Module 8 Quiz

Multiple Choice

1. Which of the following assets is carried indefinitely at its original cost?

a. Buildings
b. Equipment
c. Copyright
d. Land

2. Which of the following costs would be included in the cost of the machinery?
a. Invoice price
b. Installation costs
c. Testing of machinery prior to its intended use
d. b and c
e. a, b, and c

3. The primary purpose of depreciation is to

a. show the fair market value of an asset on the balance sheet.
b. provide for the replacement of an asset.
c. allocate the cost of an asset over the periods benefited.
d. record a decline in the value of an asset based on changes in the current
replacement cost of that asset.

4. For financial reporting purposes, the most frequently used depreciation method is
a. double-declining balance.
b. straight-line.
c. modified accelerated cost recovery system.
d. unit depreciation.

5. Cross Co. purchased a machine at the beginning of the year that cost $30,000 and has a $3,000
salvage value and a 6-year life. The depreciation expense for the first year under the straight-line
method should be

$30,000-$3,000= $27,000/6=4500
a. $4,000.
b. $4,500.
c. $5,000.
d. $5,500.

6. Wingert Co. purchased a new truck for $62,000. The truck is expected to have a salvage value of
$12,000, a useful life of 4 years and 100,000 miles. The company uses units-of-production
depreciation. During the first and second years of operation, Wingert put 25,000 and 10,000
miles, respectively, on the vehicle. For the second year, depreciation expense should be
62000-12000= 50,000/100,000= 0.5$
10,000*0.5= $5,000

a. $5,000.
b. $7,400.
c. $12,500.
d. $18,500.
7. Nicoll Co. purchased a machine that cost $40,000 and has a $4,000 salvage value and a 4-year
life. The depreciation expense for the second year under the double-declining balance should be
40,000-4,000= 36,000
100%/4= 25% *2=50%

Depreciation Expense Year 1 = 40,000*0.5= $20,000

Income Statement
Depreciation Expense -$20,000
Net Income -$20,000

Machinery 40,000
Acc. Dep. (20,000)
Net Machinery 20,000
R.E. -20,000
Depreciation Expense Year 2
Net Machinery 20,000*0.5= $10,000

Machinery 40,000
(ACC. Dep) ($30,000)
Net Machinery $10,000

Depreciation Expense Year 3

$3,000
Net Income -$3,000

Machinery 40,000
Acc. Dep ( $33,000)
Net Machinery $7,000

.R.E. -3,000

Depreciation Expense year 4

$3,000
Net Income $3,000

Machinery $40,000
Acc. Dep. ($36,000)
Net Machinery $4,000

R.E. -3,000

Depreciation Expense Year 3

10,000*0.5= $5,000

Machinery 40,000
Acc. Dep. (35,000)
Net Machinery $5,000
Depreciacition Expense Year 4
$1,000

Machinery 40,000
Acc. Dep. (36,000)
Net Machinery $4,000

a. $9,000.
b. $10,000.
c. $11,000.
d. $20,000.

8. The depreciation method that uses the residual value at the end of the depreciation process is
a. double-declining balance.
b. unit depreciation.
c. straight-line.
d. a and b

9. On January 1, 20X2, The MaLady Co. has machinery on the books that originally cost $100,000.
During 20X2, the following expenditures were made:
Minor repairs $ 5,000
Improvements 20,000
Accumulated depreciation 9,000
What is the balance in the machinery account on December 31, 20X2?
a. $105,000
b. $109,000
c. $111,000
d. $120,000

10. Cue Co. purchased a new truck in 20X0 for $27,000. On January 1, 20X3, when accumulated
depreciation was $20,000, the truck was sold for $7,000 cash. What amount of gain or loss
should Cue report for this sale?

Truck $27,000
Acc. Dep. ($20,000)
Net Truck $7,000
a. $ - 0 -
b. $ 7,000
c. $10,000
d. $14,000

11. Which of the following would not be considered an intangible asset?

a. Leasehold
b. Trademark
c. Franchise
d. Accounts receivable

12. Natural resources may be called

a. intangible assets.
b. plant assets.
c. wasting assets.
d. none of the above
13. The term used to refer to the expiration or exhaustion of a natural resource asset is
a. amortization.
b. depreciation.
c. depletion.
d. termination.