QUESTIONS 4

1- Which statement is false or true?

a. Depreciation is based on the matching principle because it matches the cost of
the asset with the revenue generated over the asset’s useful life.
b. Depreciation is a process of allocating the cost of a PPE over its useful life.
c. Depreciation creates a fund to replace the asset at the end of its useful life.
d. The cost of a PPE minus accumulated depreciation equals the asset’s book
value.
2- Which of the following is not a capital expenditure?
a. A complete overhaul of an air-conditioning system
b. Replacement of an old motor with a new one in a piece of equipment
c. The cost of installing a piece of equipment
d. The addition of a building wing e. A tune-up of a company vehicle
3- On July 1, 20X6, Amir Communications purchased a new piece of equipment
that cost $65,000. The estimated useful life is 10 years and estimated residual
value is $5,000.
1. What is the depreciation expense for 20X6 if Amir uses the straight-line
method?
a. $3,000
c. $3,250
b. $6,000
d. $6,500 4.
4- Assume Amir Communications purchased the equipment on January 1,
20X6. If Amir uses the straight-line method for depreciation, what is the asset’s
book value at the end of 20X7?
a. $54,000
c. $48,000
b. $59,000
d. $53,00
5- Which of the following assets is not subject to a decreasing book value
through depreciation, depletion, or amortization?
a. Goodwill
c. Natural resources
b. Land improvements
d. Intangibles
6- Which item among the following is not an intangible asset?
a. A copyright
d. Goodwill
b. A patent
c. A trademark
e. All of the above are intangible assets
7- A capital expenditure
a. is expensed immediately.
c. records additional capital.
b. adds to an asset.
d. is a credit like capital (owners’ equity).
8- Which of the following items should be accounted for as a capital
expenditure?
a. Costs incurred to repair leaks in the building roof.
b. Maintenance fees paid with funds provided by the company’s capital.
c. Taxes paid in conjunction with the purchase of office equipment.
d. The monthly rental cost of an office building.
9- Which statement about depreciation is false?
a. Obsolescence as well as physical wear and tear should be considered when
determining the period over which an asset should be depreciated.
b. Depreciation is a process of allocating the cost of an asset to expense over its
useful life.
c. A major objective of depreciation accounting is to match the cost of using an
asset with the revenues it helps to generate.
d. Depreciation should not be recorded in years that the market value of the asset
has increased.
10- King Company failed to record depreciation of equipment. How does this
omission affect King’s financial statements?
a. Net income is understated, and assets are overstated.
b. Net income is overstated, and assets are understated.
c. Net income is understated, and assets are understated.
d. Net income is overstated, and assets are overstated.
11- Which of the following costs is reported on a company’s Income Statement?
a. Accumulated depreciation
c. Accounts payable
b. Land
d. Depreciation expense
12-Which of the following items is reported on the Balance Sheet?
a. Accumulated depreciation
c. Cost of goods sold
b. Gain on disposal of equipment
d. Net sales revenue
13-Suppose Smooth Delivery pays $68 million to buy Guaranteed Overnight.
Guaranteed’s assets are valued at $74 million, and its liabilities total $16
million. How much goodwill did Timely Delivery purchase in its acquisition of
Guaranteed Overnight?
a. $22 million
c. $10 million
b. $16 million
d. $6 million
14-A company purchased mineral assets costing $960,000, with an estimated
residual value of $40,000, holding approximately 400,000 tons of ore. During
the first year, 48,000 tons are extracted and sold. What is the amount of
depletion for the first year?
a. $110,400
b. $96,000
c. $115,200
d. Cannot be determined from the data given
15- Classify each of the following expenditures as a capital expenditure or an
immediate expense related to machinery:
a. Income tax paid on income earned from the sale of products manufactured by
the machinery
b. Major overhaul to extend the machinery’s useful life by three years
c. Ordinary repairs to keep the machinery in good working order
d. Lubrication of the machinery before it is placed in service
e. Periodic lubrication after the machinery is placed in service
f. Sales tax paid on the purchase price
g. Transportation and insurance while machinery is in transit from seller to
buyer
h. Purchase price
i. Installation
j. Training of personnel for initial operation of the machinery
k. Special reinforcement to the machinery platform
l. Training of personnel for initial operation of the machinery
m. Special reinforcement to the machinery platform
n. Major overhaul to extend the machinery’s useful life by three years
o. Lubrication of the machinery before it is placed in service
q. Periodic lubrication after the machinery is placed in service