Financial Accounting A Business Process Approach 3Rd Edition Reimers Test Bank Full Chapter PDF

Financial Accounting A Business
Process Approach 3rd Edition Reimers

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Financial Accounting: A Business Process Approach, 3e (Reimers)
Chapter 6 Acquisition and Use of Long-Term Assets
Learning Objective 6-1
6.1-1) Depreciation is ________.

A) the loss in market value of an asset
B) the allocation of a long-term asset’s cost to an expense account over the asset’s life
C) an increase in an asset’s value over time or usage
D) the revenue earned by a long-term asset over its useful life
Answer: B
Diff: 1
Objective: LO 6-1
6.1-2) When a company uses cash to purchase a machine, recording the purchase will ________.
A) decrease shareholders’ equity
B) increase expenses
C) exchange one asset for another
D) increase assets, depreciation expense, and liabilities
Answer: C
Diff: 1
Skill: Analytic skills
Objective: LO 6-1
6.1-3) Which of the following is typically a long-term asset?

A) an intangible asset such as a patent or copyright
B) cash
C) common stock
D) depreciation expense
Answer: A
Diff: 1
Objective: LO 6-1
6.1-4) All of the following costs would be included in the Equipment account when equipment is
purchased EXCEPT ________.
A) the initial invoice amount
B) costs to have the equipment delivered
C) costs incurred to install the equipment
D) costs to maintain the operating condition of the equipment
Answer: D
Diff: 1
Objective: LO 6-1
1
Copyright © 2011 Pearson Education, Inc.
6.1-5) All of the following costs would be included in the Land account when land is purchased
EXCEPT ________.
A) the costs associated with paving a parking lot on the land
B) the realtor’s fee
C) costs to prepare the land for use such as removing a tree stump
D) the fee paid to transfer title to the land
Answer: A
Diff: 2
Objective: LO 6-1
6.1-6) Cost is ________.

A) only the amount of cash paid to buy an asset
B) the amount of an asset consumed during a period
C) the cash plus cash equivalent amount paid to buy an asset
D) the decreases in shareholders’ equity when an asset is purchased
Answer: C
Diff: 2
Objective: LO 6-1
6.1-7) Which statement below is TRUE about the cost principle?

A) The cost principle says that all costs associated, directly or indirectly, with buying and using a
long-term asset should be permanently capitalized.
B) The cost principle says that all costs reasonable and necessary to place an asset into a working
condition should be capitalized.
C) The cost principle says that all costs associated with purchasing a long-term asset should be
expensed in the period of the purchase.
D) The cost principle says that only the cash paid to acquire a long-term asset should be
capitalized.
Answer: B
Diff: 1
Objective: LO 6-1
6.1-8) Which of the following expenditures should NOT be capitalized?

A) the costs of testing a new machine to get it ready for use
B) purchasing factory equipment with an estimated useful life of 7 years
C) purchasing a used truck with an estimated 40,000 miles of service life remaining
D) the costs of changing the oil in the company’s fleet of delivery trucks
Answer: D
Diff: 1
Objective: LO 6-1
2
6.1-9) Tango Company purchased land and a building for $350,000. If the assets had been
purchased separately, the company would have paid $170,000 for the land and $210,000 for the
building. What amount should be recorded for the BUILDING?
A) $210,000
B) $199,000
C) $193,421
D) $188,901
Answer: C
Diff: 2
Objective: LO 6-1
6.1-10) Tango Company purchased land and a building for $350,000. If the assets had been
purchased separately, the company would have paid $170,000 for the land and $210,000 for the
building. What amount should be recorded for the LAND?
A) $156,579
B) $169,405
C) $170,000
D) $187,321
Answer: A
Diff: 2
Objective: LO 6-1
6.1-11) Cranberry Company purchased two pieces of equipment from a Canadian vendor for
$400,000. If the assets had been purchased separately, the company would have paid $90,000 for
the first piece of equipment and $360,000 for the second piece of equipment. What amount
should be recorded for the FIRST piece of equipment?
A) $80,000
B) $90,000
C) $360,000
D) $320,000
Answer: A
Diff: 2
Skill: Analytic skills, Dynamics of the global economy
Objective: LO 6-1
3
6.1-12) Cranberry Company purchased two pieces of equipment from a Canadian vendor for
$400,000. If the assets had been purchased separately, the company would have paid $90,000 for
the first piece of equipment and $360,000 for the second piece of equipment. What amount
should be recorded for the SECOND piece of equipment?
A) $80,000
B) $90,000
C) $360,000
D) $320,000
Answer: D
Diff: 2
Objective: LO 6-1
6.1-13) All of the following account titles are found in the computerized accounting system of
GTV Company. Identify the account that would be a long-term asset.
A) cash
B) accounts receivable
C) building
D) inventory
Answer: C
Diff: 2
Skill: Analytic skills, Use of information technology
Objective: LO 6-1
6.1-14) Perfuncto, Inc. built a machine. The costs for the new machine were:
Parts for the machine $80,000

Delivery costs for the machine parts 2,000
Labor costs to build the machine 20,000
Maintenance cost incurred to keep the machine running 10,000
What should Perfuncto, Inc. record as the cost of the machine?

Answer: $80,000 + 2,000 + 20,000 = $102,000
Diff: 1
Objective: LO 6-1
4
6.1-15) Basquets, Inc. purchased land and two factories at a total cost of $800,000. To the right
of the appraised values below, show the amount Basquets should record as the cost of each asset:
Asset Appraised values Recorded Values

1. Land $100,000 $__________
2. Factory 1 300,000 $__________
3. Factory 2 600,000 $__________
Answer: Asset Recorded Values

1. Land ($100,000/$1,000,000) x $800,000 = $80,000
2. Factory 1 ($300,000/$1,000,000) x $800,000 = $240,000
3. Factory 2 ($600,000/$1,000,000) x $800,000 = $480,000
Diff: 1
Objective: LO 6-1
6.1-16) Long-term assets refer to assets that will last and provide benefits for more than one year.
Answer: TRUE
Diff: 1
Objective: LO 6-1
6.1-17) Long-term assets, like factories and equipment, are purchased for resale to customers in
the normal course of operations.
Answer: FALSE
Diff: 1
Objective: LO 6-1
6.1-18) Generally accepted accounting principles (GAAP) require that long-term assets be
expensed over their estimated useful lives
Answer: TRUE
Diff: 1
Objective: LO 6-1
6.1-19) Generally accepted accounting principles (GAAP) require that long-term assets be
expensed over their useful lives using the straight-line method.
Answer: FALSE
Diff: 1
Objective: LO 6-1
6.1-20) Purchasing a machine with a cost of $60,000 that is expected to last five years will result
in an expense of $10,000 in the year of purchase.
Answer: FALSE
Diff: 1
Objective: LO 6-1
5
6.1-21) On January 8, 2011, Safari LLP bought three buildings at a total cost of $60,000,000 by
making a cash down payment of $10,000,000 and signing a 3-year note with 5% interest for the
remainder. One of the buildings is in Havana, one is in Cancun, and the third is in Miami. The
fair market value of the buildings, if they had been purchased separately, would have been
$15,000,000, $36,000,000, and $24,000,000 respectively.
Required:
Use the relative fair market value method to determine how much of the $60,000,000 purchase
price should be used for each of the three separate buildings. Write your answers on the lines
provided and show your work in the space provided below each line.
$______________________ should be used for the cost of the building in Havana.
$______________________ should be used for the cost of the building in Cancun.
$______________________ should be used for the cost of the building in Miami.
Answer: The total fair market value of the buildings if they had been purchased separately is:
$15,000,000 + 36,000,000 + 24,000,000 = $75,000,000.
Havana: ($15,000,000/$75,000,000) x $60,000,000 = $12,000,000
Cancun: ($36,000,000/$75,000,000) x $60,000,000 = $28,800,000
Miami: ($24,000,000/$75,000,000) x $60,000,000 = $19,200,000
Diff: 2
Objective: LO 6-1
6.1-22) Explain the cost principle.

Answer: The cost principle is a rule requiring that purchased assets be recorded in the
accounting records at cost, which includes all costs reasonable and necessary to place the asset
into working condition.
Diff: 1
Skill: Communication abilities
Objective: LO 6-1
6
6.1-23) Identify each of the assets listed below with the appropriate classification:
A = Long-term asset
B = Not a long-term asset
______ 1. Equipment
______ 2. Office furniture
______ 3. Office supplies
______ 4. Accounts receivable
______ 5. Land
______ 6. Patent
______ 7. Inventory
______ 8. Office computers
______ 9. Copyright
______ 10. Building
Answer: A, A, B, B, A, A, B, A, A, A
Diff: 1
Skill: Use of information technology
Objective: LO 6-1
6.2-1) Which statement best describes the proper accounting treatment for long-term assets
classified as property, plant, and equipment?
A) Record them as assets and then depreciate them over an estimated useful life.
B) Record them as expenses when purchased using the cost principle.
C) Record them as assets and adjust them to market value each accounting period using the
straight-line method.
D) Record them as revenues and expenses using the matching principle.
Answer: A
Diff: 1
Objective: LO 6-2
6.2-2) Capitalizing a cost means to record the cost into a(n) ________ account.
A) contributed capital
B) asset
C) expenditure
D) income statement
Answer: B
Diff: 1
Objective: LO 6-2
7
6.2-3) Which of the following assets will NOT be depreciated?
A) inventory
B) buildings
C) equipment
D) computer
Answer: A
Diff: 1
Skill: Use of information technology
Objective: LO 6-2
6.2-4) All of the following payments were made by UIB Co. for machinery the company bought
and used during the year. Which of these expenditures should NOT be capitalized?
A) a payment made to install the machinery at the factory
B) the cost of electricity to operate the machine for the first year of use
C) the cost of insurance while the machine was in transit from the seller’s warehouse
D) the costs of testing the machine in preparation for use
Answer: B
Diff: 1
Objective: LO 6-2
6.2-5) On November 1, 2011, Frigate Shipping Company bought equipment that cost $400,000,
with an estimated useful life of 8 years and an estimated salvage value of $28,000. The company
uses the straight-line method of depreciation and has a fiscal year ending on October 31. For the
year ended October 31, 2012, Frigate Company will report depreciation expense of ________.
A) $50,000
B) $33,333
C) $46,500
D) $31,000
Answer: C
Diff: 2
Objective: LO 6-2
6.2-6) On November 1, 2011, Frigate Shipping Company bought equipment that cost $400,000,
with an estimated useful life of 8 years and an estimated salvage value of $28,000. The company
uses the straight-line method of depreciation and has a fiscal year ending on October 31. At
October 31, 2013, Frigate Company will report accumulated depreciation of ________.
A) $100,000
B) $66,666
C) $93,000
D) $46,500
Answer: C
Diff: 2
Objective: LO 6-2
8
6.2-7) Which statement about depreciation is TRUE?
A) Depreciation means loss in economic value.
B) Depreciation means to capitalize a cost over several accounting periods.
C) Depreciation refers to an allocation of an asset’s cost to an expense account.
D) Depreciation means to increase net income by transferring balances from shareholders’
equity.
Answer: C
Diff: 1
Objective: LO 6-2
6.2-8) Residual (salvage) value means the ________.

A) value an asset has for generating revenue
B) costs capitalized into an asset account
C) cost of an asset plus its accumulated depreciation at the end of its useful life
D) estimated value an asset will have at the end of its useful life
Answer: D
Diff: 1
Objective: LO 6-2
6.2-9) Depletion is the ________.

A) allocation of a natural resource’s cost to an expense account as the resource is consumed
B) allocation of an intangible asset’s cost to an expense account over the asset’s estimated useful
life
C) allocation of property, plant and equipment cost to an expense account over the assets’
estimated useful lives
D) capitalization of a long-term asset’s cost
Answer: A
Diff: 1
Objective: LO 6-2
6.2-10) Depreciation is the ________.

life
C) allocation of property, plant and equipment cost to an expense account over the assets'
estimated useful lives
Answer: C
Diff: 1
Objective: LO 6-2
9
6.2-11) XYZ Company owns an asset with historical cost of $75,000, estimated useful life of 10
years, and salvage value of $5,000. As of December 31, 2011, the asset has accumulated
depreciation of $49,000 after adjustment. The company still owes $20,000 in liabilities from the
purchase of the asset years ago. What is the asset's book value on December 31, 2011?
A) $70,000
B) $26,000
C) $21,000
D) $6,000
Answer: B
Diff: 2
Objective: LO 6-2
6.2-12) Which statement below is TRUE of the straight-line method of depreciation?

A) It is a method that will provide higher amounts of depreciation expense in the early years of
an asset’s life and smaller amounts in the later years.
B) It is a method that results in unequal amounts of depreciation expense each year.
C) It is a method that is based upon the actual amounts of an asset used up each year, such as the
number of miles a truck is driven.
D) It is a method that results in equal amounts of depreciation expense each year.
Answer: D
Diff: 2
Objective: LO 6-2
6.2-13) The adjustment to record the use of long-term assets includes a(n) ________.
A) increase in total shareholders’ equity
B) decrease in total shareholders’ equity
C) decrease in total liabilities
D) increase in total liabilities
Answer: B
Diff: 1
Objective: LO 6-2
6.2-14) On January 1, 2011, Petrel Shipping Company bought equipment that cost $55,000 with
an estimated useful life of 4 years and an estimated salvage value of $5,000. The company uses
the straight-line method of depreciation. At what rate will the equipment depreciate in 2011?
A) 20%
B) 15%
C) 10%
D) 25%
Answer: D
Diff: 1
Objective: LO 6-2
10
6.2-15) On January 1, 2012, Albatross Shipping Company bought equipment that cost $65,000
and had an estimated useful life of 5 years and an estimated salvage value of $5,000. The
company uses the double-declining balance method of depreciation. At what rate will the
equipment depreciate in 2012?
A) 20%
B) 15%
C) 10%
D) 40%
Answer: D
Diff: 2
Objective: LO 6-2
6.2-16) Which statement about accelerated depreciation methods is TRUE?

A) They provide higher amounts of depreciation expense in the early years of an asset's life and
smaller amounts in the later years.
B) They provide equal amounts of depreciation expense each year.
C) They provide an unpredictable amount of expense each year because they are based upon the
actual amount of an asset used up.
D) They report more total depreciation expense over the life of an asset.
Answer: A
Diff: 2
Objective: LO 6-2
6.2-17) RET Company uses the activity (units-of-production) method to depreciate long-term
assets. The company owns a truck that cost $24,000. The truck is estimated to have a salvage
value of $2,000 and a useful life of 200,000 miles. How much depreciation expense would be
reported on the income statement in a year in which the truck is driven 50,000 miles?
A) $6,500
B) $6,000
C) $5,500
D) $5,000
Answer: C
Diff: 2
Objective: LO 6-2
11
6.2-18) TER Company uses the activity (units-of-production) method to depreciate long-term
assets. The company owns a truck that cost $48,000. The truck is estimated to have a salvage
value of $4,000 and a useful life of 200,000 miles. How much depreciation expense would be
reported on the income statement in a year in which the truck is driven 50,000 miles?
A) $13,000
B) $12,000
C) $11,000
D) $10,000
Answer: C
Diff: 2
Objective: LO 6-2
6.2-19) Which of the following assets can NOT be depleted?

A) timber
B) coal
C) diamonds
D) copyright
Answer: D
Diff: 2
Objective: LO 6-2
6.2-20) Identify the three acceptable depreciation methods discussed in the textbook.
A) straight-line, capitalization of expense, and activity methods
B) straight-line, operating, and accumulated methods
C) activity, carrying value, and straight-line methods
D) double-declining balance, straight-line, and activity methods
Answer: D
Diff: 2
Objective: LO 6-2
6.2-21) Which depreciation method is most like the method that is used to calculate depletion of
natural resources?
A) straight-line
B) double-declining balance
C) activity
D) No depreciation method is similar to depletion.
Answer: C
Diff: 2
Objective: LO 6-2
12
6.2-22) On January 1, 2011, Ace Electronics paid $400,000 cash for a computer that would be
used to store and process its accounting information. The computer has a 5-year useful life, after
which it will be worthless because it will be obsolete. How much depreciation expense should
Ace Electronics record for the year ended December 31, 2011, using the straight-line method?
A) $400,000
B) $40,000
C) $80,000
D) $160,000
Answer: C
Diff: 1
Objective: LO 6-2
A) $300,000
B) $40,000
C) $80,000
D) $160,000
Answer: C
Diff: 2
Objective: LO 6-2
A) $200,000
B) $40,000
C) $80,000
D) $160,000
Answer: C
Diff: 2
Objective: LO 6-2
13
which it will be worthless because it will be obsolete. What should Ace Electronics report on its
Statement of Cash Flows for the year ended December 31, 2011?
A) $(400,000) cash paid for investing activities
B) $(400,000) cash paid for financing activities
C) $(80,000) cash paid for depreciation
D) $(400,000) cash paid for operating activities
Answer: A
Diff: 1
Objective: LO 6-2
which it will be worthless because it will be obsolete. Ace Electronics uses the straight-line
method to depreciate its assets. At December 31, 2011, Ace will have accumulated depreciation
of ________.
A) $400,000
B) $40,000
C) $80,000
D) $160,000
Answer: C
Diff: 1
Objective: LO 6-2
of ________.
A) $320,000
B) $40,000
C) $80,000
D) $160,000
Answer: D
Diff: 1
Objective: LO 6-2
14
of ________.
A) $240,000
B) $40,000
C) $80,000
D) $320,000
Answer: A
Diff: 1
Objective: LO 6-2
method to depreciate its assets. The book value of the computer at December 31, 2011 is
________.
A) $320,000
B) $400,000
C) $480,000
D) $80,000
Answer: A
Diff: 1
Objective: LO 6-2
method to depreciate its assets. The book value of the computer at December 31, 2012 is
________.
A) $400,000
B) $320,000
C) $240,000
D) $160,000
Answer: C
Diff: 2
Objective: LO 6-2
15
method to depreciate its assets. The book value of the computer at December 31, 2013 is:
A) $400,000
B) $320,000
C) $240,000
D) $160,000
Answer: D
Diff: 2
Objective: LO 6-2
Ace Electronics record for the year ended December 31, 2011, using the double-declining
balance method?
A) $200,000
B) $40,000
C) $80,000
D) $160,000
Answer: D
Diff: 1
Objective: LO 6-2
balance method?
A) $160,000
B) $96,000
C) $100,000
D) $40,000
Answer: B
Diff: 2
Objective: LO 6-2
16
balance method?
A) $57,600
B) $40,000
C) $80,000
D) $160,000
Answer: A
Diff: 2
Objective: LO 6-2
which it will be worthless because it will be obsolete. Ace Electronics uses the double-declining
balance method to depreciate its assets. The book value of the computer at December 31, 2011 is
________.
A) $160,000
B) $400,000
C) $240,000
D) $320,000
Answer: C
Diff: 2
Objective: LO 6-2
________.
A) $96,000
B) $144,000
C) $80,000
D) $256,000
Answer: B
Diff: 2
Objective: LO 6-2
17
________.
A) $0
B) $313,600
C) $86,400
D) $57,600
Answer: C
Diff: 2
Objective: LO 6-2
6.2-38) Capitalizing a cost means to record the cost as an asset.

Answer: TRUE
Diff: 1
Objective: LO 6-2
6.2-39) In an accounting context, cost and expense mean the same thing.
Answer: FALSE
Diff: 1
Objective: LO 6-2
6.2-40) Cost means the cash or cash equivalent amount sacrificed to acquire an asset.
Answer: TRUE
Diff: 1
Objective: LO 6-2
6.2-41) The amount recorded as the cost of a long-term asset includes all costs reasonable and
necessary for putting the asset in a working condition.
Answer: TRUE
Diff: 1
Objective: LO 6-2
6.2-42) An accelerated depreciation method refers to any method of depreciating a long-term,

asset that will result in greater amounts being expensed in the early years of an asset's life and
comparatively smaller amounts being expensed in the latter years of the asset's life.
Answer: TRUE
Diff: 2
Objective: LO 6-2
6.2-43) To "capitalize" means to record a cost as an asset.

Answer: TRUE
Diff: 1
Objective: LO 6-2
18
6.2-44) All depreciation methods provide the same amount of depreciation expense each year.
Answer: FALSE
Diff: 2
Objective: LO 6-2
6.2-45) The TOTAL amount of depreciation recorded over the life of a long-term asset depends
on the method used to depreciate that asset.
Answer: FALSE
Diff: 2
Objective: LO 6-2
6.2-46) Timber, Inc. purchased land for $500,000. It is expected to produce a total of 200,000
cords of wood over 5 years, after which it will be sold for $100,000. In 2011, 39,000 cords of
wood were cut. In 2012, 41,000 cords of wood were cut.
1. What is depletion expense per cord of wood? $__________________
2. How much depletion should be recorded in 2011? $_______________________
3. How much depletion should be recorded in 2012? $_______________________
Answer: 1. ($500,000 — 100,000) / 200,000 cords = $2 PER CORD
2. 39,000 cords x $2 = $78,000
3. 41,000 cords x $2 = $82,000
Diff: 2
Objective: LO 6-2
19
6.2-47) Peterson Company purchased land, building, and equipment for a total cash price of
$900,000. An independent appraiser told management that if the assets had been acquired
separately, the company would have paid $300,000, $700,000, and $200,000, respectively, for
each of the assets purchased. Write your answers on the lines provided and show your work in
the space provided below each question.
1. Use the relative fair market value method to determine how much of the $900,000 purchase
price should be used for each of the three separate assets.
$______________ should be used for the cost of the land.
$______________ should be used for the cost of the building.
$______________ should be used for the cost of the equipment.
2. Determine how much depreciation expense the company will have each full year using the
straight-line method and the following assumptions:
∙ The building has a 30-year useful life and a zero salvage value.
∙ The equipment has an 8-year useful life and a $50,000 salvage value.
$______________ annual depreciation expense for the building
$______________ annual depreciation expense for the equipment
Answer:
1. The total fair market value of the assets if they had been purchased separately is: $300,000 +
700,000 + 200,000 = $1,200,000.
Land: ($300,000/$1,200,000) x $900,000 = $225,000
Building: ($700,000/$1,200,000) x $900,000 = $525,000
Equipment: ($200,000/$1,200,000) x $900,000 = $150,000
2. Depreciation for the building: $525,000/30 = $17,500
Depreciation for the equipment: ($150,000-50,000)/8 = $12,500
Diff: 3
Objective: LO 6-1 & LO 6-2
20
6.2-48) On January 1, 2011, the Peninsula Paper Company purchased manufacturing equipment
for $600,000. The equipment has a 4-year estimated useful life and a salvage value of $22,500.
The company expects to use the equipment for 275,000 hours. Actual hours the equipment was
used are provided in the table below:
Year Hours
2011 40,000
2012 95,000
2013 80,000
2014 60,000
Required: Calculate the depreciation expense for each year of the asset's life using:
1. the straight-line method,
2. the double-declining balance method, and
3. the activity (units-of-production) method.
Answer: 1. Straight-line method

Year Depreciation expense
2011 $144,375 = ($600,000 - 22,500) / 4 years
2012 $144,375
2013 $144,375
2014 $144,375
2. Double-declining balance method

2011 $300,000 = (2/4) x $600,000
2012 $150,000 = (2/4) x $300,000
2013 $ 75,000 = (2/4) x $150,000
2014 $ 52,500 = $75,000 book value - $22,500 salvage value
3. The activity (units-of-production) method

($600,000 — 22,500) / 275,000 hours = $2.10 per hour
2011 $84,000 = 40,000 hours @ $2.10
2012 $199,500 = 95,000 hours @ $2.10
2013 $168,000 = 80,000 hours @ $2.10
2014 $126,000 = 60,000 hours @ $2.10
Diff: 3
Objective: LO 6-2
21
6.2-49) On January 1, 2011, the Pine River Paper Company purchased manufacturing equipment
for $80,000. The equipment has a 4-year estimated useful life and a salvage value of $5,000. The
company expects to use the equipment for 300,000 hours. Actual hours the equipment was used
are provided in the table below:
Year Hours
2011 100,000
2012 80,000
2013 50,000
2014 70,000
Required:
Calculate the depreciation expense for each year of the asset's life using:
1. the straight-line method,
2. the double-declining balance method, and
3. the activity (units of production) method.
Answer: 1. Straight-line method

2011 $18,750 = ($80,000 — 5,000) / 4 years
2012 $18,750
2013 $18,750
2014 $18,750
2. Double-declining method
2011 $40,000 = (2/4) x $80,000
2012 $20,000 = (2/4) x $40,000
2013 $10,000 = (2/4) x $20,000
2014 $ 5,000 = (2/4) x $10,000
3. Activity (units of production) method

($80,000 — 5,000) / 300,000 hours = $0.25 per hour
Year Depreciation Expense
2011 $25,000 = 100,000 hours @ $0.25
2012 $20,000 = 80,000 hours @ $0.25
2013 $12,500 = 50,000 hours @ $0.25
2014 $17,500 = 70,000 hours @ $0.25
Diff: 3
Objective: LO 6-2
22
6.2-50) On January 1, 2011, Borba, Inc. purchased a $100,000 machine with an estimated useful
life of 10 years or 1,000,000 units and a $10,000 salvage value. The machine actually produced
120,000 units in 2011 and 110,000 units in 2012.
Part A: Calculate depreciation expense and accumulated depreciation using the following three
methods:
December 31, 2011: Straight-line Activity Double-declining
balance
1 Depreciation expense $ $ $
2 Accumulated depreciation $ $ $
December 31, 2012: Straight- Activity Double-declining

line balance
3 Depreciation expense $ $ $
4 Accumulated depreciation $ $ $
Part B: In the first year of the machine's life, which method would show the LOWER amount
for each of the following financial statement line items? Put an X in the appropriate box.
Financial statement item Straight-line Double-declining balance
1 Net income
2 Income tax expense
3 Retained earnings
4 Total assets
Answer: Part A:
balance
1 Depreciation expense $9,000 $10,800 $20,000
2 Accumulated $9,000 $10,800 $20,000
depreciation

balance
3 Depreciation expense $9,000 $9,900 $16,000
4 Accumulated $18,000 $20,700 $36,000
depreciation
Straight-line depreciation: ($100,000 — 10,000) / 10 years = $9,000 per year

Activity depreciation: ($100,000 — 10,000) / 1,000,000 units = $0.09 per unit
For 2011: 120,000 units x $0.09 per unit = $10,800
For 2012: 110,000 units x $0.09 per unit = $9,900
Double-declining balance depreciation:
For 2011: $100,000 x (2 / 10) = $20,000
For 2012: ($100,000 — 20,000) x (2 / 10) = $16,000
23
Part B:
Straight-line Double-declining balance
1 Net income X
2 Income tax expense X
3 Retained earnings X
4 Total assets X
Diff: 3
Objective: LO 6-2
6.2-51) SML International owns an oil field that contains an estimated 10,000,000 barrels of oil.
The oil field was acquired at a cost of $35,000,000 and has no salvage value. In 2011, 1,000,000
barrels were produced and in 2012, 1,750,000 barrels were produced. How much depletion
expense should be recorded in 2011 and 2012?
Answer: $35 million / 10 million barrels = $3.50 depletion per barrel
2011 = $3.50 X 1 million = $3,500,000 depletion expense
2012 = $3.50 X 1.75 million = $6,125,000 depletion expense
Diff: 2
Objective: LO 6-2
24
6.2-52) Part A: Put an X in the appropriate box to show if these amounts related to the purchase
of a new computer system are expenses or capital expenditures.
Expense Capital
During 2012, Webmasters, Inc.: expenditure
1 paid $100,000 for a new computer system.
2 paid the vendor $5,000 to install the system.
3 paid $4,000 to the computer programmers to
transfer the data from the old system to the new
system.
4 paid $400 for the removal of the old computer
system.
5 paid $1,000 training the employees to use the new
computer system.
6 paid $1,000 for the annual off-site storage of its
backed-up data.
7 paid $10,000 for additional memory to be
installed in the computer system.
Part B: What other information is needed to calculate double-declining depreciation expense for
the year 2012?
Answer: Part A:
Expense Capital
During 2012, Webmasters, Inc.: expenditure
1 paid $100,000 for a new computer system. X
2 paid the vendor $5,000 to install the system. X
3 paid $4,000 to the computer programmers to
transfer the data from the old system to the new
system. X
4 paid $400 for the removal of the old computer X
system.
5 paid $1,000 training the employees to use the new
computer system. X
6 paid $1,000 for the annual off-site storage of its
backed-up data. X
7 paid $10,000 for additional memory to be installed
in the computer system. X
Part B: Expected useful life (Salvage value is NOT needed for the first year of double-
declining balance depreciation.) and date placed in service.
Diff: 1
25
6.2-53) On January 1, 2012, Orbit, Inc. purchased land and a building for a total of $90,000 by
paying $20,000 cash and issuing a note for the rest. The market value of the building was
appraised at $80,000 and the land at $20,000. Write in both the correct dollar amounts and the
account titles involved. Use a plus for increases and parentheses () for decreases.
Part A: Show the effect of the purchase on the accounting equation.
Assets Shareholders’ equity

Liabilities
CC Retained earnings
Part B: Show the effect of the first year’s depreciation, assuming the straight-line method and an
estimated useful life of 20 years with a $32,000 salvage value.

Liabilities
Part C: Show the effect of the first year’s depreciation, assuming double-declining depreciation
and an estimated useful life of 20 years with a $32,000 salvage value.

Liabilities
Part D: Show the amounts that would appear on the annual financial statements at the end of the
THIRD YEAR for each method.
Straight-line Double-declining
balance
1. Depreciation expense $ $
2. Accumulated depreciation $ $
3. Building (net of accumulated $ $
depreciation)
4. Land $ $
26
Answer: Part A:
Liabilities
CC Retained
earnings
(20,000) Cash + 70,000 Notes
+ 72,000 Building payable
+ 18,000 Land
For the building: ($80,000 / $100,000) x $90,000 = $72,000For the land: ($20,000 /
$100,000) x $90,000 = $18,000
Part B:
Liabilities
(2,000) Accumulated (2,000) Depreciation
depreciation expense
Straight-line depreciation:($72,000 — 32,000) / 20 years = $2,000 per year
Part C:
Liabilities
(7,200) Accumulated (7,200) Depreciation
depreciation expense
Double-declining balance depreciation:$72,000 x (2 / 20 years) = $7,200 for the
first year($72,000 — 7,200) x (2 / 20) = $6,480 for the second year($72,000 —
13,680) x (2 / 20) = $5,832 for the third year
Part D:
Straight-line Double-declining
balance
1. Depreciation expense $2,000 $5,832
2. Accumulated depreciation $(6,000) = 3 x $(2,000) $(19,512)
3. Building (net of accumulated $66,000 = $72,000 — $52,488 = $72,000
depreciation) 6,000 — 19,512
4. Land $18,000 $18,000
Diff: 1
27
6.3-1) Which of the following is NOT an intangible asset?

A) human resources
B) copyrights
C) patents
D) franchises
Answer: A
Diff: 1
Objective: LO 6-3
6.3-2) Which assets are depreciated?

A) intangible assets
B) natural resources
C) property, plant and equipment, except for land
D) long-term investments in marketable stocks and bonds
Answer: C
Diff: 1
Objective: LO 6-3
6.3-3) Which assets are depleted?

Answer: B
Diff: 1
Objective: LO 6-3
6.3-4) Which assets are amortized?

Answer: A
Diff: 1
Objective: LO 6-3
6.3-5) A business will have depletion expense only if it has ________.

A) current assets that are consumed during the period
B) property, plant, and equipment that are used in operating activities
C) natural resources like timber and oil
D) intangible assets like copyrights and trademarks
Answer: C
Diff: 2
Objective: LO 6-3
28
6.3-6) Amortization is the ________.
life
C) allocation of building and equipment cost to an expense account over the assets’ estimated
useful lives
Answer: B
Diff: 1
Objective: LO 6-3
6.3-7) Which depreciation method is most similar to the method that is used to calculate
amortization of intangible assets?
A) straight-line
B) double-declining balance
C) activity
D) capitalization
Answer: A
Diff: 2
Objective: LO 6-3
6.3-8) Which of the following assets should be amortized?

A) building
B) patent
C) oil reserves
D) timber
Answer: B
Diff: 2
Objective: LO 6-3
6.3-9) On January 1, 2011, Ace Electronics purchased a patent for $2,000,000 cash, which
allows Ace the exclusive legal right to manufacture a new microchip for the next 20 years.
However, Ace thinks that the useful life of the patent is only 5 years because rapid changes in
technology will make the microchip obsolete. For 2011, Ace should report ________.
A) depreciation expense of $100,000
B) amortization expense of $100,000
C) depreciation expense of $400,000
D) amortization expense of $400,000
Answer: D
Diff: 2
Objective: LO 6-3
29
6.3-10) Under U.S. GAAP, research and development costs (R&D) are ________.
A) capitalized and amortized
B) capitalized and depreciated
C) expensed when incurred
D) expensed when the related product is sold
Answer: C
Diff: 1
Objective: LO 6-3
6.3-11) All long-term assets are tangible.

Answer: FALSE
Diff: 1
Objective: LO 6-3
6.3-12) Intangible assets provide specific legal rights to the owner.

Answer: TRUE
Diff: 1
Objective: LO 6-3
6.3-13) Depreciation, depletion, and amortization all refer to capitalizing an asset at its cost.
Answer: FALSE
Diff: 1
Objective: LO 6-3
6.3-14) Intangible assets are depleted over their useful lives.

Answer: FALSE
Diff: 1
Objective: LO 6-3
6.3-15) Intangible assets are depreciated over their useful lives.

Answer: FALSE
Diff: 1
Objective: LO 6-3
6.3-16) Intangible assets are amortized over their useful lives.

Answer: TRUE
Diff: 1
Objective: LO 6-3
6.3-17) Under U.S. GAAP, research and development costs (R&D) are not capitalized as part of
the cost of an asset.
Answer: TRUE
Diff: 1
Objective: LO 6-3
30
6.3-18) What are natural resources? Give some examples. How are they accounted for?
Answer: Natural resources are assets that come from the earth, such as timber, water, and
minerals. Natural resources are recorded in the accounting system at cost and then depleted as
they are consumed using the activity method. Depletion expense affects the income statement by
decreasing net income. When natural resources are acquired for cash, the purchase is reported as
an investing cash outflow on the statement of cash flows.
Diff: 2
Objective: LO 6-3
6.3-19) Explain why certain long-term assets are depreciated, amortized, or depleted instead of
remaining in the accounting records at cost until the time of disposal.
Answer: The matching principle requires that efforts (expenses) be matched against
accomplishments (revenues). A long-term asset helps a business generate revenue, for example
by producing inventory that can be sold; and since the asset is consumed in the process, then the
expenses related to the asset being used up must be matched against the revenues the asset helps
to generate. In other words, the asset should be written off over a period that corresponds to its
useful life. That is what depreciation, amortization, and depletion accomplish.
Diff: 2
6.3-20) Sharp Company owns a copyright and a patent. The copyright was acquired at a cost of
$160,000 and the patent was purchased for $475,000. The copyright has an estimated useful life
of 25 years and the patent has a 19-year estimated useful life. Both assets have estimated salvage
values of zero.
Required:
1. Describe this information’s effect on the income statement. Assume the assets are used for a
full year.
2. Calculate the balance sheet carrying value of each asset after THREE years of use.
3. Explain how intangible assets have value.
Answer:
1. The income statement will report $6,400 of amortization expense for the copyright and an
additional $25,000 of amortization expense for the patent.
2. The balance sheet will carry the copyright at the unamortized amount of $140,800 and the
patent at the unamortized amount of $400,000.
3. Intangible assets have value based upon the rights and privileges that accrue to the owner. For
example, a patent is the right to exploit an invention in the market place for a finite period. Thus,
even though intangible assets cannot be touched, they have value to generate sales.
Diff: 3
Skill: Analytic skills, Communication abilities
Objective: LO 6-3
31
6.3-21) Use the following code to identify the expense associated with each of the assets listed
below:
A= Depreciation expense
B= Depletion expense
C= Amortization expense
D= None of the above
______ 1. Land
______ 2. Patent
______ 3. Oil reserves
______ 4. Lumber
______ 5. Franchise
______ 6. Equipment
______ 7. Inventory
______ 8. Computers
______ 9. Office supplies
______ 10. Office furniture
Answer: D, C, B, B, C, A, D, A, D, A
Diff: 1
6.3-22) Use the following code to identify the expense associated with each of the assets listed
below:
A = Depreciation expense
B = Depletion expense
C = Amortization expense
D = None of the above
______ 1. Accounts payable

______ 2. Minerals
______ 3. Factory
______ 4. Trucks
______ 5. Factory supplies
______ 6. Trademark
______ 7. Natural gas reserves
______ 8. Factory machinery
______ 9. License rights
______ 10. Land
Answer: D, B, A, A, D, C, B, A, C, D
Diff: 1
32
6.4-1) Which of the following should be recorded as an expense in the period when the activity
takes place?
A) Nationwise, Inc. routinely replaces the wiper blades on its fleet of delivery trucks.
B) ResolCo paid $100,000 to buy a new piece of equipment.
C) Revel, Inc. paid $10,000 to overhaul and improve a machine to make it last longer.
D) Rondeaux Company paid $50,000 for the exclusive right to manufacture a product.
Answer: A
Diff: 2
Objective: LO 6-4
6.4-2) To be capitalized, an expenditure must ________.

A) extend the useful life of a long-term asset
B) enhance the operating efficiency of a long-term asset
C) be reasonable and necessary to put a long-term asset into a working condition
D) all of these
Answer: D
Diff: 2
Objective: LO 6-4
6.4-3) Which of the statements below is TRUE?

A) Ordinary repairs should not be capitalized.
B) Expenditures that increase the working life of an asset should not be capitalized.
C) Expenditures that increase the efficiency of an asset should not be capitalized.
D) Ordinary repairs reduce the carrying value of an asset.
Answer: A
Diff: 1
Objective: LO 6-4
6.4-4) Which of the statements below regarding capital expenditures is TRUE?

A) Capital expenditures include those that make an asset last longer.
B) Capital expenditures maintain the operating condition of an asset.
C) Capital expenditures include ordinary repairs.
D) Capital expenditures decrease the carrying value of an asset.
Answer: A
Diff: 1
Objective: LO 6-4
33
6.4-5) Able Company bought a machine on January 1, 2008 for $80,000. At the time the machine
was purchased it was estimated to have an 8-year useful life and a $4,000 salvage value. Able
uses straight-line depreciation. During 2014, before the adjusting entry for depreciation was
made, Able revised the estimated useful life of the machine to a total of ten years, with an
estimated salvage value of $0. How much depreciation expense should the company report for
the year ended December 31, 2014?
A) $5,000
B) $5,750
C) $4,400
D) $9,500
Answer: B
Diff: 3
Objective: LO 6-4
6.4-6) Explain when a cost should be recorded as a capital expenditure rather than an expense.
Answer: A capital expenditure is an expenditure that will be recorded as an asset because it
represents something of future value to the business. Capital expenditures involve buying an
asset or extending its useful life or operating efficiency. An expense, on the other hand, is a
normal, routine cost that has no benefits that extend beyond the current accounting period. It
should be treated as an expense in the period incurred.
Diff: 2
Objective: LO 6-4
34
6.4-7) David Justice Company incurred the following expenditures related to the purchase and
use of a new building that will be used as the growing company’s corporate headquarters in
Toronto, Canada.
Required: Put an X in the appropriate box to indicate which expenditures should be capitalized
and which should be expensed:
Expenditure Capitalize Expense

$560,000 spent for building materials (wood & brick)
$256,000 spent for labor costs
$78,000 architect’s fee
$80,000 rent for equipment used in the construction
$52,000 annual utilities costs to operate the building
(in use on Feb 8)
$90 cost to fix a broken window (June 3)
$230 cost to clean a stained rug
$3,900 annual janitorial costs to keep the building clean
Answer:
$560,000 spent for building materials (wood & brick) X
$256,000 spent for labor costs X
$78,000 architect’s fee X
$80,000 rent for equipment used in the construction X
$52,000 annual utilities costs to operate the building
(in use on Feb 8) X
$90 cost to fix a broken window (June 3) X
$230 cost to clean a stained rug X
$3,900 annual janitorial costs to keep the building clean X
Diff: 2
35
6.4-8) Queue, Incorporated incurred the following expenditures for the purchase and use of a
machine, which was placed into service on January 1, 2011:
Expenditure Amount
invoice price of the machine $144,000
transportation costs 23,000
inspection, moving and handling 6,500
installation and testing 12,300
power and other operating costs for using the
machine during the year 43,000
Required:
1. Determine the total costs that should be capitalized into the machine account. What is the
total? Explain how you decided which costs to capitalize.
2. Determine the total operating expenses associated with using the machine for the year ended
December 31, 2011. Assume the machine has an estimated 5-year useful life and an $8,000
salvage value. Explain how you decided which costs to expense.
Answer:
1. The costs that should be capitalized into the machine account include all costs that are
reasonable and necessary to place the machine in working condition. In this case, the invoice
price plus the transportation costs plus the inspection, moving and handling costs plus the
installation and testing costs should all be included. The total is $185,800.
2. The expenses associated with the machine for the year would include the $43,000 of power
and other operating costs that are NOT capitalized at the time the machine is purchased. In
addition, the machine will be depreciated as part of the normal adjusting entries. The cost of the
machine $185,800 minus $8,000 in salvage value divided by 5 years equals $35,560 depreciation
expense per year. Total operating expenses for 2011 are $78,560.
Diff: 3
36
6.4-9) Able Baker Company incurred the following expenditures for the purchase and use of a
machine for the company’s factory in Puerto Rico.
Required: Put an X in the appropriate box to indicate which expenditures should be capitalized
and which should be expensed:

$60,000 invoice price of the machine
$3,000 transportation costs for the machine
$1,400 for inspection of the machine
$1,000 for moving and handling the machine
$3,500 for installation of the machine
$2,200 for testing the machine
$12,000 in power costs for the year to operate the
machine
$2,000 for ordinary repairs and maintenance on the
machine for the year
$4,000 for an overhaul to make the machine run more
efficiently
Answer: Expenditure Capitalize Expense

$60,000 invoice price of the machine X
$3,000 transportation costs for the machine X
$1,400 for inspection of the machine X
$1,000 for moving and handling the machine X
$3,500 for installation of the machine X
$2,200 for testing the machine X
$12,000 in power costs for the year to operate the X
machine
$2,000 for ordinary repairs and maintenance on the X
machine for the year
$4,000 for an overhaul to make the machine run more X
efficiently
Diff: 2
Objective: LO 6-4
37
6.4-10) Required: Put an X in the appropriate box to indicate the proper accounting treatment
for each of the following payments:
Payment Expense Capitalize Neither

Paid $6,700 cash for routine repairs designed to
maintain the operating efficiency of an asset
Paid $23,000 to a creditor to satisfy a debt
Paid $9,000 to put a new roof on a warehouse
Purchased rights to a competitor's trademark
Paid $4,500 to completely overhaul a factory
machine's engine, extending its useful life by 3
years
Purchased a new automated computer control
system for the factory at a cost of $2,300,000
Paid $250 to tune up a home office air conditioner
Incurred a cost of $1,500,000 to build a new
addition to an existing building
Paid $3,000 to change the rubber belts on factory
equipment as part of normal monthly maintenance
Distributed cash to the owners as a dividend
Answer:
Payment Expense Capitalize Neither
Paid $6,700 cash for routine repairs designed to X
maintain the operating efficiency of an asset
Paid $23,000 to a creditor to satisfy a debt X
Paid $9,000 to put a new roof on a warehouse X
Purchased rights to a competitor's trademark X
Paid $4,500 to completely overhaul a factory X
machine's engine, extending its useful life by 3
years
Purchased a new automated computer control X
system for the factory at a cost of $2,300,000
Paid $250 to tune up a home office air conditioner X
Incurred a cost of $1,500,000 to build a new X
addition to an existing building
Paid $3,000 to change the rubber belts on factory X
equipment as part of normal monthly maintenance
Distributed cash to the owners as a dividend X
Diff: 2
Objective: LO 6-4
38
6.4-11) Put an X in the appropriate box to identify each of these events as either a capital
expenditure or an expense (revenue expenditure).
Capital Expense (Revenue

Expenditure Expenditure)
The company changed all the light bulbs in the
home office.
The company cleaned the office carpets as part
of normal monthly maintenance.
The company made the air conditioning
system operate more efficiently by upgrading
the thermostat.
The company purchased a new computer to
replace an old computer.
The company replaced parts in machines and
equipment as needed.
The company reengineered a major piece of
equipment and made it last longer in the
process.
The company changed the oil in the factory
production equipment.
The company paved a parking lot outside the
warehouse.
Answer:
Capital Expense (Revenue
Expenditure Expenditure)
The company changed all the light bulbs in the X
home office.
The company cleaned the office carpets as part X
of normal monthly maintenance.
The company made the air conditioning X
system operate more efficiently by upgrading
the thermostat.
The company purchased a new computer to X
replace an old computer.
The company replaced parts in machines and X
equipment as needed.
The company reengineered a major piece of X
equipment and made it last longer in the
process.
The company changed the oil in the factory X
production equipment.
The company paved a parking lot outside the X
warehouse.
39
Diff: 2
Objective: LO 6-4
6.4-12) Put an X in the appropriate box to show whether each item is an expense, a capital
expenditure, or neither:
Capital
Riteoff, Inc.: Expense expenditure Neither
1 paid $1,000 on its notes payable.
2 paid $12,000 for the painting of its building
paid $20,000 to an advertising agency for ads run
3 during the year.
4 paid $5,000 for a URL address for its Web site.
paid $20,000 for a truck by issuing a 6%, 4-year
5 note.
6 paid $200 for ordinary repairs to its equipment.
7 paid $1,000 for a rebuilt engine for its truck.
paid $60,000 to have an addition added to its
8 building.
paid $2,000 of insurance premiums to cover the
9 delivery of a new machine.
paid $1,000 for the electricity during the year to run
10 its machines.
Answer:
Capital
Riteoff, Inc.: Expense expenditure Neither
1 paid $1,000 on its notes payable. X
2 paid $12,000 for the painting of its building X
paid $20,000 to an advertising agency for ads run
3 during the year. X
4 paid $5,000 for a URL address for its Web site. X
paid $20,000 for a truck by issuing a 6%, 4-year
5 note. X
6 paid $200 for ordinary repairs to its equipment. X
7 paid $1,000 for a rebuilt engine for its truck. X
paid $60,000 to have an addition added to its
8 building. X
paid $2,000 of insurance premiums to cover the
9 delivery of a new machine. X
paid $1,000 for the electricity during the year to run
10 its machines. X
40
Diff: 1
6.4-13) On January 1 2010, Max, Inc. paid $80,000 for a truck with an estimated useful life of 10
years and a $20,000 salvage value. During 2013, Max, Inc.’s truck was not running very well.
Part A: Put an X in the appropriate box to show whether each item is an expense, a capital
expenditure, or neither.
Capital
During 2013, Max, Inc.: Expense expenditure Neither
1 paid $150 to have the oil changed in the truck.
2 paid $500 to overhaul the transmission.
paid $20,000 for a rebuilt engine for the truck,
which extends its useful life to the end of 2017,
3. with no change in salvage value.
Part B:
1. Straight-line depreciation expense for 2012 is $_____________________.
2. The book value of the machine at December 31, 2012 is $___________________.
3. Straight-line depreciation expense for 2013, after the major overhaul, is $__________.
Answer: Part A:
Capital
Expense expenditure Neither
paid $150 to have the oil changed in the
1 truck. X
2 paid $500 to overhaul the transmission. X
paid $20,000 for a rebuilt engine for the
truck, which extends its useful life to the
end of 2017, with no change in salvage
3. value. X
Part B:
1. ($80,000 — 20,000) / 10 years = $6,000
2. $80,000 — (3 years x $6,000) = $62,000
3. ($62,000 + 20,500 - 20,000 salvage value) / 5 years remaining = $12,500
Diff: 2
Objective: LO 6-4
41
6.4-14) Identify the appropriate accounting treatment for each of the payments listed below using
the following code:
C = Capitalize
E = Expense
N = Neither of the above
______ 1. A payment for service that maintains the working condition of a truck
______ 2. A payment for service that adds 3 years of useful life to a machine
______ 3. A payment that reduces a liability
______ 4. A payment of cash to the owners of the business
______ 5. A payment to buy an asset with a 5-year estimated useful life
______ 6. A payment to install the asset with a 5-year estimated useful life
______ 7. A payment to increase the speed of a cutting machine used in production
______ 8. A payment to decrease the cost of operating a metal molding machine
______ 9. A monthly payment to tune-up and lubricate factory equipment
______ 10. A payment to change the rubber belts on the factory conveyor system
Answer: E, C, N, N, C, C, C, C, E, E
Diff: 2
Objective: LO 6-4
the following code:
C = Capitalize
E = Expense
______ 1. $5,000 spent to improve the working condition of a truck

______ 2. $10,000 spent to pay a liability
______ 3. Bought a machine that cost $40,000
______ 4. Distributed $3,000 cash to the owners
______ 5. Spent $78 tuning up a truck
______ 6. Spent $234 to have a piece of equipment shipped to the warehouse where it will be
used
______ 7. $17,000 spent to make a crushing machine work faster
______ 8. $16,000 spent to make a trash compactor work more efficiently
______ 9. Paid the monthly fee to have the factory equipment oiled
______ 10. Paid an architect $5,600 to design an office building
Answer: C, N, C, N, E, C, C, C, E, C
Diff: 2
Objective: LO 6-4
42
the following code:
C = Capitalize
E = Expense
______ 1. Paid one-month’s rent on an office

______ 2. Bought a new truck
______ 3. Bought new hand-held computers for the sales staff
______ 4. Paid for insurance coverage for one year
______ 5. Paid to tune up the truck
______ 6. Paid the employees their weekly wages
______ 7. Paid cash to the owners as a dividend
______ 8. Paid for construction of a building
______ 9. Paid to paint a machine
______ 10. Incurred a cost designed to make a machine work two additional years
Answer: E, C, C, C, E, E, N, C, E, C
Diff: 2
Objective: LO 6-4
6.4-17) Identify each of the events listed below as an expense, capital expenditure, or neither
one.
Use the following code:
E = expense
C = capital expenditure
N = neither
_______ 1. Purchased a patent from a start-up company for $9,000 cash
_______ 2. Paid $10,400 cash for routine repairs designed to maintain the operating efficiency of
a drilling machine
_______ 3. Paid $13,600 to a creditor to satisfy a debt
_______ 4. Paid $39,000 to put a new roof on a warehouse
_______ 5. Purchased rights to a competitor’s trademark for $6,200 cash
_______ 6. Paid $2,000,000 for research and development costs
_______ 7. Paid $8,800 to completely overhaul a factory machine’s engine, which extended its
useful life by 6 years
_______ 8. Purchased a new conveyor belt system for the factory at a cost of $2,300,000
_______ 9. Paid $219 to add memory to the home-office computers
_______ 10. Incurred a cost of $2,330,000 to add a new wing to an existing structure
_______ 11. Paid $39,000 to change the gears on factory equipment as part of normal monthly
maintenance
_______ 12. Distributed cash to the owners as a dividend
Answer: C, E, N, C, C, E, C, C, C, C, E, N
Diff: 2
43
Objective: LO 6-4
6.5-1) A gain on the sale of a long-term asset is recorded when cash proceeds are ________.
A) less than the book value of the assets sold
B) less than the historical cost of the asset sold
C) less than the accumulated depreciation
D) greater than the book value of the asset sold
Answer: D
Diff: 1
Objective: LO 6-5
6.5-2) A loss on the sale of a long-term asset is recorded when cash proceeds are ________.
A) less than the book value of the assets sold
B) less than the historical cost of the asset sold
C) less than the accumulated depreciation
D) greater than the book value of the asset sold
Answer: A
Diff: 1
Objective: LO 6-5
6.5-3) DFS Company sold an asset for $8,500 in cash. The asset had an historical cost of $30,000
and accumulated depreciation of $20,000 on the day it was sold. How much is the gain or loss on
the sale?
A) $21,500 loss
B) $10,000 loss
C) $1,500 loss
D) $1,500 gain
Answer: C
Diff: 1
Objective: LO 6-5
6.5-4) BFS Company sold an asset for $7,500 in cash. The asset had an historical cost of $30,000
and accumulated depreciation of $20,000 on the day it was sold. How much is the gain or loss on
the sale?
A) $22,500 gain
B) $10,000 loss
C) $2,500 loss
D) $2,500 gain
Answer: C
Diff: 1
Objective: LO 6-5
44
6.5-5) A loss is a ________.
A) reduction in liabilities
B) reduction in an asset’s selling price
C) reduction in income that is incurred outside the normal course of business
D) decrease in cash related to operating a business
Answer: C
Diff: 1
Objective: LO 6-5
6.5-6) When a long-term asset is sold, both its cost and the related accumulated depreciation
must be removed from the accounting records.
Answer: TRUE
Diff: 1
Objective: LO 6-5
6.5-7) A loss results when a long-term asset is sold for less than book value.
Answer: TRUE
Diff: 1
Objective: LO 6-5
6.5-8) A gain results when a long-term asset is sold for more than book value.
Answer: TRUE
Diff: 1
Objective: LO 6-5
6.5-9) Describe how to account for a piece of factory equipment from the date of purchase to the
end of its useful life.
Answer: Equipment is recorded at cost in accordance with the cost principle, which requires that
all costs reasonable and necessary to place an asset in a working condition be capitalized into an
asset account. Once the asset use begins, it will be depreciated over an estimated useful life using
an acceptable method such as the straight-line method. When the asset is sold it will be removed
from the accounting records, along with the related accumulated depreciation account, and a gain
or loss will be recognized equal to the difference between the sales proceeds and the carrying
value.
Diff: 1
Objective: LO 6-1, LO 6-2, & LO 6-5
6.5-10) Explain what gains and losses are, how they are calculated, and how they are reported on
the financial statements.
Answer: Gains and losses are non-operating increases or decreases to shareholders’ equity. They
result from disposing of assets other than inventory. Gains and losses are calculated by looking at
the difference between the sales proceeds and the carrying value of the asset sold. They are
reported on the income statement as non-operating gains or losses.
Diff: 2
Objective: LO 6-5
45
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river. There was a bumper crop, and the price of transport is heavy.
Finally he succeeded in securing the boat in which he and his family
had come up earlier in the season. The bargain was made for sixty-
two dollars for the trip, with a bonus of two extra at the end, if we
were satisfied. There were to be four rowers, but they didn’t keep to
the agreement. They wanted to have military escort in addition,
which we declined on account of the limited deck space in which
they and the owners have to live.
The accommodation of a river-boat is small: ours consisted of
three tiny compartments, of which we took two, finding that our beds
occupied exactly half the space, with a well between them, and our
chairs and table the remainder. The cooking was done in a sort of
well in the small deck in front of us, and it was a great satisfaction to
watch the way in which it was done by Yao and his meticulous
cleanliness. There was no lack of water, so each vegetable was
washed in clean water about five or six times. I believe the correct
number of times to wash rice before cooking is ten. It was really
astonishing to see the dishes Yao prepared on the handful of
charcoal which was used to cook not only our meals but also those
of the crew.
The scenery was very wild and beautiful, and on the whole our
crew rowed well. There was an engaging little girl of three years old,
who amused us not a little with her clever manipulation of the
chopsticks, never dropping a grain of rice: she wore two silver
bangles and two rings. Each night we moored by the bank in what
was considered a safe place, for the robbers were much dreaded by
the crew. Our live stock—chickens and ducks—were tethered out to
graze. At one place they took on a couple of unarmed police,
unknown to us, but as they would have been no use whatever had
we been attacked, I ordered them to be put ashore at the next town.
The robbers had burned many villages, we were told, driving off the
cattle, killing some of the inhabitants, and looting all that was of
value to them. All the way we passed shrines dotted along the river-
bank—one hideous fat Buddha was painted on the rock—and
incense was burnt continually by the owners of the boat. The quality
of their zeal varied relatively to the danger incurred, so we had no
need to make inquiry. At the worst part of all we had to support the
courage of the crew by a pork feast, portions of which were flung into
the air and caught by wicked-looking crows, which hovered
screaming overhead. These crows are looked upon as evil spirits of
the river needing to be propitiated.
The first important town we reached in Hunan was Yuan Chowfu,
and we found there some missionaries of the China Inland Mission
who had many interesting experiences to tell of revolutionary days.
Hunan has always been a particularly anti-foreign province, and
work has progressed slowly: it is not at all surprising that the people
should be slow to understand the object of foreigners coming to
settle among them, and every one mistrusts what they do not
understand. It needs something to break down prejudice, and in this
case the something was of a tragic nature. The missionary came
home one day to find his wife lying in the veranda with a fractured
skull and brain exposed to view: she had been attacked by a
madman, who left her for dead. It was long before she was nursed
back to a certain measure of health, with speech and memory gone.
This happened two years ago, and now she is slowly regaining
strength and her lost powers, and welcomed us with exquisite
hospitality; despite having an attack of fever, she insisted on our
staying to tea and the evening meal. Mr. and Mrs. Becker have the
supreme satisfaction of finding that from the time of the accident
their work has taken on a wholly different complexion; the people
have rallied round them and look to them for support in troublous
times. With but slight medical training Mr. Becker organized Red
Cross classes, and took charge of the wounded in the mission
premises. At one time the city was threatened by revolutionaries, the
officials lost control, and for three days he took full command and
saved the situation. He received medals and a complimentary board
from the Government, acknowledging the great services he had
rendered to Yuan Chow.
No less than nine times Mr. Becker has been caught by robbers,
but has never had a single thing stolen by them, which certainly
constitutes a record. When a pistol was put to his head, he
presented a visiting card, saying, “Take this to your Chief”: it is a fine
example of “a soft answer turneth away wrath.” On recognizing who
he is, they have always released him without any injury. He told us
that recently the robber bands have been broken up, and thought we
need have no anxiety about them. We were regaled with the first
strawberries of the season from their garden, which contained a
promising supply of vegetables, and there were goats and kids in
pens. We went away loaded with good things, and deeply impressed
by the sight of these heroic workers and their colleagues.
The principal industry of the place is white wax: special ash trees
grow here on which the insects live, but every year the insects
necessary to produce the wax have to be brought from the
neighbouring province of Szechwan. “When they reach the right
stage of development they are put in paper boxes, in bamboo trays,
and carried by the swiftest runners. These men only travel by night,
as it is essential that the process of development should not proceed
too rapidly. The boxes have to be opened every day and ventilated,
and the men secure the best rooms in the inns, so that other
travellers have to suffer if they are on the road at the same time”
(Face of China, p. 183). There were also large numbers of paulownia
trees, with their lilac flowers in full bloom: they produce a vegetable
oil used for cooking and for furniture. All this district is noted for its
trees, and much wood is brought down by a tributary river from the
Panghai district, where it is cut down by the Black Miao tribe.
The next town where we halted was particularly attractive,
surrounded by red sandstone walls and grey stone battlements. We
made a complete tour on the top of the city wall, but the houses are
so high that you cannot see into any of the courtyards. At one point
there was a fine, picturesque group of trees overhanging the wall,
otherwise the houses were built very close together, like a rabbit
warren. On the battlements were a number of most comical little
guns, some carefully protected from the weather by shrines built
over them. They looked as if they might have come out of the ark,
but were only about seventy years old, some being dated.
In the market we bought wild raspberries, which had quite a good
flavour when cooked, but they were rather tart, as they were not fully
ripe. We found wild strawberries by the wayside, but were told that
some varieties are poisonous, and those we ate were quite
tasteless.
Our next halting-place was Hong Kiang, where we arrived at 8.30
a.m., and spent a pleasant day with two missionary families, one
being a doctor’s. He was rather depressed, because the town is
under the control of a military governor of irascible temper. The
doctor’s cook had recently been suffering from insanity and was
being treated in the hospital, when he was suddenly seized and
condemned to death. The doctor, on hearing of it, went instantly to
the Governor to explain matters, but he pleaded in vain, and found
the man had been shot while he was with the Governor. Executions
are continually taking place, and so badly done that frequently the
offenders linger wounded for hours after they have been shot. Often
the doctor is begged to go and help, but what can he do? On
occasion he has been allowed to go and bring them back to life! In
one case he had taken stretchers on which to bring the sufferers
back to the hospital, but they were one too few, so that he told one
man he would come back for him. The man dare not wait for his
return, and managed, despite being in a terrible condition, to drag
himself to the hospital on foot.
Mr. Hollenwenger took us up a high hill behind the city to see the
view, and it was certainly worth while, although the heat was great.
The river winds round a long strip of land, and a narrow stream
across it could easily be made navigable so as to save the junks
having to make a detour of several miles. Another big tributary joins
the river almost opposite the stream, by which quantities of wood are
brought down from the hills. The valley is full of ricefields, and we
saw men transplanting the rice with incredible rapidity from the small
field in which it is originally raised to the larger fields where it attains
maturity.
When we got back to lunch we found Dr. Witt had to go at once to
an ambulance class, which the Governor had requested him to
undertake in view of the troops being sent to fight in the struggle now
going on between North and South. In various parts of the country
we found missionaries being used by the authorities in this way. At
the time that China joined the Allies during the war they told the
German missionaries to leave the country, but exceptions were
made in the case of many like these, whose work was felt to justify
their remaining.
The next town of importance that we reached was Shen Chowfu,
where there is quite a large group of American missionaries with
hospitals, schools, etc., whom we had been asked to visit. Their
buildings stood up conspicuously at both ends of the long river-front
of the city. We were told that the hospital had been built with
indemnity money paid by the Chinese Government on account of the
murder of C.I.M. missionaries many years ago, but which the C.I.M.
declined to accept. It is a well-known fact that such money never
comes from the guilty parties, but is extorted from the people, and
consequently is always a source of ill-will. We were told by some
charming American ladies there, how bitter the feeling had been
against them, and that for years they were guarded by soldiery and
never left their houses unaccompanied by a guard. They had
spacious gardens, and the missionaries’ families lived there without
ever going into the streets. It seemed a strange kind of existence,
and brought home to us acutely the question of mission policy. There
seem to me to be two classes of American missionary ideals—
roughly speaking—one of which is responsible for some of the finest
work possible in China and which every one must heartily admire;
such work may be seen at St. John’s University, Shanghai, and in
the American Board at Peking. But there is another increasingly
large class whose faith seems to be pinned on a strange trinity—
money, organization, and Americanization. The first necessity for
them is large and showy buildings, generally apart from the busy city
life, or at least on the outskirts of the city—this may be all right in the
case of boarding-schools, but for hospitals it renders them practically
useless. I have seen groups of residential premises miles away from
the work. The welfare of the missionaries is the foremost
consideration. The means of transport are slow, so that hours must
be spent every day by the workers getting to and from their work,
and they live a life wholly apart from the Chinese. The work is highly
organized, and they have much larger staffs than our missions
provide, as they seem to have unlimited means and men.
Undoubtedly we err grievously in the opposite direction: our
missionaries have all far more work than they can perform. Added to
that, our missionaries have about one-third of the holiday that the
Americans do and less money to make the holiday a real one. Our
societies are all hard hit by the question of finance, but it would be
better to cut down our work rather than spoil its quality by insufficient
staffing and underpay.
The third point is Americanization. A large section of missionaries
so value their own culture that they believe they can do no better
than try and denationalize the Chinese, or Indians, or whatever other
nations they may be working amongst, and transform them into
Americans. In the case of China this seems to me a most disastrous
policy, and founded on serious error. The Chinese and British
characteristic of reserve which we consider a quality they consider a
defect, and believe that familiarity breeds not contempt but
friendship. The breaking down of the reserve in the Chinese
character is only too frequently a breaking down also of moral
barriers—a disintegration of character, and opposed to the genius of
the race. The Chinese student returning from the United States is
often completely spoiled by having cast off the charming old-time
manners of his own country in favour of the hail-fellow-well-met
manners of young America. He cannot be accepted into a European
or Chinese household on his return without taking what seems to
them unwarrantable liberties, while he himself is sublimely
unconscious of the effect produced. In the same way in mission
schools the students are encouraged to familiarity with their teachers
—as for instance in the case of mixed bathing in summer resorts.
The teacher and the taught are all put on the same level, and the
respect which we have been taught to consider due to age and
learning, ceases to exist. “Manners maketh man,” and the difference
in manners is one of the greatest bars to united work, which
Christians of all denominations are trying so hard to build up in China
at the present day.
To return to our brief stay at Shen Chow. It seemed an interesting
place with fine large shops, and we should like to have made closer
acquaintance with them. However, our boatman, who always wanted
to loiter where there was nothing to be seen, showed a sudden
determination that we should leave the town before sundown and
reach a certain safe spot to spend the night. As we were always
urging him to hurry, we felt obliged to give in, and reluctantly went on
board. The Standard Oil Co. is very energetic there, and has a large
advertisement, happily in Chinese characters, which are not
aggressively ugly (like our Western advertisements) all along the
river-front, the last thing we saw as we floated down stream.
Next day we shot the big rapid, and much incense and paper was
burnt to ensure our safety. Rain fell heavily in the evening, as it had
so often done during our journey. Before stopping for the night we
came to a custom-house, where our boat was thoroughly searched
for opium. It meant that at last we were come to a place where
opium was strictly forbidden, namely into the territory under General
Feng’s jurisdiction. The Customs officers, however, were most
courteous, though thorough, and I believe would have taken our
word with regard to our personal belongings, but I preferred that they
should see we were quite willing to be examined.
At midday on the morrow we reached Changteh, and walked
through wet slippery streets a long way till we came to the C.I.M.
house. Mr. and Mrs. Bannan received us most cordially and invited
us to be their guests, as Mr. Locke (who had invited us when we
were at Shanghai) had been transferred to a school five miles down
the river and was sure we should prefer to be in the city. This was
much more convenient, and we found a week only far too short to
see all the interesting things. We spent a couple of nights at the
school with Mr. and Mrs. Locke, and took part in a Christian
Endeavour meeting. This movement has proved very successful in
some parts of China, especially for training the women and girls to
take active part in evangelization. We went down the river in a
minute motor launch, which was very handy, especially as we had to
leave at an early hour to call on General Feng. I leave to another
chapter an account of him and the city, which so obviously bore his
impress when we were there. The level of Changteh is below the
river-level sometimes to the extent of fifteen feet; then the city gates
have to be sandbagged to keep the water out.
From Changteh we went by passenger boat to Changsha, and had
two little cabins which we converted into one for the voyage. The
whole of the roof was covered with third-class passengers and their
belongings; at night they spread their bedding, and in the daytime
squatted about or wandered round the very narrow gangway outside
the cabins, a proceeding which left us in a darkened condition. Yao
managed to prepare us savoury meals in some minute nook, having
brought the necessary stores and a tiny stove on which to cook
them. The day after leaving Changteh we crossed the wonderful lake
of Tong Ting, a lake more than two thousand square miles in extent
during the summer, and non-existent in winter. This strange and
unique phenomenon is due to an overflow of the Yangtze, and in the
summer there is a regular steamship service across the lake,
connecting Changsha with Hankow, two hundred and twenty-two
miles distant, by the river Siang and a tributary of the Yangtze.
Eventually they will be connected by a railway, which is to run from
Hankow to Canton, and of which the southern part is already in
existence—and also a short section from Changsha to Chuchow;
this is only thirty-eight miles and is mainly valuable on account of its
connexion with a branch line to the Ping Siang collieries.
Changsha is an important city, the capital of Hunan. It is large and
clean, the centre of considerable trade, and one of the newest treaty
ports, opened in 1904. The variety of its exports is interesting: rice,
tea, paper, tobacco, lacquer, cotton-cloth, hemp, paulownia oil,
earthenware, timber, coal, iron and antimony. I was anxious to buy
some of the beautiful grass cloth for which it is noted, and was taken
by a friend to some of the big shops, but found them busily packing
up all their goods, in case their shops should be looted by the
approaching Southern troops. Such doings are by no means
uncommon, and all Americans and Europeans seemed to take it as
a matter of course. Arrangements were being made to receive
terrified refugees into mission premises, and the Red Cross was
extremely busy preparing for the wounded. The rumours as to the
Governor fleeing varied from hour to hour, and it soon became plain
that the city would be undefended. Our kind American hosts, Mr. and
Mrs. Lingle, were having little Red Cross flags made to put up as
signals on places of refuge, and he came in to tell us how the tailor
who was making them had just appealed to him for help: a retreating
soldier thought to make hay while the sun shone, and was taking
possession of the sewing-machine, demanding that it should be
carried away for him by the tailor’s assistant. Mr. Lingle also
prevented another sewing-machine being stolen: evidently they were
in great request.
No more striking proof could be seen of the progress of
Christianity in China than the difference of attitude shown towards
missions in time of danger and difficulty. When I first visited China a
mission station was the most dangerous place to live in; now it is the
place of safety par excellence, to which all the Chinese flock when
they are in danger. An interesting illustration of this took place last
year. In a certain district in Shensi a notorious band of robbers came
to a Baptist Missionary and a Roman Catholic priest, and promised
to save the town where they were working if they would procure for
them six rifles. They succeeded in getting the rifles, and took them to
the brigands. When they attempted to use them, the brigands found
they had been tampered with, and decided to loot the town in
consequence. They respected, however, their promise to the men
who had brought them, evidently believing in their good faith, and
said they would spare all the Christians. The problem was how to
recognize them, for at once there were a large number who claimed
to be Christians. The robbers decided by looking at them who was
genuine and who was not. In cases of uncertainty they appealed to
the missionaries, who assure us that they had proved quite accurate
in their judgment. Christianity ought to mould the expression of a
face.
There are many missions of various nationalities at Changsha,
and all seemed extremely prosperous, most of them in large and
handsome buildings. The girls’ school, of which our hostess was the
head, stood in spacious grounds outside the city wall, and near it is
the imposing pile of the Yale mission buildings. The mission started
in 1905 when Dr. Gaze began the medical work, a hospital was
opened in 1908, and the first students graduated in 1912: it is
essentially a medical school, and differs from others as regards the
staff in having short course men sent out from Yale University as
volunteers. They are not necessarily missionaries. There are fine
laboratories for research work, a large new building for science
students, splendid up-to-date equipment in all branches of medical
and surgical work, schools for male and female nurses, beautiful
houses for the large staff of professors, library, a really beautiful
chapel, lecture rooms, dormitories, playing grounds, tennis courts; in
fact everything that can be desired on the most lavish scale, the
greatest conceivable contrast to every other mission I have seen in
China. There is a special ward for Europeans. The new Rockefeller
hospital in Peking is to outshine it in beauty, I believe, but will find it
difficult to equal it in all-round equipment, and of course will lack the
acreage, which makes many things possible in Changsha which are
impossible in Peking. “The Hunan Provincial Government has met all
the local expenses of the College of Medicine and the Hospital for
the last six years.” The Rockefeller Foundation has provided funds
for salaries of additional medical staff, and Yale Foreign Missionary
Society academic teachers and a few of the medical staff. The fees
of the patients cover about half the running expenses of the hospital.
“The campus of Yale in China in the north suburb is on rising ground
between the railroad and the river, where its buildings are
conspicuous to travellers arriving by either train or steamer” (see
Yale College in China). The only drawback seems to be lack of
patients.
One of the finest pieces of mission work I saw was Dr. Keller’s
Bible School, which is supported by a Society in Los Angeles: it is for
the training of Chinese evangelists for all missionary societies, and
they divide the time of training between study and practical work.
They looked a fine body of men, and have been greatly appreciated
by the missionaries for whom they have worked. Application for their
help is made to the school, and they do not go unasked into any
district occupied by a society. When asked to conduct a mission, a
band of men is sent, and their modus operandi is as follows: they
make a map of the district, taking an area of about three square
miles—and after a day spent in prayer the men visit systematically
every house in that area and try to get on friendly terms with old and
young, giving them some portion of Scripture and inviting them to an
evening meeting. As soon as the people have become interested,
evening classes are started respectively for men, women, boys and
girls. The children are taught to sing, as they very quickly learn
hymns and like to practise the new art both early and late. The
special feature of their work is that they go as Friends to the people,
and as their own race; and it is to Chinese only that many Chinese
will listen. The character of many a village has been changed, the
missionaries say, by these national messengers, where they
themselves have been utterly unable to get a hearing. This is an
important feature of present-day missionary enterprise, and is the
link between the Past Phase of foreign evangelization and the Future
Phase of home Chinese mission work. Changsha is full of foreign
workers of many nationalities, but mainly American.
Dr. Keller’s work has been greatly strengthened in the eyes of the
Chinese by the noble example of his mother, whose spirit has
impressed them far more than any words could have done. When
her son was home for his last furlough, he felt that he could not leave
her alone, an old lady of eighty, recently widowed, and he decided to
give up his mission work for the time being. She would not agree to
this, but decided to go out with him and make her home in China for
the remainder of her life. Who can gauge the sacrifice of giving up
home and friends at such a time of life and going to an unknown land
where men spoke an unknown tongue? She had to undergo very
great hardships at first, and now after four years the solitude presses
heavily on her. At first she was able to read a great deal and lived in
her books; but she told us that now her sight is failing the time
seems very long.
We visited a Danish mission of some size, Norwegian Y.M.C.A.
workers, and a Russian lady in charge of a little blind school. She
had had no word from home for the last two years, but was pluckily
sticking to her task. The London Missionary Society has withdrawn
from work in Hunan, but the Wesleyan Mission has a high reputation
under the charge of Dr. Warren. He is one of the men who takes a
special interest in the political side of Chinese life, and gave me
much valuable information about the different parties. Just now the
changes going on are so rapid that anything one put down would be
out of date before it could be printed. The secret forces at work
keeping up hostility between North and South were everywhere
attributed to Japanese militarism: but it is only too obvious that the
present Government is not strong or patriotic enough to deal with the
situation. It is hard enough to carry on good government in so small
and stable a country as our own, so need we wonder at the inability
to transform the whole political and social system of the vastest
country in the world.
Meanwhile the civil war is a very curious one, and happily does not
cause the bloodshed one would expect, considering the forces
engaged. We had some talk with our British Consul about the
dangers of the road, as we wanted to go south to visit the sacred
mountain of Hengshan and thence to cross fine mountain passes
into the neighbouring province of Kwangshi. Mr. Giles told us that it
would be hopeless to attempt it, as an English steamer had been
fired on the day before in the very direction we must take. The
Northern and Southern troops were in active fighting, and every day
they were coming nearer to Changsha. The Governor would
probably desert the city when the Southern army had driven back the
Northern, and no one could say what would happen! After so
discouraging a report it may seem strange that Mr. Giles said there
was to be a reception at the Consulate next day, in honour of the
King’s birthday, to which he invited us.
War seemed infinitely remote from the charming gathering, where
all the foreign community met in the sunny garden on the river-bank.
English hospitality is very delightful so far away from home, and the
cordial spirit of the host and hostess lent a special attractiveness to
the occasion. I was particularly pleased to meet a Chinese friend
there, Miss Tseng, who invited us to visit her school next day. In
Chapter VIII I have tried to give an account of this famous scion of a
famous race.
With all the educational and religious and philanthropic institutions
to be visited, it was most difficult to find time to see the monuments
of the past, but we determined not to miss the beautiful golden-
roofed temple, dedicated to Chia Yi, a great statesman of the second
century B.C. It is now transformed into a school, and we saw the
boys drilling; but they seemed an insignificant handful in those noble
courtyards, and there were no signs of proper or even necessary
equipment.
Our time at Changsha was all too short, and it ended very
pleasantly with an evening spent at the Consulate. By this time many
of the Chinese were in full flight, because of the coming Southerners,
and the city was supposed to be set on fire by incendiaries at 8 p.m.
Our steamer had retired into the middle of the river, because of the
rush of passengers clamouring to be taken on board, and the captain
was unable therefore to fulfil his engagement to dine at the
Consulate. We were promised a fine sight of the blazing city—only
happily the show did not come off—from the Consulate garden
across the river. We stayed there in the delicious summer air till it
was time to go on board, and found it difficult not to step on the
slumbering people who covered the deck when we reached the
steamer. At midnight we slipped down stream, following in the wake
of the departing Governor. The Southern troops came in a few days
later, but without the looting and fighting which has so often
happened in similar circumstances.
Chapter VII
Present-Day Ironsides—General Feng Yu Hsiang
“There shall never be one lost good! What was shall live
as before;
The evil is null, is nought, is silence implying sound;
What was good shall be good, with, for evil, so much good
more;
On the earth the broken arcs; in the heaven the perfect
round.
All we have willed or hoped or dreamed of good shall

exist;
Not its semblance, but itself; no beauty, nor good, nor
power
Whose voice has gone forth, but each survives for the
melodist
When eternity affirms the conception of an hour.
The high that proved too high, the heroic for earth too
hard,
The passion that left the ground to lose itself in the sky,
Are music sent up to God by the lover and the bard;
Enough that He heard it once: we shall hear it by and
by.”
—Browning.
Chapter VII
Present-Day Ironsides—General Feng Yu Hsiang
China is a land full of
surprises, and at the
present day there is an
amazing variety of
individual efforts for the
regeneration of the country
by her patriotic sons and
daughters. In some ways
the chaotic political state of
China makes these
individual efforts possible
where perhaps a more
settled government would
not admit of them. For
instance, each province is
governed by a military or
civil governor, or both; and
within a province may be
found large territories
practically controlled by
some autocratic military
official, the presence of
whose army is the potent
INN LAMP. warrant for his wishes
being executed. In the
province of Hunan, roughly
speaking in the centre of China proper, is such an area, of which
Changteh is the army headquarters.
Having travelled for many weeks through districts infested with
robbers, where law and order are mainly conspicuous by their
absence, where the land is one great poppy garden for the opium
trade, it came as a shock of surprise and delight to enter a district
where we found the exact reverse of these things.
In 1918 there was fighting between the forces of the North and of
the South throughout this district, and as the Northern forces were
defeated and the City of Changteh captured by the Southerners,
General Feng was sent from the neighbouring province of Szechuan
to re-take the city. He had not only defeated the Southern Army
there, but had treated them in an entirely new way. Feng disbanded
the Southern troops after disarming them, and presented each
officer with ten dollars and each private with five dollars, so that they
might be able to return to their homes without resorting to pillage, the
source of so much sorrow in China. The General led his troops to
Changteh and found that the Southern forces had withdrawn, so that
he entered the city unopposed, though by no means with the
goodwill of the inhabitants. They were only too familiar with the
tyranny of ordinary Chinese troops; for it is not by foreigners only
that they are evilly spoken of, but by all Chinese.
In the two years which had elapsed since then this attitude was
completely changed, for the army was paid regularly and not obliged
to prey upon the habitants for sustenance, the strictest discipline was
observed, and no soldier was allowed to loaf about the streets. The
city itself underwent a wonderful purification: gambling dens, opium-
smoking halls, houses of ill repute were swept away, and theatres
transformed into schools; now a woman even can walk the streets
day or night without fear. A notice of three days to quit was given to
the above-mentioned houses, and the order was no dead letter.
Severe fines were inflicted on traffickers in opium. The streets of the
town became wonderfully clean in another sense of the word; the
General is so particular about this that if any of the army mules or
horses pass through it they are followed by scavengers in order that
no traces of their passage may remain; for as there is no wheeled
traffic and the streets are extremely narrow there are no side-walks.
There are notices in the centre of the streets with regard to the rule
of the road, but this is too recent an innovation to be quite
understood as yet. Everywhere one is confronted with signs of the
General’s determination to raise the moral of the people. When he
closed the opium dens he opened refuges for the cure of the smoker,
instead of putting him in prison, as is done in certain parts of the
North. The patient was photographed on entering and on leaving (à
la Barnardo). General Feng punishes with death the soldier proved
to have been trafficking in the sale of opium, while the civilian is
punished by being flogged and paraded bare-backed afterwards
through the streets, preceded by a notice board stating his offence.
The city gaol is the only one in the country which has a chapel and
the missionary bodies in the town have charge—a month at a time
by turns. As you pass along the streets your eye is attracted by
posters of a novel kind. They are pictures descriptive of evil habits to
be shunned: a cock is vainly sounding the réveillé to which the
sluggard pays no heed; the vain woman on her little bound feet
watches from afar the industrious woman doing her task in cheerful
comfort with normal feet, and so on. In odious contrast to these
pictures are the British and American cigarette posters to be found
all over the country, and I was told that one of the leading
Englishmen in the trade said regretfully that he thought they had
done the country no good turn in introducing cigarettes to China.
They are considered a curse by thoughtful Chinese, and at the
request of the officers, the General has prohibited the use of them in
the army, though there is no embargo on other tobacco-smoking.
A Man of Mark.
Page 158
Another noticeable feature of the city is the open-air evening
school, the sign of which is a blackboard on a wall, sheltered by a
little roof which may be seen in many an open space. When the
day’s work is over benches are produced from a neighbouring house
and school begins. The General has established over forty night
schools dotted along the five miles of the city on the river-bank,
besides the industrial schools open during the daytime. We visited
one large training school for girls and women, which he has
established and supports in order to promote industry, and to which
workers from the country districts are welcomed. They have six
months’ training and one meal a day gratis, and they are taught
weaving, stocking-making (on machines), dressmaking and tailoring,
etc., and the goods turned out find a ready market. The instructors
are all very well paid, and the work done is thoroughly good, despite
the disparaging remarks of an elderly overseer who evidently had
the conventional contempt for the Chinese woman’s intelligence.
General Feng is a firm believer in women’s education, and has
established a school for the wives of his officers, to which they come
not altogether willingly, I fear. The unwonted routine and discipline
are naturally a trial, especially to women no longer in their première
jeunesse; and despite the fact that he succeeded in persuading a
highly-trained and charming woman to come from the north to take
charge of it, there have been many difficulties to surmount. She
lunched with us one day and told us an instance of this which makes
one realize the situation: a certain lady resented the fact of her
teacher being the wife of a veterinary surgeon (lower in rank than her
husband), and disregarded her continual efforts to curb her feminine
loquacity and make her attend to her studies. Finally there was a
complete rupture between the ladies, and the unwilling pupil
indignantly left the school. The teacher pondered over this and could
not bear the thought of having quarrelled with a fellow Christian. She
determined to try and make it up, so she called upon the lady, who
refused to see her. Nothing daunted, she tried a second time, and
again the lady was “not at home,” but sent her husband to speak to
her. The teacher explained to him all she felt—he was so moved by
her appeal that he fetched his wife, a complete reconciliation took
place, and she returned to school.
The General has a short religious service in his own house every
Sunday morning for these ladies, at which he, his wife and some
officers are present, and at which he invited me to speak.
Having described in outline the changes effected in Changteh by
General Feng, it is time to try and describe the man himself and his
past life. He is tall and powerful, with a resolute, masterful air as
befits a man who is ruler of men; but his ready smile and the
humorous twinkle in his eye reassures the most timid. He was born
in 1881 in the northern province of Nganhwei, of humble parentage,
and had no educational advantages. He has amply made up for this,
however, having a keen sense of the value of knowledge and giving
to others what was not given to him. The study of English is being
eagerly pursued by himself and his officers, and he will soon pick it
up if he comes to England, as he wishes to do.
General Feng entered the army as a common soldier, and in 1900
was present (on duty), but only as an onlooker, at the Boxer
massacre of missionaries at Paotingfu. This was his first contact with
Christian people, and it made a deep impression on him. This was
strengthened by further contact with a medical missionary, who
cured him of a poisoned sore and charged nothing, but told him of
the love of God, Who had sent him to heal the sick. There is no
doubt that medical missions have been one of the best possible
instruments for winning the Chinese to Christianity, and one cannot
but regret that it is now becoming necessary to abandon the practice
of non-payment, except for the most necessitous cases, on account
of the terrible rise in prices and the lack of funds for the upkeep of
our hospitals. However, it appears to be inevitable.
The turning-point in General Feng’s life took place when he was
stationed at Peking in 1911, having already risen to the rank of
Major. He was feared and disliked by officers and men on account of
his fierce temper, which caused him to strike them when he was
angry, while his wife also had to submit to being beaten when she
displeased her lord and master in the most trivial details. There was
as complete a change in his life as in Saul’s when he obeyed the
heavenly vision. This was the result of attendance at a meeting by
Dr. Mott, and he was assigned to Bishop Morris’s care for further
teaching. The strongest influence brought to bear on him at that
time, however, seems to have been that of Pastor Liu, of the
Wesleyan Mission, who became one of his best friends. It is not easy
at the age of thirty-one to conquer an ungoverned temper and
tongue, but the fact remains that he is now adored by his troops, and
that he has never abused or ill-treated his wife (a General’s
daughter) since becoming a Christian. How difficult this is may be
judged by the fact that one of the finest characters among the
Christian Chinese clergy, Pastor Hsi, says that he found it so
impossible to conquer the lifelong habit of abusive language to his
wife that he had to make it a special matter of prayer before he could
succeed, though he was such a saint. The question of bad language
throughout the army is remarkable; an American missionary, after
spending a year constantly in and out amongst the men, said he had
heard none, for the General has a wonderful way of getting his
wishes observed, and has been instrumental in winning the bulk of
both officers and men to Christianity. He has compiled a treatise on
military service, redolent of Christian morality, which every one of his
men can repeat by heart. This treatise has been taken as the basis
of General Wu Pei Fu’s handbook (a friend of General Feng), who
quotes Cromwell’s army of Ironsides as a model for the soldier’s
imitation, though he does not profess to be a Christian! It may be
thought that the Christianizing of the army is of doubtful reality, but
this is certainly not the case; for in the first place the amount of Bible
teaching they are undergoing is far beyond what would ordinarily be
the case here at home before admitting candidates to Church
membership, and the only difficulty about this teaching is to find the
teachers necessary for such numerous candidates: they are keen to
learn about Christianity. Before baptism they have to submit to a
searching examination of their character and behaviour, and must
have an officer’s certificate to that effect. In addition each man must
sign a statement promising to spend time daily in prayer and study of
the Bible, to seek the guidance of the Holy Spirit and to obey the
teaching of the New Testament.
Nevertheless, they have been baptized by hundreds, so that
already more than a third of the army (and I think the proportion must
be much greater now, as over one hundred were postponed as being

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Financial Accounting A Business

Process Approach 3rd Edition Reimers

Learning Objective 6-1

6.1-1) Depreciation is ________.

6.1-3) Which of the following is typically a long-term asset?

6.1-6) Cost is ________.

6.1-7) Which statement below is TRUE about the cost principle?

6.1-8) Which of the following expenditures should NOT be capitalized?

Parts for the machine $80,000

What should Perfuncto, Inc. record as the cost of the machine?

Asset Appraised values Recorded Values

Answer: Asset Recorded Values

6.1-22) Explain the cost principle.

Learning Objective 6-2

6.2-8) Residual (salvage) value means the ________.

6.2-9) Depletion is the ________.

6.2-10) Depreciation is the ________.

6.2-12) Which statement below is TRUE of the straight-line method of depreciation?

6.2-16) Which statement about accelerated depreciation methods is TRUE?

6.2-19) Which of the following assets can NOT be depleted?

6.2-38) Capitalizing a cost means to record the cost as an asset.

6.2-42) An accelerated depreciation method refers to any method of depreciating a long-term,

6.2-43) To "capitalize" means to record a cost as an asset.

Answer: 1. Straight-line method

2. Double-declining balance method

3. The activity (units-of-production) method

Answer: 1. Straight-line method

3. Activity (units of production) method

December 31, 2012: Straight- Activity Double-declining

December 31, 2012: Straight-line Activity Double-declining

Straight-line depreciation: ($100,000 — 10,000) / 10 years = $9,000 per year

Assets Shareholders’ equity

Assets Shareholders’ equity

Assets Shareholders’ equity

6.3-1) Which of the following is NOT an intangible asset?

6.3-2) Which assets are depreciated?

6.3-3) Which assets are depleted?

6.3-4) Which assets are amortized?

6.3-5) A business will have depletion expense only if it has ________.

6.3-8) Which of the following assets should be amortized?

6.3-11) All long-term assets are tangible.

6.3-12) Intangible assets provide specific legal rights to the owner.

6.3-14) Intangible assets are depleted over their useful lives.

6.3-15) Intangible assets are depreciated over their useful lives.

6.3-16) Intangible assets are amortized over their useful lives.

______ 1. Accounts payable

6.4-2) To be capitalized, an expenditure must ________.

6.4-3) Which of the statements below is TRUE?

6.4-4) Which of the statements below regarding capital expenditures is TRUE?

Expenditure Capitalize Expense

Expenditure Capitalize Expense

Answer: Expenditure Capitalize Expense

Payment Expense Capitalize Neither

Capital Expense (Revenue

2. The book value of the machine at December 31, 2012 is $___________________.

______ 1. $5,000 spent to improve the working condition of a truck

______ 1. Paid one-month’s rent on an office

Learning Objective 6-5

All we have willed or hoped or dreamed of good shall

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