Need A Tutor?    |   Need Homework Help?                                                                             Help and Support     | Join or Cancel

    Homework   1.1  1.2   2.1  2.2  3.1  3.2   4.1  4.2  5.1  5.2   6.1   6.2  7.1  7.2  8.1  8.2  9.1  9.2  10.1   10.2  11.1   11.2  12.1  12.2   13.1  13.2

Mohr Company purchases a machine at the beginning of the year at a cost of $44,000.
The machine is depreciated using the double-declining-balance method. The machine’s useful life is
estimated to be 8 years with a $3,000 salvage value. Depreciation expense in year 2 is:
 
Multiple Choice
 
$33,000.
$8,250
$5,500.
$10,250
$11,000.
 
Double declining depreciation rate = 1 / useful-life x 2
1 / 8 x 2 = .25
Depreciation expense for year 1 = cost of the asset x Depreciation rate
44,000 x .25 = 11000
Depreciation expense for year 2 = cost of the asset - Depreciation year 1 x Depreciation rate
44,000 - 11000 x .25 = 8,250
   
A company purchased property for $100,000. The property included a building, a parking lot, and land.
The building was appraised at $56,500; the land at $49,400, and the parking lot at $19,100.
Land should be recorded in the accounting records with an allocated cost of:
 
$49,400.
$45,520.
$100,000.
$39,520
$0.
 
Appraised Value of Land / Total Appraised Value x Value Of Property
49,400 / 56,500 + 49,400 + 19,100 x 100,000 = 39,520
   
Wickland Company installs a manufacturing machine in its production facility at the beginning of
the year at a cost of $156,000. The machine's useful life is estimated to be 5 years, or 180,000 units
of product, with a $4,000 salvage value. During its second year, the machine produces 28,800 units
of product. Determine the machines' second year depreciation under the straight-line method.
 
$31,200.
$32,000.
$24,960.
$24,320.
$30,400
 
Depreciable amount = Cost - Salvage Value / useful life
156,000 - 4000 / 5
   
Martin Company purchases a machine at the beginning of the year at a cost of $76,000.
The machine is depreciated using the straight-line method. The machine’s useful life is estimated
to be 4 years with a $9,000 salvage value. Depreciation expense in year 4 is:
 
$19,000.
$0.
$67,000.
$16,750
$76,000
 
Depreciable amount = Cost - Salvage Value / useful life
   
Mohr Company purchases a machine at the beginning of the year at a cost of $25,000.
The machine is depreciated using the straight-line method. The machine's useful life is
estimated to be 8 years with a $7,000 salvage value. Depreciation expense in year 2 is:
 
$2,250.
$2,000.
$4,960.
$4,320.
$0.

25,000 − 7,000) / 8 = 2,250
   
A company purchased a delivery van for $20,000 with a salvage value of $3,200 on October 1, Year 1.
It has an estimated useful life of 4 years. Using the straight-line method, how much depreciation
expense should the company recognize on December 31, Year 1?
 
$1,050.
$2,600.
$3,960.
$1,320.
$6,880.

20,000 − 3,200) / 4 × 3 / 12 = 1,050
   
Cliff Company traded in an old truck for a new one. The old truck had a cost of $200,000 and
accumulated depreciation of $40,000. The new truck had an invoice price of $195,000.
Huffington was given a $153,000 trade-in allowance on the old truck, which meant they paid
$42,000 in addition to the old truck to acquire the new truck. If this transaction has commercial
substance, what is the recorded value of the new truck?
 
$42,000
$200,000
$195,000
$202,000
$160,000
 
Cash paid + trade in allowance
42,000 + 153,000 = 195,000
   
A company purchased property for $100,000. The property included a building, a parking lot,
and land. The building was appraised at $62,000; the land at $45,000, and the parking lot at $18,000.
Land should be recorded in the accounting records with an allocated cost of:
 
$36,000.
$42,000
$20,000
$22,000
$60,000
 
100,000 × 45,000 / (62,000 + 45,000 + 18,000) = 36,000
   
Mohr Company purchases a machine at the beginning of the year at a cost of $36,000.
The machine is depreciated using the units-of-production method. The company estimates it
will use the machine for 5 years, during which time it anticipates producing 80,000 units.
The machine is estimated to have a $4,000 salvage value. The company produces 10,000
units in year 1 and 7,000 units in year 2. Depreciation expense in year 2 is:
 
$2,800
$21,600.
$6,400
$4,000.
$14,400.
 
36,000 - 4,000 / 80,000 x 7,000 = 2,800
   
A company had average total assets of $912,000. Its gross sales were $1,089,000 and its net
sales were $985,000. The company's total asset turnover equals:
 
1.23.
1.08.
1.11
0.93.
0.84
 
985,000 / 912,000 = 1.08
   
A company sold equipment that originally cost $280,000 for $140,000 cash.
The accumulated depreciation on the equipment was $140,000.
The company should recognize a:
 
$140,000 loss.
$140,000 gain.
$70,000 gain.
$70,000 loss.
$0 gain or loss
 
 
Current book value of asset = original cost - depreciation
140,000 – 140,000 = 0
   
Beckman Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $156,000.
The asset is expected to have a salvage value of $16,400 at the end of its five-year useful life.
If the asset is depreciated on the double-declining-balance method, the asset's book value
on December 31, Year 2 will be:

$50,868
$37,152
$84,240
$33,912
$154,800
   
The following information is available on a depreciable asset:
The asset's book value is $78,800 on January 1, Year 3. On that date, management determines
that the asset's salvage value should be $5,000 rather than the original estimate of $10,000.
Based on this information, the amount of depreciation expense the company should recognize during Year 3 would be:
 
$9,225
$5,868
$7,152
$8,240
$3,912

78,800 − 5,000) / 8 = 9,225.00.
 
   
Peavey Enterprises purchased a depreciable asset for $27,500 on April 1, Year 1.
The asset will be depreciated using the straight-line method over its four-year useful life.
Assuming the asset's salvage value is $3,100, what will be the amount of accumulated depreciation
on this asset on December 31, Year 3?
 
$27,500.
$36,688.
$24,875.
$27,188
$16,775
 
Year 1 - (27,500 – 3,100 / 4) x (9 / 12) = 4,575
Year 2 - 27,500 – 3,100 / 4 = 6,100
Year 3 – 6,100
4,575 + 6,100 + 6,100 = 16,775
   
Martin Company purchases a machine at the beginning of the year at a cost of $115,000.
The machine is depreciated using the double-declining-balance method.
The machine’s useful life is estimated to be 4 years with a $9,500 salvage value. Depreciation expense in year 4 is:
 
$57,500.
$26,688.
$4,875.
$7,188
$9,750
 
115,000 x .5 x .5 x 5 x .5
   
A company had a tractor destroyed by fire. The tractor originally cost $136,000 with accumulated
depreciation of $69,900. The proceeds from the insurance company were $31,000.
The company should recognize:
 
A gain of $35,100
A loss of $35,100.
A gain of $31,000.
A loss of $66,100.
A gain of $66,100.
   
A company had a tractor destroyed by fire. The tractor originally cost $137,000 with accumulated depreciation
of $70,800. The proceeds from the insurance company were $32,000. The company should recognize:
 
A loss of $34,200.
 
137,000 – 70,800 – 66,200 = 34,200
   
A company used straight-line depreciation for an item of equipment that cost $12,900, had
a salvage value of $2,400 and a six-year useful life. After depreciating the asset for three
complete years, the salvage value was reduced to $1,290 but its total useful life remained
the same. Determine the amount of depreciation to be charged against the equipment
during each of the remaining years of its useful life:
 
$2,400.
$4,670.
$1,050.
$2,160.
$2,120
 
Asset value- $12900 Salvage value 2,400 Useful life 6 years
Depreciation every year – 12,900 – 2,400 / 6 = 1750
Depreciation for 3 years= 1,750 x 3 = 5250
Remaining useful life   2 years
Asset value after 3 years = 12,900 – 5,250 = 7,650
Salvage value (revised) $1290
Depreciable value of the Asset = 6,350
Remaining life 3 years
Depreciation to be charged every year = 6,350 / 3 = 2,120
   
Marlow Company purchased a point of sale system on January 1 for $7,300.
This system has a useful life of 5 years and a salvage value of $1,350.
What would be the depreciation expense for the second year of its useful life using the
double-declining-balance method?
 
$3,100.
$1,486.
$1,550
$2,700.
$1,350
 
1/4 x 2 - .50
6,200 x .50 x .50 - 1,550
   
Wickland Company installs a manufacturing machine in its production facility at the beginning
of the year at a cost of $108,000. The machine's useful life is estimated to be 4 years, or 140,000
units of product, with a $2,000 salvage value. During its second year, the machine produces
28,000 units of product. Determine the machines' second year depreciation under the
units-of-production method. (Do not round intermediate calculations.)
 
$21,600.
$26,500.
$21,200
$27,500.
$27,000
 
units-of-production = Cost of equipment – Salvage value) / Estimated units of useful life x units in year 2
108,000 - 2000 / 140,000 = .7571428571 x 28,000 = 21,200
   
Mohr Company purchases a machine at the beginning of the year at a cost of $27,000.
The machine is depreciated using the straight-line method. The machine’s useful life is
estimated to be 8 years with a $5,000 salvage value. Depreciation expense in year 2 is:
 
$22,000.
$3,375.
$2,750.
$0.
$6,750
 
27,000 – 5,000 / 8 = 2,750
   
Peavey Enterprises purchased a depreciable asset for $23,500 on April 1, Year 1. The asset
will be depreciated using the straight-line method over its four-year useful life.
Assuming the asset's salvage value is $2,300, Peavey Enterprises should recognize depreciation expense in Year 2 in the amount of:
 
$8,375.
$2,750.
$5,300.00
$0.
$5,750

23,500 − 2,300) / 4 = 5,300
   
A total asset turnover ratio of 2.2 indicates that:
 
For every $1 in assets, the firm produced $2.2 in net sales during the period
For every $1 in assets, the firm earned $2.2 in net income.
For every $1 in assets, the firm paid $2.2 in expenses during the period.
For every $1 in sales, the firm acquired $2.2 in assets during the period.
For every $1 in assets, the firm earned gross profit of $2.2 during the period
For every $1 in assets, the firm produced $2.2 in net sales during the period
   
A company discarded a computer system originally purchased for $8,200. The accumulated
depreciation was $7,000. The company should recognize a (an):
 
$7,000 loss.
$1,200 gain.
$8,200 gain.
$1,200 loss
$0 gain or loss
 
Cost of computer system             8200
Accumulated depreciation          (7000)
Book value                                         $1200  
Cash received                                   (0)
Loss on disposal                               $1200
   
An asset's book value is $43,200 on January 1, Year 6. The asset is being depreciated $600 per
month using the straight-line method. Assuming the asset is sold on July 1, Year 7 for $31,400,
the company should record:
 
Neither a gain or loss is recognized on this type of transaction.
A loss on sale of 1,000
A loss on sale of 500
A gain on sale of 1,000
A gain on sale of 500
 
 
43,200 – 31,400 = 11800
January 1st year 6 – July 1 year 7  = 18 months
11,800 – (18 x 600) = 1,000 loss
   
Ngu owns equipment that cost $96,500 with accumulated depreciation of $66,000.
Ngu asks $35,750 for the equipment but sells the equipment for $33,500.
Compute the amount of gain or loss on the sale.
 
$5,250 gain.
$2,250 gain.
$3,000 gain
$3,000 loss.
$5,250 loss
   
Beckman Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $156,000.
The asset is expected to have a salvage value of $16,400 at the end of its five-year useful life.
If the asset is depreciated on the double-declining-balance method, the asset's book value on December 31, Year 2 will be:
 
$62,000.
$36,000.
$88,000.
$76,000.
$84,240
   
A company sold equipment that originally cost $360,000 for $288,000 cash.
The accumulated depreciation on the equipment was $72,000. The company should recognize a:
 
$0 gain or loss.
$72,000 loss.
$36,000 loss.
$288,000 gain.
$36,000 gain.
 
360,000 - 72,000 = 288,000
288,000 - 288,000 = 0
   
A company purchased equipment valued at $263,000. It traded in old equipment for a $164,000 trade-in
allowance and the company paid $99,000 cash with the trade-in. The old equipment cost $250,000 and had
accumulated depreciation of $100,000. This transaction has commercial substance.
What is the recorded value of the new equipment?
 
$263,000.
$249,000.
$99,000.
$164,000.
$150,000.
   
Marlow Company purchased a point of sale system on January 1 for $6,600.
This system has a useful life of 10 years and a salvage value of $1,000. What would be the depreciation
expense for the second year of its useful life using the double-declining-balance method?
 
$1,056.

6,600 × (2 × 10%) = 1,320
6,600 − 1,320) × (2 × .10) = 1,056
   
An asset's book value is $19,500 on December 31, Year 5. Assuming the asset is sold on
December 31, Year 5 for $13,500, the company should record:
 
A loss on sale of $6,000.

13,500 − 19,500 = 6,000 Loss
   
An asset's book value is $21,600 on January 1, Year 6. The asset is being depreciated $300
per month using the straight-line method. Assuming the asset is sold on July 1, Year 7 for
$14,200, the company should record:
 
A loss on sale of $2,000.

 
A company sold a tractor that originally cost $129,000 for $24,000 cash.
The accumulated depreciation on the tractor was $63,600. The company should recognize:
 
A loss of $41,400.
   
Granite Company purchased a machine costing $118,340. Granite paid freight charges of $2,200.
The machine requires special mounting and wiring connections costing $10,200.
When installing the machine, $1,700 in damages occurred. Compute the cost recorded for this machine.
 
$130,740.

118,340 + 2,200 + 10,200 = 130,740
   
Wickland Company installs a manufacturing machine in its production facility at the beginning
of the year at a cost of $117,000. The machine's useful life is estimated to be 10 years, or
130,000 units of product, with a $3,000 salvage value. During its second year, the machine
produces 10,400 units of product. Determine the machines' second year depreciation under the straight-line method.
 
$11,400.
 
117,000 − 3,000 / 10 = 11,400
   
Phoenix Agency leases office space. On January 3, Phoenix incurs $78,600 to improve
the leased office space. These improvements are expected to yield benefits for 8 years.
Phoenix has 6 years remaining on its lease. Compute the amount of amortization expense
that should be recorded the first year related to the improvements.
 
$13,100.

$78,600 / 6 = 13,100
   
Crestfield leases office space. On January 3, the company incurs $22,000 to improve
the leased office space. These improvements are expected to yield benefits for 20 years.
Crestfield has 10 years remaining on its lease. What journal entry would be needed to
record the expense for the first year related to the improvements?
 
Debit Amortization Expense / Leasehold Improvements $2,200
Credit Accumulated Amortization / Leasehold Improvements $2,200.

22,000 / 10 = 2,200
   
Nike owns equipment that cost $105,500 with accumulated depreciation of $72,000.
Nike asks $38,000 for the equipment but sells the equipment for $35,000.
Compute the amount of gain or loss on the sale.
 
$1,500 gain.

35,000 + 72,000 - 105,500
   
Gaston owns equipment that cost $15,500 with accumulated depreciation of $4,650.
Gaston sells the equipment for $9,800. Which of the following would not be part of the
journal entry to record the disposal of the equipment?
 
Credit Gain on Disposal of Equipment $1,050.

9,800 − (15,500 − 4,650) = 1,050
   
Riverboat Adventures pays $450,000 plus $5,000 in closing costs to purchase real estate.
The real estate consists of land appraised at $67,200, a building appraised at $158,400, and
land improvements appraised at $254,400. Compute the cost that should be allocated to the building.
 
$150,150.

158,400 / (158,400 + 67,200 + 254,400) = 0.33
450,000 + 5,000) × 0.33 = 150,150
   
Mohr Company purchases a machine at the beginning of the year at a cost of $25,000.
The machine is depreciated using the straight-line method. The machine's useful life is
estimated to be 8 years with a $7,000 salvage value. Depreciation expense in year 2 is:
 
$2,250.
 
(25,000 − 7,000) / 8 = 2,250
   
Mohr Company purchases a machine at the beginning of the year at a cost of $35,000.
The machine is depreciated using the straight-line method. The machine's useful life is
estimated to be 5 years with a $4,000 salvage value. The book value of the machine at
the end of year 2 is:
 
$22,600.

(35,000 − 4,000) / 5 = 6,200
35,000 − (6,200 × 2) = 22,600
   
Mohr Company purchases a machine at the beginning of the year at a cost of $39,000.
The machine is depreciated using the double-declining-balance method.
The machine's useful life is estimated to be 5 years with a $5,000 salvage value.
Depreciation expense in year 2 is:
 
$9,360.

39,000 × (2 × .20 = 15,600
39,000 − 15,600) × (2 × .20) = 9,360
   
Martin Company purchases a machine at the beginning of the year at a cost of $71,000.
The machine is depreciated using the straight-line method. The machine's useful life is
estimated to be 4 years with a $4,000 salvage value. Depreciation expense in year 4 is:
 
$16,750.

71,000 − 4,000) / 4 = $16,750
   
Martin Company purchases a machine at the beginning of the year at a cost of $80,000.
The machine is depreciated using the straight-line method. The machine's useful life is
estimated to be 5 years with a $5,000 salvage value.
The book value of the machine at the end of year 5 is:
 
$5,000.
 
80,000 − 5,000) / 5 = 15,000
80,000 − (15,000 × 5) = 5,000
   
Martin Company purchases a machine at the beginning of the year at a cost of $155,000.
The machine is depreciated using the double-declining-balance method.
The machine's useful life is estimated to be 4 years with a $12,900 salvage value.
Depreciation expense in year 4 is:
 
$6,475.
 
155,000 × (2 × .25) = 77,500
155,000 − $77,500) × (2 × .25) = 38,750
155,000 − 116,250) × (2 × .25) = 19,375
19,750 – 12,900 = 6,475
   
When originally purchased, a vehicle costing $24,120 had an estimated useful life of 8 years and
an estimated salvage value of $2,200. After 4 years of straight-line depreciation, the asset's total
estimated useful life was revised from 8 years to 6 years and there was no change in the estimated
salvage value. The depreciation expense in year 5 equals:
 
$5,480.00.

24,120 − 2,200) / 8 × 4 = 10,960
24,120 − 10,960 − $2,200) / 2 = 5,480
   
A company used straight-line depreciation for an item of equipment that cost $18,300, had a
salvage value of $4,800 and a six-year useful life. After depreciating the asset for three complete
years, the salvage value was reduced to $1,830 but its total useful life remained the same.
Determine the amount of depreciation to be charged against the equipment during each of the remaining years of its useful life:
 
$3,240.
$4,000.
$9,000.
$4,060.
$5,090.

18,300 − 4,800) / 6 × 3 = 6,750
18,300 − 6,750 − 1,830) / 3 = 3,240
   
Hunter Sailing Company exchanged an old sailboat for a new one. The old sailboat had a cost
of $270,000 and accumulated depreciation of $135,000. The new sailboat had an invoice price
of $282,000. Hunter received a trade in allowance of $147,000 on the old sailboat, which meant
the company paid $135,000 in addition to the old sailboat to acquire the new sailboat.
If this transaction has commercial substance, what amount of gain or loss should be recorded on this exchange?
 
$12,000 loss
$135,000 loss
$0 gain or loss
$12,000 gain
$147,000 gain
 
270,000 – 135,000 = 135,000
282,000 – 135,000 = 147,000
147,000 – 132,000 = 12,000
   
A machine originally had an estimated useful life of 11 years, but after 4 complete years, it was
decided that the original estimate of useful life should have been 16 years.
At that point the remaining cost to be depreciated should be allocated over the remaining:
 
12 years.
11 years
9 years
8 years
2 years
 
16 − 4 = 12
   
Martin Company purchases a machine at the beginning of the year at a cost of $60,000.
The machine is depreciated using the double-declining-balance method. The machine's useful life is
estimated to be 4 years with a $5,000 salvage value. Depreciation in year 4 is:
 
$2,500
 
$6,875.
$15,469.
$11,250.
$2,500.
$6,500.
   
Minor Company installs a machine in its factory at the beginning of the year at a cost of $135,000.
The machine's useful life is estimated to be 5 years, or 300,000 units of product, with a $15,000 salvage value.
During its first year, the machine produces 64,500 units of product. Determine the machines' first year
depreciation under the straight-line method.
 
$24,000.
   
Ngu owns equipment that cost $96,500 with accumulated depreciation of $66,000.
Ngu asks $35,750 for the equipment but sells the equipment for $33,500.
Compute the amount of gain or loss on the sale.
 
$3,000 gain.
   
Once the estimated depreciation expense for an asset is calculated:
 
It may be revised based on new information.
   
Beckman Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $168,000.
The asset is expected to have a salvage value of $16,700 at the end of its five-year useful life.
If the asset is depreciated on the double-declining-balance method, the asset's book value on December 31, Year 2 will be:
 
$90,720
   
A company paid $150,000, plus a 7% commission and $5,000 in closing costs for a property.
The property included land appraised at $87,500, land improvements appraised at $35,000,
and a building appraised at $52,500. What should be the allocation of this property's costs in the company's accounting records?
 
Land $82,750; Land Improvements, $33,100; Building, $49,650.
   
Marlow Company purchased a point of sale system on January 1 for $3,400.
This system has a useful life of 10 years and a salvage value of $400.
What would be the depreciation expense for the second year of its useful life using the double-declining-balance method?
 
$544.
   
A machine originally had an estimated useful life of 6 years, but after 4 complete years,
it was decided that the original estimate of useful life should have been 10 years.
At that point the remaining cost to be depreciated should be allocated over the remaining:
 
6 years.
   
Marlow Company purchased a point of sale system on January 1 for $6,200.
This system has a useful life of 4 years and a salvage value of $800.
What would be the depreciation expense for the second year of its useful life
using the double-declining-balance method?
 
$1,550.
   
Decision makers and other users of financial statements are especially interested in
evaluating a company's ability to use its assets in generating sales.
 
True
   
Capital expenditures, also called balance sheet expenditures, are additional costs of plant
assets that provide benefits extending beyond the current period.
 
True
   
Revising an estimate of the useful life or salvage value of a plant asset is referred to
as a change in accounting estimate and is reflected in the current, and future financial statements.
 
True
   
Once an asset's book value equals its salvage value, depreciation stops.
 
True
   
Additions to land that increase the usefulness of the land such as parking lots,
fences, and lighting are not depreciated.
 
False
   
A company sold equipment that originally cost $360,000 for $288,000 cash.
The accumulated depreciation on the equipment was $72,000. The company should recognize a:
 
$0 gain or loss.
$72,000 loss.
$36,000 loss.
$288,000 gain.
$36,000 gain.
 
360,000 - 72,000 = 288,000
288,000 - 288,000 = 0
   
A company purchased equipment valued at $263,000. It traded in old equipment for
a $164,000 trade-in allowance and the company paid $99,000 cash with the trade-in.
The old equipment cost $250,000 and had accumulated depreciation of $100,000.
This transaction has commercial substance. What is the recorded value of the new equipment?
 
$263,000.
$249,000.
$99,000.
$164,000.
$150,000.
   
Marlow Company purchased a point of sale system on January 1 for $6,600.
This system has a useful life of 10 years and a salvage value of $1,000.
What would be the depreciation expense for the second year of its useful life
using the double-declining-balance method?
 
$1,056.

6,600 × (2 × 10%) = 1,320
6,600 − 1,320) × (2 × .10) = 1,056
   
An asset's book value is $19,500 on December 31, Year 5.
Assuming the asset is sold on December 31, Year 5 for $13,500, the company should record:
 
A loss on sale of $6,000.

13,500 − 19,500 = 6,000 Loss
   
An asset's book value is $21,600 on January 1, Year 6.
The asset is being depreciated $300 per month using the straight-line method.
Assuming the asset is sold on July 1, Year 7 for $14,200, the company should record:
 
A loss on sale of $2,000.

 
A company sold a tractor that originally cost $129,000 for $24,000 cash.
The accumulated depreciation on the tractor was $63,600. The company should recognize:
 
A loss of $41,400.
   
Granite Company purchased a machine costing $118,340. Granite paid freight charges
of $2,200. The machine requires special mounting and wiring connections costing $10,200.
When installing the machine, $1,700 in damages occurred.
Compute the cost recorded for this machine.
 
$130,740.

118,340 + 2,200 + 10,200 = 130,740
   
Wickland Company installs a manufacturing machine in its production facility at the
beginning of the year at a cost of $117,000. The machine's useful life is estimated to
be 10 years, or 130,000 units of product, with a $3,000 salvage value.
During its second year, the machine produces 10,400 units of product.
Determine the machines' second year depreciation under the straight-line method.
 
$11,400.
 
117,000 − 3,000 / 10 = 11,400
   
Phoenix Agency leases office space. On January 3, Phoenix incurs $78,600 to improve
the leased office space. These improvements are expected to yield benefits for 8 years.
Phoenix has 6 years remaining on its lease. Compute the amount of amortization expense
that should be recorded the first year related to the improvements.
 
$13,100.

$78,600 / 6 = 13,100
   
Crestfield leases office space. On January 3, the company incurs $22,000 to improve
the leased office space. These improvements are expected to yield benefits for 20 years.
Crestfield has 10 years remaining on its lease. What journal entry would be needed
to record the expense for the first year related to the improvements?
 
Debit Amortization Expense / Leasehold Improvements $2,200
Credit Accumulated Amortization / Leasehold Improvements $2,200.

22,000 / 10 = 2,200
   
Nike owns equipment that cost $105,500 with accumulated depreciation of $72,000.
Nike asks $38,000 for the equipment but sells the equipment for $35,000.
Compute the amount of gain or loss on the sale.
 
$1,500 gain.

35,000 + 72,000 - 105,500
   
Gaston owns equipment that cost $15,500 with accumulated depreciation of $4,650.
Gaston sells the equipment for $9,800. Which of the following would not be part of the
journal entry to record the disposal of the equipment?
 
Credit Gain on Disposal of Equipment $1,050.

9,800 − (15,500 − 4,650) = 1,050
   
Flask Company reports
 
net sales of $3,070 million
cost of goods sold of $2,580 million
net income of $520 million
average total assets of $2,460 million.
 
Compute its total asset turnover.
 
1.25.

3,070 / 2,460 = 1.25
   
Riverboat Adventures pays $450,000 plus $5,000 in closing costs to purchase real estate.
The real estate consists of land appraised at $67,200, a building appraised at $158,400,
and land improvements appraised at $254,400. Compute the cost that should be allocated to the building.
 
$150,150.

158,400 / (158,400 + 67,200 + 254,400) = 0.33
450,000 + 5,000) × 0.33 = 150,150
   
Mohr Company purchases a machine at the beginning of the year at a cost of $25,000.
The machine is depreciated using the straight-line method. The machine's useful life is
estimated to be 8 years with a $7,000 salvage value. Depreciation expense in year 2 is:
 
$2,250.
 
(25,000 − 7,000) / 8 = 2,250
   
Mohr Company purchases a machine at the beginning of the year at a cost of $35,000.
The machine is depreciated using the straight-line method. The machine's useful life is
estimated to be 5 years with a $4,000 salvage value. The book value of the machine at the end of year 2 is:
 
$22,600.

(35,000 − 4,000) / 5 = 6,200
35,000 − (6,200 × 2) = 22,600
   
Mohr Company purchases a machine at the beginning of the year at a cost of $39,000.
The machine is depreciated using the double-declining-balance method.
The machine's useful life is estimated to be 5 years with a $5,000 salvage value.
Depreciation expense in year 2 is:
 
$9,360.

39,000 × (2 × .20 = 15,600
39,000 − 15,600) × (2 × .20) = 9,360
   
Mohr Company purchases a machine at the beginning of the year at a cost of $33,000.
The machine is depreciated using the double-declining-balance method.
The machine's useful life is estimated to be 5 years with a $6,000 salvage value.
The machine's book value at the end of year 2 is:
$11,880.

33,000 × (2 × 20%) = 13,200
33,000 − 13,200) × (2 × 20%) = 7,920
$33,000 − (13,200 + 7,920) = 11,880
   
Martin Company purchases a machine at the beginning of the year at a cost of $71,000.
The machine is depreciated using the straight-line method. The machine's useful life is estimated
to be 4 years with a $4,000 salvage value. Depreciation expense in year 4 is:
 
$16,750.

71,000 − 4,000) / 4 = $16,750
   
Martin Company purchases a machine at the beginning of the year at a cost of $80,000.
The machine is depreciated using the straight-line method. The machine's useful life is estimated
to be 5 years with a $5,000 salvage value. The book value of the machine at the end of year 5 is:
 
$5,000.
 
80,000 − 5,000) / 5 = 15,000
80,000 − (15,000 × 5) = 5,000
   
Martin Company purchases a machine at the beginning of the year at a cost of $155,000.
The machine is depreciated using the double-declining-balance method. The machine's useful life
is estimated to be 4 years with a $12,900 salvage value. Depreciation expense in year 4 is:
 
$6,475.
 
155,000 × (2 × .25) = 77,500
155,000 − $77,500) × (2 × .25) = 38,750
155,000 − 116,250) × (2 × .25) = 19,375
19,750 – 12,900 = 6,475
   
When originally purchased, a vehicle costing $24,120 had an estimated useful life of
8 years and an estimated salvage value of $2,200. After 4 years of straight-line depreciation,
the asset's total estimated useful life was revised from 8 years to 6 years and there was no
change in the estimated salvage value. The depreciation expense in year 5 equals:
 
$5,480.00.

24,120 − 2,200) / 8 × 4 = 10,960
24,120 − 10,960 − $2,200) / 2 = 5,480
   
A company used straight-line depreciation for an item of equipment that cost $18,300,
had a salvage value of $4,800 and a six-year useful life. After depreciating the asset for
three complete years, the salvage value was reduced to $1,830 but its total useful life
remained the same. Determine the amount of depreciation to be charged against the
equipment during each of the remaining years of its useful life:
 
$3,240.
$4,000.
$9,000.
$4,060.
$5,090.

18,300 − 4,800) / 6 × 3 = 6,750
18,300 − 6,750 − 1,830) / 3 = 3,240
   
Hunter Sailing Company exchanged an old sailboat for a new one. The old sailboat had a cost
of $270,000 and accumulated depreciation of $135,000. The new sailboat had an invoice price
of $282,000. Hunter received a trade in allowance of $147,000 on the old sailboat, which meant
the company paid $135,000 in addition to the old sailboat to acquire the new sailboat.
If this transaction has commercial substance, what amount of gain or loss should be recorded on this exchange?
 
$12,000 loss
$135,000 loss
$0 gain or loss
$12,000 gain
$147,000 gain
 
270,000 – 135,000 = 135,000
282,000 – 135,000 = 147,000
147,000 – 132,000 = 12,000
   
A machine originally had an estimated useful life of 11 years, but after 4 complete years,
it was decided that the original estimate of useful life should have been 16 years.
At that point the remaining cost to be depreciated should be allocated over the remaining:
 
12 years.
11 years
9 years
8 years
2 years
 
16 − 4 = 12
   
Martin Company purchases a machine at the beginning of the year at a cost of $60,000.
The machine is depreciated using the double-declining-balance method.
The machine's useful life is estimated to be 4 years with a $5,000 salvage value.
Depreciation in year 4 is:
 
$2,500
 
$6,875.
$15,469.
$11,250.
$2,500.
$6,500.
   
Minor Company installs a machine in its factory at the beginning of the year at a cost of $135,000.
The machine's useful life is estimated to be 5 years, or 300,000 units of product, with a $15,000
salvage value. During its first year, the machine produced 64,500 units of product.
Determine the machines' first year depreciation under the straight-line method.
 
$24,000.
   
Ngu owns equipment that cost $96,500 with accumulated depreciation of $66,000.
Ngu asks $35,750 for the equipment but sells the equipment for $33,500.
Compute the amount of gain or loss on the sale.
 
$3,000 gain.
   
Once the estimated depreciation expense for an asset is calculated:
 
It may be revised based on new information.
   
Beckman Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $168,000.
The asset is expected to have a salvage value of $16,700 at the end of its five-year useful life.
If the asset is depreciated on the double-declining-balance method, the asset's book value on December 31, Year 2 will be:
 
$90,720
   
A company paid $150,000, plus a 7% commission and $5,000 in closing costs for a property.
The property included land appraised at $87,500, land improvements appraised at $35,000,
and a building appraised at $52,500. What should be the allocation of this property's costs
in the company's accounting records?
 
Land $82,750; Land Improvements, $33,100; Building, $49,650.
   
Marlow Company purchased a point of sale system on January 1 for $3,400. This system
has a useful life of 10 years and a salvage value of $400. What would be the depreciation
expense for the second year of its useful life using the double-declining-balance method?
 
$544.
   
A machine originally had an estimated useful life of 6 years, but after 4 complete years,
it was decided that the original estimate of useful life should have been 10 years. At that
point the remaining cost to be depreciated should be allocated over the remaining:
 
6 years.
   
Marlow Company purchased a point of sale system on January 1 for $6,200.
This system has a useful life of 4 years and a salvage value of $800.
What would be the depreciation expense for the second year of its useful life using
the double-declining-balance method?
 
$1,550.
   
Decision makers and other users of financial statements are especially interested in evaluating
a company's ability to use its assets in generating sales.
 
True
   
Capital expenditures, also called balance sheet expenditures, are additional costs of plant
assets that provide benefits extending beyond the current period.
 
True
   
Revising an estimate of the useful life or salvage value of a plant asset is referred to as a
change in accounting estimate and is reflected in the current, and future financial statements.
 
True
   
Once an asset's book value equals its salvage value, depreciation stops.
 
True
   
Additions to land that increase the usefulness of the land such as parking lots, fences, and lighting are not depreciated.
 
False

    Homework   1.1  1.2   2.1  2.2  3.1  3.2   4.1  4.2  5.1  5.2   6.1   6.2  7.1  7.2  8.1  8.2  9.1  9.2  10.1   10.2  11.1   11.2  12.1  12.2   13.1  13.2