Question Details

CHAPTER 10 PART 6 PLANT ASSETS, NATURAL RESOURCES, AND INTANGIBLE ASSETS


10 - 12 Test Bank for Accounting Principles, Eighth Edition
79. The book value of an asset is equal to the
a. asset's market value less its historical cost.
b. blue book value relied on by secondary markets.
c. replacement cost of the asset.
d. asset's cost less accumulated depreciation.
80. Accountants do not attempt to measure the change in a plant asset's market value during
ownership because
a. the assets are not held for resale.
b. plant assets cannot be sold.
c. losses would have to be recognized.
d. it is management's responsibility to determine fair values.
81. Depreciation is a process of
a. asset devaluation.
b. cost accumulation.
c. cost allocation.
d. asset valuation.
82. Recording depreciation each period is necessary in accordance with the
a. going concern principle.
b. cost principle.
c. matching principle.
d. asset valuation principle.
83. In computing depreciation, salvage value is
a. the fair market value of a plant asset on the date of acquisition.
b. subtracted from accumulated depreciation to determine the plant asset's depreciable
cost.
c. an estimate of a plant asset's value at the end of its useful life.
d. ignored in all the depreciation methods.
84. When estimating the useful life of an asset, accountants do not consider
a. the cost to replace the asset at the end of its useful life.
b. obsolescence factors.
c. expected repairs and maintenance.
d. the intended use of the asset.
85. Useful life is expressed in terms of use expected from the asset under the
a. declining-balance method.
b. straight-line method.
c. units-of-activity method.
d. none of these.
86. Equipment was purchased for $75,000. Freight charges amounted to $3,500 and there
was a cost of $10,000 for building a foundation and installing the equipment. It is
estimated that the equipment will have a $15,000 salvage value at the end of its 5-year
useful life. Depreciation expense each year using the straight-line method will be
a. $17,700.
b. $14,700.
c. $12,300.
d. $12,000.
Plant Assets, Natural Resources, and Intangible Assets 10 - 13
87. A truck was purchased for $120,000 and it was estimated to have a $24,000 salvage
value at the end of its useful life. Monthly depreciation expense of $2,000 was recorded
using the straight-line method. The annual depreciation rate is
a. 20%.
b. 2%.
c. 8%.
d. 25%.
88. A company purchased factory equipment on April 1, 2008 for $64,000. It is estimated that
the equipment will have an $8,000 salvage value at the end of its 10-year useful life.
Using the straight-line method of depreciation, the amount to be recorded as depreciation
expense at December 31, 2008 is
a. $6,400.
b. $5,600.
c. $4,200.
d. $4,800.
89. A company purchased office equipment for $40,000 and estimated a salvage value of
$8,000 at the end of its 5-year useful life. The constant percentage to be applied against
book value each year if the double-declining-balance method is used is
a. 20%.
b. 25%.
c. 40%.
d. 4%.
90. The declining-balance method of depreciation produces
a. a decreasing depreciation expense each period.
b. an increasing depreciation expense each period.
c. a declining percentage rate each period.
d. a constant amount of depreciation expense each period.
91. A company purchased factory equipment for $250,000. It is estimated that the equipment
will have a $25,000 salvage value at the end of its estimated 5-year useful life. If the
company uses the double-declining-balance method of depreciation, the amount of annual
depreciation recorded for the second year after purchase would be
a. $100,000.
b. $60,000.
c. $90,000.
d. $43,200.
92. The units-of-activity method is generally not suitable for
a. airplanes.
b. buildings.
c. delivery equipment.
d. factory machinery.
93. A plant asset cost $144,000 and is estimated to have an $18,000 salvage value at the end
of its 8-year useful life. The annual depreciation expense recorded for the third year using
the double-declining-balance method would be
a. $12,060.
b. $20,250.
c. $17,718.
d. $13,785.
10 - 14 Test Bank for Accounting Principles, Eighth Edition
94. A factory machine was purchased for $75,000 on January 1, 2008. It was estimated that it
would have a $15,000 salvage value at the end of its 5-year useful life. It was also
estimated that the machine would be run 40,000 hours in the 5 years. The company ran
the machine for 4,000 actual hours in 2008. If the company uses the units-of-activity
method of depreciation, the amount of depreciation expense for 2008 would be
a. $7,500.
b. $12,000.
c. $15,000.
d. $6,000.
95. The Modified Accelerated Cost Recovery System (MACRS) is a depreciation method
which
a. is used for tax purposes.
b. must be used for financial statement purposes.
c. is required by the SEC.
d. expenses an asset over a single year because capital acquisitions must be expensed
in the year purchased.
96. Which of the following methods of computing depreciation is production based?
a. Straight-line
b. Declining-balance
c. Units-of-activity
d. None of these
97. Management should select the depreciation method that
a. is easiest to apply.
b. best measures the plant asset's market value over its useful life.
c. best measures the plant asset's contribution to revenue over its useful life.
d. has been used most often in the past by the company.
98. The depreciation method that applies a constant percentage to depreciable cost in
calculating depreciation is
a. straight-line.
b. units-of-activity.
c. declining-balance.
d. none of these.
Use the following information for questions 99-100.
On October 1, 2008, Dole Company places a new asset into service. The cost of the asset is
$60,000 with an estimated 5-year life and $15,000 salvage value at the end of its useful life.
99. What is the depreciation expense for 2008 if Dole Company uses the straight-line method
of depreciation?
a. $2,250
b. $12,000
c. $3,000
d. $6,000
Plant Assets, Natural Resources, and Intangible Assets 10 - 15
100. What is the book value of the plant asset on the December 31, 2008, balance sheet
assuming that Dole Company uses the double-declining-balance method of depreciation?
a. $39,000
b. $45,000
c. $54,000
d. $57,000