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A company bought land and a building for $128,000.The building has a useful life of 20 years.Why should the company split the $128,000 cost between the land and the building?


A) Land is not depreciated, while the building will be depreciated over its 20year useful life.
B) The cost should not be split between the land and building.
C) The land will be depreciated over 40 years and the building will be depreciated over 20 years.
D) Both the land and the building will be depreciated over 20 years.

E) A) and D)
F) All of the above

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Morris Lest,Inc.sold its delivery truck for $500 more than its book value.The sale will result in a(n) :


A) increase in net income on the income statement.
B) increase in Cost of Goods Sold on the income statement.
C) decrease in gross profit on the income statement.
D) decrease in Accounts Payable on the balance sheet.

E) A) and D)
F) A) and C)

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Ace Electronics bought a new cash register for $2,500.Ace plans to use the cash register for 4 years and then sell it for $200.The cash register's depreciable cost equals:


A) $2,500.
B) $200.
C) $575.
D) $2,300.

E) None of the above
F) B) and C)

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Tax accounting and financial accounting use the same depreciation calculations and there are no differences in the results between the two accounting systems.

A) True
B) False

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On January 1,2016,Trueblood,Inc.purchased a piece of machinery for use in operations.The total acquisition cost was $33,000.The machine has an estimated useful life of three years and a residual value of $3,000.Assume that units produced by the machine will total 16,000 during 2016,23,000 during 2017,and 21,000 during 2018. Required: Part a.Use this information to complete the following table. On January 1,2016,Trueblood,Inc.purchased a piece of machinery for use in operations.The total acquisition cost was $33,000.The machine has an estimated useful life of three years and a residual value of $3,000.Assume that units produced by the machine will total 16,000 during 2016,23,000 during 2017,and 21,000 during 2018. Required: Part a.Use this information to complete the following table. Part b.On January 1,2017,the machine was rebuilt at a cost of $7,000.After it was rebuilt,the total estimated life of the machine was increased to five years (from the original estimate of three years)and the residual value to $6,000 (from $3,000).Assume that the company chose the straight-line method for depreciation.Compute the annual depreciation expense after the change in estimates. Part c.Prepare the adjusting entry to record the depreciation expense for the year ended December 31,2017. Part d.On December 31,2018,the machine was sold for $7,500.Compute the book value on that date. Part e.Prepare the journal entry to record the sale. Part b.On January 1,2017,the machine was rebuilt at a cost of $7,000.After it was rebuilt,the total estimated life of the machine was increased to five years (from the original estimate of three years)and the residual value to $6,000 (from $3,000).Assume that the company chose the straight-line method for depreciation.Compute the annual depreciation expense after the change in estimates. Part c.Prepare the adjusting entry to record the depreciation expense for the year ended December 31,2017. Part d.On December 31,2018,the machine was sold for $7,500.Compute the book value on that date. Part e.Prepare the journal entry to record the sale.

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Part a
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Calculations:
(1) ($33,000 - $...

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Which of the following statements about the end of an asset's life is not correct?


A) At the end of an asset's life, its book value should equal its residual value.
B) At the end of an asset's life, the Accumulated Depreciation should equal the depreciable cost.
C) At the end of an assets life, the book value would equal zero if there is no residual value.
D) Assets are not to be depreciated below residual value unless the double-declining balance method is used.

E) A) and C)
F) B) and C)

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On January 1,2016,Busy Beaver,Inc.signed a $315,000,5year note payable to buy a new industrial veneer cutter.Busy Beaver plans to use the machine for 10 years and then sell it for its scrap value of $5,000.Using straight-line depreciation,depreciation expense for the year ended December 31,2016 equals:


A) $31,000.
B) $31,500.
C) $284,000.
D) $283,500.

E) B) and D)
F) A) and C)

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The costs assigned to the individual assets acquired in a basket purchase are based on their relative:


A) historical costs.
B) market values.
C) book values.
D) depreciable costs.

E) B) and D)
F) B) and C)

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When S.Dee Company bought B.Darin Company,the purchase price included a patent valued at $15,000.The patent has 10 years remaining of its legal life,but its estimated useful life to S.Dee Company was only 8 years.The journal entry to record the annual patent amortization would include a:


A) debit to Patent, $1,875.
B) debit to Amortization expense, $1,875.
C) credit to Patent, $1,500.
D) credit to Amortization expense, $1,500.

E) B) and D)
F) B) and C)

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Sunny Skys,Inc.bought a derelict hunting lodge,which it tore down at a cost of $45,000 and replaced with a new lodge.The demolition cost should be:


A) expensed .
B) capitalized.
C) a liability.
D) an addition to contributed capital.

E) B) and C)
F) A) and B)

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An asset's residual value is:


A) the estimated amount it can be sold for at the end of its useful life.
B) its cost minus its accumulated depreciation.
C) its cost plus any costs to install it and place it in service.
D) equal to its accumulated depreciation.

E) A) and B)
F) A) and C)

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Intangible assets with limited lives are usually amortized using the straight-line method with no residual value.

A) True
B) False

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Assuming two companies use the same accounting methods,other things being equal,the company with a higher fixed asset turnover ratio:


A) has a greater amount invested in fixed assets than a company with a lower fixed asset turnover ratio.
B) has less invested in fixed assets than a company with a lower fixed asset turnover ratio.
C) generates less sales revenue than a company with a lower fixed asset turnover ratio.
D) makes better use of its fixed assets to generate revenues than a company with a lower fixed asset turnover ratio.

E) B) and C)
F) A) and D)

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One difference between the double-declining-balance method and the straight-line method is that the double-declining-balance method:


A) reduces book value below residual value.
B) does not consider the useful life of the asset in the calculation of depreciation.
C) cannot be used for tax purposes.
D) uses book value instead of depreciable cost in the calculation of depreciation.

E) C) and D)
F) None of the above

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California Spas recently learned that the value of its building required a write-down because of the discovery that it was on an earthquake fault line.The book value of the building was $1,570,000 before the discovery and the fair value was $975,000 after the discovery.Which of the following is the journal entry used to record the asset impairment?


A) Debit Impairment Loss and credit Accumulated Depreciation for $595,000
B) Debit Depreciation Expense and credit Building for $595,000
C) Debit Impairment Loss and credit Building for $595,000
D) Debit Other Gains and Losses and credit Accumulated Depreciation for $595,000

E) A) and B)
F) A) and D)

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Ordinary repairs and maintenance:


A) are part of the asset cost of equipment and facilities.
B) are recorded as expenses.
C) are always recorded as liabilities.
D) improve the asset beyond the current accounting period.

E) B) and D)
F) A) and D)

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Maxim,Inc.changed its depreciation method from units-of-production to straight-line.Maxim is:


A) only allowed to make this change if it gets permission from the IRS.
B) only allowed to make this change if it can show the change results in a lower net income.
C) not allowed to change depreciation methods.
D) only allowed to make this change if it can show the change results in a better measure.

E) A) and D)
F) A) and C)

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Generally,freight costs incurred when a long-lived asset is purchased should be:


A) expensed in the period incurred.
B) deducted from the Accumulated Depreciation account.
C) added to the cost of the asset.
D) not recorded in the accounts.

E) A) and D)
F) B) and D)

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Morris Lest,Inc.sold its truck and received less cash than the truck's book value.The net effect of this sale on the accounting equation is a(n) :


A) increase to total assets.
B) increase to stockholders' equity.
C) decrease to total liabilities.
D) decrease to stockholders' equity.

E) None of the above
F) B) and C)

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Use the information above to answer the following question.Using the straight-line method,what is the amount of depreciation expense each year?


A) $13,960
B) $13,800
C) $12,760
D) $11,960

E) B) and D)
F) B) and C)

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