Test Bank For Horngrens Financial and Managerial Accounting The Managerial Chapters 4 e 4th Edition 0133447790 Download

Test Bank for Horngrenâ€™s Financial and Managerial Accounting, The Managerial Chapters 4/E
Test Bank for Horngrenâ€™s Financial and

Managerial Accounting, The Managerial Chapters 4/E
4th Edition : 0133447790
To download the complete and accurate content document, go to:

https://testbankbell.com/download/test-bank-for-horngrens-financial-and-managerial-a
ccounting-the-managerial-chapters-4-e-4th-edition-0133447790/
Visit TestBankBell.com to get complete for all chapters

Horngren's Financial & Managerial Accounting, 4e (Nobles)
Chapter 9 Plant Assets, Natural Resources, and Intangibles
Learning Objective 9-1
1) Plant assets are long-lived, tangible assets used in the operation of a business.
Answer: TRUE
Diff: 1
LO: 9-1
AACSB: Concept
AICPA Functional: Measurement
2) The process of allocating the cost of a plant asset over its useful life is known as cost reduction.
Answer: FALSE
Diff: 1
LO: 9-1
AACSB: Concept
3) The cost principle requires a business to record the assets acquired or services received at their actual
cost.
Answer: TRUE
Diff: 1
LO: 9-1
AACSB: Concept
4) The cost of land does not include the cost of fencing and paving the land.
Answer: TRUE
Diff: 1
LO: 9-1
AACSB: Concept
5) Capitalizing the cost of an asset involves crediting the asset account.

Answer: FALSE
Diff: 1
LO: 9-1
AACSB: Concept
6) Land and land improvements are one and the same and therefore must be recorded in single account.
Answer: FALSE
Diff: 1
LO: 9-1
AACSB: Concept
1
Copyright © 2014 Pearson Education, Inc.
7) A lump-sum purchase or basket purchase involves paying a single price for several assets as a group.
Answer: TRUE
Diff: 1
LO: 9-1
AACSB: Concept
8) The lump-sum amount paid for a group of assets is divided among the assets acquired based on their
relative market values. This method is known as the relative-market-value method.
Answer: TRUE
Diff: 1
LO: 9-1
AACSB: Concept
9) An expenditure which increases the capacity or efficiency of a plant asset or which extends the asset's
life is known as a revenue expenditure.
Answer: FALSE
Diff: 1
LO: 9-1
AACSB: Concept
10) Repair work that generates a capital expenditure because it extends the plant asset's useful life past
the normal expected life is known as an extraordinary repair.
Answer: TRUE
Diff: 1
LO: 9-1
AACSB: Concept
11) Ordinary repairs to plant assets are referred to as revenue expenditures.

Answer: TRUE
Diff: 1
LO: 9-1
AACSB: Concept
12) The cost of a building depends on whether the company is constructing the building by itself or is
acquiring an existing one.
Answer: TRUE
Diff: 1
LO: 9-1
AACSB: Concept
2
13) Which of the following is included in the cost of land?
A) cost of fencing
B) cost of paving
C) brokerage commission
D) cost of outdoor lighting
Answer: C
Diff: 2
LO: 9-1
AACSB: Concept
14) Which of the following is included in the cost of a plant asset?

A) amounts paid to make the asset ready for its intended use
B) regular repair and maintenance cost
C) replacement of damaged parts of the asset
D) wages of workers who work with the asset
Answer: A
Diff: 1
LO: 9-1
AACSB: Concept
15) Which of the following asset categories would include the cost of clearing land and removing
unwanted buildings?
A) land
B) buildings
C) land improvements
D) machinery and equipment
Answer: A
Diff: 1
LO: 9-1
AACSB: Concept
16) Which of the following is a characteristic of a plant asset, such as a building?

A) It is used in the operation of a business.
B) It is available for sale to customers in the ordinary course of business.
C) It has a short useful life.
D) It will have a negligible value at the end of its useful life.
Answer: A
Diff: 1
LO: 9-1
AACSB: Concept
3
17) Hastings Corporation has purchased a group of assets for $15,000. The assets and their relative market
values are listed below.
Land $6,500
Equipment 2,000
Building 9,000
Which of the following amounts would be debited to the Land account?

A) $1,962
B) $5,571
C) $1,714
D) $7,714
Answer: B
Explanation: B) Cost of land = $15,000 (lump-sum purchase price) × ($6,500 (land) ÷ ($6,500 (land) +
$2,000 (equipment) + $9,000 (building) = $5,571(rounded off)
Diff: 2
LO: 9-1
AACSB: Application
18) Fred Inc. owns a delivery truck. Which of the following costs, associated with the truck, will be
capitalized and depreciated?
A) modification for new use
B) change of oil filters
C) replacement of tires
D) normal repair of engine
Answer: A
Diff: 1
LO: 9-1
AACSB: Concept
19) Fred Inc. owns a delivery truck. Which of the following costs, associated with the truck, will be
treated as a revenue expenditure?
A) oil change and lubrication
B) major engine overhaul
C) modification for new use
D) addition to storage capacity
Answer: A
Diff: 1
LO: 9-1
AACSB: Concept
4
20) A company's accountant capitalized a payment that should be recorded as a revenue expenditure.
How will this error affect the financial statements of the company?
A) net income will be understated
B) expenses will be overstated
C) assets will be overstated
D) liabilities will be overstated
Answer: C
Diff: 2
LO: 9-1
AACSB: Application
21) A company's accountant capitalized a payment that should be recorded as a revenue expenditure.
How will this error affect the financial statements of the corporation?
A) net income will be overstated
B) revenues will be understated
C) assets will be understated
D) liabilities will be understated
Answer: A
Diff: 2
LO: 9-1
AACSB: Application
22) Nobells Corp. has acquired land and paid an amount of $500 as brokerage to acquire the land.
However, the company's accountant has recorded the $500 as a revenue expenditure. What is the effect of
this error?
A) net income is understated by $500
B) liabilities are overstated by $500
C) revenue is overstated by $500
D) assets are overstated by $500
Answer: A
Diff: 2
LO: 9-1
AACSB: Application
23) Which of the following costs related to a corporation car would be capitalized?
A) the cost to install an engine with higher horsepower
B) the cost to change the car's oil
C) the cost to replace a broken windshield
D) the cost of new tires
Answer: A
Diff: 2
LO: 9-1
AACSB: Concept
5
24) Roberts Construction Group paid $5,000 for a plant asset that had a market value of $7,500. At which
of the following amounts should the plant asset be recorded?
A) $7,500
B) $2,500
C) $5,000
D) $10,000
Answer: C
Diff: 1
LO: 9-1
AACSB: Application
25) Danube Corp. purchased a used machine for $10,000. The machine required installation costs of
$1,000 and insurance while in transit of $500. At which of the following amounts would the machine be
recorded?
A) $10,000
B) $11,000
C) $10,500
D) $11,500
Answer: D
Explanation: D)
Purchase price $10,000
Installation costs 1,000
Insurance 500
Cost of machine $11,500
Diff: 1
LO: 9-1
AACSB: Application
26) Which of the following should be included in the cost of land?

A) cost to build sidewalks on the land
B) cost to clear the land of old buildings
C) cost of installing signage
D) cost of installing fences
Answer: B
Diff: 1
LO: 9-1
AACSB: Concept
6
27) Acer Inc. plans to develop a shopping center. In the first quarter, they spent the following amounts:
Acquisition of land $15,000

Surveys and legal fees 600
Land clearing 200
Fencing 1,000
Install lighting and signage 860
What amount should be recorded as the cost of land in the books of the corporation?
A) $16,800
B) $15,800
C) $16,660
D) $16,200
Answer: B
Explanation: B)
Land clearing 200
Cost of land $15,800
Diff: 1
LO: 9-1
AACSB: Application
28) Acer Inc. plans to develop a shopping center. In the first quarter, they spent the following amounts:

Land clearing 200
Fencing 1,000
Install lighting and signage 860
What amount should be recorded as the land improvements cost?

A) $1,200
B) $1,800
C) $1,860
D) $800
Answer: C
Explanation: C)
Fencing $1,000
Lighting and signage 860
Cost of land improvement $1,860
Diff: 1
LO: 9-1
AACSB: Application
7
29) Nobells Corporation has acquired a property that included both land and a building for $500,000. The
corporation hired an appraiser who has determined that the market value of the land is $300,000 and that
of the building is $400,000. At what amount should the corporation record the cost of land?
A) $147,368
B) $52,632
C) $250,000
D) $214,286
Answer: D
Explanation: D) Cost of land = $500,000 (lump-sum purchase price) × [$300,000 (land) ÷ ($300,000 (land) +
$400,000 (building))] = $214,286
Diff: 2
LO: 9-1
AACSB: Application
corporation hired an appraiser who has determined that the market value of the land to be $300,000 and
that of the building is $400,000. At what amount should the corporation record the cost of building?
A) $147,368
B) $285,714
C) $269,125
D) $214,286
Answer: B
Explanation: B) Cost of building = $500,000 (lump-sum purchase price) × [$400,000 (building) ÷ ($300,000
(land) + $400,000 (building))] = $285,714
Diff: 2
LO: 9-1
AACSB: Application
corporation paid cash. The corporation hired an appraiser who has determined that the market value of
the land is $300,000 and that of the building is $400,000. Journalize the lump-sum purchase.
Answer:
Land 214,286
Building 285,714
Cash 500,000
Explanation:
Cost of land = $500,000 (lump-sum purchase price) × [$300,000 (land) ÷ ($300,000 (land) + $400,000
(building))] = $214,286
Cost of building = $500,000 (lump-sum purchase price) × [$400,000 (building) ÷ ($300,000 (land) + $400,000
(building))] = $285,714
Diff: 2
LO: 9-1
AACSB: Application
8
32) Give journal entry to record the acquisition of a plant asset for cash.
Answer:
Plant Asset XX
Cash XX
Diff: 1
LO: 9-1
AACSB: Concept
1) Depreciation is the allocation of a plant asset's cost to expense over the useful life of the asset.
Answer: TRUE
Diff: 1
LO: 9-2
AACSB: Concept
2) Residual value is also known as depreciable cost.

Answer: FALSE
Diff: 1
LO: 9-2
AACSB: Concept
3) An asset is said to be obsolete when a newer asset can perform the job more efficiently.
Answer: TRUE
Diff: 1
LO: 9-2
AACSB: Concept
4) When a corporation uses the straight-line method of depreciation, the amount of depreciation charged
to expense will be reduced from year to year.
Answer: FALSE
Diff: 1
LO: 9-2
AACSB: Concept
5) Useful life of a plant asset refers to the period for which it can be used for the purposes of the business.
Answer: TRUE
Diff: 1
LO: 9-2
AACSB: Concept
9
6) The double-declining-balance method is an accelerated method of depreciation.
Answer: TRUE
Diff: 1
LO: 9-2
AACSB: Concept
7) Use of MACRS is acceptable for financial reporting under GAAP.

Answer: FALSE
Diff: 1
LO: 9-2
AACSB: Concept
8) The units-of-production method allocates varying amounts of depreciation each year based on an
asset's usage.
Answer: TRUE
Diff: 1
LO: 9-2
AACSB: Concept
9) The double-declining-balance method ignores the residual value while calculating the amount of
depreciation.
Answer: TRUE
Diff: 1
LO: 9-2
AACSB: Concept
10) When an asset is fully depreciated, the residual value must be written off.
Answer: FALSE
Diff: 1
LO: 9-2
AACSB: Concept
11) When an asset is fully depreciated, no further depreciation expense is recorded.

Answer: TRUE
Diff: 1
LO: 9-2
AACSB: Concept
12) Companies are required to use Modified Accelerated Cost Recovery System (MACRS) for tax
purposes.
Answer: TRUE
Diff: 1
LO: 9-2
AACSB: Concept
10
13) Which of the following categories of assets should be depreciated?
A) tangible property, plant and equipment, other than land
B) intangible property
C) land
D) natural resources
Answer: A
Diff: 1
LO: 9-2
AACSB: Concept
14) Which of the following accounting principles requires businesses to record depreciation?
A) the revenue recognition principle
B) the matching principle
C) the cost principle
D) the going concern principle
Answer: B
Diff: 1
LO: 9-2
AACSB: Concept
15) Which of the following depreciation methods allocates a varying amount of depreciation each year
based on an asset's usage?
A) the straight-line method
B) the annuity method
C) the units-of-production method
D) the double-declining-balance method
Answer: C
Diff: 1
LO: 9-2
AACSB: Concept
16) Which of the following depreciation methods writes off a higher amount of depreciation in earlier
years than in later years?
A) the units-of-production method
B) the straight-line method
C) the double-declining-balance method
D) the first-in, first-out method
Answer: C
Diff: 1
LO: 9-2
AACSB: Concept
11
17) The expected cash value of an asset at the end of its useful life is known as ________.
A) book value
B) residual value
C) carrying value
D) market value
Answer: B
Diff: 1
LO: 9-2
AACSB: Concept
18) On January 1, 2015, Anodel Inc. acquired a machine for $1,000,000. The estimated useful life of the
asset is 5 years. Residual value at the end of 5 years is estimated to be $50,000. Calculate the depreciation
expense per year using the straight-line method.
A) $200,000
B) $190,000
C) $240,000
D) $250,000
Answer: B
Explanation: B) Straight-line depreciation = (Cost - Residual value) ∕/Useful life
Depreciation as per the straight-line method = [$1,000,000 (Cost of asset) - $50,000 (Residual value)] × 1 / 5
= $190,000
Diff: 1
LO: 9-2
AACSB: Application
19) On January 1, 2015, Anodel Inc. acquired a machine for $1,000,000. The estimated useful life of the
asset is 5 years. The residual value at the end of 5 years is estimated to be $50,000. What is the book value
of the machine at the end of 2016, if the company uses the straight-line method of depreciation?
A) $600,000
B) $620,000
C) $570,000
D) $550,000
Answer: B
Explanation: B) Straight-line depreciation = (Cost - Residual value) ÷ Useful life
Depreciation as per the straight-line method = ($1,000,000 - $50,000) × 1 / 5 = $190,000
Book value of the asset at the end of year 2016 = $1,000,000 - $190,000 - $190,000 = $620,000.
Diff: 2
LO: 9-2
AACSB: Application
12
20) On January 1, 2015, Zade Manufacturing Corporation purchased a machine for $40,000,000. The
corporation expects to use the machine for 24,000 hours over the next 6 years. The estimated residual
value of the machine at the end of the sixth year is $40,000. The corporation used the machine for 3,600
hours in 2015 and 5,000 hours in 2016. What is the depreciation expense for the year 2015 if the
corporation uses the units-of-production method of depreciation?
A) $5,994,000,
B) $13,333,333
C) $6,666,660
D) $12,222,000
Answer: A
Explanation: A) Depreciation per unit = (Cost - Residual value) ÷ Useful life in units
Depreciation for the year 2015 = [($40,000,000 - $40,000) / 24,000 hours] × 3,600 hours = $5,994,000
Diff: 2
LO: 9-2
AACSB: Application
hours in 2015 and 5,000 hours in 2016.
Calculate the book value of the machine at the end of 2016 if the company uses the units-of-production
method of depreciation.
A) $25,681,000
B) $17,777,778
C) $28,532,688
D) $24,352,951
Answer: A
Explanation: A) Depreciation per unit = (Cost - Residual value) ÷ Useful life in units
Depreciation for the year 2015 = [($40,000,000 - $40,000) / 24,000] × 3,600 = $5,994,000
Depreciation for the year 2016 = [($40,000,000 - $40,000) / 24,000] × 5,000 = $8,325,000
Book value of machine at the end of 2016 = $40,000,000 (Cost of asset) - $5,994,000 - $8,325,000 =
$25,681,000.
Diff: 2
LO: 9-2
AACSB: Application
22) Which of the following is true when the estimate of an asset's useful life is changed?
A) The new estimate is ignored until the last year of the asset's life.
B) The depreciation expense in the prior year is restated.
C) Prior years' financial statements must be restated.
D) The asset's remaining depreciable book value will be spread over the asset's remaining life.
Answer: D
Diff: 2
LO: 9-2
AACSB: Concept
13
23) Caterpillars Inc., a manufacturing company, acquired equipment on January 1, 2012 for $500,000.
Estimated useful life of the equipment was 7 years and the estimated residual value was $10,000. On
January 1, 2015, after using the equipment for 3 years, the total estimated useful life has been revised to 9
years. Residual value remains unchanged. The company uses the straight-line method of depreciation.
Calculate depreciation expense for the year 2015.
A) $48,333
B) $46,667
C) $26,666
D) $33,333
Answer: B
Explanation: B) Straight-line depreciation = (Cost - Residual value) ÷ Useful life
Depreciation provided for first three years = [($500,000 - $10,000) ÷ 7] × 3 = $210,000
Revised depreciation for the remaining useful life = ($500,000 - $210,000 - $10,000) ÷ 6 = $46,667
Diff: 3
LO: 9-2
AACSB: Application
24) The cost of an asset is $1,000,000 and its residual value is $100,000. Estimated useful life of the asset is
four years. Calculate depreciation for the first year using the double-declining-balance method of
depreciation.
A) $450,000
B) $500,000
C) $250,000
D) $225,000
Answer: B
Explanation: B) Double-declining-balance depreciation = (Cost - Accumulated depreciation) × 2 × (1 ÷
Useful life)
Depreciation for the first year = $1,000,000 × 2 × (1 / 4) = $500,000
Diff: 2
LO: 9-2
AACSB: Application
four years. Calculate depreciation for the second year using the double-declining-balance method of
depreciation.
A) $250,000
B) $225,000
C) $450,000
D) $240,000
Answer: A
Explanation: A) Double-declining-balance depreciation = (Cost - Accumulated depreciation) × 2 × (1 ÷
Useful life)
Depreciation for the first year = $1,000,000 (Cost of asset) × 2 × (1 / 4) = $500,000
Depreciation for the second year = ($1,000,000 - $500,000) × 2 × 1 / 4 = $250,000,
Diff: 3
LO: 9-2
AACSB: Application
14
26) A company purchased a computer on July 1, 2015 for $50,000. Estimated useful life of the computer
was 5 years and it has no residual value. Which of the following methods should be used to best match its
expense against the revenue it produces?
A) the units-of-production method
B) the straight-line method
C) the double-declining-balance method
D) the first-in, first-out method
Answer: C
Diff: 1
LO: 9-2
AACSB: Concept
27) Iverycoast Inc. purchased a van on January 1, 2015, for $800,000. Estimated life of the van was 5 years,
and its estimated residual value was $90,000. Iverycoast uses the straight-line method of depreciation.
Calculate the book value of the van at the end of 2015.
A) $650,000,
B) $750,000
C) $710,000
D) $658,000
Answer: D
Explanation: D) Depreciation per year = (Cost - Residual value) / Useful life
Depreciation per year = ($800,000 - $90,000) ÷ 5 = $142,000
Book value at the end of first year = $800,000 - $142,000 = $658,000
Diff: 2
LO: 9-2
AACSB: Application
and its estimated residual value was $90,000. Iverycoast uses the straight-line method of depreciation. At
the beginning of 2017, the corporation revised the total estimated life of the asset from 5 years to 6 years.
The estimated residual value remained the same as estimated earlier. Calculate the depreciation expense
for the year 2017.
A) $142,000
B) $145,000
C) $106,500
D) $110,000
Answer: C
Explanation: C) Depreciation per year = (Cost - Residual value) / Useful life
Depreciation provided in the books = $142,000 × 2 years = $284,000
Revised depreciation for the year 2017 = ($800,000 - $284,000 - $90,000) ÷ 4 years = $106,500
Diff: 3
LO: 9-2
AACSB: Application
15
and its estimated residual value was $90,000. Iverycoast uses the straight-line method of depreciation. At
the beginning of 2017, the company revised the total estimated life of the asset from 5 years to 4 years.
The estimated residual value remained the same as estimated earlier. Calculate the depreciation expense
for the year 2017.
A) $220,000
B) $213,000
C) $145,000
D) $250,000
Answer: B
Explanation: B) Depreciation per year = (Cost - Residual value) / Useful life
Depreciation provided in the books = $142,000 × 2 years = $284,000
Revised depreciation for the year 2017 = ($800,000 - $284,000 - $90,000) ÷ 2 = $213,000
Diff: 3
LO: 9-2
AACSB: Application
30) On July 31, 2015, Colora Printers purchased a printer for $50,000. It expects the printer to last for four
years and has a residual value of $2,000. Compute the depreciation expense on the printer for the year
ended December 31, 2015, using the straight-line method.
A) $50,000
B) $5,000
C) $12,500
D) $25,000
Answer: B
Explanation: B) Depreciation per year = (Cost - Residual value) / Useful life
Depreciation for the first year = ($50,000 - $2,000) - 4 × (5 ÷ 12) = $5,000
Diff: 3
LO: 9-2
AACSB: Application
Give journal entry to record the purchase of van for cash.
Answer:
Van 800,000
Cash 800,000
Diff: 1
LO: 9-2
AACSB: Application
16
Give journal entry to record the depreciation expense for 2015 on the van.
Answer:
Depreciation Expense—Van 142,000
Accumulated Depreciation—Van 142,000
Explanation:
Depreciation per year = (Cost - Residual value) / Useful life
Depreciation per year = ($800,000 - 90,000) ÷ 5 = $142,000
Diff: 1
LO: 9-2
AACSB: Application
33) On January 1, 2015, a corporation acquired a truck for $600,000. Residual value was estimated to be
$20,000. The truck can be driven for 50,000 miles over the next 3 years. Actual usage of the truck was
recorded as 8,640 miles for the first year. Give journal entry to record depreciation for the first year
calculated as per the units-of-production method. (Do not round your intermediate calculations.)
Answer:
Depreciation Expense—Truck 100,224
Accumulated Depreciation—Truck 100,224
Explanation:
Depreciation per year = (Cost - Residual value) / Estimated total units
Rate of depreciation = ($600,000 - $20,000) ÷ 50,000 = $11.6/mile
Depreciation for the first year = 8,640 miles × $11.6/mile = $100,224
Diff: 2
LO: 9-2
AACSB: Application
17
34) Iverycoast Inc. had purchased a van on January 1, 2015, for $800,000. Estimated life of the van was 5
years, and its estimated residual value was $90,000. Iverycoast uses the straight-line method of
depreciation. Prepare the depreciation schedule.
Answer: Depreciation for the year
Depre- Accumu-
Useful ciation lated Book
Date Asset cost Depreciable cost life expense depreciation value
1-1-2015 $800,000 $800,000
12-31-2015 ($800,000 - $90,000) 5 $142,000 $142,000 658,000
12-31-2016 ($800,000 - $90,000) 5 142,000 284,000 516,000
12-31-2017 ($800,000 - $90,000) 5 142,000 426,000 374,000
12-31-2018 ($800,000 - $90,000) 5 142,000 568,000 232,000
12-31-2019 ($800,000 - $90,000) 5 142,000 710,000 90,000
Diff: 1
LO: 9-2
AACSB: Application
value of the machine at the end of the sixth year is $40,000. The schedule of usage of the machine is as
below.
Year Usage
1 4,500
2 6,000
3 5,200
4 4,300
5 2,000
6 2,000
Prepare the depreciation schedule using the units-of-production method of depreciation.

Depre- Number Depre-
ciation on ciation Accumulated Book
Date Asset cost per hour hours expense depreciation value
1-1-2015 $40,000,000 $40,000,000
12-31-2015 $1,665 4,500 =$7,492,500 $7,492,500 32,507,500
12-31-2016 1,665 6,000 =9,990,000 17,482,500 22,517,500
12-31-2017 1,665 5,200 =8,658,000 26,140,500 13,859,500
12-31-2018 1,665 4,300 =7,159,500 33,300,000 6,700,000
12-31-2019 1,665 2,000 =3,330,000 36,630,000 3,370,000
12-31-2020 1,665 2,000 =3,330,000 39,960,000 40,000
Depreciation per hour = ($40,000,000 - $40,000) ÷ 24,000 hours = $1,665 per hour
Diff: 3
LO: 9-2
AACSB: Application
18
four years. Prepare the schedule of depreciation using the double-declining-balance method of
accounting.
DDB Depreciation Accumulated Book
Year Asset cost Book value Rate expense depreciation value
0 $10,000,000 $10,000,000
1 $10,000,000 2×1∕4 $5,000,000 $5,000,000 5,000,000
2 $5,000,000 2×1∕4 2,500,000 7,500,000 2,500,000
3 $2,500,000 2×1∕4 1,250,000 8,750,000 1,250,000
4 1,250,000 1,150,000* 9,900,000 100,000
*(1,250,000 - $100,000)
Diff: 3
LO: 9-2
AACSB: Application
hours in 2015 and 5,000 hours in 2016. What is the depreciation expense for 2015 and 2016 if the
corporation uses the double-declining-balance method of depreciation? (Do not round your intermediate
calculations.)
Answer: Double-declining-balance depreciation = (Cost - Accumulated depreciation) × 2 × (1 ÷ Useful
life)
Depreciation for the year 2015 = $40,000,000 (Cost of asset) × 2 × 1 / 6 = $13,333,333
Depreciation for the year 2016 = ($40,000,000 - $13,333,333) × 2 × 1 / 6 = $8,888,889
Diff: 2
LO: 9-2
AACSB: Application
hours in 2015 and 5,000 hours in 2016. What is the book value of the machine at the end of year 2016 if the
corporation uses double-declining-balance method of depreciation? (Do not round your intermediate
calculations.)
Answer: Double-declining-balance depreciation = (Cost - Accumulated depreciation) × 2 × (1 ÷ Useful
life)
Depreciation for the year 2015 = $40,000,000 (Cost of asset) × 2 × 1 / 6 = $13,333,333
Depreciation for the year 2016 = ($40,000,000 - $13,333,333) × 2 × 1 / 6 = $8,888,889
Book value of the machine at the end of year 2016 = $40,000,000 - $13,333,333 - $8,888,889 = $17,777,778.
Diff: 2
LO: 9-2
AACSB: Application
19
hours in 2015 and 5,000 hours in 2016. Calculate depreciation expense for the year 2016 if the company
uses the units-of-production method of depreciation.
Answer: Depreciation per unit = (Cost - Residual value) ÷ Useful life in units
Depreciation for the year 2016 = [($40,000,000 - $40,000) / 24,000 hours] × 5,000 hours = $8,325,000
Diff: 2
LO: 9-2
AACSB: Application
40) On January 1, 2015, a corporation acquired a truck for $600,000. The residual value was estimated to
be $20,000. The truck can be driven for 50,000 miles over the next 3 years. The actual usage of the truck
was 8,640 miles for the first year. Calculate the rate of depreciation to be applied, and depreciation for the
first year using the units-of-production method. (Do not round your intermediate calculations).
Answer: Depreciation per unit = (Cost - Residual value) ÷ Useful life in units
Rate of depreciation = [$600,000 (Acquisition price) - $20,000 (Residual value)] ÷ 50,000 miles = $11.6/mile
Depreciation for the first year = 8,640 miles × $11.6/mile = $100,224
Diff: 2
LO: 9-2
AACSB: Application
1) Discarding of plant assets involves disposing of the asset for no cash.

Answer: TRUE
Diff: 1
LO: 9-3
AACSB: Concept
2) When a business sells a plant asset for book value, a gain or loss should be recorded.
Answer: FALSE
Diff: 1
LO: 9-3
AACSB: Concept
3) When a plant asset, fully depreciated and has no residual value, is discarded, the company will remove
the Plant Asset Account and the Accumulated Depreciation Account from their books.
Answer: TRUE
Diff: 1
LO: 9-3
AACSB: Concept
20
4) Whenever a plant asset is sold or otherwise disposed of, the first step is to bring the depreciation up to
date.
Answer: TRUE
Diff: 1
LO: 9-3
AACSB: Concept
5) When a plant asset is sold for a price lower than its book value, there will be a gain.
Answer: FALSE
Diff: 1
LO: 9-3
AACSB: Concept
6) If the sale price of a plant asset is higher than its book value, there will be a loss.
Answer: FALSE
Diff: 1
LO: 9-3
AACSB: Concept
7) A fully depreciated asset that is still in service must not be reported as an asset on the balance sheet.
Answer: FALSE
Diff: 1
LO: 9-3
AACSB: Concept
8) An asset was purchased for $24,000. The asset's estimated useful life was 5 years, and its residual value
was $4,000. The straight-line method of depreciation was used. Calculate the gain or loss on sale if the
asset is sold for $18,000 at the end of the first year.
A) $1,000 gain
B) $2,000 loss
C) no gain or no loss
D) $2,000 gain
Answer: B
Explanation: B)
Market value of assets received $18,000
Less: Cost $24,000
Less: Accumulated Depreciation 4,000 -20,000
Gain or (Loss) -$2,000
Diff: 2
LO: 9-3
AACSB: Application
21
9) A plant asset is said to be fully depreciated when the book value is ________.
A) greater than the residual value
B) greater than the market value
C) equal to the residual value
D) equal to the market value
Answer: C
Diff: 1
LO: 9-3
AACSB: Concept
10) The gain or loss on the sale of a plant asset is determined by comparing ________.
A) sale value and book value
B) sale value and residual value
C) sale value and original cost
D) book value and residual value
Answer: A
Diff: 2
LO: 9-3
AACSB: Concept
11) Corel Sales sold its old office furniture for $5,000. Its original cost was $10,000 and at the time of sale,
it had accumulated depreciation of $7,000. What was the effect of the transaction?
A) gain of $5,000
B) gain of $2,000
C) loss of $2,000
D) loss of $5,000
Answer: B
Explanation: B) Gain on sale = $5,000 - ($10,000 - $7,000) = $2,000
Diff: 1
LO: 9-3
AACSB: Application
12) A photocopier costs $95,000 when new and has accumulated depreciation of $88,000. Suppose the
corporation junks this machine and receives nothing. What is the result of the disposal transaction?
A) loss of $ 7,000
B) no gain or no loss
C) loss of $ 11,000
D) gain of $ 7,000
Answer: A
Explanation: A) Loss on disposal = $95,000 - $88,000 = $7,000
Diff: 1
LO: 9-3
AACSB: Application
22
13) A truck costs $300,000 and is expected to run 100,000 miles during its 5-year life. Residual value is
expected to be zero because the truck was used when acquired. If the truck runs 24,000 miles the first
year, how much depreciation should the corporation record under the units-of-production method?
A) $85,000
B) $24,000
C) $72,000
D) $47,000
Answer: C
Explanation: C) Depreciation for the first year = ($300,000 ÷ 100,000) × 24,000 = $72,000
Diff: 2
LO: 9-3
AACSB: Application
14) Prinkle Corporation had purchased equipment for $50,000 on January 1, 2015. On December 31, 2017,
the corporation sold the equipment for $23,000. Accumulated Depreciation as of December 31, 2017 was
$25,000.
Calculate gain or loss on sale.
A) $2,000 gain
B) $2,000 loss
C) no gain no loss
D) $25,000 loss
Answer: B
Explanation: B) Loss on disposal = Book value - Sale price = $25,000 - $23,000 = $2,000
Diff: 2
LO: 9-3
AACSB: Application
15) Trimer Corp sold a truck for $15,000 cash. It was originally purchased for $50,000 and had
accumulated depreciation of $30,000 at the time of sale. Give the journal entry for the sale of truck.
Answer:
Cash 15,000
Loss on Disposal 5,000
Truck 50,000
Diff: 2
LO: 9-3
AACSB: Application
23
16) Trimer Corp. junks a truck which was originally purchased for $50,000 and had accumulated
depreciation of $30,000. Give journal entry for disposal of truck.
Answer:
Truck 50,000
Diff: 2
LO: 9-3
AACSB: Application
17) On June 30, 2015, Regal Furniture discarded fully depreciated equipment costing $35,000. Journalize
the disposal of the equipment.
Answer:
Accumulated Depreciation—Equipment 35,000
Equipment 35,000
Diff: 2
LO: 9-3
AACSB: Application
18) Equipment was purchased for $24,000. The equipment's estimated useful life was 5 years, and its
residual value was $4,000. The straight-line method of depreciation was used. Calculate gain or loss on
sale if the equipment is sold for $18,000 at the end of the first year. Give journal entry to record the sale of
equipment at book value.
Answer:
Cash 18,000
Equipment 24,000
Diff: 2
LO: 9-3
AACSB: Application
24
19) Equipment was purchased for $24,000. The equipment's estimated useful life was 5 years, and its
residual value was $4,000. The straight-line method of depreciation was used. Give journal entry to
record the sale of the equipment if it is sold for $25,000 at the end of the first year.
Answer:
Cash 25,000
Gain on Disposal 5,000
Equipment 24,000
Diff: 2
LO: 9-3
AACSB: Application
20) Rightz Petroleum Products owns furniture that was purchased for $20,000. Accumulated depreciation
is $16,000. The furniture was sold for $3,800. Give journal entry to record the transaction.
Answer:
Cash 3,800
Accumulated Depreciation—Furniture 16,000
Loss on Disposal 200
Furniture 20,000
Diff: 2
LO: 9-3
AACSB: Application
21) On June 30, 2015, Adilide Inc. discarded equipment costing $40,000. Accumulated Depreciation as of
December 31, 2014, was $25,000. Assume annual depreciation on the equipment is $2,500. Journalize the
partial year depreciation expense and disposal of the equipment.
Answer:
Depreciation Expense—Equipment 1,250
Accumulated Depreciation** 26,250

Loss on Disposal* 13,750
Equipment 40,000
*Loss on disposal = $40,000 - $26,250

**Accumulated depreciation = $25,000 + ($2,500 × 6 / 12) = $25,000 + $1,250
Diff: 2
LO: 9-3
AACSB: Application
25
22) On January 1, 2015, WAX-D purchased equipment for $60,000 cash, expecting it to remain in service
for six years. The corporation depreciates the equipment on a straight-line basis, with $2,000 residual
value. On April 30, 2017, the corporation sold the equipment for $48,000 cash. Record both depreciation
expense for 2017 and sale of the equipment on April 30, 2017. (Do not round your intermediate
calculations.)
Answer:
Depreciation Expense—Equipment* 3,222
Cash 48,000
Accumulated Depreciation—Equipment** 22,555
Equipment 60,000
Accumulated Depreciation on 12-31-2016 = ($60,000 - $2,000) ÷ 6 × 2= $19,333

*Depreciation for the period 1-1-2017 to 4-30-2017 = ($60,000 - $2,000) ÷ 6 × 4 / 12 = $3,222
** Accumulated Depreciation = $19,333 + $3,222 = $22,555
Diff: 3
LO: 9-3
AACSB: Application
1) A natural resource is an asset that comes from the earth and is consumed.
Answer: TRUE
Diff: 1
LO: 9-4
AACSB: Concept
2) The process by which businesses spread the allocation of a natural resource's cost over its usage is
known as depreciation.
Answer: FALSE
Diff: 1
LO: 9-4
AACSB: Concept
3) The units-of-production method is used to compute the depletion expense.

Answer: TRUE
Diff: 1
LO: 9-4
AACSB: Concept
26
4) Businesses should not deplete natural resources because these do not decrease in value with time.
Answer: FALSE
Diff: 1
LO: 9-4
AACSB: Concept
5) Which of the following is an expense resulting from the decline in the utility of a natural resource?
A) depletion
B) amortization
C) depreciation
D) obsolescence
Answer: A
Diff: 1
LO: 9-4
AACSB: Concept
6) A coal mine costs $1,000,000 and is estimated to hold 50,000 tons of coal. There is no residual value.
3,000 tons are extracted and sold during the first year of operations. Calculate depletion per unit.
A) $10
B) $5
C) $20
D) $15
Answer: C
Explanation: C)
Depletion per unit = (Cost - Residual value) ÷ Estimated total units
Depletion per unit = ($1,000,000 - 0) ÷ 50,000 tons = $20 per ton
Diff: 1
LO: 9-4
AACSB: Application
7) A coal mine cost $1,000,000 and is estimated to hold 50,000 tons of coal. There is no residual value.
6,000 tons are extracted and sold during the first year of operations. Calculate depletion expense for the
first year.
A) $100,000
B) $150,000
C) $200,000
D) $120,000
Answer: D
Explanation: D)
Depletion per unit = ($1,000,000 - 0) ÷ 50,000 tons = $20 per ton
Depletion expense = Depletion per unit × Number of units extracted
Depletion expense = $20 × 6,000 tons = $120,000
Diff: 1
LO: 9-4
AACSB: Application
27
8) Steel Rolling Corp. purchased a mine, which holds an estimated 30,000 tons of iron ore, on January 1,
2015, for $500,000. The corporation expects the asset to have zero residual value. The corporation has
extracted 2,500 tons of ore in 2015 and 3,800 tons of ore in 2016. What is the depletion expense for 2015?
(Do not round your intermediate calculations.)
A) $42,333
B) $41,667
C) $33,333
D) $42,667
Answer: B
Explanation: B)
Depletion per unit = ($500,000 - $0) ÷ 30,000 tons = $16.6666 per ton
Depletion expense for year 2015 = $16.6666 × 2,500 tons = $41,667
Diff: 2
LO: 9-4
AACSB: Application
9) Steel Rolling Corp. purchased a mine on January 1, 2015, for $500,000 and it is estimated to contain
30,000 tons of iron ore. There is no residual value. The corporation has extracted 2,500 tons of ore in 2015
and 3,800 tons of ore in 2016. What is depletion expense for 2016? (Do not round your intermediate
calculations).
A) $33,333
B) $42,667
C) $63,333
D) $63,667
Answer: C
Explanation: C)
Depletion per unit = ($500,000 - $0) ÷ 30,000 tons = $16.6666 per ton
Diff: 2
LO: 9-4
AACSB: Application
28
10) Steel Rolling Corp. purchased a mine on Jan 1, 2015 for $500,000 and it is estimated to contain 30,000
tons of iron ore. There is no residual value. The corporation has extracted 2,500 tons of ore in 2015 and
3,800 tons of ore in 2016. What is the book value of the mine at the end of 2016? (Do not round your
intermediate calculations.)
A) $440,000
B) $395,000
C) $350,000
D) $500,000
Answer: B
Explanation: B)
Depletion per unit = ($500,000 - $0) ÷ 30,000 = $16.6666 per ton
Book value of mine at the end of year 2016 = $500,000 - $41,667 - $63,333 = $395,000
Diff: 2
LO: 9-4
AACSB: Application
11) Steel Rolling Corp. purchased a mine on January 1, 2015, for $500,000 and it estimated that 30,000 tons
of iron ore can be extracted from it. It has no residual value. The corporation has extracted 2,500 tons of
ore in 2015. Give the journal entry to record depletion expense for the year 2015. (Do not round your
intermediate calculations.)
Answer:
Depletion Expense—Mine 41,667
Accumulated Depletion—Mine 41,667
Explanation:
Diff: 2
LO: 9-4
AACSB: Application
29
12) Steel Rolling Corp. purchased a mine in 2015 for $500,000 and it estimated that 30,000 tons of iron ore
can be extracted from it. It has no residual value. The corporation has extracted 2,500 tons of ore in 2015.
How will the mine be reported on the balance sheet at the end of year 2015?
Answer:
Mine $500,000
Less: Accumulated depreciation -41,667 $458,333
Explanation:
Book value of mine at the end of year 2015 = $500,000 - $41,667 = $458,333
Diff: 2
LO: 9-4
AACSB: Application
1) An intangible asset is an asset with no physical form that is valuable because of the special rights it
carries.
Answer: TRUE
Diff: 1
LO: 9-5
AACSB: Concept
2) Impairment of an intangible asset occurs when the book value of an asset is less than the fair value.
Answer: FALSE
Diff: 1
LO: 9-5
AACSB: Concept
3) The process by which businesses spread the allocation of an intangible asset's cost over its useful life is
referred to as amortization.
Answer: TRUE
Diff: 1
LO: 9-5
AACSB: Concept
4) A patent is an exclusive right to reproduce and sell a book, musical composition, film, other work of
art, or intellectual property.
Answer: FALSE
Diff: 1
LO: 9-5
AACSB: Concept
30
5) Goodwill is the excess amount paid to purchase another company over the market value of its net
assets.
Answer: TRUE
Diff: 1
LO: 9-5
AACSB: Concept
6) A trademark represents distinctive identifications of products or services.

Answer: TRUE
Diff: 1
LO: 9-5
AACSB: Concept
7) Franchises are privileges granted by a business to sell goods and services under specified conditions.
Answer: TRUE
Diff: 1
LO: 9-5
AACSB: Concept
8) In common with other intangible assets, goodwill must be amortized each year.
Answer: FALSE
Diff: 1
LO: 9-5
AACSB: Concept
9) According to generally accepted accounting principles, if the fair value of goodwill decreases below
book value, an impairment loss must be recorded.
Answer: TRUE
Diff: 1
LO: 9-5
AACSB: Concept
10) A trademark should not be amortized over its useful life.

Answer: FALSE
Diff: 1
LO: 9-5
AACSB: Concept
11) If a corporation uses the contra account, Accumulated Amortization, this account will typically be
shown on the balance sheet.
Answer: FALSE
Diff: 1
LO: 9-5
AACSB: Concept
31
12) Which of the following is an intangible asset?
A) copyright
B) building
C) land
D) equipment
Answer: A
Diff: 1
LO: 9-5
AACSB: Concept
13) Businesses are allowed to record goodwill ________.

A) when they enjoy an outstanding reputation and loyalty with customers
B) if they acquire another corporation at a price higher than the market value of its net assets
C) when they continue the business of an acquired corporation
D) if their market value has increased enormously in the recent past
Answer: B
Diff: 1
LO: 9-5
AACSB: Concept
14) Which of the following items should be amortized?

A) natural resources
B) goodwill
C) patents, copyrights, trademarks
D) tangible property, plant, and equipment, other than land
Answer: C
Diff: 1
LO: 9-5
AACSB: Concept
15) Which of the following accounting methods is usually used to compute amortization expense?
A) declining-balance
B) units-of-production
C) straight-line
D) first-in, first-out
Answer: C
Diff: 1
LO: 9-5
AACSB: Concept
32
16) Server Solutions paid $200,000 to acquire Tabletz Inc., an electronic gadget-advertising website. At the
time of the acquisition, Tabletz's balance sheet reported total assets of $200,000 and liabilities of $100,000.
The fair market value of Tabletz's assets was $200,000. The fair market value of its liabilities was $100,000.
How much goodwill did Server Solutions purchase as part of the acquisition of Tabletz?
A) $200,000
B) $50,000
C) $100,000
D) $150,000
Answer: C
Explanation: C)
Purchase price to acquire Tabletz $200,000
Market value of Tabletz's assets $200,000
Less: Market value of Tabletz's liabilities 100,000
Less: Market value of Tabletz's net assets 100,000
Goodwill $100,000
Diff: 2
LO: 9-5
AACSB: Application
17) In 2015, a corporation purchased a small business for $250,000. The market value of the small
business's assets was $400,000, and the market value of the liabilities was $200,000. The corporation
recorded goodwill of $50,000 at the time of acquisition. At the end of 2016, it measured the goodwill and
found it had a remaining fair value of only $20,000. At year-end 2016, the corporation will ________.
A) record a loss on sale of assets
B) record an impairment loss
C) record accumulated depletion
D) record a gain in goodwill
Answer: B
Diff: 2
LO: 9-5
AACSB: Application
18) Which of the following is true of goodwill?

A) Goodwill must be capitalized when acquired, and amortized over 7 years or less.
B) Both created and acquired goodwill must be recorded in the books.
C) Goodwill must be expensed when acquired.
D) Goodwill is not amortized.
Answer: D
Diff: 1
LO: 9-5
AACSB: Concept
33
19) Which of the following is the correct accounting treatment for a patent?
A) A patent must be shown as a current asset on the balance sheet.
B) A patent must be depreciated or impaired, but not amortized.
C) A patent must be capitalized and amortized over 20 years or less.
D) A patent must be expensed, not capitalized, in the period in which it is purchased.
Answer: C
Diff: 1
LO: 9-5
AACSB: Concept
20) Which of the following is an intangible asset?

A) plant and machinery
B) goodwill
C) building
D) land
Answer: B
Diff: 1
LO: 9-5
AACSB: Concept
21) The type of intangible asset related to the rights of original music and media is known as a ________.
A) franchise
B) trademark
C) copyright
D) patent
Answer: C
Diff: 1
LO: 9-5
AACSB: Concept
22) On October 1, 2015, Nurix Inc. purchased a patent for $200,000 cash. Although the patent gives legal
protection for 20 years, the patent is expected to be used for only 10 years. What will be the balance in the
patent account on September 30, 2016?
A) $180,000
B) $200,000
C) $190,000
D) $100,000
Answer: A
Explanation: A) Amortization expense = (Cost - Residual value) ÷ Useful life
Amortization expense = ($200,000 - 0) ÷ 10 = $20,000
Balance at the end of first year = $200,000 - $20,000 = $180,000
Diff: 2
LO: 9-5
AACSB: Application
34
23) On January 1, 2015, Server Solutions paid $200,000 to acquire Tabletz Inc., an electronic gadget-
advertising website. At the time of the acquisition, Tabletz's balance sheet reported total assets of
$200,000 and liabilities of $100,000. The fair market value of Tabletz's assets was $200,000. The fair market
value of its liabilities was $100,000. At the end of 2018, they measured goodwill and found its fair value to
be $60,000. Calculate and record the impairment of goodwill.
Answer:
Impairment Loss 40,000
Goodwill 40,000
Explanation:
Purchase price to acquire Tabletz $200,000
Market value of Tabletz's assets $200,000
Less: Market value of Tabletz's liabilities 100,000
Less: Market value of Tabletz's net assets 100,000
Goodwill $100,000
Impairment Loss = $100,000 - $60,000 = $40,000

Diff: 3
LO: 9-5
AACSB: Application
24) Server Solutions paid $200,000 to acquire Tabletz Inc., an electronic gadget-advertising website. At the
time of the acquisition, Tabletz's balance sheet reported total assets of $200,000 and liabilities of $100,000.
The fair market value of Tabletz's assets was $200,000. The fair market value of its liabilities was $100,000.
Journalize the acquisition of Tabletz in the books of Server Solutions.
Answer:
Assets 200,000
Goodwill 100,000
Liabilities 100,000
Cash 200,000
Diff: 2
LO: 9-5
AACSB: Application
protection for 20 years, it is expected to be used for only eight years. Journalize the purchase of the
patent.
Answer:
Patent 100,000
Cash 100,000
Diff: 1
LO: 9-5
AACSB: Application
35
protection for 20 years, it is expected to be used for only eight years. Journalize the amortization expense
for 2015. Assume straight-line amortization.
Answer:
Amortization Expense—Patent 3,125
Patent 3,125
Amortization expense = (Cost - Residual value) / Useful life

Amortization expense = $100,000 ÷ 8 years = $12,500 × 3 / 12 = $3,125
Diff: 1
LO: 9-5
AACSB: Application
protection for 20 years, the patent is expected to be used for only 10 years. Journalize the amortization
expense for 2015. Assume straight-line amortization.
Answer:
Amortization Expense—Patent 5,000
Patent 5,000
Explanation:
Amortization expense = (Cost - Residual value) / Useful life
Amortization expense = $200,000 ÷ 10 years = $20,000 × 3 / 12 = $5,000
Diff: 1
LO: 9-5
AACSB: Application
1) The asset turnover ratio measures the amount of net sales generated for each average dollar of total
assets invested.
Answer: TRUE
Diff: 1
LO: 9-6
AACSB: Concept
2) The asset turnover ratio is calculated by dividing cost of goods sold by average total assets.
Answer: FALSE
Diff: 1
LO: 9-6
AACSB: Concept
36
3) Maple Corp. had net sales of $200,550 for the year ended December 31, 2015. Its beginning and ending
total assets were $75,200 and $110,500, respectively. Determine Maple's asset turnover ratio for the year
ended December 31, 2015.
A) 0.46 times
B) 2.67 times
C) 1.18 times
D) 2.16 times
Answer: D
Explanation: D)
Asset turnover ratio = Net sales / Average total assets
Asset turnover ratio = $200,550 ÷ [($75,200 + $110,500) ÷ 2] = 2.16 times (rounded)
Diff: 2
LO: 9-6
AACSB: Application
4) Which of the following is true of the asset turnover ratio?

A) It measures how efficiently a business uses its sales to finance the assets.
B) It measures how efficiently a business uses its average total assets to generate sales.
C) It measures how efficiently a business uses its net profit to finance the assets.
D) It measures how the ending inventory helps in increasing the value of assets.
Answer: B
Diff: 1
LO: 9-6
AACSB: Concept
5) On January 1, 2012 Hillop Inc. had total assets of $360,000. During the year, the company purchased
new machinery worth $80,000 and promised to pay the amount due after two years. Throughout the year,
it earned revenue of $50,000 every month. Calculate the asset turnover ratio.
A) 1.2 times
B) 1.8 times
C) 1.5 times
D) 1.4 times
Answer: C
Explanation: C)
Asset turnover ratio = Net sales ÷ Average total assets
Net Sales = $50,000 × 12 = $600,000
Average total assets = [$360,000 + ($360,000 + $80,000)] ÷ 2 = $400,000
Asset turnover ratio = 600,000 ÷ 400,000 = 1.5 times
Diff: 2
LO: 9-6
AACSB: Application
37
6) Baker Inc. had reported the following details for the year ended December 31, 2012:
Net sales $24,750,000

Total assets 16,000,000
Total liabilities 9,500,000
The company's beginning total assets and liabilities were $14,000,000 and $8,000,000, respectively.
Calculate the asset turnover ratio for 2012.
A) 1.95 times
B) 1.24 times
C) 1.44 times
D) 1.65 times
Answer: D
Explanation: D)
Net sales = $24,750,000
Average total assets = ($14,000,000 + $16,000,000) ÷ 2 = $15,000,000
Asset turnover ratio = $24,750,000 ÷ $15,000,000 = 1.65
Diff: 2
LO: 9-6
AACSB: Application
7) Roggers Corp.'s beginning and ending total assets in the year 2015 were $18,000,000 and $22,000,000,
respectively. Its assets turnover ratio for the year was calculated to be 1.75 times. Calculate the amount of
net sales for the year 2015.
A) $27,000,000
B) $42,000,000
C) $35,000,000
D) $48,000,000
Answer: C
Explanation: C)
Net sales = Asset turnover ratio × Average total assets
Average total assets = ($18,000,000 + $22,000,000) ÷ 2 = 20,000,000
Net sales = 1.75 × 20,000,000 = 35,000,000
Diff: 2
LO: 9-6
AACSB: Application
38
8) During the year 2015, Sanchez Corp. sold goods and earned revenue of $16,000,000. The corporation's
beginning total assets was $8,000,000. Its assets turnover ratio was 1.6 times. Calculate the ending total
assets of Sanchez.
A) $12,000,000
B) $8,000,000
C) $14,000,000
D) $6,000,000
Answer: A
Explanation: A)
Average total assets = Net sales ÷ Asset turnover ratio
Average total assets = $16,000,000 ÷ 1.6 = 10,000,000
Average total assets = (Beginning assets + Ending assets) ÷ 2
Ending assets = (Average total assets × 2) - Beginning assets
Ending assets = ($10,000,000 × 2) - $8,000,000 = $12,000,000
Diff: 2
LO: 9-6
AACSB: Application
9) Redribbon Gallery reported the following assets on its December 31, 2015 balance sheet:
Dec. 31, 2015 Dec. 31, 2014

Cash $35,000 $28,000
Accounts Receivable 97,000 85,000
Merchandise Inventory 80,000 62,000
Prepaid Expenses 29,000 20,000
Property, plant, and equipment, net 30,000 18,000
If the net sales for the year amounted to $850,000, what is the asset turnover ratio for 2015?
Answer: Dec. 31, 2015 Dec. 31, 2014
Cash $35,000 $28,000
Accounts Receivable 97,000 85,000
Merchandise Inventory 80,000 62,000
Prepaid Expenses 29,000 20,000
Property, plant, and equipment, net 30,000 18,000
Total $271,000 $213,000

Average total assets = ($271,000 + $213,000) ÷ 2 = $242,000
Asset turnover ratio = $850,000 ÷ $242,000 = 3.51 times (rounded)
Diff: 3
LO: 9-6
AACSB: Application
39
1) An exchange transaction is said to have commercial substance if the future cash flows change as a
result of the transaction.
Answer: TRUE
Diff: 1
LO: 9-7
AACSB: Concept
2) Exchanges of plant assets that have commercial substance require any gain or loss on the transaction to
be recognized.
Answer: TRUE
Diff: 1
LO: 9-7
AACSB: Concept
3) In exchanges of plant assets with commercial substance, the new asset received will be recorded at its
market value.
Answer: TRUE
Diff: 1
LO: 9-7
AACSB: Concept
4) A machine that was purchased for $100,000 has an accumulated depreciation of $70,000 as of the
current date. The corporation exchanges the machine for a new machine. The new machine has a market
value of $120,000 and the corporation pays cash of $100,000. Assume the exchange has commercial
substance. What is the result of this exchange?
A) gain of $10,000
B) gain of $5,000
C) loss of $10,000
D) loss of $30,000
Answer: C
Explanation: C)
Calculation of gain or loss on exchange:

Less:
Book value of asset exchanged ($100,000 - $70,000) $30,000
Cash paid 100,000 -130,000
Diff: 1
LO: 9-7
AACSB: Concept
40
5) A truck costs $100,000 when new, and it has an accumulated depreciation of $70,000. Suppose the
corporation exchanges the truck for a new truck. The new truck has a market value of $120,000 and
corporation pays cash of $100,000. Assume the exchange has commercial substance. Journalize the
transaction.
Answer: Truck (new) 120,000
Truck (old) 100,000
Cash 100,000
Explanation:

Less:
Book value of asset exchanged $30,000
Cash paid 100,000 -130,000
Diff: 3
LO: 9-7
AACSB: Application
6) Water Drops Inc. purchased equipment for $200,000. The company recorded total depreciation of
$140,000 on the equipment. On January 1, 2015, the company traded in the equipment for new
equipment, paying $150,000 cash. The fair market value of the new equipment is $250,000. Journalize
Water Drop Inc.'s exchange of equipment. Assume the exchange had commercial substance.
Answer: Equipment (new) 250,000
Equipment (old) 200,000
Cash 150,000
Explanation:

Less:
Cash paid 150,000 -210,000
Gain or (Loss) $40,000
Diff: 3
LO: 9-7
AACSB: Application
41
7) Briyanne Inc. purchased a computer for $5,000. During 2015 and 2016, the company recorded total
depreciation of $4,000 on the computer. On January 1, 2017, the company traded in the computer for a
new one, paying $4,000 cash. The fair market value of the new computer is $6,000. Journalize the
company's exchange of computers. Assume the exchange had commercial substance.
Answer:
Computer Equipment (new) 6,000
Accumulated Depreciation—Computer Equipment 4,000
Computer Equipment (old) 5,000
Cash 4,000
Explanation: Calculation of gain or loss on exchange:

Less:
Cash paid 4,000 -5,000
Diff: 3
LO: 9-7
AACSB: Application
8) Black n White Corp. purchased equipment for $45,000. The corporation recorded total depreciation of
$36,000 on the equipment. On January 1, 2015, Black n White traded in the equipment for new equipment,
paying $54,000 cash. The fair market value of the new equipment is $65,000. Journalize the corporation's
exchange of equipment. Assume the exchange had commercial substance.
Answer:
Equipment (new) 65,000
Cash 54,000

Less:
Cash paid 54,000 -63,000
Diff: 3
LO: 9-7
AACSB: Application
42
Test Bank for Horngrenâ€™s Financial and Managerial Accounting, The Managerial Chapters 4/E
Answer:
Cash 65,000

Less:
Cash paid 65,000 -74,000
Diff: 3
LO: 9-7
AACSB: Application
Answer:
Cash 56,000

Less:
Cash paid 56,000 -65,000
Gain or (Loss) $0
Diff: 3
LO: 9-7
AACSB: Concept
43
Visit TestBankBell.com to get complete for all chapters

Test Bank For Horngrens Financial and Managerial Accounting The Managerial Chapters 4 e 4th Edition 0133447790 Download

Uploaded by

Copyright:

Available Formats

You might also like

Test Bank For Horngrens Financial and Managerial Accounting The Managerial Chapters 4 e 4th Edition 0133447790 Download

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Test Bank For Horngrens Financial and Managerial Accounting The Managerial Chapters 4 e 4th Edition 0133447790 Download

Uploaded by

Copyright:

Available Formats

Test Bank for Horngrenâ€™s Financial and Managerial Accounting, The Managerial Chapters 4/E

Test Bank for Horngrenâ€™s Financial and

To download the complete and accurate content document, go to:

Visit TestBankBell.com to get complete for all chapters

Learning Objective 9-1

5) Capitalizing the cost of an asset involves crediting the asset account.

11) Ordinary repairs to plant assets are referred to as revenue expenditures.

14) Which of the following is included in the cost of a plant asset?

16) Which of the following is a characteristic of a plant asset, such as a building?

Which of the following amounts would be debited to the Land account?

26) Which of the following should be included in the cost of land?

Acquisition of land $15,000

Acquisition of land $15,000

What amount should be recorded as the land improvements cost?

Learning Objective 9-2

2) Residual value is also known as depreciable cost.

7) Use of MACRS is acceptable for financial reporting under GAAP.

11) When an asset is fully depreciated, no further depreciation expense is recorded.

Prepare the depreciation schedule using the units-of-production method of depreciation.

Learning Objective 9-3

1) Discarding of plant assets involves disposing of the asset for no cash.

Accumulated Depreciation** 26,250

*Loss on disposal = $40,000 - $26,250

Accumulated Depreciation on 12-31-2016 = ($60,000 - $2,000) ÷ 6 × 2= $19,333

Learning Objective 9-4

3) The units-of-production method is used to compute the depletion expense.

Learning Objective 9-5

6) A trademark represents distinctive identifications of products or services.

10) A trademark should not be amortized over its useful life.

13) Businesses are allowed to record goodwill ________.

14) Which of the following items should be amortized?

18) Which of the following is true of goodwill?

20) Which of the following is an intangible asset?

Impairment Loss = $100,000 - $60,000 = $40,000

Amortization expense = (Cost - Residual value) / Useful life

Learning Objective 9-6

4) Which of the following is true of the asset turnover ratio?

Net sales $24,750,000

Dec. 31, 2015 Dec. 31, 2014

Asset turnover ratio = Net sales ÷ Average total assets

Market value of assets received $120,000

Market value of assets received $120,000

Market value of assets received $250,000

Explanation: Calculation of gain or loss on exchange:

Market value of assets received $6,000

Explanation: Calculation of gain or loss on exchange:

Market value of assets received $65,000

Explanation: Calculation of gain or loss on exchange:

Market value of assets received $65,000

Explanation: Calculation of gain or loss on exchange:

Market value of assets received $65,000

Visit TestBankBell.com to get complete for all chapters

You might also like