Financial Accounting Canadian 6th Edition Libby Test Bank

Financial Accounting Canadian 6th
Edition Libby Test Bank

Visit to download the full and correct content document: https://testbankdeal.com/dow
nload/financial-accounting-canadian-6th-edition-libby-test-bank/
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) Operational assets do not include which of the following kinds of assets?

A) Mineral deposits being mined. B) Plant and equipment in use.
C) Patents in use. D) Land held for resale.
Answer: D
2) Which of the following is not a tangible capital asset?

A) Equipment B) Buildings C) Land D) Copyrights
Answer: D
3) Which of the following is not a major characteristic of a property, plant, and equipment asset?
A) Acquired for resale B) Possesses physical substance
C) Yields services over several years D) Acquired for use
Answer: A
4) Which of the following costs would normally not be included in the cost of equipment?
A) Testing of equipment.
B) Installation of equipment.
C) Freight paid by buyer to have equipment shipped.
D) Insurance for equipment after it has started being used.
Answer: D
5) What are operational assets that have physical substance called?

A) Long-term investments. B) Intangible assets.
C) Current assets. D) Tangible assets.
Answer: D
6) Tangible assets include which of the following?

A) Natural resources, buildings, and franchises.
B) Land, buildings, and equipment.
C) Land, buildings, and leaseholds.
D) Licenses, trademarks, and land.
Answer: B
7) Intangible assets include which of the following?

A) Leaseholds, patents, and copyrights.
B) Buildings, patents, and trademarks.
C) Copyrights, licenses, and land.
D) Trade receivables, franchises, and trademarks.
Answer: A
1
8) Which of the following would be classified as an operational (fixed) asset?
A) A Ford Motor Company plant used to manufacture the Focus line in Oakville, Ontario.
B) Land and buildings owned by Toys "R" Us that are store sites closed due to restructuring and
consolidating operations.
C) Land purchased and held for sale by a realtor.
D) Land purchased and held for development by Wal-Mart as a new store site.
Answer: A
9) On March 1, Chapin Company purchased a new stamping machine for $5,000. Chapin paid cash for
the machine. Other costs associated with the machine were: transportation costs, $300; sales tax
paid, $200; and installation cost, $100. What cost was recorded for the machine?
A) $5,600 B) $5,500 C) $5,000 D) $5,200
Answer: A
10) IFRS permits corporations to capitalize interest costs for

A) both assets that are purchased or constructed.
B) assets that are constructed or acquired over time only.
C) assets that are purchased only.
D) capitalizing interest is never permitted.
Answer: B
11) Which of the following would be an example of a land improvement?

A) Land transfer tax paid on purchase of the land
B) Costs of installing lighting
C) Costs of grading the land before building
D) Costs of digging the hole for the foundation
Answer: B
12) To which account should the amount of sales tax paid on the purchase of new machinery be
debited?
A) The machinery account.
B) The sales tax expense account.
C) The separate deferred charge account.
D) The accumulated depreciation for machinery account.
Answer: A
13) Airbury Company acquired manufacturing equipment at an invoice price of $80,000 and paid $750
to have it delivered to the factory. $400 was spent to repair a door that was damaged while installing
the equipment. At what amount should this equipment be recorded on the company's books?
A) $81,150 B) $80,750 C) $80,400 D) $80,000
Answer: B
2
14) Martinelli Company recently purchased a truck. The price negotiated with the dealer was $85,000.
Martinelli also paid sales tax of $6,000 on the purchase, shipping and preparation costs of $950, and
insurance for the first year of operation of $2,000. For the truck, what amount should be debited to
the asset account Vehicles?
A) $85,950 B) $85,000 C) $91,950 D) $91,000
Answer: C
15) Under IFRS, a corporation may capitalize interest for:

A) Any asset that it purchases with debt.
B) Any asset that it purchases.
C) Any asset that is either purchased or constructed
D) Only assets that are constructed or acquired over time.
Answer: D
16) Belmont Corporation made a basket purchase of land, a building and equipment, paying a total of
$1,500,000. Market values for the assets were not available, but the appraised values were $300,000
for the land, $900,000 for the building, and $600,000 for equipment. What amounts should be
recorded in the Land, Building, and Equipment accounts, respectively?
A) $300,000, $900,000, and $600,000 B) $1,500,000, $-0-, and $-0-
C) $500,000, $500,000, and $500,000 D) $250,000, $750,000, and $500,000
Answer: D
17) When determining whether to capitalize or expense an amount relating to fixed assets, which of the
following is not relevant to the decision?
A) Matching principal B) Materiality concept
C) Income tax rules D) Revenue recognition principal
Answer: D
18) Los Miños purchased a large tract of land with the intention to transform it into a cocoa plantation.
Before the new seedlings can be planted, the site, which is prone to flooding, must be drained. The
cost of the draining should be
A) reported as an operating loss.
B) capitalized as part of the cost of the land.
C) expensed only after the first crop of has been harvested.
D) expensed immediately.
Answer: B
19) Ifa plant asset is acquired by the issuance of a public company's common shares, the cost of the
plant asset should be measured by the
A) stated value of the shares B) book value of the shares
C) market value of the shares D) the par value of the shares
Answer: C
3
20) Amunicipality has decided to donate a plant site to a local manufacturer that plans to open a new
factory and create jobs. The donated plant site should be recorded on the manufacturer's books at
A) the nominal cost of taking title to it.
B) the value assigned by the company's directors.
C) its market value.
D) one dollar (since the site cost nothing but should be included in the balance sheet).
Answer: C
21) Which of the following costs would be excluded from the acquisition cost of equipment purchased
from a supplier?
A) Cost to install the equipment.
B) The cost to widen an entrance in the building to bring the equipment into the facilities.
C) The cost of freight paid to get the equipment to our factory.
D) A purchases discount offered by the supplier.
Answer: D
22) The Land account would include all of the following costs except
A) drainage costs. B) the cost of building a fence.
C) the cost of tearing down a building. D) title fees.
Answer: B
23) Which of the following would not be included in the acquisition cost of a building?
A) The cost of paving the parking lot and outdoor lighting in the lot.
B) An apportioned amount of the purchase cost when both the land and building are acquired in a
basket purchase.
C) The cost of paying an architect to design the re-modelling modifications of the building before
the store opens.
D) The cost of putting new windows and doors in the building before it opens for operations.
Answer: A
24) When may a company include interest costs as part of the cost of the asset?
A) Interest is never allowed to be capitalized.
B) When they buy a piece of equipment and finance its acquisition by a bank loan.
C) When they are self-constructing a piece of equipment they will use to manufacture their
products, but only during the period of construction.
D) When they must borrow money to finance the manufacture of their inventory items.
Answer: C
25) Johnson Company acquires land and building for $4,000,000 including all fees related to
acquisition. The land is appraised at $2,700,000 and the building at $2,100,000. The building is then
renovated at a cost of $750,000. What amount is capitalized to the building account?
A) $4,000,000 B) $2,375,000 C) $2,078,125 D) $2,500,000
Answer: D
4
26) Acompany purchases a remote site building for computer operations. The building will be suitable
for operations after some expenditures. The wiring must be replaced to computer specifications. The
roof is leaky and must be replaced. All rooms must be repainted and re-carpeted and there will also
be some plumbing work done. Which of the following statements is true?
A) The cost of the building will not include the repainting and re-carpeting costs.
B) The cost of the building is the purchase price of the building, while the additional expenditures
are all capitalized as Building Improvements.
C) The cost of the building will include the cost of replacing the roof.
D) The wiring is part of the computer costs, not the building cost.
Answer: C
27) Jeffers Inc.

purchased a warehouse and the land upon which it was located. The total price was
$450,000. The land was appraised for $180,000 while the warehouse was appraised for $360,000.
What account balances should Jeffers show in its general ledger?
A) Land $180,000; Warehouse $360,000 B) Land $150,000; Warehouse $350,000
C) Land $150,000; Warehouse $300,000 D) Land $166,667; Warehouse $333,333
Answer: C
28) What is an extraordinary repair to a building?

A) It is a revenue expenditure and may be debited to accumulated depreciation.
B) It is a capital expenditure and it is debited to an expense account.
C) It is a revenue expenditure and it is debited to an expense account.
D) It is a capital expenditure and it is debited to an asset account.
Answer: D
29) In
20X2, Gamma Company made an ordinary repair to a delivery truck at a cost of $300. Gamma's
accountant debited the asset account, Delivery Vehicles. Was this treatment an error, and if so, what
will be the effect on the financial statements of Gamma?
A) In the years following 20X2, net income will be too high.
B) The error increased assets and profit in 20X2.
C) The error decreased profit in 20X2.
D) The repair was accounted for correctly.
Answer: B
30) How should an expenditure for an ordinary repair to factory equipment be recorded?
A) As an expense in the period incurred.
B) Debited to an asset account and depreciated over the current and future years.
C) Debited to accumulated depreciation.
D) Debited to an asset account but not depreciated over future years.
Answer: A
5
31) If
a company classifies an expenditure as a capital expenditure instead of a revenue expenditure,
which of the following will be false?
A) The initial cost basis of the asset will be higher.
B) Depreciation expense will be higher over the asset's life.
C) It will be expensed in the year in which the expenditure takes place.
D) Profit for the year of acquisition will be higher.
Answer: C
32) Which of the following would most likely not be a revenue expenditure?
A) Repairing a leaky roof.
B) Putting a hydraulic lift on our delivery truck making it easier and quicker to deliver appliances.
C) Painting the exterior of our store.
D) Replacing carpet in the sales department offices.
Answer: B
33) Which of the following is not a factor affecting the calculation of straight-line depreciation?
A) Useful life. B) Cost.
C) Carrying amount. D) Residual value.
Answer: C
34) With respect to depreciation policies, the principle of consistency means:

A) a company should use the same depreciation method in computing depreciation expense on all
its assets.
B) a company should disclose on the financial statements the depreciation method for all its
capital assets.
C) a company should use the same depreciation methods as other companies in the same industry.
D) a company should use the same depreciation method from year to year for a given capital asset.
Answer: D
35) AA Riser owns machinery for moving and delivering plants to its customers. The recorded cost of
the machinery is $38,000. It is estimated that the machinery will be able to move 120,000 plants
over its life. The company depreciates the machinery using straight-line depreciation over a useful
life of twelve years and an estimated residual value of $2,000. The amount that will be charged
annually as depreciation will be:
A) $3,000 B) $3,800 C) $3,600 D) $3,167
Answer: A
36) Nadler Inc. purchased equipment for $48,000, and estimated that the equipment will have a $4,000
residual value at the end of its 8-year useful life. Using the double-declining-balance method, the
depreciation expense for the third year would be
A) $5,500 B) $6,188 C) $6,750 D) $9,000
Answer: C
6
37) The depreciable amount is:
A) the accumulated amortization less residual value.
B) the original cost less the residual value.
C) the original cost less the accumulated amortization.
D) the net present value.
Answer: B
38) The concept of depreciation is best explained by which accounting principle or assumption?
A) Expense recognition. B) Going concern assumption.
C) Cost principle. D) Economic entity assumption.
Answer: A
39) In
accounting for tangible operational assets, the continuity assumption is important because of
which of the following?
A) It is consistent with maintaining assets in the accounting records at market value rather than
acquisition cost.
B) It helps a company decide whether to use straight-line depreciation or an accelerated
depreciation method.
C) It justifies depreciating the asset over its expected useful life, without anticipating that the
business will liquidate in the near future.
D) It provides justification for including residual values in calculating depreciation.
Answer: C
40) Theapportionment of the acquisition cost of an operational asset to future periods in which the
benefits contribute to earning revenue must be which of the following?
A) Random. B) Rational.
C) Revised annually. D) Impaired.
Answer: D
41) What is the book value of a tangible operating asset?

A) Total depreciation that has been recorded on the asset to date.
B) Acquisition cost.
C) Current estimated market value.
D) Acquisition cost minus the balance in accumulated depreciation.
Answer: D
42) Amachine, acquired for a cash cost of $6,000, is being depreciated on a straight-line basis of $900
per year. The residual value was estimated to be 10% of cost. What is the estimated useful life?
A) 6 years B) 5 years C) 3 years D) 4 years
Answer: A
7
43) OnJanuary 1, 20X3, a machine with a useful life of five years and a residual value of $2,500 was
purchased for $25,000. Using the double-declining-balance method, the depreciation expense for the
year ending December 31, 20X4 would be
A) $9,000 B) $10,000 C) $6,000 D) $5,400
Answer: C
44) A machine that cost $72,000 has an estimated residual value of $6,000 and an estimated useful life
of 5 years or 30,000 hours. Using the units-of-production method, the depreciation expense for the
second year, during which the machine was used 5,000 hours, would be
A) $13,200 B) $11,000 C) $14,400 D) $12,000
Answer: B
45) Newson's Courier Service recently purchased a new delivery van for $29,000. The van is estimated
to have a useful life of 8 years or 250,000 kilometers. The van will have a residual value of $1,000.
The company uses the units-of-production method of depreciation. Assuming the van travelled
36,000 kilometers. during the first year, what is the depreciation expense for the van in year 1?
A) $4,032 B) $4,176 C) $3,500 D) $3,625
Answer: A
46) On September 1, 20X3, Sitco Limited purchased an asset for $9,000, with a $1,500 estimated
residual value, and an 8-year useful life. The 20X3 depreciation expense using the
double-declining-balance method would be:
A) $625 B) $2,250 C) $1,875 D) $750
Answer: D
47) Anasset being amortized with the straight-line method has a residual value of $20,000 and
amortization expense of $25,000 in its second year. What was the original cost of the asset if its
useful life was 10 years?
A) $185,000 B) $250,000 C) $200,000 D) $270,000
Answer: D
48) Trumble Company purchased a machine on January 1, 20X2, for $10,000. The company bookkeeper
incorrectly used a six-year life instead of a five-year life to depreciate the machine. What would be
the effect of this error on the 20X2 financial statements?
A) Overstatement of assets offset by an understatement of shareholders' equity.
B) Overstatement of assets and an understatement of liabilities.
C) Overstatement of assets offset by an understatement of retained earnings.
D) Overstatement of assets, profit, and shareholders' equity.
Answer: D
8
49) SureCompany purchased a machine on January 1, 20X1, at a cash cost of $12,000. The estimated
useful life is 10 years, and the estimated residual value is $3,000. The company will use the
declining-balance method based on a 150 percent acceleration rate. What will be the depreciation
expense for the second year?
A) $1,530 B) $1,350 C) $1,800 D) $900
Answer: A
50) Bangor Industries purchased a car for $22,000 on January 1, 20X1. The car had an estimated useful
life of 80,000 kilometers and an estimated residual value of $4,000. In the second year of ownership
(20X2), the car was driven 25,000 kilometers. Using the units-of-production method, what was the
amount of depreciation expense for 20X2?
A) $6,875 B) $4,500 C) $5,000 D) $5,625
Answer: D
51) A company decided to use the units-of-production method to calculate depreciation on a car to be
driven by the sales manager. The amount of annual depreciation will vary with which of the
following?
A) Number of kilometers the car is driven.
B) Amount of maintenance expense incurred on the car.
C) Balance in accumulated depreciation.
D) Age of the car.
Answer: A
52) A depreciable asset that cost $100,000 had an estimated useful life of 5 years and estimated residual
value of $10,000. What is the first year for which depreciation would be greater under the
straight-line method than under the declining-balance method with an acceleration rate of 200%?
A) The first year. B) The third year. C) The fourth year. D) The second year.
Answer: B
53) Most companies keep separate sets of accounting records for financial reporting and for income tax
computations. Which of the following statements is true?
A) They do it because the Income Tax Act requires companies to keep separate records for tax
purposes.
B) They do it to enable a company to do a reconciliation between taxable income and reported
profit.
C) They do it even though this practice is illegal and in violation of international financial
reporting standards.
D) They do it because financial reporting rules and income tax regulations differ in many ways.
Answer: D
9
54) Belton Corporation uses straight-line depreciation and, for assets acquired during the fiscal year,
follows the policy of recording a full month's depreciation for all assets acquired on or before the
15th of the month. No depreciation is recorded for the month if an asset is acquired after the 15 th.
On May 22, 20X1, Belton purchased a car that cost $22,000 which had an estimated residual value
of $2,000 and an estimated useful life of five years. To the nearest dollar, what is the amount of
depreciation that should be recorded on the car for 20X1?
A) $4,000 B) $2,000 C) $2,333 D) $2,667
Answer: C
Reference: 08-01
Eastern Fisheries Co. purchased equipment on January 1, 20X1 for $22,500. The equipment had an estimated useful life
10 years and an estimated residual value of $2,500. The company uses double-declining-balance depreciation.
55) Assuming Eastern uses double-declining-balance depreciation, what would be the depreciation
expense for 20X1?
A) $4,500 B) $2,000 C) $3,500 D) $2,250
Answer: A
56) Assuming Eastern uses straight-line depreciation, what would be the book value of the machine ten
years later, on December 31?
A) $2,250 B) $2,350 C) $ -0- D) $2,500
Answer: D
57) Assuming Eastern uses double- declining-balance depreciation, what would be the book value of the
machine on December 31 20X2?
A) $14,400 B) $20,000 C) $18,000 D) $17,750
Answer: A
58) Angstrom Corporation purchased a truck at a cost of $60,000. It has an estimated useful life of five
years and estimated residual value of $5,000. At the beginning of year three, Angstrom's managers
concluded that the total useful life would be four years, rather than five. There was no change in the
estimated residual value. What is the amount of depreciation that Angstrom should record for year 3
under the straight-line method?
A) $16,500 B) $15,500 C) $11,000 D) $8,250
Answer: A
59) Recording depreciation expense does which of the following?

A) It reduces both profit and the amount of cash generated by a company.
B) It reduces profit but does not affect the amount of cash generated by a company.
C) It reduces profit and increases the amount of cash generated by a company.
D) It does not affect profit or the amount of cash generated by a company.
Answer: B
10
60) Helm Corporation purchased a machine with an initial cost of $80,000, a residual value of $5,000,
and an estimated useful life of 10 years. At the beginning of the fifth year, Helm spent $10,000 for
an extraordinary repair. Following the repair, Helm estimated that the machine had a remaining
useful life of 8 years, and that the residual value was unchanged. Calculate depreciation expense on
the machine for the fifth year, assuming that Helm uses the straight-line method.
A) $7,500 B) $5,625 C) $7,250 D) $6,875
Answer: D
61) How is the matching principle related to the recording of depreciation on tangible operational
assets?
A) A portion of the cost of the asset should be allocated as an expense for the periods in which the
asset helps the business to earn revenue.
B) Once a depreciation method is adopted for a particular asset, the owner must continue to use
the same method.
C) The accountant who calculates the depreciation may assume that the company will continue in
business at least as long as the estimated useful life of the asset.
D) The matching principle requires a company to use the same depreciation.
Answer: A
Reference: 08-02
Hershon Inc. acquires a new machine. It is comprised of 2 different identifiable components the P922 and the B14. Each
these components is expected to be overhauled at different intervals.
The acquisition cost of the entire machine is as follows:
Component P922: $198,000

Component R14: $240,000
Total $438,000
Component P922 is expected to have a useful life of five years and a residual value of $20,000 before the first major
overhaul is required. Component R14 is expected to have a useful life of seven years and a residual value of $15,000 bef
its first overhaul.
62) Assuming straight-line depreciation, what will be the net book value of component P922 at the end
of year five?
A) $22,000 B) $15,000 C) $18,000 D) $20,000
Answer: D
63) At the beginning of year six, component P922 undergoes a major overhaul at a cost of $100,000.
The work is expected to extend its life by 3 years with a residual value of zero. Hershon uses the
straight-line method to depreciate this asset. What will be the net book value of component P922
one year after the overhaul?
A) $66,667 B) $120,000 C) $80,000 D) $40,000
Answer: C
11
64) Assuming, the double declining balance is used, what will be the net book value of component R14
at the end of year one?
A) $205,321 B) $171,429 C) $140,000 D) $179,455
Answer: B
65) Fraser Ltd.has decided to change the estimate of the useful life of an asset that has been in service
for two years. Which of the following statements describes the proper way to revise a useful life
estimate?
A) Retroactive changes must be made to correct previously recorded depreciation.
B) Only future years will be affected by the revision.
C) Revisions in useful life are permitted if approved by Canada Revenue Agency.
D) Both the current and future years will be affected by the revision.
Answer: D
66) Under what conditions would a company most likely adopt the double-declining-balance method for
financial reporting?
A) They expect the asset to lose its value in a huge portion after some years of its use.
B) They have a fleet of trucks where repair costs increase annually as the fleet ages.
C) They expect the asset to lose its value more rapidly in the first few years of its life.
D) They have high technology, robotic equipment in their plant that have a long usable life.
Answer: C
67) Barnes Company purchased a machine on April 4, 20X1, for $210,000. The machine had an
estimated useful life of five years and a salvage value of $30,000. The machine is being depreciated
using the double-declining-balance method. Barnes depreciates its assets from the first day of the
month nearest the date of purchase. The asset balance, net of accumulated depreciation, at
December 31, 20X2, would be:
A) $88,200 B) $105,600 C) $75,600 D) $94,800
Answer: A
68) Marker Steel purchased a machine on January 1, 20X1, at a cost of $380,000 with an estimated
residual value of $30,000 at the end of its estimated useful life of eight years. On January 1, 20X3,
Proctor Paper estimates that the machine only has a remaining life of five years and a residual value
of $20,000. Proctor Paper uses straight-line amortization. Depreciation expense for 20X3 would be:
A) $48,500 B) $57,000 C) $55,000 D) $54,500
Answer: D
12
69) Which of the following statements is false?
A) A change in estimate requires the company to recalculate and restate all the prior years'
estimates of depreciation and adjust the impact on the statement of financial position and
income statement.
B) A company can change the method used for depreciating assets if the change can be justified
because it provides a better measure of the company's profit.
C) Either a change in estimate or a change in method can only be justified on the basis it provides
a better measure of profit.
D) A change in estimate is frequently necessary because the estimates of useful lives or residual
values may change over time because conditions change.
Answer: A
70) Which of the following statements is false?

A) The only cash effect for depreciation is the tax savings provided by its deduction to derive
taxable income.
B) Depreciation is a non-cash expense that reduces profit but involves no outflow of cash.
C) Depreciation expense is included in the investing activities section of the cash flow statement.
D) Depreciation expense is added to profit in the operating activities section of the statement of
cash flows because it had no cash effect on profit under the indirect method.
Answer: C
71) WD Company reports profit in 20X3 of $1,300 million and depreciation expense of $851 million.
They also report investment in new theme parks, resorts, and other property of $2,134 million for
20X3. Which of the following disclosures would appear on their statement of cash flows?
A) Depreciation of $851 million would be deducted from profit under operating activities and the
$2,134 million would be deducted under investing activities.
B) Depreciation of $851 million would be deducted from profit under operating activities and the
$2,134 million would be added under investing activities.
C) Depreciation of $851 million would be added to profit under operating activities and the
$2,134 million would be deducted under investing activities.
D) Depreciation of $851 million would be added to profit under operating activities and the
$2,134 million would be added under investing activities.
Answer: C
72) Dionne Developments. owns a piece of land it had purchased in 20X4 for $600,000. When they
started to develop the land in 20X5, they discovered that there were environmental problems with
the land. It is now estimated to be worth only $250,000. Which of the following is the correct way to
account for this?
A) No accounting is necessary because the land is recorded at its historical cost, not its market
value.
B) The land should be amortized at a new rate to reflect the decline in its value
C) The land account should be written down to $150,000 and a loss recognized.
D) The land should be written off completely because now the company cannot use it for the
purpose they intended to.
Answer: C
13
73) Barton Iron Ore, owns the following equipment:
Carrying amount $80,000

Value in use $68,000
Fair value less selling costs $72,000
The recoverable amount to be used in the determination of impairment is

A) $68,000 B) $72,000
C) $80,000 D) Cannot be determined
Answer: B
74) Raysion Company, a public corporation, owns equipment for which the following year-end information is
available:
Carrying amount $59,000

Recoverable amount $52,000
Which of the following best describes the proper accounting treatment for Magenta's equipment?
A) It is impaired, a loss must be recognized, and may not be reversed in future periods.
B) The equipment is not impaired.
C) It is not impaired and a loss should not be recognized
D) It is impaired, a loss must be recognized, but may be reversed in future periods.
Answer: D
75) Which of the following is not a likely indicator of possible asset impairment?
A) Double the number of asset purchases over the prior year.
B) A decrease in the asset's market value
C) Evidence of obsolescence
D) External competitive factors
Answer: A
76) The records of Pam Company showed the following about a machine on January 1, 20X8:
Purchased 1/1/20X5 for $35,000

Accumulated depreciation at January 1, 20X8, $26,400
On July 1, 20X8, the machine was sold for $7,000. Depreciation for the first six months of 20X8 was $1,467.
The gain or loss on disposal would be which of the following?
A) $1,600 loss. B) $1,600 gain. C) $133 gain. D) $133 loss.
Answer: D
14
77) Foghorn Ltd. has an asset with an original cost of $16,000 and a carrying amount (net book value)
today of $4,400. The Company no longer needs the asset and has decided to sell it today for $3,000
cash. The journal entry Foghorn will use to record the sale includes:
A) a credit to the asset account for $4,400.
B) a debit to accumulated amortization for $11,600.
C) a debit to the asset account for $4,400.
D) a credit to cash account for $3,000.
Answer: B
78) Kovacic Company purchased a computer that cost $10,000. It had an estimated useful life of five
years and residual value of $0. The computer was depreciated by the straight-line method and was
sold at the end of the fourth year of use for $3,000 cash. What should Kovacic record?
A) A gain of $1,000.
B) A loss of $1,000.
C) Neither a gain nor a loss-the computer was sold at its book value.
D) Neither a gain nor a loss-the gain that occurred in this case would not be recognized.
Answer: A
79) A loss on disposal of an asset is reported in the financial statements

A) in the non-operating section of the income statement.
B) as part of Cost of Goods Sold.
C) as part of Other Comprehensive Income.
D) in the operating section of the income statement.
Answer: D
15
80) On April 1, 20X4, Michal Company sold equipment for $11,400 cash. The equipment had originally been
purchased at a cost of $24,000 on January 1, 20X0. The equipment was expected to a useful life of 8 years with
no residual value. As of January 1, 20X4, had accumulated depreciation of $12,000. The entry to record the
sale of the equipment was:
Cash 11,400
A
Accumulated Depreciation 12,750
Gain on Sale of Machine 150
Machine 24,000
Cash 11,400
B
Loss on Sale of Machine 600
Machine 24,000
Cash 11,400
C
Depreciation Expense 750
Gain on Sale of Machine 150
Machine 24,000
Cash 11400
D
Loss on Sale of Machine 600
Machine 12,000
A) Choice A B) Choice B C) Choice C D) Choice D

Answer: A
81) When an asset is retired, the amount of the gain is equal to:
A) the asset's carrying amount.
B) the accumulated depreciation.
C) the difference between the carrying amount and the proceeds.
D) the amount of cash received.
Answer: C
16
82) On July 1, 20X0, FEDWHY sold a truck for $10,000. The company originally paid $28,000 on June
30, 20X7 and has recorded accumulated depreciation on it to date of $15,000. The entry to record
the sale would include a:
A) credit to gain on sale of truck for $3,000.
B) debit to trucks for $28,000
C) credit to accumulated depreciation for $15,000.
D) debit to loss on sale of truck for $3,000.
Answer: D
83) Upon the disposal of an asset, if the proceeds are greater than the carrying value of the asset the
company must:
A) recognize a loss
B) adjust the accumulated depreciation account so the carrying value equals the proceeds
C) recognize a gain
D) adjust the carrying value to market value
Answer: C
84) During 20X0, Time & Tenders Co. sold equipment that had cost $206,000 for $127,600. This
resulted in a gain of $9,600. The total balance in accumulated depreciation–equipment was$660,000
on January 1 20X0, and $630,000 on December 31. No other equipment was disposed of during
2010. Depreciation expense for 2010 was
A) $58,000 B) $101,000 C) $59,600 D) $38,600
Answer: A
85) On March 1, 20X1, Jance Company purchased a producing oil well at a cash cost of $100,000. It is
estimated that 250,000 barrels of oil can be produced over the remaining life of the well. By
December 31, 20X1 (end of the accounting period), 1,500 barrels of oil were produced and sold.
What would be the amount of depletion expense for 20X1 on this well?
A) $450 B) $750 C) $300 D) $600
Answer: D
86) OnJanuary 1, 20X3, Stacy Company purchased the College Book Store for $350,000. At the date of
purchase, it was determined the recorded assets had a total market value of $325,000, comprised of
inventory (books), $275,000; fixtures, $30,000; and other assets $20,000. It is estimated that the
goodwill (if any) has an economic useful life of 20 years. What is the amount of amortization
expense for goodwill for 20X3?
A) $1,250 B) $16,250 C) $0 D) $17,500
Answer: C
17
87) Carpenter Corporation purchased a mineral deposit, making payment as follows: Cash $10,000 and
6,000 Carpenter Corporation common shares. On the date of the purchase, the mineral deposit had
an appraised value of $75,000; the common shares were quoted on the market at $11 per share.
Other acquisition costs amounted to $3,000 cash. What was the cost recorded for the mineral
deposit?
A) $70,000 B) $79,000 C) $73,000 D) $75,000
Answer: B
88) InJanuary, 20X7, Barton Iron Ore purchased a mineral mine for $5.1 million with removable ore
estimated by geological surveys at 2 million tons. The property has an estimated value of $300,000
after the iron ore has been extracted. The company incurred $1.5 million of development costs
preparing the mine for production. During 20X7, 400,000 tons were sold. What is the amount of
depletion that Pratt should expense for 20X7?
A) $1,200,000 B) $1,320,000 C) $960,000 D) $1,020,000
Answer: A
89) In20X5, Barton Iron Ore Co purchased a mine for $200 million ($30 million was applicable to the land). An
independent evaluation estimated the mine's iron ore reserves at 7.5 million tons. In 20X5, Barton Co
extracted 0.9 million tons.
The company's depletion expense for 20X5 is:

A) 12.8 million B) $20.4 million C) $24 million D) $18.6 million
Answer: B
90) Depletion is recorded for which of the following?

A) Intangible assets. B) Land and buildings.
C) Uncollectible trade receivables. D) Natural resources.
Answer: D
91) The Orser Mining Company acquired a gold mine for $8,000,000. It is estimated that 40,000 ounces
of gold can be extracted from the mine. In the first year of operations, 15,000 ounces of gold were
extracted. The Orser Mining Company would recognize:
A) depreciation expense of $3,000,000. B) an increase in profit of $3,000,000.
C) cost of goods sold of $3,000,000. D) depletion expense of $3,000,000.
Answer: D
92) The amortization of finite life intangibles is recorded as:

A) a credit to accumulated amortization and a debit to amortization expense.
B) a credit to accumulated amortization and a debit to the asset account.
C) a debit to accumulated amortization and a credit to amortization expense.
D) a debit to cost of goods sold and a credit to accumulated amortization.
Answer: A
18
93) All
of the following are examples of intangible assets except:
A) research costs. B) trademarks. C) franchises. D) copyrights.
Answer: A
94) Which of the following statements is true with respect to intangible assets with indefinite lives?
A) They should be expensed to income in the year they are acquired.
B) They should be evaluated each year to determine if there has been any impairment in their
value.
C) They are not amortized or written down but remain on the company's balance sheet at their
original cost.
D) They should be amortized over a period of 40 years.
Answer: B
95) On January 1, 20X3, Enid Corporation purchased a patent from another company for $190,000. The
estimated useful life of the patent is 10 years, and its remaining legal life is 15 years. The
amortization expense for 20X3 is:
A) $19,000. B) $12,667. C) $68,000. D) $85,000.
Answer: A
96) Which of the following is an example of an intangible with an indefinite life?

A) The goodwill value resulting from a business combination.
B) A copyright on a book of poetry.
C) The research costs to develop a new drug.
D) A patent on a new invention.
Answer: A
97) All
the following statements are true, except:
A) A copyright is amortized over its useful life.
B) A copyright gives the owner the exclusive right to reproduce and sell an artistic or published
work.
C) Copyrights extend for the life of the creator plus 10 years.
D) The cost of a copyright consists of the cost of acquiring and defending it.
Answer: C
98) Intangibleassets
A) can be reported separately from Property, Plant, and Equipment.
B) must be reported under the heading Property, Plant, and Equipment.
C) are not reported on the statement of financial position because they lack physical substance.
D) should be reported as Current Assets on the statement of financial position.
Answer: A
19
99) On the statement of cash flows, cash flows from the purchase and sale of long-lived assets are
shown in which section?
A) Investing activities.
B) Financing activities.
C) Operating activities.
D) They are not reported on the statement of cash flows.
Answer: A
100) All the following are examples of intangible assets except:

A) franchises. B) research costs. C) copyrights. D) trademarks.
Answer: B
TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
101) A tangible asset must be fully depreciated before it can be removed from the books.
Answer: True False
102) A corporation may choose to list its operational assets in the current assets section of the statement
of financial position.
Answer: True False
103) The fixed asset turnover ratio is computed by dividing profit by the average fixed assets amount.
Answer: True False
104) Land improvements are not a depreciable asset.

Answer: True False
105) One of the most important challenges facing managers is forecasting the level of productive capacity
(fixed assets) needed in the long run to meet customer demand.
Answer: True False
106) Operating expenditures are expensed as incurred.

Answer: True False
107) The cost allocation method utilized affects the amount of net property, plant, and equipment that is
used in the computation of the fixed asset turnover ratio.
Answer: True False
108) Building and equipment are recorded at their cost at acquisition and are subsequently reported at
cost less accumulated depreciation.
Answer: True False
109) When an operational asset is acquired for non-cash consideration, the cost of the asset received
always is measured as the book value of the non-cash consideration given up.
Answer: True False
20
110) If a second-hand machine is purchased for operational use in a business, all renovation and repair
costs on the used machine incurred by the purchaser prior to its operational use should be excluded
from the cost of the asset.
Answer: True False
111) Acquisition cost of property, plant, and equipment is the cash-equivalent purchase price plus all
reasonable and necessary expenditures made to acquire and prepare the asset for its intended use.
Answer: True False
112) Expenditures made after the asset is in use are always capital expenditures.
Answer: True False
113) Behren Company purchased a building and the parcel of land on which the building was located for
a total purchase price of $810,000. To record the acquisition, the account, Building, should be
debited for $810,000.
Answer: True False
114) Because of depreciation, the net carrying amount of an asset declines over time and profit is reduced
by the amount of the expense.
Answer: True False
115) When a company acquires land by issuing 10,000 of its common shares currently trading for $20 per
share, the company must get an appraisal of the land and recognize a gain if the appraised value is
more than the $200,000 value of the shares issued.
Answer: True False
116) A company that is self-constructing a new store, which will open upon completion, is permitted to
capitalize the interest during the period of construction if they finance the construction with actual
loans.
Answer: True False
117) In conformity with the historical cost principle, cost (less any estimated residual value) is allocated
to periodic expense over the periods benefited.
Answer: True False
118) The cost of a major addition to an operational asset should be recorded as an asset and depreciated
over its useful life.
Answer: True False
119) An asset is always sold for its residual value at the end of the asset's useful life.
Answer: True False
21
120) When events or changes in circumstances reduce the estimated future cash flows of long-lived
assets below their book value, the book values should be written down (by recording a loss) to the
fair value of the assets.
Answer: True False
121) Depreciation expense and impairment losses are presented in the operating section of the income
statement.
Answer: True False
122) An impairment loss is credited to accumulated depreciation.

Answer: True False
123) An item of property, plant, and equipment is considered to be impaired if its carrying amount
exceeds its recoverable amount.
Answer: True False
124) Ordinary repairs and maintenance of operational assets should be capitalized and depreciated over
the remaining useful life of the related asset.
Answer: True False
125) Only the actual acquisition cost, the estimated useful life, and the method of depreciation of an
operational asset are required to compute the depreciation expense for a period.
Answer: True False
126) Depreciation and depletion conceptually are different because they apply to different kinds of
operational assets.
Answer: True False
127) One example of a capital expenditure is ordinary maintenance cost such as an oil change for a
company truck.
Answer: True False
128) If an accountant calculates depreciation expense on an asset without taking into account the asset's
residual value of $5,000, depreciation expense for the periods will be lower than it should have
been.
Answer: True False
129) No clear line distinguishes capital expenditures (assets) from revenue expenditures (expenses);
therefore, it requires managers to exercise judgment in making a subjective decision.
Answer: True False
130) When Ford Motor Company expenses a $200 tool used in manufacturing, instead of capitalizing its
cost as an asset, it does so because of the conservatism convention.
Answer: True False
22
131) Amortization is about valuation rather than allocation.
Answer: True False
132) Carrying amount (or net book value) is always the same as fair value.
Answer: True False
133) The book value of an operational asset initially declines less rapidly under the straight-line method
than under the declining-balance method.
Answer: True False
134) When using the declining-balance method of depreciation, a declining percentage is applied to a
constant book value.
Answer: True False
135) The straight-line depreciation method assumes an approximately equal decline in the economic
usefulness of the asset each period and provides greater tax benefits early in the useful life of the
asset.
Answer: True False
136) Accelerated depreciation methods are not desirable from the income tax point of view because the
asset will produce a greater profit when it is new (the early years) than when it is older (the later
years).
Answer: True False
137) A change in the estimated residual value of property, plant, and equipment requires a restatement of
prior years' depreciation.
Answer: True False
138) When a change in estimate is made, there is no correction of previously recorded depreciation
expense.
Answer: True False
139) The declining-balance method of depreciation is appropriate for companies that expect their
equipment or other assets to become obsolete rapidly.
Answer: True False
140) Regardless of the method of depreciation used under international financial reporting standards, the
ending book value will be the same at the end of the asset's economic life.
Answer: True False
141) The estimate of residual value made at the beginning of the useful life has no relationship to the
book value at the end of the asset's useful life.
Answer: True False
142) Impairment losses on goodwill are never reversed.

Answer: True False
23
143) Amortization expense is a result of the expense recognition principle.
Answer: True False
144) If an acquired franchise or license is intended to provide benefits for an indefinite time period, then
the cost of the asset should not be amortized.
Answer: True False
145) If the proceeds from the sale of equipment exceed its carrying amount, a gain on disposal is
reported.
Answer: True False
146) A loss on disposal results if the cash proceeds received from the asset sale are less than the asset's
carrying amount.
Answer: True False
147) When an asset is retired, a gain or loss must be recorded.

Answer: True False
148) If a building is sold at a gain, the gain on disposal should be reported in the non-operating section of
the cash flow statement.
Answer: True False
149) Acquiring and disposing of long-lived assets are financing activities on the cash flow statement.
Answer: True False
150) Depreciation expense is a non-cash expense that has no effect on cash.

Answer: True False
151) The cost of a patent should be amortized over the shorter of its economic life and its remaining legal
life.
Answer: True False
152) The cash flows from the purchase and sale of long-lived assets are reported in the operating
activities section of the cash flow statement.
Answer: True False
153) When assets are disposed of through sale or abandonment, we record additional depreciation since
the last adjustment was made.
Answer: True False
154) The fixed asset turnover ratio measures how much profit is generated by use of operational (fixed)
assets.
Answer: True False
24
155) When an entire business is purchased, goodwill is the excess of cost over the carrying amount of the
net identifiable assets acquired.
Answer: True False
156) All research costs should be capitalized when incurred.

Answer: True False
157) If a trademark is developed internally, it cannot be recognized as an intangible asset on the

statement of financial position.
Answer: True False
158) The cost principle should be applied in recording the acquisition of natural resources and intangible
assets.
Answer: True False
159) Natural resources should be depleted (usually by the units-of-production method) usually with the
amount of the depletion expense capitalized to a revenue account.
Answer: True False
160) Research costs are an example of intangible assets.

Answer: True False
161) The cost of a finite life intangible asset is not amortized, but the asset is tested for impairment.
Answer: True False
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
162) The following information is available for C Co. and P Co:
C Co. P Co.
Net fixed assets (beginning of year) $3,743 $6,261
Net fixed assets (end of year) 3,669 7,318
Net sales for the year 18,813 22,348
Net income for the year 3,533 1,993
Compute the fixed asset turnover ratio for the year for both C Co. and P Co.
Answer: C Co. is 5.08 ($18,813/[$3,743 + $3,669]/2);
P Co. is 3.29 ($22,348/[$6,261 + $7,318]/2)
25
163) On January 1, 20X1, Reagan Company purchased a machine. The price quoted by the seller was
$10,000 less 2% if paid within 15 days of the invoice date. Paid with cash were: transportation,
$300; installation, $600; and sales tax, $200. Give the entry to record the acquisition assuming the
discount was taken.
Answer: Please review the following information:
Machinery* 10,900
Cash 10,900
*Computations:
Invoice less cash discount ($10,000 × 98%) $9,800
Transportation 300
Installation 600
Sales tax 200
Total $10,900
164) Rebuild Inc. purchased a plant and the land on which the plant was located for a total of $300,000
cash. The separate market values of the plant and land were not known, so Rebuild hired an
independent appraiser who gave the following estimated market values: plant, $220,000; land,
$110,000. Complete the entry to record the acquisition (show computation).
Plant 200,000
Land 100,000
Cash 300,000
Plant: $300,000 × $220,000 / ($220,000 + $110,000) = $200,000

Land: $300,000 × $110,000 / ($220,000 + $110,000) = $100,000
26
165) Raco Inc. purchased two used machines together to get a lower total cash price of $90,000. The
machines were different, although of the same general type. They were designated as Machines A
and B. New machines of the same type could be purchased as follows: Machine A, $25,000;
Machine B, $75,000. Prepare the journal entry to record the purchase and show your computations.
Machine A 22,500
Machine B 67,500
Cash 90,000
Computations:
Allocated Lump-Sum Cost

Amount Ratio Computation Allocated Cost
A. $25,000 25% $90,000 × 25% $22,500
B. 75,000 75% 90,000 × 25% 67,500
Total $100,000 100% $90,000
166) Yella Company made a lump sum purchase of an office building, including the land and some
fixtures, for cash of $160,000. The tax assessments for the past year reflected the following: Land,
$22,500; Building, $58,500; and Fixtures, $9,000. Prepare the journal entry to record the
acquisition:
Land [$160,000 × ($22,500 / $90,000)] 40,000

Building [$160,000 × ($58,500 / $90,000)] 104,000
Fixtures [$160,000 × ($9,000 / $90,000)] 16,000
Cash 160,000
27
167) Laforge Cement Company bought a piece of land with a building on it for a total of $4,400,000. They obtained
two appraisals to estimate the fair values of the land and building.
Appraisal 1 Appraisal 2
Land $1,200,000 $1,000,000
Building $3,600,000 $4,000,000
Required:
1. If management's objectives are to minimize the amount of income tax they pay, which of the two appraisals
should they use to allocate the purchase price? Explain your answer.
2. Based on your answer in part a calculate the amount to be allocated to the Land and the Building account.
3. Under what circumstances might management wish to use the other appraisal value?
Answer: 1. If they want to minimize taxable income and hence taxes payable, they want the maximum amount
allocated to the building, which is deductible (over time through capital cost allowance) for tax
purposes. Therefore, they would select the second appraisal Land $1,000,000 and Building $4,000,000.
2. Total appraised value = $5,000,000,
Allocated to Land: 1,000,000/5,000,000 = 20% × 4,400,000 = $880,000
Allocated to Building: 4,000,000/5,000,000 = 80% × 4,400,000 = $3,520,000
3. If management's objectives were to maximize income, in order to increase bonuses or share price,
they would want the maximum amount allocated to Land, because that amount would never be
expensed as land is not amortized. So, they would select the first appraisal that allocates 25% of
the purchase price to Land.
168) In 20X3, WD Company reported the cost of its theme parks, resorts, and other assets at $14,037 million and
the accumulated depreciation at $5,382 million. In that same year, "Toys 4 U" reported $5,610 million in
operating assets and accumulated depreciation on them of $1,398 million.
1. Estimate the approximate remaining life of the assets for WD Company and "Toys 4 U".
2. Which company appears to have newer assets with longer remaining lives?
Answer: (1) a. 62% ($14,037 - $5,382)/$14,037; b. 75% ($5,610 - $1,398)/$5,610;
(2) "Toys 4 U" appears to have "newer" assets than WD Company because 75% of their assets' value
remains in book value while "Toys 4 U" has 62% in remaining book value.
28
169) Chamber Company purchased a truck on January 1, 20X1, at a cash cost of $10,600. The estimated residual
value was $400 and the estimated useful life 4 years. The company uses straight-line depreciation computed
monthly. On July 1, 20X4, the company sold the truck for $1,700 cash.
A. What was the depreciation expense amount per month?

B. What was the amount of accumulated depreciation at July 1, 20X4?
C. Give the required journal entries on the date of disposal, July 1, 20X4. (Assume no 20X4 depreciation had
yet been recorded).
Answer: A. ($10,000 - 400)/48 - $212.50 per month
B. 212.50 × 42 months = $8,925
C.
Depreciation expense (212.50 × 6) 1,275
Accumulated depreciation 1,275
Cash 1,700
Trucks 10,600
Gain on Disposal 25
170) Sutter Company purchased a machine on January 1, 20X1, for $16,000. The machine has an
estimated useful life of 5 years and a $1,000 residual value. It is now December 31, 20X2, and
Sutter is in the process of preparing financial statements. Complete the following schedule assuming
declining-balance method of depreciation with a 150% acceleration rate.
Date Depreciation Expense (for the year) Book Value (end of the year)
12/31/20X1
12/31/20X2
12/31/20X1 $4,800 $11,200
12/31/20X2 $3,360 $7,840
rate = 1/5 × 1.5 = 30%

20X1 $16,000 × 30% = $4,800
20X1 book value $11,200
20X2 ($16,000 - $4,800) × 30% = $3,360
20X2 book value $16,000 — ($4,800 + $3,360) = $7,840
29
171) The financial statements of Betty Company contained the following errors:
Item December 31, 20X1 December 31, 20X2

Depreciation expense on office equipment $500 understated $600 overstated
Respond to each of the following (disregard income taxes):

A. Profit for 20X1, was understated or overstated (circle one).
B. Total combined profit for the two-year period ended December 31, 20X2, was overstated or
understated (circle one).
Answer: A. Overstated; B. Understated
172) On January 1, 20X1, Stern Company (a calendar year corporation) purchased a heavy-duty machine
having an invoice price of $13,000 plus transportation and installation costs of $3,000. The machine
is estimated to have a 4-year useful life and a $1,000 residual value. Assuming the company uses the
declining-balance method depreciation and a 150% acceleration rate, complete the following schedule
(round to the nearest dollar).
Date Depreciation Expense (for the year) Book Value (at the end of the year)
12/31/20X1
12/31/20X2
12/31/20X3
12/31/20X4
Date Depreciation Expense (for the year) Book Value (at the end of the
year)
12/31/20X1 0.375* × $16,000 = $6,000 $16,000 — 6,000 = 10,000
12/31/20X2 0.375 × 10,000 = 3,750 16,000 — 9,750 = 6,250
12/31/20X3 0.375 × 6,250 = 2,344 16,000 — 12,094 = 3,096
12/31/20X4 0.375 × 3,906 = 2,906** 16,000 — 15,000 = 1,000
* straight line rate: 1/4 = 0.25

Declining-balance rate: 0.25 × 1.5 =0.375
**Even though $3,609 × 0.375 = $1,465, the depreciation expense the last year (the fourth year) is the
amount necessary to leave book value equal to the residual value of $1,000
30
173) Tweed Feed & Seed purchased a new machine on January 1, 20X1:
Cost when acquired $26,000

Estimated residual value 2,000
Estimated useful life 10 years
Accumulated depreciation at the end of year 5 (assume straight-line depreciation) $12,000
It is now the beginning of year 6 and the management re-evaluated the estimates related to the machine.
Compute the depreciation expense for year 6 under each of the following independent cases:
Case Event Depreciation Expense

A The estimated total useful life is changed to 15 years
B The residual value is changed to $1,000; useful life
unchanged
C The estimated total useful life is changed to 7 years and the
residual value is changed to $3,000.
Answer: CASE A: (26,000 - 12,000 - 2,000) ÷ (15 years - 5 years) = $1,200 Depreciation expense
CASE B: (26,000 - 12,000 - 1,000) ÷ (10 years - 5 years) = $2,600 Depreciation expense
CASE C: (26,000 - 12,000 - 3,000) ÷ (7 years - 5 years) = $5,500 Depreciation expense
31
174) Duval Company acquired a machine on January 1, 20X1 that cost $2,700 and had an estimated residual value
of $200. Complete the following schedule using the three methods of depreciation: A.) straight-line, B.)
units-of-production, C.) declining-balance at 150% acceleration rate.
Method Estimated Useful Life Depreciation Accumulated

Expense for 20X2Depreciation
12/31/20X2
A. Straight Line 5 years
B. Units of Production 10,000 units (total)
1,000 units (20X1's actual)
1,200 units (20X2's actual)
C. Declining Balance 5 years

Expense for Depreciation
20X2 12/31/20X2
A. Straight Line $,2500 / 5 $500 $1,000
$500 × 2 years
B. Units of Production $2,500 / 10,000 $300 $550
$.25 × 1,200
(.25 × 1,000) + (.25 × 1,200)
C. Declining Balance 5 yrs = 20% rate × 150% =$567 $1,377
30%
Yr 1: $2,700 × 30% = $810
Yr 2: ($2,700 - $810) ×
30% = $810 + $567
175) On January 1, 20X2, Walton Corporation made a basket purchase of land, a building, and furniture
and fixtures. The total purchase price was $313,000. Walton also paid $3,000 for title fees and
$4,000 in legal fees related to the purchase. Appraised values at the time of the purchase were: land
$70,000; building, $227,500; and furniture and fixtures, $52,500.
Required:
1. Make the journal entry to record the purchase of the assets, with cost based on appraised values.
2. The building had an estimated useful life of 20 years and residual value of $30,000. Make the journal entry
to record depreciation for 20X2 using the declining-balance method and a 150% acceleration rate.
3. The furniture and fixtures are expected to have useful lives of 5 years and no residual value. What is the
amount of depreciation on the furniture and fixtures for 20X2, assuming that Walton uses the straight-line
method of depreciation for such assets?
4. Based on the information in part 3, what is the book value of the furniture and fixtures at the end of 20X2?
5. Under IFRS, would Walton be able to use the declining-balance method for the building and the straight-line
32
method for furniture and fixtures? Discuss briefly.
Answer: 1.
Land 64,000
Building 208,000
Furniture and Fixtures 48,000
Cash 320,000
Computations:
Total acquisition costs: $313,000 + $3,000 + $4,000 = $320,000
Total appraised value: $70,000 + $52,500 + $227,500 = $350,000
Land: ($70,000 × $320,000)/$350,000 = $64,000
Building: ($227,500 × $320,000)/$350,000 = $208,000
Furniture and Fixtures: ($52,500 × $320,000)/$350,000 = $48,000
2.
Depreciation Expense 15,600
Accumulated Depreciation -Building 15,600
$208,000 × 1/20 × 150% = $15,600

3. $48,000 ÷ 5 years = $9,600
4. $48,000 - $9,600 = $38,400
5. IFRS allow a company to use different depreciation methods for different assets or groups of assets.
Walton would be able to use the declining-balance for buildings and straight-line depreciation
for furniture and fixtures.
33
176) Macon Assembly Company purchased a machine on January 2, 20X3, by paying cash of $85,000. The
machine has an estimated useful life of five years (or the production of 200,000 units) and an estimated
residual value of $5,000.
Required:
1. Determine depreciation expense (to the nearest dollar) for each year of the machine's useful life under (a).
straight-line depreciation; and (b). the declining-balance method with a 200% acceleration rate.
2. What is the book value of the machine after three years with the declining-balance method and a 200%
acceleration rate?
3. What is the book value of the machinery after three years with straight-line depreciation.
4. If the machine was used to produce and sell 48,000 units in 20X3, what would the depreciation
expense be under the units of production method?
Answer: 1. a. Straight-line depreciation for years 1 through 5 = ($85,000 - $5,000/5 years) = $16,000
b. Declining balance sheet method - 200% acceleration rate
Year Depreciation expense Book Value

(end of the year)
$85,000
1 $85,000 × 1/5 × 200% = $34,000 51,000
2 $51,000 × 1/5 × 200% = $20,400 30,600
3 $30,600 × 1/5 × 200% = $12,240 18,360
4 $18,360 × 1/5 × 200% = $7,344 11,016
5 $80,000 - $73,984 accumulated depreciation = $6,016*
5,000
2. $85,000 - 34,000 - 20,400 - 12,240 = 18,360

3. $85,000 - (16,000 × 3) = 37,000
4. ($85,000 - 5,000)/200,000 = $.40/unit
$.40 × 48,000 = $19,200
177) On September 7, 20X2, Belverd Corporation purchased a building and land at a total acquisition cost of
$500,000. An appraiser estimated that 80% of the purchase price should be assigned to the building and the
remainder to the land.
Required:
1. Make the journal entry for the acquisition of the land and building.
2. Make the journal entry to record depreciation of the building for 20X2. Belverd takes a full month of
depreciation for assets acquired in the first half of the month and uses the straight-line method. The building
has a residual value of $40,000 and an estimated useful life of 20 years.
3. Based on the information in part 2, what will the book value of the building be at the end of 20X3?
4. Why was it important for Belverd to separate the cost of the land and the cost of the building?
34
Answer: 1.
Building 400,000
Land 100,000
Cash 500,000
2.

Accumulated Depreciation Building 6,000
Computation:
($400,000 - 40,000)/20 years = $18,000/year

$18,000/yr × 4 months/12 months = $6,000
3. Book value = $400,000 - 24,000 accumulated depreciation = $376,000
4. Belverd separated the cost of the building and the cost of the land when it made the original
entry to record the acquisition because depreciation must be recorded for the building and not
for the land. Recording the assets in separate accounts simplifies the process of properly
recording depreciation.
178) Hilman Company purchased a truck on January 1, 20X1, at a cost of $34,000. The company estimated that the
truck would have a useful life of four years and a residual value of $4,000.
Required:
1. Complete the following table:
Depreciation
Year Depreciation Declining balance method
Straight-line method 200% acceleration rate
20X1
20X2
20X3
20X4
2. Which of the two methods in part 1 would result in:

a. Lower profit in 20X1? ________
b. Lower profit in 20X4? ________
Declining balance method

20X1 $7,500 $17,000
35
20X2 $7,500 $8,500
20X3 $7,500 $4,250
20X4 $7,500 $250
Straight-line: ($34,000 - 4,000)/4 years = $7,500
Declining-balance:
20X1 1/4 × 200% × $34,000 = $17,000
20X2 1/4 × 200% × ($34,000 - $17,000) = $8,500
20X3 1/4 × 200% × ($34,000 - $25,500) = $4,250
20X4 Book value $4,250 - $4,000 target book value = $250
2. Lower profit: (a) 20X1 Declining-balance 200% acceleration rate; (b) 20X4 Straight-line
36
179) FAL Corporation purchased a robot to be used in manufacturing. The purchase was made at the
beginning of 20X1 by paying cash of $500,000. The robot has an estimated residual value of
$20,000 and an expected useful life of ten years. At the beginning of 20X3, FAL concluded that the
total useful life of the robot will be eight years rather than ten, and that the residual value will be zero.
FAL uses the straight-line method for depreciation.
Required:
1. Make the journal entry to record depreciation on the robot for 20X2.
2. Make the journal entry to record depreciation on the robot for 20X3, including the effect of the changes in
estimates.
3. Describe how a business should account for a change in the estimated useful life and/or residual value
of a depreciable asset.
Answer: 1.
Computations:
($500,000 - $20,000)/10 years = $48,000/year
2.
Computations:
$500,000 - $48,000 amortization/year × 2 years = $404,000 remaining amortizable value $404,000/6 ye

remaining useful life = $67,333
3. A change in estimate of residual value or useful life requires the company to calculate a new annual
depreciation amount. The change in estimates affects the amount of depreciation for current and future
years. There is no restatement of financial statements for prior years.
180) Here are selected 20X3 transactions of Avery Corporation.
Jan. 1 Retired a piece of machinery that had been purchased ten years earlier on
January 1. The machine cost $62,000 and had a useful life of 10 years with no
residual value.
June 30 Sold a computer that was purchased on January 1, 20X1. The computer cost
$39,000 and had a useful of 3 years with no residual value. The computer was
sold for $5,000 cash.
Dec. 31 Sold a delivery truck for $9,000 cash. The truck cost $25,000 when it was
purchased on January 1, 20X0, and was depreciated based on a 5-year useful life
with a $3,000 residual value.
37
Avery Corporation uses straight-line depreciation.
Required:
Prepare all entries required on the above dates, including entries to update depreciation on assets
disposed of, where applicable.
Date Account Titles and Explanation Debit Credit

Jan. 1 Accumulated Depreciation — Machinery 62,000
Machinery 62,000
June 30 Depreciation Expense 6,500
Accumulated Depreciation — Computer 6,500
($39,000 / 3 years × 6/12)
June 30 Cash 5,000
($39,000 × 2/3 = $26,000; $26,000 + $6,500)
Loss on Disposal $5,000 — ($39,000 - $32,500)1,500
Computer 39,000
Dec. 31 Depreciation Expense 4,400
Accumulated Depreciation — Truck 4,400
($25,000 - $3,000) / 5 years
Cash 9,000
Accumulated Depreciation — Truck
($25,000 - $3,000) × 4/5 17,600
Truck 25,000
Gain on Disposal 1,600
38
181) Give the required adjusting entry at December 31, 20X6, the end of the annual accounting period for the three
items below. If no entry is required, explain why.
A. Web Company acquired a patent that cost $4,260 on January 1, 20X6. The patent was registered on January
1, 20X1. The legal life of a patent is 17 years from registration. Web expects to use the patent the remaining
legal life.
B. Web Company acquired a gravel pit on January 1, 20X6, that cost $24,000. The company estimates that
30,000 tons of gravel can be extracted economically. During 20X6 4,000 tons were extracted and sold.
C. On January 1, 20X6, Web Company acquired a dump truck that cost $6,000 to use hauling gravel. The
company estimated a residual value of 10% of cost and a useful life 4 years. The company uses
straight-line depreciation.
A. Patent amortization expense 355

Patents 355
$4,260 / (17 — 5) years = $355
B. Depletion expense 3,200
Gravel pit 3,200
$.80 × 4,000 tons = $3,200
C. Depreciation expense 1,350
$6,000 × .90 = $5,400 to be depreciated
$5,400/ 4 = $1,350
182) For each of the following three independent situations determine the gain or loss on the sale or disposal of the
asset. Prepare the journal entry required at the time of sale or disposal. Assume that all assets are depreciated
using the straight-line method and in every case, a year-end of December 31.
1. Equipment purchased July 1, 20X4, for $75,000 was sold for $9,500 on June 30, 20X9. At the time of
purchase, it was estimated to have a $5,000 residual value and a five-year useful life. Assume that a half-year
depreciation is taken in the year the equipment was acquired and in the year it was sold.
2 Calibrating equipment was purchased on July 10, 20X8, for $120,000. At the time, it was estimated to have a
six-year useful life and no residual value. On September 30, 20X9, there was a fire in the plant, and the
equipment suffered water damage and is beyond repair. The company received $50,000 from the insurance
company for the equipment. Assume depreciation is applied monthly.
3. Office furniture was purchased on February 11, 20X0 for $25,000 and was estimated to have a useful
life of ten years and a salvage value of$2,500. On August 1, 20X7, the company moved to new
offices and donated the old furniture to charity. Assume that a half-year depreciation is taken in the
year the furniture was acquired and in the year it was donated.
Answer: 1. ($75,000 — $5,000)/ 5 = $14,000 depreciation per year. 4 full years (20X5-X6-X7-X8) and 2
half-years (20X4 & 20X9) = 5 full years.
NBV = $75,000 — (5 × $14,000) = $5,000, which equals the residual value. Gain: $9,500 — $5,000 =
$4,500
39
Cash 9,500
Equipment 75,000
Gain on disposal 4,500
2. $120,000/6 = $20,000 depreciation per year, ½ year in 20X8 and 9 months in 20X9 = 20,000 × 15/12
$25,000 of depreciation taken, NBV = 120,000 — 25,000 = $95,000
Proceeds from insurance 50,000 — 95,000 = $45,000 loss

Cash 50,000
Loss on recording equipment 45,000
Calibrating Equipment 120,000
3. ($25,000-$2,500)/10 = $2,250 depreciation expense a year.

Two half-years in 20X0 and 20X7, 6 years 20X1 to 20X6 = 7 yrs depreciation
(7 × 2,250) = $15,750
NBV = 25,000 — 15,750 = $9,250


Loss on office furniture donated 9,250
Office furniture 25,000
40
183) Weaver Mining Company purchased a site containing a mineral deposit in 20X3. The purchase price
was $820,000, and the site is estimated to contain 400,000 tons of extractable ore. Weaver
constructed a building at the site, at a cost of $500,000, to be used while the ore is being extracted.
When the ore reserves are gone, the building will have no further value.
Required:
1. Explain the purpose for recording depletion on natural resources.

2. Calculate Weaver's depletion rate per ton of ore for this deposit.
3. Make the journal entry to record depletion for the year 20X3, when Weaver mined and sold 150,000 tons of
ore.
4. Make the journal entry to record depreciation on the building for 20X3. Weaver calculates depreciation
on the building using the units of production method based on the amount of ore extracted (150,000
tons in 20X3).
Answer: 1. The purpose of recording depletion is to match the cost of a natural resource with revenues earned
from extracting and selling the resource.
2. $820,000/400,000 tons = $2.05/ton
3.
Depletion Expense 307,500
Mineral Depositor( Accumulated Depletion) 307,500
4.
Amortization Expense 187,500
Accumulated Depreciation, Building 187,500
184) Listed below are various methods of allocating the cost of certain capital assets over their useful lives, each
followed by a descriptive statement. Match the methods to the statements by placing the appropriate letter in
the space provided.
METHODS
A. Capitalized and depreciated/amortized/depleted
B. Capitalized
C. Evaluated for impairment
D. Expensed
E. None of these methods
1. Purchased patent
2. Basket purchase of two commercial buildings
3. Advertising costs
4. Intangible assets with indefinite live
5. Legal costs incurred to defend a copyright from infringement
6. Research costs incurred internally
7. Cost of timberland
8. Five-acre parcel of land where a firm's headquarters is located
9. Purchased drilling equipment
41
10. Goodwill acquired in a business combination
11. Interest on self-constructed assets
12. Development costs for a proven new product
A 1. Purchased patent
A 2. Basket purchase of two commercial buildings
D 3. Advertising costs
C 4. Intangible assets with indefinite live
A 5. Legal costs incurred to defend a copyright from infringement
D 6. Research costs incurred internally
A 7. Cost of timberland
E 8. Five-acre parcel of land where a firm's headquarters is located
A 9. Purchased drilling equipment
C 10. Goodwill acquired in a business combination
A 11. Interest on self-constructed assets
B 12. Development costs for a proven new product
185) On January 2, 20X4, Daintry Company purchased a patent for $380,000 from an inventor who had developed a
new manufacturing process. At the time of the purchase, the patent had a remaining legal life of 12 years, but
Daintry estimated the useful life to the company to be only 10 years.
Required:
1. Prepare the journal entry to record Daintry's purchase of the patent.

2. Prepare the journal entry to record amortization of the patent for 20X4, assuming that no contra account is
used.
3. At the start of 20X7, after amortization had been recorded for three years, Daintry concluded that the
useful life of the patent would be 7 years, rather than 10. Record Daintry's amortization expense for
20X7.
1. Patent 380,000
Cash 380,000
2. Amortization Expense 38,000
Patent 38,000
Patent 66,500
Computations:
[$380,000 — (38,000 × 3)/4 years remaining life = $66,500 amortization/year
42
186) Pied Piper Pies has been in business 8 years with 4 stores in the San Francisco bay area. Their local
reputation for making savory pies such as curried potatoes is well recognized. A national food
distributor has offered to purchase the company. Pied Piper has $1.2 million of assets on their books
but those assets have $1.5 million in value at fair market value and $.3 million of liabilities. If the
distributor offers to buy Pied Piper for $3.5 million and assume the liabilities of Pied Piper. How
much goodwill, if any, is included in the purchase price?
Answer: $2.3 million ($3.5 million minus {$1.5 million minus $.3 million})
187) A company purchased equipment for $800,000 and has depreciated it for the past 5 years Its original
life was estimated to be 10 years with a $200,000 residual value. However, the equipment's utility to
the company has since declined and they expect it to generate a net cash flow over the remaining
years of $200,000 from its operation. If the asset has been impaired, how much will be recorded as a
loss in the current year?
Answer: $300,000 (Remaining book value $500,000 minus $200,000 expected cash flow)
43
Answer Key
Testname: UNTITLED14
1) D
2) D
3) A
4) D
5) D
6) B
7) A
8) A
9) A
10) B
11) B
12) A
13) B
14) C
15) D
16) D
17) D
18) B
19) C
20) C
21) D
22) B
23) A
24) C
25) D
26) C
27) C
28) D
29) B
30) A
31) C
32) B
33) C
34) D
35) A
36) C
37) B
38) A
39) C
40) D
41) D
42) A
43) C
44) B
45) A
46) D
47) D
48) D
49) A
50) D
44
Answer Key
51) A
52) B
53) D
54) C
55) A
56) D
57) A
58) A
59) B
60) D
61) A
62) D
63) C
64) B
65) D
66) C
67) A
68) D
69) A
70) C
71) C
72) C
73) B
74) D
75) A
76) D
77) B
78) A
79) D
80) A
81) C
82) D
83) C
84) A
85) D
86) C
87) B
88) A
89) B
90) D
91) D
92) A
93) A
94) B
95) A
96) A
97) C
98) A
99) A
100) B
45
Answer Key
101) FALSE
102) FALSE
103) FALSE
104) FALSE
105) TRUE
106) TRUE
107) TRUE
108) TRUE
109) FALSE
110) FALSE
111) TRUE
112) FALSE
113) FALSE
114) TRUE
115) FALSE
116) TRUE
117) FALSE
118) TRUE
119) FALSE
120) TRUE
121) FALSE
122) TRUE
123) TRUE
124) FALSE
125) FALSE
126) FALSE
127) FALSE
128) FALSE
129) TRUE
130) FALSE
131) FALSE
132) FALSE
133) TRUE
134) FALSE
135) FALSE
136) FALSE
137) FALSE
138) TRUE
139) TRUE
140) TRUE
141) FALSE
142) TRUE
143) TRUE
144) TRUE
145) TRUE
146) TRUE
147) FALSE
148) FALSE
149) FALSE
150) TRUE
46
Answer Key
151) TRUE
152) FALSE
153) TRUE
154) FALSE
155) TRUE
156) FALSE
157) TRUE
158) TRUE
159) FALSE
160) FALSE
161) FALSE
162) C Co. is 5.08 ($18,813/[$3,743 + $3,669]/2);
P Co. is 3.29 ($22,348/[$6,261 + $7,318]/2)
163) Please review the following information:
Machinery* 10,900
Cash 10,900
*Computations:
Invoice less cash discount ($10,000 × 98%) $9,800
Transportation 300
Installation 600
Sales tax 200
Total $10,900
Plant 200,000
Land 100,000
Cash 300,000
Plant: $300,000 × $220,000 / ($220,000 + $110,000) = $200,000

Land: $300,000 × $110,000 / ($220,000 + $110,000) = $100,000
47
Answer Key
Machine A 22,500
Machine B 67,500
Cash 90,000
Computations:
Allocated Lump-Sum Cost

Amount Ratio Computation Allocated Cost
A. $25,000 25% $90,000 × 25% $22,500
B. 75,000 75% 90,000 × 25% 67,500
Total $100,000 100% $90,000
Land [$160,000 × ($22,500 / $90,000)] 40,000

Building [$160,000 × ($58,500 / $90,000)] 104,000
Fixtures [$160,000 × ($9,000 / $90,000)] 16,000
Cash 160,000
167) 1. If they want to minimize taxable income and hence taxes payable, they want the maximum amount allocated to
the building, which is deductible (over time through capital cost allowance) for tax purposes. Therefore, they would
select the second appraisal Land $1,000,000 and Building $4,000,000.
2. Total appraised value = $5,000,000,
Allocated to Land: 1,000,000/5,000,000 = 20% × 4,400,000 = $880,000
Allocated to Building: 4,000,000/5,000,000 = 80% × 4,400,000 = $3,520,000
3. If management's objectives were to maximize income, in order to increase bonuses or share price, they would
want the maximum amount allocated to Land, because that amount would never be expensed as land is not
amortized. So, they would select the first appraisal that allocates 25% of the purchase price to Land.
168) (1) a. 62% ($14,037 - $5,382)/$14,037; b. 75% ($5,610 - $1,398)/$5,610;
(2) "Toys 4 U" appears to have "newer" assets than WD Company because 75% of their assets' value remains in
book value while "Toys 4 U" has 62% in remaining book value.
48
Answer Key
169) A. ($10,000 - 400)/48 - $212.50 per month

B. 212.50 × 42 months = $8,925
C.
Depreciation expense (212.50 × 6) 1,275
Cash 1,700
Trucks 10,600
Gain on Disposal 25
12/31/20X1 $4,800 $11,200
12/31/20X2 $3,360 $7,840
rate = 1/5 × 1.5 = 30%

20X1 $16,000 × 30% = $4,800
20X1 book value $11,200
20X2 ($16,000 - $4,800) × 30% = $3,360
20X2 book value $16,000 — ($4,800 + $3,360) = $7,840
171) A. Overstated; B. Understated
Date Depreciation Expense (for the year) Book Value (at the end of the
year)
12/31/20X1 0.375* × $16,000 = $6,000 $16,000 — 6,000 = 10,000
12/31/20X2 0.375 × 10,000 = 3,750 16,000 — 9,750 = 6,250
12/31/20X3 0.375 × 6,250 = 2,344 16,000 — 12,094 = 3,096
12/31/20X4 0.375 × 3,906 = 2,906** 16,000 — 15,000 = 1,000
* straight line rate: 1/4 = 0.25

Declining-balance rate: 0.25 × 1.5 =0.375
**Even though $3,609 × 0.375 = $1,465, the depreciation expense the last year (the fourth year) is the amount
necessary to leave book value equal to the residual value of $1,000
173) CASE A: (26,000 - 12,000 - 2,000) ÷ (15 years - 5 years) = $1,200 Depreciation expense
CASE B: (26,000 - 12,000 - 1,000) ÷ (10 years - 5 years) = $2,600 Depreciation expense
CASE C: (26,000 - 12,000 - 3,000) ÷ (7 years - 5 years) = $5,500 Depreciation expense
49
Answer Key

Expense for Depreciation
20X2 12/31/20X2
A. Straight Line $,2500 / 5 $500 $1,000
$500 × 2 years
B. Units of Production $2,500 / 10,000 $300 $550
$.25 × 1,200
(.25 × 1,000) + (.25 × 1,200)
C. Declining Balance 5 yrs = 20% rate × 150% =$567 $1,377
30%
Yr 1: $2,700 × 30% = $810
Yr 2: ($2,700 - $810) ×
30% = $810 + $567
175) 1.
Land 64,000
Building 208,000
Furniture and Fixtures 48,000
Cash 320,000
Computations:
Total acquisition costs: $313,000 + $3,000 + $4,000 = $320,000
Total appraised value: $70,000 + $52,500 + $227,500 = $350,000
Land: ($70,000 × $320,000)/$350,000 = $64,000
Building: ($227,500 × $320,000)/$350,000 = $208,000
Furniture and Fixtures: ($52,500 × $320,000)/$350,000 = $48,000
2.
Accumulated Depreciation -Building 15,600
$208,000 × 1/20 × 150% = $15,600

3. $48,000 ÷ 5 years = $9,600
4. $48,000 - $9,600 = $38,400
5. IFRS allow a company to use different depreciation methods for different assets or groups of assets. Walton wou
be able to use the declining-balance for buildings and straight-line depreciation for furniture and fixtures.
50
Answer Key
176) 1. a. Straight-line depreciation for years 1 through 5 = ($85,000 - $5,000/5 years) = $16,000
b. Declining balance sheet method - 200% acceleration rate
Year Depreciation expense Book Value

(end of the year)
$85,000
1 $85,000 × 1/5 × 200% = $34,000 51,000
2 $51,000 × 1/5 × 200% = $20,400 30,600
3 $30,600 × 1/5 × 200% = $12,240 18,360
4 $18,360 × 1/5 × 200% = $7,344 11,016
5 $80,000 - $73,984 accumulated depreciation = $6,016*
5,000
2. $85,000 - 34,000 - 20,400 - 12,240 = 18,360

3. $85,000 - (16,000 × 3) = 37,000
4. ($85,000 - 5,000)/200,000 = $.40/unit
$.40 × 48,000 = $19,200
177) 1.
Building 400,000
Land 100,000
Cash 500,000
2.

Accumulated Depreciation Building 6,000
Computation:
($400,000 - 40,000)/20 years = $18,000/year

$18,000/yr × 4 months/12 months = $6,000
3. Book value = $400,000 - 24,000 accumulated depreciation = $376,000
4. Belverd separated the cost of the building and the cost of the land when it made the original entry to record
the acquisition because depreciation must be recorded for the building and not for the land. Recording the
assets in separate accounts simplifies the process of properly recording depreciation.
51
Answer Key
Declining balance method

20X1 $7,500 $17,000
20X2 $7,500 $8,500
20X3 $7,500 $4,250
20X4 $7,500 $250
Straight-line: ($34,000 - 4,000)/4 years = $7,500
Declining-balance:
20X1 1/4 × 200% × $34,000 = $17,000
20X2 1/4 × 200% × ($34,000 - $17,000) = $8,500
20X3 1/4 × 200% × ($34,000 - $25,500) = $4,250
20X4 Book value $4,250 - $4,000 target book value = $250
2. Lower profit: (a) 20X1 Declining-balance 200% acceleration rate; (b) 20X4 Straight-line
179) 1.
Computations:
($500,000 - $20,000)/10 years = $48,000/year
2.
Computations:
$500,000 - $48,000 amortization/year × 2 years = $404,000 remaining amortizable value $404,000/6 year remainin
useful life = $67,333
3. A change in estimate of residual value or useful life requires the company to calculate a new annual depreciation
amount. The change in estimates affects the amount of depreciation for current and future years. There is no
restatement of financial statements for prior years.
52
Answer Key
Date Account Titles and Explanation Debit Credit

Jan. 1 Accumulated Depreciation — Machinery 62,000
Machinery 62,000
June 30 Depreciation Expense 6,500
($39,000 / 3 years × 6/12)
June 30 Cash 5,000
($39,000 × 2/3 = $26,000; $26,000 + $6,500)
Loss on Disposal $5,000 — ($39,000 - $32,500)1,500
Computer 39,000
Dec. 31 Depreciation Expense 4,400
Accumulated Depreciation — Truck 4,400
($25,000 - $3,000) / 5 years
Cash 9,000
Accumulated Depreciation — Truck
($25,000 - $3,000) × 4/5 17,600
Truck 25,000
Gain on Disposal 1,600
A. Patent amortization expense 355

Patents 355
$4,260 / (17 — 5) years = $355
B. Depletion expense 3,200
Gravel pit 3,200
$.80 × 4,000 tons = $3,200
C. Depreciation expense 1,350
$6,000 × .90 = $5,400 to be depreciated
$5,400/ 4 = $1,350
182) 1. ($75,000 — $5,000)/ 5 = $14,000 depreciation per year. 4 full years (20X5-X6-X7-X8) and 2 half-years (20X4 &
20X9) = 5 full years.
NBV = $75,000 — (5 × $14,000) = $5,000, which equals the residual value. Gain: $9,500 — $5,000 = $4,500

53
Answer Key
Cash 9,500
Equipment 75,000
Gain on disposal 4,500
2. $120,000/6 = $20,000 depreciation per year, ½ year in 20X8 and 9 months in 20X9 = 20,000 × 15/12 = $25,000
depreciation taken, NBV = 120,000 — 25,000 = $95,000
Proceeds from insurance 50,000 — 95,000 = $45,000 loss

Cash 50,000
Loss on recording equipment 45,000
Calibrating Equipment 120,000
3. ($25,000-$2,500)/10 = $2,250 depreciation expense a year.

Two half-years in 20X0 and 20X7, 6 years 20X1 to 20X6 = 7 yrs depreciation
(7 × 2,250) = $15,750
NBV = 25,000 — 15,750 = $9,250


Loss on office furniture donated 9,250
Office furniture 25,000
183) 1. The purpose of recording depletion is to match the cost of a natural resource with revenues earned from extractin
and selling the resource.
2. $820,000/400,000 tons = $2.05/ton
3.
Depletion Expense 307,500
Mineral Depositor( Accumulated Depletion) 307,500
4.
Amortization Expense 187,500
Accumulated Depreciation, Building 187,500
54
Answer Key
A 1. Purchased patent
A 2. Basket purchase of two commercial buildings
D 3. Advertising costs
C 4. Intangible assets with indefinite live
A 5. Legal costs incurred to defend a copyright from infringement
D 6. Research costs incurred internally
A 7. Cost of timberland
E 8. Five-acre parcel of land where a firm's headquarters is located
A 9. Purchased drilling equipment
C 10. Goodwill acquired in a business combination
A 11. Interest on self-constructed assets
B 12. Development costs for a proven new product
1. Patent 380,000
Cash 380,000
Patent 38,000
Patent 66,500
Computations:
[$380,000 — (38,000 × 3)/4 years remaining life = $66,500 amortization/year
186) $2.3 million ($3.5 million minus {$1.5 million minus $.3 million})
187) $300,000 (Remaining book value $500,000 minus $200,000 expected cash flow)
55

Financial Accounting Canadian 6th Edition Libby Test Bank

Uploaded by

Document Information

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

Financial Accounting Canadian 6th Edition Libby Test Bank

Uploaded by

Copyright:

Available Formats

Financial Accounting Canadian 6th

Edition Libby Test Bank

1) Operational assets do not include which of the following kinds of assets?

2) Which of the following is not a tangible capital asset?

5) What are operational assets that have physical substance called?

6) Tangible assets include which of the following?

7) Intangible assets include which of the following?

10) IFRS permits corporations to capitalize interest costs for

11) Which of the following would be an example of a land improvement?

15) Under IFRS, a corporation may capitalize interest for:

27) Jeffers Inc.

28) What is an extraordinary repair to a building?

34) With respect to depreciation policies, the principle of consistency means:

41) What is the book value of a tangible operating asset?

59) Recording depreciation expense does which of the following?

Component P922: $198,000

70) Which of the following statements is false?

Carrying amount $80,000

The recoverable amount to be used in the determination of impairment is

Carrying amount $59,000

Purchased 1/1/20X5 for $35,000

79) A loss on disposal of an asset is reported in the financial statements

A) Choice A B) Choice B C) Choice C D) Choice D

The company's depletion expense for 20X5 is:

90) Depletion is recorded for which of the following?

92) The amortization of finite life intangibles is recorded as:

96) Which of the following is an example of an intangible with an indefinite life?

100) All the following are examples of intangible assets except:

104) Land improvements are not a depreciable asset.

106) Operating expenditures are expensed as incurred.

122) An impairment loss is credited to accumulated depreciation.

142) Impairment losses on goodwill are never reversed.

147) When an asset is retired, a gain or loss must be recorded.

150) Depreciation expense is a non-cash expense that has no effect on cash.

156) All research costs should be capitalized when incurred.

157) If a trademark is developed internally, it cannot be recognized as an intangible asset on the

160) Research costs are an example of intangible assets.

162) The following information is available for C Co. and P Co:

Plant: $300,000 × $220,000 / ($220,000 + $110,000) = $200,000

Allocated Lump-Sum Cost

Land [$160,000 × ($22,500 / $90,000)] 40,000

A. What was the depreciation expense amount per month?

Answer: Please review the following information:

rate = 1/5 × 1.5 = 30%

Item December 31, 20X1 December 31, 20X2

Respond to each of the following (disregard income taxes):

Answer: Please review the following information:

* straight line rate: 1/4 = 0.25

Cost when acquired $26,000

Accumulated depreciation at the end of year 5 (assume straight-line depreciation) $12,000

Case Event Depreciation Expense

Method Estimated Useful Life Depreciation Accumulated

Answer: Please review the following information:

Method Estimated Useful Life Depreciation Accumulated

$208,000 × 1/20 × 150% = $15,600

Year Depreciation expense Book Value

2. $85,000 - 34,000 - 20,400 - 12,240 = 18,360

Depreciation Expense 6,000

($400,000 - 40,000)/20 years = $18,000/year

3. Book value = $400,000 - 24,000 accumulated depreciation = $376,000

2. Which of the two methods in part 1 would result in:

Declining balance method

Straight-line: ($34,000 - 4,000)/4 years = $7,500

$500,000 - $48,000 amortization/year × 2 years = $404,000 remaining amortizable value $404,000/6 ye