1) The major difference between the service life of an asset and its physical
life is that:
a) Service life refers to the time an asset will be used by a company and physical
life refers to how long the asset will last
b) Physical life is the life of an asset without consideration of salvage value and
service life requires the use of salvage value
c) Physical life is always longer than service life
d) Service life refers to the length of time an asset is of use to its original owner,
while physical life refers to how long the asset will be used by all owners
2) The asset turnover ratio is computed by dividing:
a) Net income by ending total assets
b) Net income by average total assets
c) Net sales by ending total assets
d) Net sales by average total assets
3) Henry Company purchased a depreciable asset for $240,000. The estimated
salvage value is $22,000, and the estimated useful life is 10 years. The
straight-line method will be used for depreciation. What is the depreciation
base of this asset?
a)
b)
c)
d)
$22,000
$24,000
$218,000
$240,000
4) If an industrial firm uses the units-of-production method for computing
depreciation on its only plant asset, factory machinery, the credit to
accumulated depreciation from period to period during the life of the firm
will:
a)
b)
c)
d)
Be constant
Vary with unit sales
Vary with sales revenue
Vary with production
5) Which of the following is true of depreciation accounting?
a)
b)
c)
d)
It is not a matter of valuation
It is part of the matching of revenues and expenses
It retains funds by reducing income taxes and dividends
All of these answers are correct
6) The most common method of recording depletion for accounting purposes is
the:
a)
b)
c)
d)
Percentage Depletion Method
Decreasing Charge Method
Straight-Line Method
Units-of-Production Method
7) Rogers Company purchased a tooling machine on January 3, 2008 for
$700,000. The machine was being depreciated on the straight-line method
over an estimated useful life of 10 years, with no salvage value. At the
beginning of 2015, the company paid $175,000 to overhaul the machine. As
a result of this improvement, the company estimated that the useful life of
the machine would be extended an additional 5 years (15 years total).
What should be the depreciation expense recorded for the machine in 2015?
a)
b)
c)
d)
$48,125
$58,333
$70,000
$77,000
8) Regis Inc. bought a machine on January 1, 2004 for $400,000. The machine
had an expected life of 20 years and was expected to have a salvage value
of $40,000. On July 1, 2014, the company reviewed the potential of the
machine and determined that its undiscounted future net cash flows
totaled $200,000 and its discounted future net cash flows totaled $140,000.
If no active market exists for the machine and the company does not plan
to dispose of it, what should Regis record as an impairment loss on July 1,
2014?
a)
b)
c)
d)
$0
$11,000
$20,000
$71,000
9) Glow Co. purchased machinery on January 2, 2009, for $660,000. The
straight-line method is used and useful life is estimated to be 10 years,
with a $60,000 salvage value. At the beginning of 2015 Glow spent
$144,000 to overhaul the machinery. After the overhaul, Glow estimated
that the useful life would be extended 4 years (14 years total), and the
salvage value would be $30,000. The depreciation expense for 2015 should
be:
a)
b)
c)
d)
$42,375
$51,750
$60,000
$55,500
10) When depreciation is computed for partial periods under a decreasing
charge depreciation method, it is necessary to:
a) Charge a full year's depreciation to the year of acquisition
b) Determine depreciation expense for the full year and then prorate the expense
between the two periods involved
c) Use the straight-line method for the year in which the asset is sold or
otherwise disposed of
d) Use a salvage value equal to the first year's partial depreciation charge
11) Rock Company purchased a depreciable asset for $500,000 on April 1,
2012. The estimated salvage value is $50,000, and the estimated total
useful life is 5 years. The straight-line method is used for depreciation.
What is the balance in accumulated depreciation on May 1, 2015 when
the asset is sold?
a)
b)
c)
d)
$196,667
$210,000
$247,500
$277,500
12) King Corporation owns machinery with a book value of $380,000. It is
estimated that the machinery will generate future cash flows of $350,000.
The machinery has a fair value of $280,000. King should recognize a loss
on impairment of:
a)
b)
c)
d)
$-0$30,000
$100,000
$70,000
13) The cost of land does NOT include:
a) Costs of grading, filling, draining, and clearing
b) Costs of removing old buildings
c) Costs of improvements with limited lives
d) Special assessments
14) The cost of land typically includes the purchase price and all of the
following costs except:
a)
b)
c)
d)
Grading, filling, draining, and clearing costs
Street lights, sewers, and drainage systems cost
Private driveways and parking lots
Assumption of any liens or mortgages on the property
15) Glen Inc. and Armstrong Co. have an exchange with no commercial
substance. The asset given up by Glen Inc. has a book value of $36,000
and a fair value of $45,000. The asset given up by Armstrong Co. has a
book value of $60,000 and a fair value of $57,000. Boot of $12,000 is
received by Armstrong Co.:
What amount should Armstrong Co. record for the asset received?
a)
b)
c)
d)
$45,000
$48,000
$57,000
$60,000
16) Fogelberg Company purchased equipment for $25,000. Sales tax on the
purchase was $1,500. Other costs incurred were freight charges of $400,
repairs of $700 for damage during installation, and installation costs of
$450. What is the cost of the equipment?
a)
b)
c)
d)
$25,000
$26,500
$27,350
$28,050
17) Each year a company has been investing an increasingly greater amount
in machinery. Since there is a large number of small items with relatively
similar useful lives, the company has been applying straight-line
depreciation at a uniform rate to the machinery as a group. The ratio of
this group's total accumulated depreciation to the total cost of the
machinery has been steadily increasing and now stands at .75 to 1.00.
The most likely explanation for this increasing ratio is the:
a) Company should have been using one of the accelerated methods of
depreciation
b) Estimated average life of the machinery is less than the actual average useful
life
c) Estimated average life of the machinery is greater than the actual average
useful life
d) Company has been retiring fully depreciated machinery that should have
remained in service
18) Hart Corporation owns machinery with a book value of $285,000. It is
estimated that the machinery will generate future cash flows of $300,000.
The machinery has a fair value of $210,000. Hart should recognize a loss
on impairment of:
a)
b)
c)
d)
$-0$15,000
$75,000
$90,000
19) Worley Truck Rental uses the group depreciation method for its fleet of
trucks. When it retires one of its trucks and receives cash from a salvage
company, the carrying value of property, plant, and equipment will be
decreased by the:
a)
b)
c)
d)
Original cost of the truck
Original cost of the truck less the cash proceeds
Cash proceeds received
Cash proceeds received and original cost of the truck
20) Morgan Corporation purchased a depreciable asset for $400,000 on
January 1, 2012. The estimated salvage value is $40,000, and the
estimated useful life is 9 years. The straight-line method is used for
depreciation. In 2015, Morgan changed its estimates to a total useful life
of 5 years with a salvage value of $60,000. What is 2015 depreciation
expense?
a)
b)
c)
d)
$40,000
$60,000
$110,000
$120,000