Upgrade to remove ads
Only $35.99/year

Ch 10 smartbook

Terms in this set (62)

_____ assets are assets used in a company's operations that have a useful life of more than one accounting period.
plant or fixed
The cost of plant assets should include all of the normal and reasonable expenditures necessary to get the asset in place and ready for its intended use, including repairs to damages incurred after installation
False
Alin Co. purchases a building for $300,000 and pays an additional $30,000 for title fees and lawyer fees. Alin also pays $20,000 in renovations, including painting, carpet, lighting, etc. Alin should record the cost of the building at:
$350,000
Geo Co. purchased a building for $400,000. In addition, Geo paid $35,000 for taxes and lawyer fees. Geo also paid $60,000 to modify the building, changing the layout specifically for Geo's needs. Geo should record the building at $
495000
Land _______ are assets that are additions to land and have limited useful lives, such as walkways and fences.
improvements or improvement
Which of the following items are plant assets?
Equipment being used in operations

Building being used for operations
Ion Co. purchased land for $190,000. Ion also paid $5,000 in real estate commissions, $1,000 in legal fees, and $500 in title insurance fees. Ion should record the cost of this land at:
$196,500
Plant assets should be recorded at cost, including all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use. This would include which of the following costs?
Testing
Assembling
Shipping charges
The cost at which a company records purchases of machinery and equipment should include which of the following?
Installation
Shipping fees
Taxes
Purchase price
Wen Co. purchased a building for $200,000. Wen paid $20,000 in lawyer and title fees. Wen also paid an additional $15,000 to modify the building in order to accommodate his business needs. Wen should record the cost of the building at:
$235,000
Assets that increase the benefits of land, have a limited useful life, such as parking lots and lighting systems, are called
land improvements
PT Co. purchased land and an existing building for $200,000. In addition, PT paid real estate commissions of $15,000. PT removed the unwanted building and graded the land for a total cost of $35,000. PT should record the cost of the land at:
$250,000
________ assets purchased as a group in a single transaction for a lump-sum price are allocated the purchase price based on their relative market values.
plant
_______ is the process of allocating the cost of a plant asset to expense while it is in use
Depreciation
The factors necessary to compute depreciation include all of the following, except:
book value
Straight-line depreciation can be calculated by taking:
(cost minus salvage value)/useful life
The purchase of a group of plant assets for one price is called a ______ purchase
lump-sum
Depreciation Expense is reported on which of the following financial statements?
Income statement
Accumulated depreciation is recorded on which of the following financial statements?
Balance sheet
On January 1, Enco Co. purchases a milling machine for $15,000. The machine is expected to last seven years and have a salvage value of $1,000. Assuming the company uses the straight-line method, depreciation expense should be $ _______ per year.
2000

(cost minus salvage value)/useful life
The factors necessary to compute depreciation include (cost/selling price/market value) ________, salvage value and useful life.
cost
Ring Co. owns a delivery van that was purchased two years ago for $25,000. Ring has depreciated the van for two years at a straight-line amount of $4,000 per year. The book value of this van at the end of the second year would be $
17000

25k-4k-4k
Straight-line depreciation is calculated by taking cost minus (salvage/market) _______ value divided by useful life.
salvage
Grand Co. owns one copier that was purchased for $10,000 three years ago. The depreciation expense taken on the copier each year has been $2,700; $1,800; and $2,200, based on the number of copies that have been made on the copier. Based on this information, the company uses the ________ depreciation method.
units-of-production
Which of the following items related to depreciating equipment would be found on a company's income statement?
Depreciation Expense - Equipment
Bina Co. purchased a machine on January 1st for $15,000 and estimates it will use the machine for three years with a $3,000 salvage value. Bina estimates that they will produce 1,500 units during year one, 1,000 units during year two, and 1,250 units during year three. Using the units-of-production method, compute the machine's second year depreciation expense.
$3,200

Reason:
$15,000 - $3,000 = $12,000. Total units = 1,500 + 1,000 + 1,250 = 3,750. $12,000 / 3,750 = $3.20 per unit. Year two 1,000 x $3.20 = $3,200.
Accumulated depreciation is a ______ asset account (one that is linked with the plant asset account, but has an opposite normal balance) and is reported on the balance sheet
contra
The depreciation method that determines the depreciation for the period by multiplying a depreciation rate (often twice the straight-line rate) by the asset's beginning-period book value is known as the __________ method.
declining-balance
On January 3, ATA Company purchases a copy machine for $11,500. The machine is expected to last five years and have a salvage value of $1,500. Compute depreciation expense for the first year, assuming the company uses the straight-line method.
$2,000

Reason:
(11,500-1,500)/5 =2,000
Juno Co. purchased a machine for $10,000 and estimates it will use the machine for four years with a $2,000 salvage value. Using the double declining-balance depreciation method, compute the machine's first year depreciation expense.
$5,000

Reason:
$10,000 x (.25 x 2) = $5,000.
Arc Co. purchased a piece of equipment for $25,000. At the end of the year, the book value of the equipment is $12,000. The salvage value is 0. How much is accumulated depreciation, using the straight-line method, at the end of the period?
$13,000

Reason:
25,000-12,000 =13,000
On October 30, Cleo Co. purchased a machine for $26,000 and estimates it will use the machine for four-years with a $2,000 salvage value. Using the straight-line depreciation method, compute the machine's first year partial depreciation expense for October 30 through December 31.
$1,000

Reason:
This is a partial year depreciation. $26,000 - 2,000 = $24,000/4 = $6000 per year. $6000 x 2/12 = $1,000.
The method of depreciation that charges a varying amount to depreciation expense for each period depending on its usage is called the _________ method.
units-of-production
When a company revises an estimate used to record depreciation expense, the company should revise depreciation by using the formula (_______ - revised salvage value)/revised remaining useful life.
book value
Juno Co. purchased a machine for $10,000 and estimates it will use the machine for three years with a $2,000 salvage value. It expects to produce a total of 8,000 units as follows: 3,000 during year one; 2,500 during year two; and 2,500 during year three. Using the units-of-production depreciation method, compute the machine's first year depreciation expense.
$3,000

Reason:
$10,000 - 2,000 = $8,000. $8,000 / 8000 units = $1.00 per unit. Year one 3,000 x $1.00 = $3,000.
Privo Co. purchases a machine that cost $15,000. Privo estimates a 5-year life with no salvage value. The first three years of depreciation expense are $6,000; $3,600; and $2,160, respectively. Based on this information, Privo is using the ________ depreciation method.
declining-balance
Bina Co. purchased a vehicle on January 1st for $15,000 and estimates it will use the vehicle for eight years with a $3,000 salvage value. Using the double declining-balance depreciation method, compute the vehicle's second year depreciation expense.
$2,812.50

Reason:
Salvage value is not subtracted up front with the double-declining balance method. (100%/8=.125) x 2=25%. 15,000 x 25%=3,750 for first year. Second year=(15,000-3750) x 25% =2812.50. The question asked for the second year depreciation expense.
On June 1, Harding Co. purchased a machine for $14,000 and estimates it will use the machine for five-years with a $2,000 salvage value. Using the straight-line depreciation method, compute the machine's first year (partial) depreciation expense for June 1st through December 31st.
$1,400

Reason:
(14,000-2000)/5 x 7/12=1,400 for a partial year depreciation.
Tops Co. purchases equipment for $12,000 and has been using straight-line depreciation, estimating a 5-year life and $500 salvage value. At the beginning of the third year, Tops decides to use the equipment for a total of 6-years with no salvage value. Compute the revised depreciation for the third year.
$1,850

Reason:
(12,000-500)/5=2,300 per year. $2,300 x 2 years = $4,600 depreciation taken. Book value at beginning of year 3 = $12,000-4,600= $7,400/4 = $1,850.
(Revenue/Capital) _____ expenditures are additional costs of plant assets that do not materially increase the asset's life or capabilities.
revenue
_______ are expenditures that keep an asset in good operating condition. They are necessary if an asset is to perform to expectations over its useful life.
Ordinary repairs
_________ are expenditures that make a plant asset more efficient or productive, but do not always increase an asset's useful life.
Betterments
Determine which of the following expenses are considered revenue expenditures related to a company vehicle.
Car wash
Oil change
Dent repair
A plant asset is (depreciated/discarded/obsolete) __________ when it is no longer useful to the company, and it has no market value.
discarded
Which of the following situations will result in recognizing a gain on sale of a plant asset?
A fully depreciated asset is sold for $1,000.
Which of the following expenses would not be considered an ordinary repair?
Replacing an engine
Forward Co. discarded a machine that cost $5,000 and was fully depreciated. The entry to record this transaction would include a credit to the _________ account.
Machinery
Niren Co. made modifications to a manufacturing machine that increased its productivity by 40%. Niren would classify this expense as a(n):
betterment
Martinez Co. sells a machine that cost $10,000 with accumulated depreciation of $8,000 for $2,000 cash. The entry to record this transaction will recognize a gain or loss of how much?
There is no gain or loss.
A company sells a machine that cost $7,000 for $500 cash. The machine had $6,500 accumulated depreciation. The entry to record this transaction will include which of the following entries?
Credit to Machinery for $7,000.
Debit to Cash for $500.
Debit to Accumulated Depreciation - Machinery for $6,500.
A company owns an asset that is fully depreciated. The asset is no longer being used in operations and has no market value. The company has decided to ________ the asset by recording an entry to remove it from the balance sheet.
discard
1.) Book value is greater than the selling price
2.) Book value is less than the selling price
3.) Book value is equal to the selling price
1.) Loss on sale of asset
2.)Gain on sale of asset
3.)No gain or loss recognized
Which of the following asset(s) are not considered intangible assets?
Mineral deposit
Copy machine
On December 31, Briar Co. disposed of a piece of equipment that cost $6,000 with accumulated depreciation of $4,500. The entry to record this disposal would include a debit to which account and for how much?
Loss on Disposal of Equipment for $1,500
Which of the following assets are amortized?
Patent
Copyright
A company acquires a patent for $20,000 to manufacture and sell an item. The company intends to hold the patent for 5 years. Amortization for the first year will be recorded with a debit to Amortization Expense for $_____
4000

20k/5
A patent was purchased for $20,000 and expected to be used for the 20-year life with no salvage value. The entry to expense the patent during the second year of life will include which of the following entries?
Debit to Amortization Expense $1,000

Credit to Accumulated Amortization $1,000
_______ are nonphysical assets used in operations that give companies long-term rights, or competitive advantages.
Intangible assets
The exclusive right to publish or sell a musical, literary, or artistic work during the life of the creator plus 70 years is called a
copyright
Copyrights, trademarks, and other intangible assets are expensed over their useful lives through the process of:
amortization
Wyatt Co. purchased a popular symbol that doubled its sales in the first year. The cost of this symbol is an asset called a:
trademark
A _______ is an exclusive right granted to its owner to manufacture and sell an item or use a process for 20 years.
patent
Students also viewed