Accounting III - Chapter 8 Objective Questions
True/False
Indicate whether the statement is true or false.
____
1. Wolford Stores, Inc., bought display shelves for $6,000.00. They have an estimated salvage value of
$1,000.00 and an estimated useful life of 5 years. The yearly depreciation expense using the straight-line
method is $1,000.00.
____
2. When land and building are purchased for a single price, the purchase is recorded to a single plant asset
account titled Land and Buildings.
____
3. The depreciation method required by the Internal Revenue Service is known as Modified Accelerated Cost
Recovery System (MACRS).
____
4. No matter which depreciation method is used, the adjusting entry to record depreciation involves a debit to
Accumulated Depreciation and a credit to Depreciation Expense.
____
5. Land is not subject to depreciation because land values usually increase over time.
____
6. When applying the sum-of-the-years-digits depreciation method, the denominator used for all plant assets is
15.
____
7. The Going Concern concept states that financial statements are prepared with the expectation that a business
will remain in operation indefinitely.
____
8. To charge more depreciation expense in the early years of a plant asset's life, the declining-balance method
applies a larger percentage rate in those early years.
____
9. Since trees are a renewable resource, logging businesses record depreciation on the land that contains the
timber stands.
____ 10. Businesses most often use the trade-in price listed by the manufacturer as the estimated salvage value.
____ 11. At the end of the estimated useful life of a plant asset, it should be depreciated down to its original cost.
____ 12. The gain or loss on a traded asset equals the original cost of the old asset less its accumulated depreciation
plus the original cost of the new asset.
____ 13. An asset's assessed value for property tax purposes may be different from the asset's book value.
____ 14. To use the production-unit depreciation method for a vehicle, the estimated useful life must be stated in
number of miles.
____ 15. The tax rate on real property in the county is 5%. If a building's book value is $75,000.00, and its assessed
value is $60,000.00, the annual property tax would be $3,750.00
____ 16. According to the Realization of Revenue concept, the cost of a plant asset should be allocated to an expense
account over the useful life of the plant asset.
____ 17. Using an accelerated depreciation method results in more depreciation expense being recorded over the life of
the asset than the straight-line method.
____ 18. After bringing depreciation up to date, Hosea Hardware discarded a display cabinet with an original cost of
$500.00, total accumulated depreciation of $450.00, and an estimated salvage value of zero. The loss on the
disposal is $50.00.
____ 19. A new ledger account is opened for each asset recorded on a plant asset record.
____ 20. Veras Mining uses a depletion rate of $0.19 per ton mined. In the current year, it removed 22,000 tons of coal
from its mines. The annual depletion expense is $4,180.00.
____ 21. Most businesses use the MACRS property class life to estimate the useful life of a plant asset.
____ 22. If land and building are purchased at the same time, a separate value is assigned in the accounting records to
the land and to the building.
____ 23. The assessed value of an asset appears on the plant asset record.
____ 24. The production-unit method results in more depreciation being recorded in the early years of the asset's life.
____ 25. Alexander Distributors bought store equipment for $10,000.00. It has an estimated salvage value of $1,000.00
and an estimated useful life of 5 years. The book value at the end of year two would be $5,400.00.
____ 26. Starlite Wonders, Inc. received $250.00 cash from the sale of a printer. The original cost of the printer was
$900.00, its estimated salvage value was zero, and its total accumulated depreciation was $800.00. The loss of
the sale totaled $150.00.
____ 27. The plant asset record has three parts. The first part is completed when the asset is purchased. The second part
is completed when the asset is disposed of, and the third part is completed when the asset has been fully
depreciated.
____ 28. Xepedian Co. uses the double-declining-balance method to depreciate a computer with an original cost of
$2,000.00, an estimated salvage value of $300.00, and an estimated useful life of 5 years. The depreciation
expense recorded in the first year is $680.00.
____ 29. If a plant asset is used longer than its estimated useful life, depreciation is not recorded once the book value
equals the estimated salvage value.
____ 30. Included in the original cost of a plant asset are all costs paid to make the asset usable including the purchase
price, delivery costs, and any necessary installation costs.
____ 31. Plant assets are assets that will be consumed within a year.
____ 32. Depreciation expense is a business operating expense.
____ 33. The actual value and book value of an asset are usually the same.
____ 34. If a plant asset is disposed of during the year, depreciation expense for part of a year is recorded.
____ 35. All plant assets decline in value by an equal amount each year.
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____ 36. The loss on the sale of a plant asset is classified on the financial statements as a(n) ____.
a. Contra Plant Asset
c. Other Expense
b. Operating Expense
d. Other Revenue
____ 37. The value of an asset determined by tax authorities for the purpose of calculating taxes is called ____.
a. assessed value
c. property tax value
b. eminent domain value
d. taxable value
____ 38. Which of the following is NOT a way that a business disposes of a plant asset?
a. trading
c. discarding
b. selling
d. devaluing
____ 39. The method of depreciation calculated using the amount of production expected from a plant asset is ____.
____ 40.
____ 41.
____ 42.
____ 43.
____ 44.
____ 45.
____ 46.
____ 47.
____ 48.
____ 49.
____ 50.
____ 51.
a. declining-balance
c. straight-line
b. production-unit
d. sum-of-the-years-digits
Which method of depreciation will result in the largest amount of depreciation expense in the first year of a
plant asset's life?
a. double declining-balance
c. straight-line
b. MACRS
d. sum-of-the-years-digits
The total depreciation taken to date for a plant asset is found on the plant asset record as ____.
a. annual depreciation expense
c. ending book value
b. accumulated depreciation
d. total depreciation
Depreciation is recorded in the accounting records of the business through a(n) ____.
a. adjusting entry
c. plant asset entry
b. closing entry
d. work sheet entry
The method of depreciation calculated by multiplying the book value at the end of each fiscal period by a
constant depreciation rate is ____.
a. declining-balance
c. straight-line
b. production-unit
d. sum-of-the-years-digits
Which of the following is true about the Modified Accelerated Cost Recovery System?
a. all plant assets are assumed to be placed in service the first day of the year
b. all plant assets are assumed to be taken out of service on the last day of the year
c. the depreciation rates are applied to the total cost of the plant assets without considering
the salvage value
d. the depreciation rates are similar to the straight-line rates
The method of depreciation that charges an equal amount of depreciation expense for a plant asset in each
year of its useful life is ____.
a. declining-balance
c. straight-line
b. production-unit
d. sum-of-the-years-digits
The original cost of a plant asset minus accumulated depreciation is called the ____.
a. book value of a plant asset
c. salvage value of a plant asset
b. depreciable value of a plant asset
d. useful life of a plant asset
When the declining-balance depreciation method is used, the annual depreciation expense is calculated using
the ____.
a. beginning book value for the current year
b. ending book value for the current year
c. original cost minus estimated salvage value
d. salvage value plus the depreciable value
Which of the following is NOT a factor in calculating a plant asset's depreciation expense?
a. estimated salvage value
c. method of disposal
b. estimated useful life
d. original cost
The smallest unit of time used to calculate depreciation is ____.
a. day
c. month
b. week
d. year
Land and anything attached to it is called ____.
a. depreciable property
c. personal property
b. land improvements
d. real property
Figgins, Inc. purchased a truck that it expects to drive 100,000 miles over its useful life. The cost of the truck
was $32,000. Its estimated salvage value is $2,000, and its useful life is expected to be 5 years. The
depreciation rate that would be used for the production-unit method would be ____.
a. $0.30 per mile
c. $6,000
b. $0.32 per mile
d. $6,400
____ 52. The decrease in the value of a plant asset because of the removal of a natural resource is ____.
a. declining-balance
c. production-unit
b. depletion
d. straight-line
____ 53. When an asset is traded, the original cost of the new asset recorded in the accounting records is ____.
a. the cash paid minus the book value of the asset traded
b. the cash paid minus the original cost of the asset traded
c. the cash paid plus the book value of the asset traded
d. the cash paid plus the original cost of the asset traded
____ 54. When a plant asset with a book value is discarded at the beginning of a fiscal year, the two journal entries
needed are ____.
a. to remove the original cost of the plant asset and its related depreciation and to recognize
the gain
b. to remove the original cost of the plant asset and its related depreciation and to recognize
the loss
c. to record the value of the replacement asset and to recognize the gain
d. to record the value of the replacement asset and to recognize the loss
____ 55. The method of depreciation calculated by using fractions based on the number of years of a plant asset's
useful life is ____.
a. declining-balance
c. straight-line
b. production-unit
d. sum-of-the-years-digits
____ 56. The entry to record the annual depreciation on equipment includes a ____.
a. debit to Accumulated Depreciation–Equipment and a credit to Depreciation Expense–
Equipment
b. debit to Depreciation Expense–Equipment and a credit to Accumulated Depreciation–
Equipment
c. debit to Depreciation Expense–Equipment and a credit to Income Summary
d. debit to Income Summary and a credit to Depreciation Expense–Equipment
____ 57. The entry to discard equipment with book value after depreciation has been brought up to date includes a
____.
a. debit to Accumulated Depreciation–Equipment and a credit to Equipment
b. debits to Accumulated Depreciation–Equipment and Equipment and a credit to Gain on
Plant Assets
c. debits to Accumulated Depreciation–Equipment and Loss on Plant Assets and a credit to
Equipment
d. debit to Equipment and credits to Accumulated Depreciation–Equipment and Loss on
Plant Assets
____ 58. All property not classified as real property is ____.
a. unreal property
c. depreciated property
b. intangible property
d. personal property
____ 59. The entry to record depreciation for part of a year is a ____.
a. debit to Accumulated Depreciation–Equipment and a credit to Depreciation Expense–
Equipment
b. debit to Depreciation Expense–Equipment and a credit to Accumulated Depreciation–
Equipment
c. debit to Depreciation Expense–Equipment and a credit to Income Summary
d. debit to Income Summary and a credit to Depreciation Expense–Equipment
____ 60. At the time a plant asset is bought, the salvage value is ____.
a. only an estimated amount
c. 1/10 of the original cost
b. known for certain
d. the book value
Accounting III - Chapter 8 Objective Questions
Answer Section
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38. ANS: D
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