b. credit to Depletion Expense for $350,000
c. debit to Accumulated Depletion for $175,000
d. credit to Accumulated Depletion for $350,000
ANSWER: a
RATIONALE: Depletion Rate = Cost of Resource/Estimated Total Units of Resource =
$500,000/1,000,000 tons = $0.50
Depletion Expense = Depletion Rate × Quantity Extracted = $0.50 × 350,000 tons =
$175,000
The entry to record the depletion would include a debit to Depletion Expense for
$175,000.
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
110. The natural resources of some companies include

a. timber, metal ores, and minerals
b. timber, equipment, and patents
c. minerals, trademarks, and land
d. metal ores, copyrights, and supplies
ANSWER: a
DIFFICULTY: Easy
BUSPROG: Analytic
111. Weber Company purchased a mining site for $1,750,000 on July 1. The company expects to mine ore for the next 10
years and anticipates that a total of 400,000 tons will be recovered. The estimated residual value of the property is
$150,000. During the first year, the company extracted 6,500 tons of ore. The depletion expense is
a. $17,500
b. $16,000
c. $26,000
d. $15,000
ANSWER: c
RATIONALE: Depletion Rate = Cost of Resource/Estimated Total Units of Resource = ($1,750,000 –
$150,000)/400,000 = $4 Depletion Expense = Depletion Rate × Quantity Extracted = $4
× 6,500 tons = $26,000
Bloom's: Applying
BUSPROG: Analytic
112. Expenditures for research and development are generally recorded as

a. current operating expenses
b. assets and amortized over their estimated useful life
c. assets and amortized over 40 years
d. current assets
ANSWER: a
DIFFICULTY: Easy
BUSPROG: Analytic
113. The term applied to the amount of cost to transfer to expense resulting from a decline in the utility of intangible
assets is
a. amortization
b. depletion
c. depreciation
d. allocation
ANSWER: a
DIFFICULTY: Easy
BUSPROG: Analytic
114. Xtra Company purchased a business from Argus for $96,000 above the fair value of its net assets. Argus had
developed the goodwill over 12 years. How much would Xtra amortize the goodwill for its first year?
a. $7,000
b. $8,000
c. Goodwill is not amortized.
d. not enough information to calculate amortization
ANSWER: c
Bloom's: Applying
BUSPROG: Analytic
115. Which intangible assets are amortized over their useful life?
a. trademarks
b. goodwill
c. patents
d. All of these choices
ANSWER: c
BUSPROG: Analytic
116. The name, term, or symbol used to identify a business and its products is called
a. goodwill
b. a patent
c. a trademark
d. a copyright
ANSWER: c
DIFFICULTY: Easy
BUSPROG: Analytic
117. The process of transferring the cost of an asset to an expense account is called all of the following except
a. depletion
b. allocation
c. amortization
d. depreciation
ANSWER: b
DIFFICULTY: Easy
ACCT.WARD.18.10-04 - 10-04
ACCT.WARD.18.10-05 - 10-05
BUSPROG: Analytic
118. Fixed assets are ordinarily presented on the balance sheet

a. at current market values
b. at replacement costs
c. at cost less accumulated depreciation
d. in a separate section along with intangible assets
ANSWER: c
DIFFICULTY: Easy
BUSPROG: Analytic
119. The ratio measuring the number of dollars of sales earned per dollar of fixed assets is the
a. fixed asset turnover ratio
b. days' in assets ratio
c. current asset turnover ratio
d. intangible asset ratio
ANSWER: a
DIFFICULTY: Bloom's: Remembering
Easy
BUSPROG: Analytic
120. The higher the fixed asset turnover, the
a. less efficiently a company is using its fixed assets in generating sales
b. more efficiently a company is using its fixed assets in generating sales
c. more efficiently a company is using its current assets in generating sales
d. more efficiently a company is using its intangible assets in generating sales
ANSWER: b
DIFFICULTY: Bloom's: Understanding
Moderate
BUSPROG: Analytic
121. Which of the following statements is true?

a. A larger fixed asset turnover ratio is associated with firms that are more labor intensive and require smaller
fixed asset investments.
b. The fixed asset ratio cannot be compared across time for an individual company.
c. A smaller fixed asset turnover ratio is associated with firms that are more labor intensive and require smaller
fixed asset investments.
d. The fixed asset ratio is not useful for comparing different companies.
ANSWER: a
DIFFICULTY: Bloom's: Understanding
Easy
BUSPROG: Analytic
122. Newport Company has sales of $2,025,000 for the current year. The book value of its fixed assets at the beginning of
the year was $550,000 and at the end of the year was $800,000. The fixed asset turnover ratio for Newport is
a. 3.0
b. 3.6
c. 3.7
d. 2.5
ANSWER: a
RATIONALE: Fixed Asset Turnover Ratio = Sales/Average Book Value of Fixed Assets =
$2,025,000/[($550,000 + $800,000)/2)] = 3.0
Bloom's: Applying
BUSPROG: Analytic
123. A fixed asset with a cost of $52,000 and accumulated depreciation of $47,500 is traded for a similar asset priced at
$60,000 (fair market value) in a transaction with commercial substance. Assuming a trade-in allowance of $5,000, at
what cost will the new equipment be recorded in the books?
a. $54,000
b. $59,500
c. $60,000
d. $60,500
ANSWER: c
Bloom's: Applying
BUSPROG: Analytic
$50,000 (fair market value) in a transaction with commercial substance. Assuming a trade-in allowance of $4,000, at what
cost will the new equipment be recorded in the books?
a. $54,000
b. $45,000
c. $51,000
d. $50,000
ANSWER: d
Bloom's: Applying
BUSPROG: Analytic
$60,000. Assuming a trade-in allowance of $3,000, the recognized loss on the trade is
a. $3,000
b. $4,500
c. $500
d. $1,500
ANSWER: d
RATIONALE: Loss on Exchange = Trade-In Allowance – Book Value of Asset = $3,000 – ($41,000 –
$36,500) = $(1,500)
Bloom's: Applying
BUSPROG: Analytic
126. Bacon Company acquired new machinery with a price of $15,200 by trading in similar old machinery and paying
$12,700. The old machinery originally cost $9,000 and had accumulated depreciation of $5,000. In recording this
transaction, Bacon Company should record
a. the new machinery at $16,700
b. the new machinery at $12,700
c. a gain of $1,500
d. a loss of $1,500
ANSWER: d
RATIONALE: Loss on Exchange = Trade-In Allowance – Book Value of Asset = ($15,200 – $12,700) –
($9,000 – $5,000) = $(1,500)
Bloom's: Applying
BUSPROG: Analytic
127. When a company exchanges machinery and receives a trade-in allowance greater than the book value, this
transaction would be recorded with which of the following entries (assuming the exchange was considered to have
commercial substance)?
a. debit Machinery and Accumulated Depreciation; credit Machinery, Cash, and Gain on Exchange of Machinery
b. debit Machinery and Accumulated Depreciation; credit Machinery and Cash
c. debit Cash and Machinery; credit Accumulated Depreciation
d. debit Cash and Machinery; credit Accumulated Depreciation and Machinery
ANSWER: a
BUSPROG: Analytic
128. When a company exchanges machinery and receives a trade-in allowance less than the book value, this transaction
would be recorded with which of the following entries?
a. debit Machinery and Accumulated Depreciation; credit Machinery and Cash
b. debit Cash and Machinery; credit Accumulated Depreciation
c. debit Cash and Machinery; credit Accumulated Depreciation and Machinery
d. debit Machinery, Accumulated Depreciation, and Loss on Exchange of Machinery; credit Machinery and Cash
ANSWER: d
BUSPROG: Analytic
129. On December 31, Strike Company traded in one of its batting cages for another one that has a cost of
$500,000. Strike receives a trade-in allowance of $11,000. The old equipment had an initial cost of $215,000 and has
accumulated depreciation of $185,000. Depreciation has been recorded up to the end of the year. The difference will be
paid in cash. What is the amount of the gain or loss on this transaction?
a. loss of $11,000
b. gain of $11,000
c. loss of $19,000
d. No loss or gain will be recorded.
ANSWER: c
RATIONALE: Loss on Exchange = Trade-In Allowance – Book Value of Asset = $11,000 – ($215,000 –
$185,000) = $(19,000)
Bloom's: Applying
BUSPROG: Analytic
Matching
Classify each of the following costs associated with long-lived assets as one of the following:
a. Buildings
b. Machinery and equipment
c. Land
d. Land improvements
DIFFICULTY: Easy
BUSPROG: Analytic
130. Fees paid to architect to design new office building

ANSWER: a
131. Cost of insurance during the construction of new office building

ANSWER: a
132. Interest on money borrowed to finance construction of new office building

ANSWER: a
133. Sales taxes paid on new factory equipment

ANSWER: b
134. Freight costs paid on purchase of new equipment

ANSWER: b
135. Repairs made to used office equipment

ANSWER: b
136. Costs to survey a new piece of land for a new business location
ANSWER: c
137. Costs of government permits required to develop land for a new business location
ANSWER: c
138. Purchase price of land purchased for new business site

ANSWER: c
139. Landscaping at new business location

ANSWER: d
Classify each of the following costs associated with long-lived assets as one of the following:
a. Land improvements
b. Buildings
c. Land
d. Machinery and equipment
DIFFICULTY: Easy
BUSPROG: Analytic
140. Fences around land at new business location

ANSWER: a
141. Paved parking areas at new business location

ANSWER: a
142. Outdoor lighting at new business location

ANSWER: a
143. Walkways to surround new business location

ANSWER: a
144. Modifying a building purchased for new business location

ANSWER: b
145. Supplies (materials) used to test new equipment

ANSWER: d
146. Cost of installing new equipment

ANSWER: d
147. Cost of grading and leveling land to be used for a new business site
ANSWER: c
148. Cost of removing an existing building to ready land for use as a new business site
ANSWER: c
149. Cost assessed by city for paving a public street that borders land on which a new business location will be
constructed
ANSWER: c
Classify each of the following as:
a. Ordinary maintenance and repairs
b. Asset improvements
c. Extraordinary repairs
BUSPROG: Analytic
150. Overhauling an engine in a large truck

ANSWER: c
151. Exterior and interior painting

ANSWER: a
152. Paving a new parking lot

ANSWER: b
153. New landscaping

ANSWER: b
154. Installing a new air conditioning system in an old building

ANSWER: b
155. Resurfacing a pool in an apartment building

ANSWER: c
156. Adding refrigerant to an air conditioning system

ANSWER: a
157. Fixing damage due to a car accident

ANSWER: a
Match the intangible assets described with their proper classification (a–d).
a. Patent
b. Copyright
c. Trademark
d. Goodwill
BUSPROG: Analytic
158. Rights to sell a book and make a profit

ANSWER: b
159. McDonald’s golden arches

ANSWER: c
160. A new kitchen gadget that can be produced by only one company
ANSWER: a
161. Location of a company

ANSWER: d
162. iTunes music

ANSWER: b
163. Reputation of a company

ANSWER: d
164. Nike swoosh

ANSWER: c
165. Mickey Mouse

ANSWER: c
Match each account name to the financial statement section (a–i) in which it would appear.
a. Current assets
b. Fixed assets
c. Intangible assets
d. Current liability
e. Long-term liability
f. Owner's equity
g. Revenues
h. Operating expenses
i. Other revenue and expense
ACCT.WARD.18.10-AP - 10-AP
BUSPROG: Analytic
166. Accumulated Depreciation—Buildings

ANSWER: b
167. Depreciation Expense

ANSWER: h
168. Amortization Expense

ANSWER: h
169. Land Improvements

ANSWER: b
170. Gain on Sale of Equipment

ANSWER: i
171. Loss on Disposal of Asset

ANSWER: i
172. Loss from Impaired Goodwill

ANSWER: i
173. Research and Development Costs

ANSWER: h
Subjective Short Answer
174. What is the cost of the land, based on the following data?
Land purchase price $178,000
Broker's commission 15,000
Payment for demolition
and removal of existing building 5,000
Cash received from sale of materials
salvaged from demolished building 2,000
ANSWER: $196,000 Cost of Land = Land Purchase Price + Broker's Commission + Payment for the
Demolition and Removal of Existing Building – Cash Received from Sale of Materials
Salvaged from Demolished Building = $178,000 + $15,000 + $5,000 – $2,000 =
$196,000
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
175. Falcon Company acquired an adjacent lot to construct a new warehouse, paying $40,000 and giving a short-term note
for $410,000. Legal fees paid were $13,275, delinquent taxes assessed were $14,500, and fees paid to remove an old
building from the land were $15,800. Materials salvaged from the demolition of the building were sold for $6,800. A
contractor was paid $890,000 to construct the new warehouse. Determine the cost of the land to be reported on the
balance sheet and show your work.
ANSWER: Initial cost of land ($40,000 + $410,000) $450,000
Plus: Legal fees $13,275
Delinquent taxes 14,500
Demolition of building 15,800 43,575
$493,575
Less: Salvaged materials 6,800
Cost of land $486,775
Bloom's: Applying
BUSPROG: Analytic
176. Identify each of the following expenditures as chargeable to (a) Land, (b) Land Improvements, (c) Buildings, (d)
Machinery and Equipment, or (e) other account.
(1) Cost of paving parking area for employees and customers
(2) Insurance during construction of building
(3) Interest incurred on loan during construction of building
(4) Fee paid for installation of equipment
(5) Special foundation for new equipment acquired
(6) Insurance on new equipment while in transit
(7) Freight charges on new equipment
(8) Cost of repairing vandalism damage to equipment during installation
(9) Sales tax on new equipment
(10) Cost incurred in repairing damage resulting from installation of new equipment
(11) Cost of land fill for building site
(12) Cost of lubricating oil purchased for periodic oil changes for equipment
(13) Parking lot lighting
(14) Installing a fence around the parking lot
(15) Repainting the trim on a building
(16) Special assessment paid to city for extension of water main to property
(17) Cost of razing and removing the old building on property acquired for a building site
(18) Delinquent real estate taxes assumed by purchaser on property acquired for a building site
(19) Attorney's fee for title search
(20) Architect's fee for building plans and supervision of construction
ANSWER: (a) 11, 16, 17, 18, 19
(b) 1, 13, 14
(c) 2, 3, 20
(d) 4, 5, 6, 7, 9
(e) 8, 10, 12, 15
BUSPROG: Analytic
177. Eagle Country Club has acquired a lot to construct a clubhouse. Eagle had the following costs related to the
construction:
Architects’ fees $ 45,000
Construction labor 80,000
Engineers’ fees 15,000
Fences around building 9,000
Grading and leveling 10,000
Insurance costs incurred during construction 7,000
Interest on money borrowed for construction 5,000
Land 73,000
Building materials 237,000
Sales taxes 6,000
Trees and shrubs 6,000
Determine the cost of the club house to be reported on the balance sheet.
ANSWER: Architects’ fees $ 45,000

Construction labor 80,000
Engineers’ fees 15,000
Insurance costs incurred during construction 7,000
Interest on money borrowed for construction 5,000
Building materials 237,000
Sales taxes 6,000
Cost of club house $395,000
Bloom's: Applying
BUSPROG: Analytic
178. A number of major structural repairs completed at the beginning of the current fiscal year at a cost of $1,000,000 are
expected to extend the life of a building 10 years beyond the original estimate. The original cost of the building was
$6,552,000, and it has been depreciated by the straight-line method for 25 years. Estimated residual value is negligible
and has been ignored. The related accumulated depreciation account after the depreciation adjustment at the end of the
preceding fiscal year is $4,550,000.
(a) What has the amount of annual depreciation been in past years?
(b) What was the original life estimate of the building?
(c) To what account should the $1,000,000 be debited?
(d) What is the book value of the building after the extraordinary repairs have been made?
(e) What is the expected remaining life of the building after the extraordinary repairs have been
made?
(f) What is the amount of straight-line depreciation for the current year, assuming that the
repairs were completed at the very beginning of the current year? Round to the nearest
dollar.
ANSWER: (a) $182,000 ($4,550,000 ÷ 25)
(b) 36 years ($6,552,000 ÷ $182,000)
(c) Accumulated Depreciation—Building
(d) $3,002,000 ($6,552,000 + $1,000,000 – $4,550,000)
(e) 21 years (36 – 25 + 10)
(f) $142,952 ($3,002,000 ÷ 21)
Bloom's: Applying
BUSPROG: Analytic
179. Journalize each of the following transactions:

(a) A wing costing $2,345,000 was added to the building. A new mortgage was issued for the
cost.
(b) Equipment was upgraded to increase its capacity to produce widgets. The upgrade cost of
$11,500 was paid in cash.
(c) A major overhaul costing $8,000 on a machine increased the useful life by four years. The
payment was made in cash.
ANSWER: (a) Building 2,345,000

Mortgage Payable 2,345,000
(b) Equipment 11,500

Cash 11,500
(c) Accumulated Depreciation—Machinery 8,000

Cash 8,000
Bloom's: Applying
BUSPROG: Analytic
180. On April 15, Compton Co. paid $2,800 to upgrade a delivery truck and $125 for an oil change. Journalize the entries
for the upgrade to the delivery truck and oil change expenditures.
ANSWER: Apr. 15 Delivery Truck 2,800
Cash 2,800
15 Repairs and Maintenance Expense 125

Cash 125
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
181. XYZ Co. incurred the following costs related to the office building used in operating its sports supply company:
(a) Replaced a broken window.
(b) Replaced the roof that had been on the building 23 years.
(c) Serviced all the air conditioners before summer started.
(d) Replaced the air conditioners in the customer service areas.
(e) Added a warehouse to the back of the building.
(f) Repainted the interior walls.
(g) Installed window shutters on all windows.
Classify each of the costs as a capital expenditure or a revenue expenditure.
ANSWER: (a) Revenue expenditure
(b) Capital expenditure
(c) Revenue expenditure
(d) Capital expenditure
(e) Capital expenditure
(f) Revenue expenditure
(g) Capital expenditure
Bloom's: Applying
BUSPROG: Analytic
182. Comment on the validity of the following statements. "As an asset loses its ability to provide services, cash needs to
be set aside to replace it. Depreciation accomplishes this goal."
ANSWER: Depreciation is the periodic transfer of the cost of an asset to expense. Depreciation is a
noncash expense. Depreciation does not accumulate cash for replacements.
DIFFICULTY: Easy
BUSPROG: Analytic
value of $3,800 and an estimated useful life of eight years. Determine the (a) depreciable cost, (b) straight-line rate, and
(c) annual straight-line depreciation.
ANSWER: (a) $61,200 (Initial Cost – Estimated Residual Value = $65,000 – $3,800)
(b) 12.5% (1/8)
(c) $7,650 ($61,200 × 0.125)
Bloom's: Applying
BUSPROG: Analytic
184. The double-declining-balance rate for calculating depreciation expense is determined by doubling the straight-line
rate. Assuming that an asset has a useful life of 25 years, determine the rate to be used under the double-declining-balance
method.
ANSWER: 4% × 2 = 8%
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
185. Copy equipment was acquired at the beginning of the year at a cost of $72,000 that has an estimated residual value of
$9,000 and an estimated useful life of five years. It is estimated that the machine will output an estimated 1,000,000
copies. This year, 315,000 copies were made. Determine the (a) depreciable cost, (b) depreciation rate, and (c) units-of-
activity depreciation for the year.
$0.063 per copy (Depreciable Cost/Total Units of Output = $63,000/1,000,000
(b)
copies)
(c) $19,845 (315,000 copies × $0.063)
Bloom's: Applying
BUSPROG: Analytic
186. A machine costing $57,000 with a six-year life and $54,000 depreciable cost was purchased January 1. Compute the
yearly depreciation expense using straight-line depreciation.
ANSWER: $54,000 ÷ 6 years = $9,000 per year
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
187. A machine costing $185,000 with a five-year life and $20,000 residual value was purchased January 2. Compute
depreciation for each of the five years, using the double-declining-balance method.
ANSWER: (1) Year 1 $185,000 × 0.40 = $74,000
(2) Year 2 $111,000 × 0.40 = $44,400
(3) Year 3 $66,600 × 0.40 = $26,640
(4) Year 4 $39,960 × 0.40 = $15,984
(5) Year 5 $23,976 – $20,000 = $3,976
Bloom's: Applying
BUSPROG: Analytic
value of $3,000 and an estimated useful life of five years. Determine the (a) depreciable cost (b) double-declining-balance
rate, and (c) double-declining-balance depreciation for the first year.
(b) 40% (1/5) × 2
(c) $25,200 ($63,000 × 40%)
Bloom's: Applying
BUSPROG: Analytic
189. Convert each of the following estimates of useful life to a straight-line depreciation rate, stated as a percentage.
(a) 2 years
(b) 8 years
(c) 10 years
(d) 20 years
(e) 25 years
(f) 40 years
(g) 50 years
ANSWER: (a) 50% (1/2)
(b) 12.5% (1/8)
(c) 10% (1/10)
(d) 5% (1/20)
(e) 4% (1/25)
(f) 2.5% (1/40)
(g) 2% (1/50)
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
190. Prior to adjustment at the end of the year, the balance in Trucks is $300,900 and the balance in Accumulated
Depreciation—Trucks is $88,200. Details of the subsidiary ledger are as follows:
Accumulated
Truck Estimated Estimated Useful Depreciation at Miles Operated
No. Cost Residual Value Life Beginning of Year During Year
1 $100,000 $13,000 300,000 — 30,000
2 72,900 9,900 300,000 $60,000 25,000
3 38,000 3,000 200,000 8,050 45,000
4 90,000 13,000 200,000 20,150 40,000
Required
(a) Based on the units-of-activity method, determine the depreciation rates per mile and the
amount to be credited to the Accumulated depreciation section of each of the subsidiary
accounts for the miles operated during the current year.
(b) Journalize the entry to record depreciation for the year.
ANSWER: (a)
Truck No. Rate per Mile Miles Operated Depreciation
1 29.0 cents 30,000 $ 8,700

2 21.0 25,000 3,000*
3 17.5 45,000 7,875
4 38.5 40,000 15,400
Total $34,975
*Mileage depreciation of $5,250 (21 cents × 25,000) is limited to $3,000,

which reduces the book value of the truck to $9,900, its residual value.
(b) Depreciation Expense—Trucks 34,975

Accumulated Depreciation—Trucks 34,975
Bloom's: Applying
BUSPROG: Analytic
191. An asset was purchased for $58,000 and originally estimated to have a useful life of 10 years with a residual value of
$3,000. After two years of straight-line depreciation, it was determined that the remaining useful life of the asset was only
two years with a residual value of $2,000.
(a) Determine the amount of the annual depreciation for the first two years.
(b) Determine the book value at the end of Year 2.
(c) Determine the depreciation expense for each of the remaining years after revision.
ANSWER: (a) $5,500 (Cost – Residual Value)/Useful Life = ($58,000 – $3,000)/10
(b) $47,000 [Initial Cost – Total Depreciation for Year 1 and 2 = $58,000 – ($5,500 × 2)]
(c) $22,500 [( Book Value at End of Year 2 – Revised Residual Value)/Revised Useful
Life = ($47,000 – $2,000)/2]
Bloom's: Applying
BUSPROG: Analytic
192. For each of the following fixed assets, determine the depreciation expense for Year 3:
Disposal date is N/A if asset is still in use.
Method: SL = straight-line; DDB = double-declining-balance
Assume the estimated life is five years for each asset.
Residual Depr.
Item Cost Value Purchase Date Disposal Date Depr. Method Expense Year 3
A $40,000 $ 4,000 July 1, Year N/A SL
3
B 50,000 5,000 Jan. 1, Year 1 Aug. 31,Year SL
3
C 60,000 2,000 Oct. 1, Year N/A DDB
3
D 80,000 10,000 Jan. 1, Year 2 Apr. 1, Year 3 DDB
ANSWER:
Depr.
Residual Depr. Expense
Item Cost Value Purchase Date Disposal Date Method Year 3
A $40,000 $ 4,000 July 1, Year 3 N/A SL $3,600
B 50,000 5,000 Jan. 1, Year 1 Aug. 31, Year 3 SL 6,000
C 60,000 2,000 Oct. 1, Year 3 N/A DDB 6,000
D 80,000 10,000 Jan. 1, Year 2 Apr. 1, Year 3 DDB 4,800
Bloom's: Applying
BUSPROG: Analytic
193. Equipment purchased at the beginning of the fiscal year for $360,000 is expected to have a useful life of five years,
or 14,000 operating hours, and a residual value of $10,000. Compute the depreciation for the first and second years of use
by each of the following methods:
(a) Straight-line
(b) Units-of-activity (1,200 hours first year; 2,250 hours second year)
(c) Double-declining-balance
ANSWER: 1st Year

(a) $70,000 [($360,000 – $10,000) ÷ 5]
(b) $30,000 [($360,000 – $10,000) ÷ 14,000 hours × 1,200]
(c) $144,000 ($360,000 × 0.40)
2nd Year
(a) $70,000 [($360,000 – $10,000) ÷ 5]
(b) $56,250 [($360,000 – $10,000) ÷ 14,000 hours × 2,250]
(c) $86,400 [($360,000 – $144,000) × 0.40]
Bloom's: Applying
BUSPROG: Analytic
194. Machinery is purchased on July 1 of the current fiscal year for $240,000. It is expected to have a useful life of four
years, or 25,000 operating hours, and a residual value of $15,000. Compute the depreciation for the last six months of the
current fiscal year ending December 31 by each of the following methods:
(a) Straight-line
(b) Double-declining-balance
(c) Units-of-activity (used for 1,600 hours during the current year)
ANSWER: (a) $28,125 [($240,000 – $15,000) ÷ 4 × 6/12]

(b) $60,000 ($240,000 × 0.50 × 6/12)
(c) $14,400 [($240,000 – $15,000) ÷ 25,000 hours × 1,600 hours]
Bloom's: Applying
BUSPROG: Analytic
195. Determine the depreciation for the year of acquisition and for the following year of a fixed asset acquired on October
1 for $500,000 with an estimated life of five years, and residual value of $50,000, using (a) the double-declining-balance
method and (b) the straight-line method. Assume a fiscal year ending December 31.
ANSWER: (a) Year of acquisition: $50,000 ($500,000 × 0.40 × 3/12)
Following year: $180,000 ($500,000 – $50,000 × 0.40)
(b) Year of acquisition: $22,500 [($500,000 – $50,000/5) × 3/12]
Following year: $90,000 [($500,000 – $50,000)/5]
Bloom's: Applying
BUSPROG: Analytic
196. Equipment costing $80,000 with a useful life of 10 years and a residual value of $8,000 has been depreciated for six
years by the straight-line method. Assume a fiscal year ending December 31.
(a) What is the book value at the end of the sixth year of use?
(b) If early in the seventh year it is estimated that the remaining useful life is five years
(instead of four) and the residual value is $6,000, what is the amount of depreciation
for the seventh year?
ANSWER: ($80,000 – $8,000) = $72,000

(a)
$72,000/10 = $7,200
$7,200 × 6 = $43,200
$80,000 – $43,200 = $36,800
(b) ($36,800 – $6,000)/5 = $6,160
Bloom's: Applying
BUSPROG: Analytic
197. Golden Sales has bought $135,000 in fixed assets on January 1 associated with sales equipment. The residual value
of these assets is estimated at $10,000 at the end of their four-year service life. Golden Sales managers want to evaluate
the options of depreciation.
(a) Compute the annual straight-line depreciation and provide the sample depreciation journal entry to be posted
at the end of each of the years.
(b) Write the journal entries for each year of the service life for these assets using the double-declining-balance
method.
ANSWER: (a)
Acquisition cost $135,000
Less residual value 10,000
Depreciable value $125,000
Divided by service life 4 years
Annual depreciation $ 31,250
Dec. 31 Depreciation Expense—Sales Equipment 31,250

Accumulated Depreciation—Sales
31,250
Equipment
(b)$135,000 × 50% = $67,500
($135,000 – $67,500) × 50% = $33,750
($135,000 – $67,500 – $33,750) × 50% = $16,875
$135,000 – $67,500 – $33,750 – $16,875 – $10,000 = $6,875*
*Depreciation cannot bring book value below $10,000 residual.
Year 1
Equipment 67,500
Year 2
Equipment 33,750
Year 3
Equipment 16,875
Year 4
Equipment 6,875
Bloom's: Applying
BUSPROG: Analytic
198. On July 1, Harding Construction purchases a bulldozer for $228,000. The equipment has an eight-year life with a
residual value of $16,000. Harding uses straight-line depreciation.
(a) Calculate the depreciation expense and provide the journal entry for the first year ending December 31.
(b) Calculate the third year’s depreciation expense and provide the journal entry for the third year ending
December 31.
(c) Calculate the last year’s depreciation expense and provide the journal entry for the last year.
ANSWER: Annual depreciation is:
Depreciable cost $212,000
Divided by service life in years 8
Annual depreciation $ 26,500
(a) First-year depreciation is $26,500 × 6/12 = $13,250 (July through December)

Dec. 31 Depreciation Expense 13,250
(b) Journal entry for the third year (It is also the same for all years other than the
first and last year.)
Dec. 31 Depreciation Expense 26,500
(c) Last year depreciation is $26,500 × 6/12 = $13,250 (January through June)
Dec 31 Depreciation Expense 13,250
Bloom's: Applying
BUSPROG: Analytic
199. On July 1, Hartford Construction purchases a bulldozer for $228,000. The equipment has a nine-year life with a
residual value of $16,000. Hartford uses the units-of-activity method of depreciation, and the bulldozer is expected to
yield 26,500 operating hours.
(a) Calculate the depreciation expense per hour of operation.
(b) The bulldozer is operated 1,250 hours in the first year, 2,755 hours in the second year, and 1,225 hours in the
third year of operations. Journalize the depreciation expense for each year.
ANSWER: (a) Hourly depreciation is:

Service life in hours ÷ 26,500
Hourly depreciation $ 8
(b) First year: 1,250 hours × $8 per hour = $10,000

Year 1 Depreciation Expense 10,000
Accumulated
Depreciation 10,000
Second year: 2,755 hours × $8 per hour = $22,040

Accumulated
Depreciation 22,040
Third year: 1,225 hours × $8 per hour = $9,800

Accumulated
Depreciation 9,800
Moderate
Bloom's: Applying
BUSPROG: Analytic
200. Equipment was purchased on January 5, Year 1, at a cost of $90,000. The equipment had an estimated useful life of
eight years and an estimated residual value of $8,000.
After using the equipment for three years, the useful life was revised to a total of 10 years and the residual value was
reduced to $2,004.
Determine the straight-line depreciation expense for Year 4 and the following years.
ANSWER: Book value at beginning of Year 4:
Cost $90,000
Residual 8,000
Depreciation expense for first 3 years: $82,000/8 = $10,250

$10,250 × 3 = $30,750
Book value Jan. 1, Year 4 = $59,250
Revised depreciation expense calculation:
Book value at beginning of Year 4 $59,250
Less revised residual value 2,004
Remaining depreciable amount $57,246
Divided by remaining life 7
Depreciation expense for Year 4 $ 8,178
Bloom's: Applying
BUSPROG: Analytic
201. A copy machine acquired on May 1 with a cost of $2,545 has an estimated useful life of three years. Assuming that
it will have a residual value of $445, determine the depreciation for the first and second year by the straight-line method.
Round your answers to the nearest whole dollar.
ANSWER: Straight-Line Depreciation = (Cost – Estimated Residual Value) ÷ Estimated Life
Straight-Line Depreciation = ($2,545 – $445) ÷ 3
Straight-Line Depreciation = $700 per year
First Year = $467 ($700 × 8/12)
Second Year = $700
Bloom's: Applying
BUSPROG: Analytic
202. A copy machine acquired with a cost of $1,410 has an estimated useful life of four years. It is also expected to have
a useful operating life of 13,350 copies. Assuming that it will have a residual value of $75, determine the depreciation for
the first year by the following methods:
(a) Straight-line
(b) Double-declining-balance
(c) Units-of-activity method (4,500 copies were made the first year)
ANSWER: (a) Straight-Line Depreciation = (Cost – Estimated Residual Value)/Estimated Life

Straight-Line Depreciation = ($1,410 – $75)/4
Straight-Line Depreciation = $333.75 per year
(b) Double-Declining-Balance = $705, determined as follows:
Book Value at Depreciation
Year Cost Beginning of Year Rate for Year
1 $1,410 $1,410 50%* $705
*Rate = (100%/Life) × 2
Rate = 1/4 × 2
Rate = 0.50
(c) Units-of-Activity = (Cost – Estimated Residual Value)/Estimated Copies
Units-of-Activity = ($1,410 – $75)/13,350
Units-of-Activity = $0.10 per copy
First-Year Depreciation = $450 ($0.10 × 4,500)
Bloom's: Applying
BUSPROG: Analytic
203. On July 1, Andrew Company purchased equipment at a cost of $150,000 that has a depreciable cost of $120,000 and
an estimated useful life of three years or 60,000 hours.
Using straight-line depreciation, prepare the journal entry to record depreciation expense for (a) the first year, (b) the
second year, and (c) the last year.
ANSWER: $120,000 ÷ 3 years = $40,000 per full year
$40,000 × 6/12 = $20,000 for first and final (partial) years
(a) Depreciation Expense 20,000
(b) Depreciation Expense 40,000
(c) Depreciation Expense 20,000
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
204. A copy machine acquired on July 1 with a cost of $1,450 has an estimated useful life of four years. Assuming that it
will have a residual value of $250, determine the depreciation for the first year by the double-declining-balance method.
ANSWER: First-Year Depreciation = $362.50 ($725 × 6/12)
Book Value at Depreciation
Year Cost Beginning of Year Rate for Year
1 $1,450 $1,450 50%* $725.00
*Rate = (100%/Life) × 2
Rate = 1/4 × 2
Rate = 0.50
Bloom's: Applying
BUSPROG: Analytic
205. Champion Company purchased and installed carpet in its new general offices on March 31 for a total cost of
$18,000. The carpet is estimated to have a 15-year useful life and no residual value.
(a) Prepare the journal entries necessary for recording the purchase of the new carpet.
(b) Record the December 31 adjusting entry for the partial-year depreciation expense for the
carpet assuming that Champion Company uses the straight-line method.
ANSWER: (a) Mar. 31 Carpet 18,000
Cash 18,000
(b) Dec. 31 Depreciation Expense 900

Carpet depreciation
[($18,000/15 years) × 9/12].
Bloom's: Applying
ACCT.WARD.18.10-02 - 10-02
BUSPROG: Analytic
206. Computer equipment (office equipment) purchased 6½ years ago for $170,000, with an estimated life of eight years
and a residual value of $10,000, is now sold for $60,000 cash. (Appropriate entries for depreciation had been made for the
first six years of use.) Journalize the following entries:
(a) Record the depreciation for the one-half year prior to the sale, using the straight-line method.
(b) Record the sale of the equipment.
(c) Assuming that the equipment had been sold for $25,000 cash, prepare the entry to record the sale.
ANSWER: (a) Depreciation Expense—Office Equipment 10,000
Accumulated Depreciation—Office Equipment 10,000
[($170,000 – $10,000)/8]/2 = $10,000
(b) Cash 60,000

Office Equipment 170,000
Gain on Sale of Equipment 20,000
Accumulated Depreciation at Time of Sale =
[($170,000 – $10,000)/8] × 6.5 = $130,000
Book Value at Time of Sale =
$170,000 – $130,000 = $40,000
Gain on Sale = Selling Price – Book Value of Asset
at Time of Sale = $60,000 – $40,000 = $20,000
(c) Cash 25,000
Loss on Sale of Equipment 15,000
Office Equipment 170,000
Bloom's: Applying
BUSPROG: Analytic
207. Equipment was acquired at the beginning of the year at a cost of $75,000. The equipment was depreciated using the
straight-line method based on an estimated useful life of six years and an estimated residual value of $7,500.
(a) What was the depreciation expense for the first year?
(b) Assuming the equipment was sold at the end of the second year for $59,000, determine
the gain or loss on sale of the equipment.
(c) Journalize the entry to record the sale.
ANSWER: (a) $11,250 [(Cost – Residual Value)/Useful Life = ($75,000 – $7,500)/6]
(b) $6,500 gain
[Accumulated Depreciation at End of Second Year = $11,250 × 2 = $22,500
Book Value at End of Second Year = $75,000 – $22,500 = $52,500
Gain on Sale = Selling Price – Book Value of Asset at End of Second Year = $59,000 –
$52,500 = $6,500]
(c)
Cash 59,000
Equipment 75,000
Gain on Sale Equipment 6,500
Bloom's: Applying
BUSPROG: Analytic
208. Equipment acquired on January 2, Year 1, at a cost of $525,000 has an estimated useful life of eight years and an
estimated residual value of $45,000.
Required
(a) What is the annual amount of depreciation for the first three years, assuming the
straight-line method of depreciation is used?
(b) What is the book value of the equipment on January 1, Year 4?
(c) Assuming that the equipment is sold on January 2, Year 4, for $326,000, journalize the
entry to record the sale.
(d) Assuming that the equipment is sold on January 2, Year 4, for $394,000, journalize the
entry to record the sale.
ANSWER: (a) Year 1 depreciation expense: $60,000 [($525,000 – $45,000)/8]
Year 2 depreciation expense: $60,000
Year 3 depreciation expense: $60,000
(b) $345,000 [$525,000 – ($60,000 × 3)]

(c) Cash 326,000
Accumulated Depreciation—Equipment 180,000
Equipment 525,000
(d) Cash 394,000

Equipment 525,000
Bloom's: Applying
BUSPROG: Analytic
209. Williams Company acquired machinery on July 1, Year 1, at a cost of $130,000. The estimated useful life of the
machinery was 10 years, and the estimated residual value was $10,000. Williams uses the double-declining-balance
method of depreciation. On October 1, Year 4, Williams sold the equipment for $75,000.
(a) Record the journal entry for the depreciation on this machinery for Year 4.
(b) Record the journal entry for the sale of the machinery.
ANSWER: (a) $13,000 ($130,000 × 0.20 × 6/12)
Depreciation Expense 13,000
Accumulated Depreciation—Machinery 13,000
Cash (b) 75,000
Accumulated Depreciation—Machinery 66,352
Machinery 130,000
Gain on Sale of Machinery 11,352
Bloom's: Applying
BUSPROG: Analytic
210. Solare Company acquired mineral rights for $60,000,000. The diamond deposit is estimated at 6,000,000
tons. During the current year, 2,300,000 tons were mined and sold.
(a) Determine the depletion rate.
(b) Determine the amount of depletion expense for the current year.
(c) Journalize the adjusting entry to recognize the depletion expense.
ANSWER: (a) $10 per ton ($60,000,000/6,000,000 tons)
(b) $23,000,000 ($10 × 2,300,000 tons)
(c) Dec. 31 Depletion Expense 23,000,000
Accumulated Depletion 23,000,000
Depletion of mineral deposit.
Bloom's: Applying
BUSPROG: Analytic
211. Carter Co. acquired drilling rights for $18,550,000. The oil deposit is estimated at 74,200,000 gallons. During the
current year, 6,000,000 gallons were drilled. Journalize the adjusting entry at December 31 to recognize the depletion
expense.
Journal
Post.
Date Description Debit Credit
Ref.
ANSWER:
Journal
Post.
Date Description Ref. Debit Credit
Dec. 31 Depletion Expense 1,500,000*
*Depletion Rate = Cost/Estimated Size

Depletion Rate = $18,550,000/74,200,000
Depletion Rate = $0.25 per gallon
Depletion Expense = Depletion Rate × Quantity Extracted

Depletion Expense = $0.25 × 6,000,000 gallons
Depletion Expense = $1,500,000
Bloom's: Applying
BUSPROG: Analytic
212. Chasteen Company acquired mineral rights for $9,100,000. The mineral deposit is estimated at 65,000,000
tons. During the current year, 18,375,000 tons were mined and sold.
Required
(a) Determine the amount of depletion expense for the current year.
(b) Journalize the adjusting entry to recognize the depletion expense.
ANSWER: (a) $9,100,000/65,000,000 tons = $0.14 depletion per ton
18,375,000 × $0.14 = $2,572,500 depletion expense
(b) Depletion Expense 2,572,500

Depletion of mineral deposit.
Bloom's: Applying
BUSPROG: Analytic
213. On December 31, Bowman Company estimated that goodwill of $80,000 was impaired. On June 1, a patent with an
estimated useful economic life of 10 years was acquired for $252,000.
Required
(a) Journalize the adjusting entry on December 31 for the impaired goodwill.
(b) Journalize the adjusting entry on December 31 for the amortization of the patent rights.
ANSWER: (a) Dec. 31 Loss from Impaired Goodwill 80,000
Goodwill 80,000
(b) Dec.31 Amortization Expense—Patents 14,700

Patents 14,700
Amortized Patent Rights = [($252,000/10) × 7/12] = $14,700
Bloom's: Applying
BUSPROG: Analytic
214. On December 31, it was estimated that goodwill of $65,000 was impaired. On July 1, a patent with an estimated
useful economic life of 10 years was acquired for $60,000.
(a) Journalize the adjusting entry on December 31 for the impaired goodwill.
(b) Journalize the adjusting entry on December 31 for the amortization of the patent rights.
ANSWER: (a)
Loss from Impaired Goodwill 65,000
Goodwill 65,000
(b)
Amortization Expense—Patents 3,000
Patents 3,000
Annual Patent Amortization = Acquisition Cost/Useful Life = $60,000/10 = $6,000
Amortization expense from July 1 to December 31 = $6,000/2 = $3,000
Bloom's: Applying
BUSPROG: Analytic
215. On July 1, Sterns Co. acquired patent rights for $36,000. The patent has a useful life of six years and a legal life of
15 years. Journalize the adjusting entry on December 31 to recognize the amortization.
Journal
Post.
ANSWER:
Journal
Post.
Dec. 31 Amortization Expense 3,000
Patents 3,000
Annual Patent Amortization = Acquisition Cost/Useful Life = $36,000/6 = $6,000
Amortization expense from July 1 to December 31 = $6,000/2 = $3,000
Bloom's: Applying
BUSPROG: Analytic
216. Identify the following as a fixed asset (FA), or intangible asset (IA), natural resource (NR), or none of these (N).
(a) Computer
(b) Patent
(c) Oil reserve
(d) Goodwill
(e) U.S. Treasury note
(f) Land used for employee parking
(g) Gold mine
ANSWER: FA (a) (f)

IA (b) (d)
NR (c) (g)
N (e)
DIFFICULTY: Easy
ACCT.WARD.18.10-04 - 10-04
ACCT.WARD.18.10-05 - 10-05
BUSPROG: Analytic
217. The following information was taken from a recent annual report of Harrison Company (in millions):
Current Year Preceding Year
Land and buildings $726 $361
Machinery, equipment, and internal-use software 595 470
Office furniture and equipment 94 81
Other fixed assets related to leases 760 569
Accumulated depreciation and amortization 894 644
Required
(a) Compute the book value of the fixed assets for the current year and the preceding year
and explain the differences, if any.
(b) Would you normally expect the book value of fixed assets to increase or decrease during
the year?
ANSWER: (a) Property, plant, and equipment (in millions):
CurrentPreceding
Year Year
Land and buildings $ 726 $ 361

Machinery, equipment, and internal-use software 595 470
Office furniture and equipment 94 81
Other fixed assets related to leases 760 569
$2,175 $1,481
Less accumulated depreciation 894 644
Book value $1,281 $ 837
A comparison of the book values of the current and preceding years

indicates that they increased. A comparison of the total cost and
accumulated depreciation reveals that Harrison purchased $694 million
($2,175 – $1,481) of additional fixed assets, which was offset by the
additional depreciation expense of $250 million ($894 – $644) taken
during the current year.
(b) The book value of fixed assets should normally increase during the year.
Although additional depreciation expense will reduce the book value,
most companies invest in new assets in an amount that is at least equal to
the depreciation expense. However, during periods of economic
downturn, companies purchase fewer fixed assets, and the book value of
their fixed assets may decline.
Bloom's: Applying
BUSPROG: Analytic
218. Fill in the missing numbers using the formula for fixed asset turnover:
Company A Company B Company C Company D

Sales $5,000,000 $720,000 $900,000 ?
Beginning fixed assets $450,000 $275,000 ? $380,000
Ending fixed assets $800,000 ? $310,000 $420,000
Fixed asset turnover ? 2.4 3.0 2.6
ANSWER:
Company Company Company Company
A B C D
Sales $5,000,000 $720,000 $900,000 $1,040,000
Beginning fixed assets $450,000 $275,000 $290,000 $380,000
Ending fixed assets $800,000 $325,000 $310,000 $420,000
Fixed asset turnover 8.0 2.4 3.0 2.6
Bloom's: Applying
BUSPROG: Analytic
219. Financial statement data for the years ended December 31 for Parker Corporation are as follows:
Current Year Prior Year
Sales $2,595,600 $2,409,498
Fixed assets (net):
Beginning of year $901,070 $820,000
End of year 829,330 901,070
(a) Determine the fixed asset turnover for the current and prior years.
(b) Does the change in fixed asset turnover from the prior year to the current year indicate a favorable or unfavorable
trend?
ANSWER:
Current Prior
Year Year
Fixed assets:
Beginning of year $901,070 $820,000
End of year 829,330 901,070
Average fixed assets $865,200 $860,535
(a) Sales divided by average fixed assets:
Current year ($2,595,600/$865,200) 3.0
Prior year ($2,409,498/$860,535) 2.8
(b) The change in fixed asset turnover indicates an increase in efficiency of using fixed
assets to generate sales.
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
220. On the first day of the fiscal year, a new walk-in cooler with a list price of $58,000 was acquired in exchange for an
old cooler and $44,000 cash. The old cooler had a cost of $25,000 and accumulated depreciation of $16,000.
Assume the transaction has commercial substance.
(a) Determine the gain to be recorded on the exchange.
(b) Journalize the entry to record the exchange.
ANSWER: (a)
List price $58,000
Book value of old cooler $ 9,000
Cash paid 44,000 53,000
Gain on exchange $ 5,000
(b)
Equipment (new) 58,000
Equipment (old) 25,000
Gain on Exchange of Equipment 5,000
Cash 44,000
Bloom's: Applying
BUSPROG: Analytic
221. On October 1, Sebastian Company acquired new equipment with a fair market value of $458,000. Sebastian
received a trade-in allowance of $92,000 on the old equipment of a similar type and paid cash of $366,000. The following
information about the old equipment is obtained from the account in the equipment ledger: Cost, $336,000; accumulated
depreciation on December 31, the end of the preceding fiscal year, $220,000; annual depreciation, $20,000. Assuming the
exchange has commercial substance, journalize the entries to record: (a) the current depreciation of the old equipment to
the date of trade-in and (b) the exchange transaction on October 1.
ANSWER: (a) Depreciation Expense—Equipment 15,000
Equipment depreciation ($20,000 × 9/12).
(b) Accumulated Depreciation—Equipment 235,000

Equipment 458,000
Loss on Exchange of Equipment 9,000
Equipment 336,000
Cash 366,000
Bloom's: Applying
BUSPROG: Analytic
222. Machinery acquired at a cost of $80,000 and on which there is accumulated depreciation of $55,000 (including
depreciation for the current year to date) is exchanged for similar machinery. Assume that the transaction has commercial
substance. For financial reporting purposes, present entries to record the exchange of the machinery under each of the
following assumptions:
(a) Price of new, $120,000; trade-in allowance on old, $4,000; balance paid in cash.
(b) Price of new, $120,000; trade-in allowance on old, $34,000; balance paid in cash.
ANSWER: (a) Accumulated Depreciation—Machinery 55,000
Machinery 120,000
Loss on Disposal of Fixed Assets 21,000
Machinery 80,000
Cash 116,000
(b) Accumulated Depreciation—Machinery 55,000

Machinery 120,000
Machinery 80,000
Gain on Exchange of Machinery 9,000
Cash 86,000
Bloom's: Applying
BUSPROG: Analytic
223. Equipment acquired at a cost of $126,000 has a book value of $42,000. Journalize the disposal of the equipment
under the following independent assumptions.
(a) The equipment had no market value and was discarded.
(b) The equipment is sold for $54,000.
(c) The equipment is sold for $24,000.
(d) The equipment is traded in for a similar asset. The list price of the new equipment is
$63,000. The buyer gave no cash in the exchange. The transaction lacks commercial
substance.
Journal
Post.
ANSWER: Journal
Post.
(a) Loss on Disposal of Equipment 42,000
Equipment 126,000
(b) Cash 54,000

Equipment 126,000
(c) Cash 24,000

Equipment 126,000
(d) Equipment (new) 42,000

Equipment (old) 126,000
Bloom's: Applying
ACCT.WARD.18.10-APP - 10-APP
BUSPROG: Analytic

Financial Accounting 15th Edition Warren Test Bank

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Financial Accounting 15th Edition Warren Test Bank

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Financial Accounting 15th Edition

Warren Test Bank

11. A tangible asset is one that lacks physical existence.

15. The cost of replacing an engine in a truck is an example of ordinary maintenance.

17. The normal balance of the accumulated depreciation account is a debit.

42. A gain can be realized when a fixed asset is discarded.

60. A characteristic of a fixed asset is that it is

64. Which of the following is included in the cost of land?

73. A capital expenditure results in a debit to a(n)

87. Residual value is also known as all of the following except

88. The formula for depreciable cost is

106. The accumulated depletion account is

107. The accumulated depletion of a natural resource is reported on the

110. The natural resources of some companies include

112. Expenditures for research and development are generally recorded as

118. Fixed assets are ordinarily presented on the balance sheet

121. Which of the following statements is true?

130. Fees paid to architect to design new office building

131. Cost of insurance during the construction of new office building

132. Interest on money borrowed to finance construction of new office building

133. Sales taxes paid on new factory equipment

134. Freight costs paid on purchase of new equipment

135. Repairs made to used office equipment

138. Purchase price of land purchased for new business site

139. Landscaping at new business location

140. Fences around land at new business location

141. Paved parking areas at new business location

142. Outdoor lighting at new business location

143. Walkways to surround new business location

144. Modifying a building purchased for new business location

145. Supplies (materials) used to test new equipment

146. Cost of installing new equipment

150. Overhauling an engine in a large truck

151. Exterior and interior painting

152. Paving a new parking lot

153. New landscaping

154. Installing a new air conditioning system in an old building

155. Resurfacing a pool in an apartment building

156. Adding refrigerant to an air conditioning system

157. Fixing damage due to a car accident

158. Rights to sell a book and make a profit

159. McDonald’s golden arches

161. Location of a company

162. iTunes music

163. Reputation of a company

164. Nike swoosh

165. Mickey Mouse

166. Accumulated Depreciation—Buildings

167. Depreciation Expense

168. Amortization Expense

169. Land Improvements

170. Gain on Sale of Equipment

171. Loss on Disposal of Asset

172. Loss from Impaired Goodwill

173. Research and Development Costs

ANSWER: Architects’ fees $ 45,000

179. Journalize each of the following transactions:

ANSWER: (a) Building 2,345,000

(b) Equipment 11,500

(c) Accumulated Depreciation—Machinery 8,000

15 Repairs and Maintenance Expense 125

1 29.0 cents 30,000 $ 8,700

*Mileage depreciation of $5,250 (21 cents × 25,000) is limited to $3,000,

(b) Depreciation Expense—Trucks 34,975